Three big questions in the week ahead.
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Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the host and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. All right. It is Wednesday, July 2nd, 2025.

Pretty interesting session yesterday. We'll get to that in a moment. Me in the studio here with head of commodity strategy, Ole Henson. And this will be my swan song until the other side of my three-week summer holiday. So the Saxo Market Call will be offline for three weeks as well. Hope you enjoy today's. We put together a few slides for you, some good must-listens and reads.

And you can see the slide deck by following the link in the podcast description. So just briefly a headline on the equity market session in the U.S. yesterday where we saw considerable divergence. Look at the NASDAQ 100 future on slide two on the right. Pretty ugly day. We saw some risk off. A lot of it in the sort of concentrated in the obviously the big tech names has to be mag seven going down if you see the market down like this.

They weren't the worst decliners, but they were among the negative decliners on the day and helped to drag the overall NASDAQ 100 lower. The S&P was closer to sort of flat on the session. But look at that Russell 2000, big divergence, just smashing well above the 200-day moving average, specifically yesterday on a day when the rest of the market was doing poorly. Do I have a good narrative for why this happened? No, I do not. But I think these sort of internals –

Getting scrambled here, sort of maybe added to the list of something fishy or something weird is going on underneath the surface of this market. I mentioned a few things yesterday as well. The narrowness of this new top in the market as a major sign of concern, etc. So, yeah.

What are we looking forward here to? I think there's three issues on our agenda, at least on my agenda, Ola, and on the macro side, and all of these U.S.-related, but geopolitical as well. So first of all, we have the U.S. nonfarm payrolls change that is up tomorrow with the Friday markets being closed in the U.S. for July the 4th holiday. The expectations are around $100K or slightly better on Bloomberg consensus today.

What are the reaction functions? I'm not entirely sure. I think I'm a bit more confident in a couple of scenarios than a couple of other scenarios. But let's call it 80K plus 80K to maybe plus 150K, of course, always depending on the mix of revisions and whether that unemployment rate goes up 0.1% to 4.3% as expected. That's sort of in line. And I'm not sure the market is sort of left to its own devices, maybe having to

bit of dollar strength. Sorry, dollar weakness and seeing a little bit of dollar strength. I'm not sure. We saw a bit of dollar strength yesterday on the yields backing up with Powell being a bit firm on the status of the economy. And on the JOLTS job survey, crappy survey, we say that every time. It's from May. I think it was an 18% or a 20% response rate. But it's not what the market wants to hear. It didn't fit the dollar bearish narrative, which is very much crowded and consensus now. So we're

That has to be the concern scenario for the dollar bears here would be a very strong U.S. jobs report. And I'm not even sure an in-line one would be very inspiring for dollar bears. I think for dollar bears to get into gear here,

We need to see sub 50K, arguably even a zero or below. I think that would set off dollar-yen to the downside. You would expect treasury yields to come off as well. And then I think the question is, what is the risk sentiment treatment of such a development? Is it, oh, no, bad news is bad news, U.S. recession risks, and we see risk sentiment sell off, in which case dollar-yen probably even is the main instrument there, and even yen, more broadly speaking, could do well.

Or is the sentiment, hooray, hooray, more Fed cuts sooner? We know they're coming next year anyway, but this gets them sooner, and that's good for risk sentiment. So bad news is good news. I suspect a little bit more towards the bad news. Bad news if we get this terrible print. I have no idea if we do get a terrible print. Also a dodgy quality that NFPs anyway, but the market nonetheless reacts to it.

And then, as I mentioned, on the strong side, so above 150K, maybe even above 200K just does not fit the plot at all. I would expect to see some decent dollar consolidation. As you would also expect U.S. Treasury yields, particularly at the longer end of the curve, to rise. I don't know what you would think of sort of near term. This is always, you know, taking pot shots or guesses at what could happen. But if you think there's any strong trend.

reactivity Ola in the gold market to to these different outcomes if you've thought through those scenarios well so far we've seen a market that's uh continues to consolidate I think we're into the 12th week now where gold has uh has been moving sideways um it looks like it's still a buy on dip market we saw that earlier this week when we we bounced off key support um

And clearly the market is looking for a fresh trigger. And the question is really whether if we do get another strong job number, whether that's enough to tip it further over the edge towards profit-taking. It seems like there's quite a few doubts about that, simply because we have this great, big, beautiful bill that's coming through and the market is somewhat concerned about its fiscal debt impact. So I think that's underlying, sitting underneath the market as supports.

So if we do get a weak number, that could be the trigger guiding the market towards further rate cuts. And I think that's really what the market needs right now to move higher. So we're still stuck in a bit of a wait-and-see mode here. All right. And so that was the one issue. The NFPs, I think that's critical. There's some near-term tactical implications there for where positioning is, how confident people are in the near term with the price action.

bear market, et cetera. And then we have the two other main issues, the one being the big, bad, beautiful, wonderful bill, which passed – a version of it passed the Senate finally by a single vote, although if it was tied, we could have had – or it must have been tied because it was a 51-50 vote. So it must have been – Yeah, the VP. VP Vance obviously casting the deciding vote there. But now it goes back to the House, and the House has had a chance to sort of stew on

how popular or unpopular some of what it already passed would be. So, of course, it passes. Not of course, because it's ridiculous, the process in the U.S. of making legislation. But the House makes its version of a bill. The Senate makes its version. And the 20 need to meet somewhere in between before it goes to the president for a signature. And it felt like after that bill left the House, there was a lot of backlash and some House members expressing regret about what they had done.

FT is even running a big piece about this could be a really bad news for Trump's legacy. It's the Medicaid cuts specifically. And then there are even some fiscal hawks that are saying it's just the overall deficit picture, which is even worse under the Senate bill. But the Medicaid cuts is a serious one, taking away coverage of the poorest Americans at the same time you're extending tax cuts. It's just not a good look when you're nominally somewhat of a populist country.

administration. And I think those Republicans possibly in a sort of purple districts, those with a lot of Democrats could see that they're not going to win their next election. So I obviously something probably gets passed eventually here, but how long does the house hold this out? What terms could be eroded? Could the fiscal impulse be a little bit less robust than expected? Don't know, but I think it's very interesting to watch. And we have to recall that the it's very finely balanced house. If three Republicans,

Democratic representatives hadn't died since the election. We would be at 220 to 215 on the balance. So we're talking about like two votes that could go the wrong way for the Republicans. Now with those three Democrats not there, it is an eight vote majority, which means you can lose up to, um,

Up to four. Four is exactly tied. So you can lose three votes and no more. That's not very many in a House legislative body of that size. Then finally, it's the trade deals yesterday getting a little bit spooked, I think, on Trump, mentioning that in one of these impromptu interviews that he didn't think it was likely that a trade deal could be reached by July 9th with Japan involved.

Clearly, I would infer from this that the negotiations, he is finding them frustrating and he's not liking the terms that they're putting up. But then saying he would slap 30 to 35 percent tariffs on Japan if there is nothing there and it would not extend the deadline, which counters what Besant has been saying, that these deadlines could be extended if negotiations are ongoing. So I think this is upping the pressure on something to happen, could up the focus on that July 9th date if Trump is as impatient as he seems to be here.

And how does Japan respond? Again, they have an election on the 20th, this upper house election, where I think they're playing a bit to the domestic agenda, which makes these, you know, being too much of a stickler on terms potentially dangerous with the White House. All right, rolling forward in the slide deck. Starting in, just want to mention that once again, it tested really key support there.

I think we could see fireworks in this currency pair at some point, especially if we get negative risk sentiment. The Japanese yen potentially doing quite well there as we would see carry trades reversing. And just also one of the more interesting technical pairs of late, and I've talked about as well, the net international investment position is strongly favoring Japan over the UK by incredible extremes.

With the added little wild card, there is the Japanese yen key in this sort of longer term situation or status of Japan or how the Trump administration views Japan in terms of where we finally land on this trade deal. So I feel like in the big picture, this is a very elevated currency pair, but technically just not there yet for a sort of a bearish hook on collapsing back through that key support level.

You can see the FX trends there on slide four. Don't need to mention much about that. Pretty much status quo, Euro and Swiss standing tall above the rest. Really about their strength as much as it is about...

and about dollar weakness, but a lot of the other currencies just sitting there right in between. Not much to go on because I think people are concerned about the global growth impulse, which is important for the likes of the commodity currencies, etc. In terms of new trending signals, Euro-Swiss trying to develop a negative trend again, but it's been stuck in a range for a long time, needs to do more there to signal anything. Dollar-Yen as well, flipping negative, but backing up really badly off of the lows, and I think it's definitely going to be the U.S. data that determines whether something becomes of that trend.

new attempt at a downtrend. And then a good cue to you, we have gold in danger, not in danger, but looking like, at least according to my very simplistic trend measure here, trying to flip to a back to a positive trend. I think it was more about in the technical case for gold that versus the dollar as well, specifically that it found key support that we talked about yesterday. So that key support is in place, but we don't exactly have a notion that we're set to rally again. And you've got some perspectives in the longterm, um,

where it was performed in this first half of the year on slide five. Yeah, absolutely. And first of all, gold is interesting because I put out a table on X the other day just highlighting the gold performance this first half. And yeah, everyone is focusing on the dollar gold performance, which was very, very strong. But if you look at...

investors in Europe, the returns were closer to somewhere in the 10 to 15% bracket simply because quite a bit of the gold strength this year has been dollar weakness. So that's worth taking into account. But also note that obviously right now, just from even though things have settled down a little bit, I note here on slide 4, John, that you are using average true range

bottom right corner. If you look at something like silver, it's 81 cents. So basically, in theory, if you are entering a position long or short, that is the distance you should have in kind of stop loss on your position in order to avoid some of the near-term noise in the market. Yeah, specifically, the ATR I use is a 50-day exponential moving average, a bit longer than many people use, but I just like to get some kind of perspective in there beyond

just a couple weeks of ATR. But that's 60 bucks on gold. I mean, that's a lot of risk you're taking in terms of range. So one has to modulate your position size accordingly. Exactly, exactly. But yeah, as you mentioned, John, it's been an interesting first half, to say the least. A slight fight, just finishing off the half, just showing how the

how the performance has played out. We ended up a bit more than 5% on the Bloomberg Commodity Total Return Index. But it's also quite clear to see that this gain has been driven by just literally four contracts. I'll just come back to platinum, but copper, gold, silver and cattle contracts

has been the main drivers of this gain. And these four futures contracts, their constituency or their share of the Bloomberg index at the latest rebalancing back in January was around 27%. Now that weight has risen to 33%.

because these funds do only, the index only rebalance once a year. So obviously, as some of these markets gain, their share of the overall pot becomes big as well. So heading into the second half, these four contracts, especially gold, silver and copper, but also take cattle into account, they account for one third of the index. So it really highlights the importance of the continued performance of these high rises in the second half, whether that can be maintained. So just keep an eye on that.

Also, just the platinum, it was close. As we all know, it had a very, very strong end of, well, basically June was phenomenal. But we are up close to 50% in the first half. Platinum is not a part of the Bloomberg Commodity Index, so it's not being calculated into these performances. It's simply at this stage a too small a metal. It's relative to gold and silver, which is the other precious metals.

and there's not any likelihood that it will join anytime soon. Another one that was interesting last year was Koko. Koko surged higher last year, but Koko again was not part of the index because of its size, but it may actually return when we get to 2026. So that does obviously skew some of the performances a little bit, but as you can see, it's all about metals. And on slide six, we're just looking a little bit further ahead, and I think we may have used this one before.

But we see some bullish trends emerging and interestingly enough, quite a few of them start with the letter D. And some of them are economic growth dependent, but quite a few of them are not. And we can just take a look at the deglobalization, which basically means you

you are moving production closer to home, that's not necessarily going to be more cheaper. And it's certainly going to require a lot of raw materials to get through that. Defense spending we all know about. Decarbonization is the whole story about AI, renewable data centers, cooling. So basically a big increase in demand for power that requires natural gas, it requires metals.

And the de-dollarization, which is an ongoing supportive story for investment metals, especially gold. And again, I don't see any reason why that's going to go away. And then we have something like demographics as well. We still have a lot of people around the world moving away from...

from the countryside to the cities, and that is commodity intensive because suddenly you need a washing machine or at least you need some more electrical appliances, and that drives demand. But also we are growing...

generation, unfortunately I say one of them, this region has turned a very sharp corner, that will retire in the coming decades. And I suppose we can call ourselves the lucky generation. We've gone through a work life with rising equity markets, rising price of housing and so on, and pension accounts that looks...

fairly okay. And that basically means there's a lot of money to be spent, but not too much production to be made. So the production, to meet that extra demand from a growing retiring population, obviously adds pressure on fewer workers supporting this rising group of retirees. We need more robots and automation. Well, we need that, and that's why robots and automation projects

probably a decade ago would have been something that people would have frowned upon, but now it's probably increasingly a necessity in order to maintain growth in the coming years as demographics clearly points towards many places that there's not going to be enough hands to lift the work. So,

That's basically where we are. The last major bull run we had, I think we all remember, that started in around 1999. China was part of the WTO. And the next 10 years, or at least up to the great financial crisis, we had a phenomenal run-up in commodities. And we had a weak dollar during that phase as well. We had a weak dollar. What do we have now? We have a weak dollar again, which potentially could weaken even further. And we have some of these dynamics, which I'd like to unfold the next...

no matter how the economic outlook otherwise progress. And into all this, we have basically a lot of some of these...

these raw materials, especially the metal side, we've seen underinvestment now for a period of time. And these are very long cycle projects that takes half decades to come up to speed. And that's really the underlying reason why we maintain a constructive and positive outlook for commodities.

Just looking in the coming months, because this is a little bit more of a longer scope, the coming months, I think it looks like it's going to be more of the same. The metal space is what we prefer. The energy sector, not so much. I love gas, but I think that is still a patience game. Crude oil is ample supplied, so I think the risk of lower price there is significant.

does exist into the coming months, especially into the autumn months. And the agricultural space for now, we really have to see a sharp deterioration in the crop conditions, growing conditions, for that not to deliver another bumper crop, which should keep prices somewhat under pressure. So I think it's all about the metal space, again, both precious and industrial. That's where I will be focusing my interest.

All right. Thanks for the overview, Ole. And luckily for us on the agricultural front, the heat wave is hitting us here in Denmark. We got all of about 24 hours of it, though, and moving on to cooler temperatures tomorrow, whereas a lot of Europe has been baking in some outrageous heat.

All right. You can roll forward to slide seven, the macro calendar for the rest of today, which is rapidly running out. We're late getting started today. It's in the afternoon, early afternoon here in Denmark. Again, Thursday with the U.S. jobs report because of the Friday holiday in the U.S. And I want to get to a couple of what I think are very interesting reads that I would like for you to have a look at if you're interested, of course. And yeah, let's take our pick. I think, yeah,

I'll run through the ones on the left there. I'll slide it pretty quickly. There's an interesting attempt by the AEI, American Economic Institute or whatever, trying to measure the regime shift in the U.S. dollar.

and how it's behaving relative to the past. And they have measured some differences, especially relative to what treasuries yields are doing or risk sentiment is doing rather. And this is very interesting because, you know, it means we're flying in a new sort of territory.

But it also means that we get some crazy regime shifts away from that when markets calm down a bit. So it's like something that's there when it's there, but then when the stressor recedes, then the correlations switch back to something else. So it's a pretty confusing environment, I think, worth delving into that piece if you're a currency trader. And then, again, there's so much anecdotal stuff on AI and its impacts that it's really hard to –

get a strong grip of what's going on on things. But a quite maybe leftist is one way to put it, but in a very anti-AI substacker, that next link, blood in the machine. But some very interesting responses from his polling of how AI is impacting people's jobs or whether it's stealing them. Especially interesting, I found one, and I'm assuming these are coming from

Honest to goodness employees of these major companies was a mention from CrowdStrike about low morale, impacting morale because people were seeing jobs taken away or activities taken away by AI that they thought was inferior. As well, engineers in coding, seeing how young coders are coming up and making bad code and that the knock-on effects of that were quite negative over time as this –

A bad code gets rolled into new versions and updates and nobody knows what's going on. So very interesting. If this is a theme that develops that there, of course, the use of this technology needs to be ring fenced somehow, or if this is being seen elsewhere, obviously I rather negative take on what AI is doing for us. And then this is just highlighting. This is the yearly, the next one, the energy Institute. This used to be BP that put this out every year, the statistical review of world energy and,

it's just a trove of data on what's going on and where different energy sources are growing and consumption is growing mostly in China and mostly coal. Um, but, uh, something that's just a fabulous, uh, publication with a very long history. And then Matt Stoller, who I like to follow as somebody who is, um,

You could call him leftist. I would call him somebody who wants to use government as a referee in the economy. He's antitrust. Very strong voice in any case. He wrote a very incredible book called Goliath about the history of antitrust. Very interesting economic history, especially U.S.-focused history.

Good voice out there. Just, I mean, whether you believe what he's saying or not, I think just an interesting counter voice or you're asking the question, is this some kind of watershed moment for left populism? And you have to wonder where the Democratic Party is going in its walk in the desert here after the Biden defeat.

And then I thought a very provocative substack, the bottom one, asking Europe's political leadership what it is thinking and its blind support of Putin, just asking some really hard questions that I agree is, where does this go? What does the other side of this look like? Does anybody know? Is anybody rationally thinking about this situation? Very tough reading, but I think very thought-provoking. And then the best one I'm saving for last, and that is on the right. There's an epic thread on X from this fellow named Craig Shapiro, who

I've added him to my follow list. This was passed on to me by my former boss. And this is just to me a tour de force of what is shaping up here from the Trump administration. So you can see the first couple of parts of this thread at the top. So the Trump-Bessant team is preparing a yield curve control regime without saying the words.

No coordination, no inflation anchor, just bill issuance plus Fed pressure plus threats to producers. So bill issuance, that's the bit about Scott Besson saying he doesn't want to issue more bills at the long end of the curve in this regime because yields are too high. The very policy he was criticizing when Yellen was doing the same thing. And then Fed pressure, of course, is about making sure that the next Fed chair is as dovish as possible and keeps the policy rate below inflation.

And then threats to producers is interesting because this is something we've seen Trump doing on and off when the inflation numbers get embarrassing. You see Trump out saying, hey, your profit margins are too high, criticizing the Walmarts, et cetera, of the world.

And he continues. So the strategy under consideration, you starve the long end of treasury supply, you flood the short end with T-bills, you pressure the Fed to cut, you yell at companies not to raise prices. That's effectively repeating what we just said there. No spending, no hikes, just optics. It worked in 1971. I think it's a very interesting parallel he draws up there until it didn't. What he's referring to is when inflation was breaking out in the U.S. in 1971 and you had President Nixon, President

pressuring the Fed chair at the time, Arthur Burns, and you had these wage, even wage and price controls that they were trying to implement. Can you believe it? From the US government, the US Treasury was interfering to that degree in the economy. And then it goes on further down. It's a yield suppression regime without a compass where coercion replaces credibility and politics replaces policy. No fiscal discipline, no credible inflation plan, just public intimidation of price setters.

i love the language here it all echoes 1971 nixon ended the gold standard imposed wage and price freezes tried to suppress inflation by decree and it worked for 18 months then came the stagflation and so now the fed faces a trap it's got to cut rates under pressure its credibility risks collapsing if it resists it's blamed for any slowdown that comes the curve steepens markets cheer but underneath fragility builds

What happens if it works? Curve bulls deepens, asset prices rip, inflation appears contained, and then a shock hits. Oil, geopolitics, supply chain, and inflation explodes into a deliberately mispriced market. That's the risk. Just a wonderful thread there. Highly recommended. And just think about what it means for portfolios and risks to portfolios. This is necessarily going to be the scenario that obtains, but certainly worth a few thoughts there.

As we head into this new regime that we're seeing take shape before us. All right, that's going to do it for me until the other side of my summer holidays. I'm driving down to Tuscany, fortunately going to miss the terrible heat wave they had down there and would hopefully be enjoying that. I'm sure I will be. I hope you get to your holidays as well. And if so, have a wonderful holiday. Stay very careful out there. And let's see where markets are when I return with the next Saxo Market Call.