Trump going soft on tariffs versus the direction of travel
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Okay, it is Wednesday, 23rd of April 2025, and we have another day. Yesterday for the grifters, those on Trump's inner circle, his friends and family, and the CEO friends and family of Besant who were in on the closed-door meeting, I think it was hosted by J.P. Morgan, in which Besant discussed that these China tariffs that later emerged in a Bloomberg article, I believe it was, that

These China tariffs would certainly come down, even if it would take a bit of time to do the negotiations. We saw before that news broke that risk appetite was very much on the bid, the crypto world really aflame.

I would suspect there might be some action and front-running there as well, but certainly in the U.S. future is boosted by this. Then after the fact, boosted more, and then boosted even more, Mr. Hansen, by the after-hours Trump weighing in on the A. I'm not going to fire Trump. Not fire Trump. I wish he would fire Trump. He's not going to fire Powell, and he is not. And these China tariffs will definitely come down. What came down as well is...

those promises or those fears was the gold price. That was really the big mover last couple of sessions. $3,500 and we traded sub $3,300. Yeah, that was a bit of a blowout top. We saw there on yesterday morning on slide six, just showing that bar where we just literally just kissed $3,500. It was our...

and raised target, which we lifted just a week ago, just before Easter. And within those seven days, we managed to rally another 200 bucks, hitting 3,500.

But we were somewhat lukewarm about that latest move, John, yesterday. Basically, I think my main reason for not lifting target once again, but saying, well, hang on, maybe... Beyond the 3,500. Yeah, exactly, beyond 3,500. Maybe that we are just due for some consolation. Simply from the fact that

Trump would not sack – in the belief that Trump would not sack Powell for two reasons. First of all, someone clearly tells him this is going to cause mayhem across markets. We don't want this with all the troubles we have right now. And secondly, nice to keep him on board and you have a scapegoat. If he doesn't cut rates, then obviously we can always blame him later on when the economy starts to weaken. So –

So these were the main reason for the rally up and also the main reason for it to come down again. So with this very strong rally we had, there's been a lot of fear missing out, there's been a lot of momentum. These two segments are now being reduced or buying from these are now being reversed or at least closed down.

But I don't think it really changed the overall, the long-term view on gold. So in the short term, the question is really what kind of setback we can expect. So far today, the 38.2% retachment of the latest run-up

has been met. So that's really support for now. We bounced from that 32 to 92 level, but potentially we could drop a bit further. But I think... 31.65 area, that's the bigger retracement lower and actually coincides conveniently enough with the prior big high. So that would be the massive level. Exactly. So above that level, then that's not really... I don't think there's going to be any major concerns from long-term holders.

And just as per usual, just watch silver as well because we've seen copper actually raising higher in New York. The premium over London has widened back out to 15% as we're trying to preempt or trying to gauge what kind of tariffs level that will be applied on copper.

copper imports, that's also underpinning silver. And historically, when the gold-silver ratio moves above 100, it has rarely stayed there for that long. Last time it did was back in 2020 during the pandemic. Gold was a safe haven. Silver was being knocked off its feet because of the recession risks.

and we briefly hit that 120 level plus on the ratio. But then in the following months, it collapsed all the way down to 70. So just watch out for that gold-silver ratio, potentially signaling some renewed strength in some of the less precious metals. Yeah, thanks, Ole. And you really have to understand how should we try to position what's going on here. And I think the way I try to position it is, as I show on slide two,

And today's slide deck, and you can find the slides, by the way, follow the link in the podcast episode description. You know, is this a big thought, a tariff threat, or do we need to keep our eye on direction of travel? And I think you'll know us here, we keep our eye on the direction of travel. Of course, this was an important break in the clouds, and we were at very high levels of pessimism. You know, all the usual contrarian lights were flashing today.

So that the active crowd, pretty much everybody that was going to sell among active investors had sold. And if we were going to get further selling, which would have been possible, it would have been because the tariff threat remained and we actually moved into the sort of implications of what was becoming a U.S.-China mutual embargo situation.

and it would have resulted in more or less Armageddon in the near term. And the market was not priced for Armageddon. And certainly if passive is moved to start selling and not allocating their inflows to the equity market, that we could have seen lower levels now rather than potentially later. So how do we position it? I think the direction of travel is important. So could this bounce back extend? Let's keep in mind, look at Europe. I mean, it's already extended quite a ways. We have...

you know, export sensitive European stocks rallying quite strongly. The DAX was down over 20%, over 21%. It's now only down something like six and a half percent from the top. I mean, just a remarkable bounce back here, but there, you know, this is inflicting real damage, these tariff threats. We've already front run a lot of demand in a lot of places, you know, scrambling to get shipments in and to get things done before the tariff hammer falls. That was always going to lead to some, you know,

you know, some bit of a hangover on the other side of this. And as Besant himself said in this meeting, um, these, these negotiations are going to take some time. Uh, well, that time means it's a decisions and investments and activity is going to be delayed until the lay of the land is known. So, um,

It doesn't mean that, you know, it could mean that on the other side of this, we see some pretty low levels of tariffs for the non-China element of what's going on here, non-U.S.-China element of what's going on here. But in the meantime, some damage that could be done that leads to a slowdown. And then in terms of the U.S.-China direction of travel itself, yes, of course, it's important to prevent this total embargo that would have just unleashed complete chaos. And you wonder,

I said at the top of the podcast, talking about grift in the Trump administration, which I suspect there is some good deal of. He could have also, the degree to which or the level of his language, the quality of his language that he came out with yesterday was after a meeting with Walmart and Target and other executives that probably kind of spelled out

in as friendly a way as they could, what the implications of maintaining these tariffs at current levels would have been. I'm sure he'd heard it elsewhere, but maybe respecting the getting it straight from the horse's mouth and what it means for a lot of his voters that do shop at Walmart and would have seen the utter chaos that would be the case if we had 145% tariffs still in place.

Other news, let's get on away from the tariff focus of Tesla. Of course, bouncing back strongly on a set of horrific results because the market was bracing itself for horrific results, and they cheered the whole network of risk rebound and Tesla up more than 5% despite the 71% drop in profits and all the other negative data points from

That earnings report, as Elon Musk is set to exit the doge more or less at the end of May and go back to concentrating on the company. So once again, Tesla investors buoyed up there. This is not a car company. It's an AI company and a robot company and a robo-taxi autonomous self-driving company. And that's what its future hopes are based on. Let's see how long that bounces.

And then the effect in the other markets. So while gold was crushed quite consistently lower, we have the dollar market.

going the opposite way, which made sense. It was the opposite direction of travel from all of this, putting in quite a rally. But then a lot of that rally has been erased. And I think that's quite an interesting signal relative to the risk on, risk appetite that's still sticking. And that's all about that direction of travel. The US still losing its exceptionalism on a currency front. And I would say that at some point, that dollar direction of travel and US markets rebounding

is a bit incompatible. But let's see if that's in relative performance or in absolute performance.

Rolling forward in the slide deck, slide three, just a huge list of companies that are reporting, and we're getting into some of the big heavy hitters. We have Alphabet coming up on Thursday, where the focus, I think, very interesting there because of what I'm seeing in my own activities online, and that is that I'm using ChatGPT and Perplexity and things a lot more than I'm using Google for many things, which has to mean somewhere in the system,

Google is serving up fewer ads, I would think, if there are others out there that are doing the same. In the meantime, today we have a lot of names out. IBM is an interesting one and really pumped up by sort of a change in attitude towards this company. There's a cloud angle there. There's an AI angle there.

Their actual performance has been less about revenue. They sort of stabilized the revenue and managed to start growing slowly overall at the top line, which is quite an achievement after years and years of sort of grinding declines because their legacy business was not able to find new sources of revenue. But it's been more about a margin expansion approach.

And their net income is expected to grow 12%, 15%, 16% even percent on a continued basis in the coming couple of years. But just looking at that top line growth and how much the net income has expanded, I wonder if the evaluation has extended too high unless we get some great new news out of the cloud slash AI slash other hardware business linked to data centers, et cetera. So, yeah.

I'm putting myself on a slightly skeptical watch on IBM, to say the least, without being, of course, any major expert in their operations. Again, Alphabet up Thursday, so up tomorrow, and Intel as well. And they just announced they're cutting 20% of their staff. Might be something that the market celebrates because, again, looking at margins and so on being the important thing there.

FX rolling forward, slide four, you can see the impact on gold there. So still posting an impressive 6.8 reading on the positive trend. I'm more miles away from the 200-day moving average, for example, which is down to 27.20, if you can believe that, on gold. But a huge momentum shift with this sell-off.

And interesting, again, to see where it finds support. Very similar action in Swiss franc. I think you'll find a lot of correlation between the Swiss franc and gold. So being hit on the momentum front and the dollar hit on the opposite side, it did rally. So you only see that showing up, however, in the momentum change. And again, because we saw a lot of that rally fading, it's not really leading anywhere short term, this dollar. And so we see something like Aussie

versus the US dollar picking up and teasing the top of the range here, even as Eurodollar and some of the safety haven currencies versus the dollar suffered a bigger setback. Just want to point out on slide five, dollar-yen is just at an absolutely massive technical juncture, 140. And not only does it nice sort of head and shoulders type neckline formation, you have the US and Japan trade negotiations ongoing, really critical there.

I do think that a stronger Japanese yen will be part of the deal for whatever trade deal emerges. And a lot of the Japanese technicians in the market use the Ichimoku analysis framework, technical analysis framework. And if you look at the weekly on the Ichimoku, we have seen the so-called lagging span, this green line you see on the chart that I've kind of made bolder.

has crossed both through the cloud and through the whole price action. So that crossing through the cloud is key there for sort of a confirmation of a bearish signal. So while this could back up, obviously, in the short term, I think the direction of travel, the trend established, and the technicals lining up for some very interesting action. Your classic sort of height of head and shoulders trend

for target to the downside would be something like 120. That sounds like a bit, bit big to chew off now, but let's focus on one 30 next. If we get a solid one 40 break, the trick here is again, how long is this a risk on move going to extend, uh, for this market? And we had, uh, oldest, uh, gold and silver gold, gold to silver ratio chart there on slide six and, uh, sort of springing back in line with a lot of other things with, uh,

easing tariff fears, you get a bounce back in crude oil. So we're at a local high here in crude oil. What's your take on this energy, key source of energy? Well, first of all, obviously, that this massive drop we had before and after Liberation Day has

removed quite a lot of speculative froth in the market, leaving it more exposed to any incoming news. And what we're seeing right now is clearly that it's part of the recovery that we're seeing across markets. But actually, if we look at the spread in the futures market between

prompt, so the first month's contract and further out. We're seeing obviously quite a bit of a wonky shape curve right now on slide seven. But what we do notice is that the rally in the last week has really been led by the front, so basically meaning that the prompt bet right now is a dollar. So you pay a dollar higher, a dollar more for prompt delivery compared to waiting a month.

And that's actually the highest level since January. So while the market has been focused and transfixed on the words about recession and with that slowing demand, then the actual fiscal market is still telling us a story about demand. So something's got to give. And yes, we all know that the risk to the economy is still in demand.

ahead of us but it does indicate the market may just run a bit ahead of itself to the downside so watch that 68 level if we can break above that that's the old double bottom that we saw created over the last year then we're back into smoother territory I'd say around that 70 level all right

Looking at the calendar today, we did have the preliminary flash PMIs out of Europe this morning. The news there was very, very slightly positive news on manufacturing, but still pretty humdrum numbers below 50, 48 in the case of Germany. But it was the decline in the services PMI that was the surprise. So 46.8 for France, 48.8 for Germany. That was versus 50.9 expected and a slightly weaker one for the Eurozone as well.

We have those later for the U.S. For some reason, they don't get much play in the U.S., the private outfit that does these PMIs there. But we do have potentially – I've been hearing about Scott Bessendow speaking. I can't identify or pin down a time, but we do have IMF and G20 type of meetings going on here. And there's a hell of a lot of speculation around what Bessendow will do potentially to –

in attempts to strong arm longer U.S. yields lower. One of the reasons, again, to spin a more positive Japanese yen narrative, what could those options look like for U.S. Treasury Secretary Besant? There's talks of buybacks. I find the buyback argument somewhat odd because what do you have to do? You have to use money and it's really the Fed that is better able to print money. And if you were to buy back treasuries, it would be at the very long end, which are, you know,

not huge in supply and are largely being held by pension companies, et cetera, that need that duration. So I just don't quite get the buyback argument. I do get the QE argument, of course, from the Fed if it is you're trying to reduce the supply in the market. The more interesting one is this eliminating treasuries from the supplemental leverage ratio requirements for banks, which could allow banks to vastly expand their holdings of treasuries without penalties.

And that is a more interesting one. But supposedly the Fed has the mandate there on those rules, not the US Treasury. And that could be an interesting argument over who has authority to do that. I know Besant has said himself that he thinks the Treasury could weigh in there or set the policy there. Something to watch. My conviction is, as I've mentioned on the podcast before, that US Treasury yields simply cannot go higher at the long end of the curve.

significantly so. So beyond 5%, let's call it, on the 10-year without inspiring some sort of official response along the lines of buybacks, SLR, treasuries, the Fed getting involved, the Fed and the Treasury getting involved, any or all of the above to manage the long end because the U.S. cannot afford a long end of the yield curve that is running out of control.

We have a couple of items there on the calendar. Five-year auction later today from the U.S. Treasury. The BU East Bailey is out speaking. German IFO is up tomorrow. Not so interesting now potentially, but as the fiscal spending is unleashed in Germany, that could be one of those interesting ones to track.

The Canadian election up on Monday, and that brings me to the next screen, latest links. Some really interesting conversations of varying quality, but mostly very high quality, the ones I put on here on slide nine. I always like to listen to Carson Block. It's sort of more general commentary on the nature and structure of markets. Another good one, the appearance he put in there.

And then you have what I find a little bit too optimistic conversation, but still with some great points on the Capital Allocators podcast. That's the next one with James Aiken, a very sharp mind. Louis Vincent Gove, who is always a China apologist in my view. And Marco Papich, geopolitical analyst, all talking on together, which makes for a good conversation, although I think they're a little bit too much on the same page and maybe a little bit too close.

too Pollyannish about what is going on here and I think it would have been great to have Michael Every one of my favorite strategists in that conversation but he was not

And he's also been out, however, Michael Every reminding us, although we're seeing this so-called great thaw. It's not so-called. I just made up that phrase. We've seen a thaw in Trump's stance, which is the market is rightfully celebrating. The degree to which it should be celebrated is the question and the direction of travel ongoing is the key question here.

And he's reminding us that, look, you know, we have this step back on the headlines, but we also have ongoing negotiations. And we have things like the USTR, the US trade representative, introducing these port fees on Chinese vessels, suddenly having to pay one and a half million dollars for a single US port visit versus zero dollars, I would assume, before. So,

There is an ongoing direction of travel issue. It's about the speed of the travel in the direction of U.S.-China decoupling and U.S. challenging China's mercantilist model that has helped to get the U.S. structural national security position where it is in terms of economic, what Michael Every calls the economic grand macro strategy and economic statecraft.

All right. A lot to talk about there. But we also have a podcast, and this is a really good one. Very key points with Edward Chancellor and Russell Napier. Edward Chancellor wrote the book The Price of Time, an excellent read on the long-term implications of interest rates. And Russell Napier, a wonderful macro thinker. Two great financial market historians weighing in there, making a couple of key points. And I'll extract those points in coming podcasts. But basically –

Capital controls is one of these areas that Napier discusses, and I think he's a visionary on that front. We can get into that later. And on the dollar falling, the structure around the dollar falling, which is if Europe is going to expand fiscal and –

is looking at investing domestically. It has a heck of a lot of investment in the U.S. now and if it needs to expand its investment domestically, it needs to fund that with selling something else and that could be selling its U.S. holdings of assets which are quite considerable. Consider that. There's also a lot on the longer term case for gold even as we're seeing it correcting quite viciously at this point in time.

And then my attempted Canada election segue, just an interesting graphic there on slide nine, a tweet or a retweet from Santiago Capito or somebody else looking at the demographics of support in Canada. Very interesting on that front. All right. I think we're going to wrap it up for today. Thank you for joining and let's see where things stand and we'll be back next week with the next Saxon Market Call.