US bear market risks ratchet higher. EUR train has left the station.
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Hello and welcome to the Saxo Market Call. It is Friday, 7th of March, 2025. We have a market that is on its knees and really through that key support level we've talked about the 200-day moving average in the NASDAQ 100, which seems to have been a more reliable technical indicator than the one for the S&P 500, which is also broken by the way.

So we're below that, and we've even tested the 20,000 level, at least on the cash index yesterday. So you could say we've tipped over the edge. We've crossed the Rubicon. But, of course, let's see how this pans out. There's no technical indicator that we'll ever have 100% accuracy. I find the nature of the sell-off somewhat interesting in that we –

We saw tooth back and forth. It seems like a lot of the past sell-offs, like the one, the really dramatic one in late July into early August last year, there was a couple of seesawing days, but just most of it sort of gets over with really quickly. So like I think it was 17 days I noted down the total sell-off sequence back then. We're only into day 11 here. It feels like a lot of drama. We're only into day 11 of this sell-off sequence.

Let's see where it takes us. Maybe more important, some of the headlines coming out. And again, two days ago, we did the podcast talking about this unbelievable fiscal bazooka coming from Germany and the implications and the moves in the market.

To reiterate, the 10-year Bund in Germany is seeing the largest move on Wednesday since 1990. Really history in the making. It followed through even a bit more, another 10 basis points, I believe it was, or so yesterday. No, even more than that. And then it pulled back about 10 basis points from a high of 2.93%. So that high only 10 basis points away from the whole cycle high in yields. European yields in a totally different place from the U.S. Big boost to the euro, and I'll talk about that later.

Had the ECB yesterday. They did cut their guidance very cautious. They don't want to provide too much forward guidance. The market kind of neutral on what they're saying and keeping two basically further rate cuts in view for the rest of this year. It's almost exactly priced for that now.

a slight reduction from prior couple of days. ECB a bit bearish on growth. And I've been thinking about, Ola, you're in the studio with us, with me today. And yeah, so I mean, you have an ECB that's cutting rates, but at the same time, the long yields are tightening, viciously tightening monetary policy. And the kind of stimulus that we're talking about here is really a long game.

In terms of the German fiscal stimulus, it's income. It's going to take a while to get this squared away. They have to make a plan. You don't just start to – this isn't pandemic-style spending where you're dropping cash into people's wallets to run around and spend on consumption. So I wonder if the near-term risks – we're quite bullish on the outlook for global growth.

I'm sorry for European growth, but if it's backloaded a little bit, in the meantime, some of this tightening along into the curve could slow down the European economy. Maybe the markets are getting a little bit ahead of themselves. I don't know. It's just a consideration to think about the tightening effects of

at the long end of the yield curve. Yeah, because it's obviously also raising the cost of living. If you have mortgages or need to remortgage, then it's suddenly at quite a higher level than it was just a month or so ago.

This jump in 10-year yield, John, just reminds me how old I am because I was actually sitting in London in 1990. We have just basically entered a short position in the bond futures. We were looking for an economic slowdown. We're also hedging somewhat against some Danish mortgage bonds.

And then the wall came down and, oh boy, that position went from a short-term position to a long-term strategic position. I can't remember how long it took before we got out of it. But yeah, it's… At very different levels. At very different levels. 8%, 9% or something like that. Yeah, exactly. That's where we are today. But yeah, it's history in the making. So yeah, we will see an input to growth. But yes, as you say, it will take time and…

We'll see what kind of impact it will have on demand for raw materials. One thing that we note this week, and we can talk about it a little bit later, is that we're actually seeing the natural gas price in Europe fall out of bed. We are below 40 euros now, still high relatively to the US, but...

We've seen prices now drop 40% in the past month. That's obviously… A lot of weather-related, right? Some of that weather-related, some of that… Well, hopes, I believe. Some hopes for a peaceful solution in Ukraine, potentially opening up the pipelines once again, adding supplies to Europe. Okay. Okay.

So there we are with, I think, one of the stories, the proximate stories also leading specifically to yesterday's sell-off, as I note further down in the notes on slide two. Today's slide deck, you can find the link in the podcast description. We put out a set of podcast slides with nearly every podcast, at least with every podcast since I've started doing the podcast or hosting it again. Marvel Technologies spooking the AI hardware space with an outlook that was not...

seen as quite meeting the most optimistic estimates, and that stock was down nearly 20% yesterday. Interestingly, Broadcom was out after hours yesterday, and its shares are up 13%, so offsetting a little bit the negative mood, and we have seen futures up 100 points or so overnight here and coming into the European morning.

Also in yesterday's news, U.S. challenger job cuts. So 172,000 job cuts in February is the highest since July of 2020. And the cumulative for this year, those first two months of the year is, if I'm not mistaken from what I read, the worst since 2009. However, we saw the claims coming in sort of mean reverting back to where they came from. So that one week where we saw the 240 plus, some of it was maybe winter storm related, whatever.

that just mean reverted right back out. So we're kind of back to these jobless claims, not really showing anything until we get at least a couple of readings that are, that are elevated. Uh, and then there was an EU summit yesterday, the chief headline being, uh, that they're, you know, scratching around for ways to loosen up rules on fiscal spending for, uh, defense. All right. Uh,

No earnings up today. I just want to highlight we put a calendar in there on slide three for next week. I don't want to dwell on these. We'll talk about them next week as they roll in. Some prominent German names, Volkswagen and BMW and Daimler Truck reporting next week. Volkswagen first up on Tuesday. Interesting to see if they can continue their recovery after that stock reached a nadir. I think it was around 80 euros a share. You can see the chart there on slide three.

Oracle, a huge company, reporting on Monday. There's an AI angle to that as well, if they're talking about their investments in the space as well as whatever their results are.

And then Adobe as well on the AI angle in terms of the actual applications, also reporting next week on Wednesday. And one of these European defense stocks, perhaps one of the poster child stock of European defense, Rheinmetall, is reporting next Wednesday. What kind of plans? Hard to believe actually that they're seeing anything concrete from the government just yet. It's too early in the game, but there's obviously the stock is being priced for significant future contracts down the road.

And then we look on slide four, just recycling this chart once again because it's moved so much more. It's the spread of German versus U.S. 10-year yields. The red line almost all the way up to minus 140 basis points. For perspective, that is versus the minus 220 basis points that was the case at the end of the last year, a multi-year low there.

And what a reversal. That takes that yield spread to the tightest it has been since around mid-2023 when Eurodollar was trading at 112. So, you know,

Good luck with your buy the dip mentality. I think this train has left the station. Yes, we get an incredible jobs report and a change of the narrative and stocks turn around. And over the next week or so, we could get a consolidation. But this is a shift in the outlook. And I think this shift will stick. 112, I think, is an easy call for where this ends up in the near term. The question is, can we get the momentum heading to the

European fiscal plans pan out on the scale that is currently being anticipated. I think they will. But what's the timeframe for that? Is there some caution in Germany first? Do the Greens make themselves a pain before agreeing to anything that Matt wants to do with this infrastructure spending? Whatever the case is, of course, things can go the other way. But I think we're probably on the path to something like 150 to 120.

longer term and then john uh i think one thing as well that's really happened this week is that the danes uh crossing uh crossing the bridge to to malmo uh doing the shopping uh due to a very that's the uh that's the next city over in sweden for those who are not exactly so basically sweden's corona has been really been historically very cheap in in recent years leading to a lot of uh

shoppers taking a trip across the bridge. It's only a half-hour drive, and that seems to be fading a bit, John, or being negatively impacted by this as well. Yeah, and I've got that. Actually, we'll skip ahead since you're bringing it up now, and I agree with that. Slide six, you can see, I mean, these are readings.

If you're not familiar with the FX board, it's a measurement of trend strength. It's kind of a volatility adjusted measure of what's going on. And the intent is not what the absolute readings are, but just to show the relative strength. You have to get above 2 or so before you're really seeing a strong trend, absolute level of 2, be 2 or negative 2 if it's a bearish trend, of course.

But the Swedish krona at 13, and I think it was even almost 14 yesterday before there was a little consolidation that set in. I mean, this is what I called in my FX update, and I'll provide a link of that in the podcast description as well, as the Swedish krona in gangster mode. And it really has been an incredible move, slicing all the way below Eurostocky, so Euro-Swedish krona below 11 yesterday after the Sweden released a very hot core inflation reading for Sweden.

for February, which set things further on edge. Whether this can continue at the same pace in the near term, probably not. But this added angle for Sweden that its economy is generally leveraged to European demand and with EU fiscal coming in a big way, the Swedish economy benefits doubly. So

That's the reason for that. And plus, it was starting from an incredibly cheap level as the Danish shoppers streaming across to Sweden to the shopping malls, myself included, indicates.

And then you see the positive euro momentum there, still quite high reading. The five-day change is what's quite impressive, plus 6.1 from where it was just five days ago. Dollar clearly in a negative trend, but just, you know, it has fallen very recently against the likes of the Aussie Canadian dollar and the Kiwi dollar, but those commodity currencies still very weak here. And I find that interesting.

Of course, there's the tariff angle in Canada, and we have to get to tariffs in a moment. But just before I want to round off the conversation around currencies, slide five, dollar-yen. We have it slipping to new lows here locally. I think it hit 147.21 at the low before I stepped into the studio.

Very critical traditionally for Dalian to react to U.S. incoming data. We have the payrolls report later today. It could be a strong payrolls report or it could be a weak one. Nobody knows. But to what degree does that serve as an excuse to just have that thing out of the way and for this to continue lower? I'm very firmly convinced that Japan wants Dalian solidly below 140 to avoid negative attention from the Trump administration.

Also, with all the inbound investments into the U.S., it certainly doesn't hurt to have a much stronger Japanese yen because part of the dealmaking with the Trump administration will be for inbound investment because Japan will be happy to follow the, I think, the Chinese, the attitude towards China. All right. We need to get to your area, Ola. There's plenty more I could have discussed there on FX.

Let's take a look at the first one. There's a great link. I'll talk about it in a second. Hat tip to you because you're the one that sent me the link. Top Traders Unplugged, this interesting guy, Rosenzweig is his last name. Absolutely fascinating, by the way.

not just on oil, which he is quite bullish. I sent a link recently to a Doomburg podcast, and he seemed to be a perma-bear on the supply angle for oil, quite the opposite from Rosenzweig. But take us through what you want to talk about with oil, starting with what you're showing us on slide seven. I love your having your cake and eating it too metaphor there. Yeah, I think this really describes extremely well what we –

what we're seeing right now, what the US administration wants and what the market can deliver. We have seen this drill baby drill coming from Trump in his inauguration speech. This was followed up yesterday or this week with Peter Navarro, who's a Trump advisor, basically saying that they're aiming to get WCI down to 50 bucks. That would be enough to shave some like one percentage point off inflation and hunky-dory everything is sorted out.

Problem with that is at $50 a barrel, U.S. oil production is and will be suffering quite substantially. And they're probably getting close to that already. Just take a look at some of the charts there on the right-hand side on slide 7.

These are from the Dallas Fed. They do a monthly oil survey where they basically interview most of the oil companies involved in the area. And the top one is from the most recent one from the February report, basically asking what price to use for your capital planning in 2025.

And as we're approaching $60 and perhaps even lower, then you can see the limited amount of firms that have actually been using these very low prices for their calculations.

So this will clearly upset their investment plans. Looking at the bottom one, that's basically giving you an idea about what the break-even prices are across the different oil patches in the US. This is a year old. The updated version will be released in a couple of weeks' time in their March update. So we'll see how that has changed. I would imagine that, if anything, break-even prices have probably moved higher due to the various costs that continue to go up.

So we're simply in a situation that falling oil prices will eventually lead to U.S. production rolling over. I think OPEC is fully aware of this, and that's why they say, well, let's just start the racing production now. It's only a few hundred thousand barrels on a monthly basis, but if the...

What we've seen now for a number of years is that we kept prices artificially high. That's opened the door to non-OPEC plus production growth. So by doing this, I think they will over time just basically regain some of their market share. And that basically means as well we're sticking to our $65, $85 range for Brents.

we're getting close to 65. I think below 65, we will start to see producers suffering. And that will basically hold the slide. And it's interesting to note that the market is saying that if we have a neutral forward curve on crude oil, we should have

approximately 4% higher prices a year for now because that's around what the cash rate is in the U.S. dollars. But if you look at the year-forward price for crude, I think I saw dipping below, WTI at least, dipping below $63 a barrel. So to me, year-forward crude looks...

pretty darn cheap. And that's extremely good point, John, because obviously oil companies are not looking at what the spot price is. They're looking at the forward price because that's what they can use as a potential hedge for future production. And if that's already trading in the low 60s, then yeah, we're almost there already. Yeah. Okay. And then, interesting to note, so it's really you have to be careful these days. Well,

where you're looking at commodities prices because of the whole tariff angle, especially with incoming threats. Is it the 12th of this month? I believe we have the copper and aluminum or aluminium for our British listeners coming

tariffs coming from the US. Not copper yet. That goes through. Sorry, steel. That goes through an investigation first, so you can still be months away. Yes, yes, yes. But copper, there is a focus on copper and there was the noting notes made that there's dumping and we need to have our own domestic production up, yada, yada, from Trump. But anyway,

We have to be careful how we look because at times we've seen the U.S. copper futures running up higher and then you look over at London and nothing is going on. Do we have something going on now in London copper? I noticed it was breaking at least the local range here when I glanced at the chart this morning. Yeah, indeed, John. And I've shown that here on slide eight because what the initial reaction was to the Trump in his speech in Congress earlier this week, he basically slapped the

put copper in with aluminium and steel, basically sending the signal that copper should be exposed to 25% tariffs as well. That obviously sent the New York market surging higher. And right now it's settled with a spread between London and New York of around 10%. Similar stories of what we've been seeing unfolding now for many weeks.

in the silver, gold and platinum markets, especially silver and gold, I would say. And also one of the reasons why the US trade balance yesterday was absolutely awful, hitting a record high in January. Substantial part of the increase in the trade deficit for January was driven by imports of metals on this account. Again, a relation or reflection of what the tariffs impact they have on markets.

But what we're seeing obviously right now, once again, just like we've seen with gold and with silver, if you are able to withdraw copper from exchanges or from inventories outside the US, shipping them to US, you have a massive fat arbitrage trade lying in front of you because if you can ship,

But if you're covering it into the U.S. at this point in time where there's no tariffs and you can actually sell the futures price at a 10% premium to where you bought it in London, then, yeah, that is a massive trade when arbitrage deals normally involves a few cents or a few – Arbitrage you can believe in. Or a few dollars if you're really lucky. But obviously in high-grade, it's cents we're talking about. So –

The outlook, well, remains the same. Our overall outlook for Cobb is really one of support due to the increased demand for power in the coming years. But we also just have to, once again, reflect on what's the present situation. And looking at the inventory levels of stocks monitored by the three major exchanges in the world,

Here on slide 8, we can see that our inventory levels are back to levels we saw during the, well, back to 2020, 1920 basically. And that doesn't bode really well for a continued surge in copper at this point in time.

Could some of it be some kind of shenanigans around moving stuff around for these arbitrage reasons rather than any kind of fundamental supply-demand out in the economy, et cetera? Yeah, and that's why probably London Copper has picked up since this announcement was made because, again, if you can buy copper, you will buy copper, ship it over, and then sell the future against it. So until we have some more clarity on these tariffs,

Again, they could end up being nothing. They could end up being 25, which basically means the spread would explode further to the upside. So that just highlights the nervousness in the copper market. And if I may just add, John, what all this does is basically, if you look at some of the commodity indices, something like the Bloomberg Commodity Index, also the S&P Index, but especially the Bloomberg Commodity Index, which is quite heavy in the metals, the performance there right now is significant.

It's very strong. We're up 7% year-to-date. But a part of that is because they're pricing in futures markets in New York, which are currently overpriced, well, potentially overpriced due to the tariff threat. That basically means we're getting a relatively high strong performance, which is, again, due to tariffs boosting the prices that is of the components in the index.

So two points on copper. So if we're looking at what drove the past bull market in copper, it would, of course, be China's massive fixed asset investment from everything from buildings to everything else. And, of course, there will be ongoing demand for EVs, et cetera, there.

But as we look at China stimulus, and there's a link to an article, they're looking at different ways of doing China stimulus. The focus in stimulating the economy is on consumption. The first time this has been mentioned, as I've mentioned previously, since Xi Jinping took power. And that kind of consumption is about services. It's about a very different type of stimulus and consumption.

activity than fixed asset investment, which means a more sustained big move in copper has to come either from supply reasons or because Europe is reprioritizing heavy industry type growth for military spending and or, and I think this is maybe where some considerably further potential lies in the U.S. needing to reindustrialize. So I guess that's where you could look for future demand, you know,

Shifts in demand, bigger shifts in demand rather than thinking we're going to go back to some kind of wild industrial build-out stimulus in China again. Yeah, and interesting, it's basically coming on top of the already expected forecast for rising demand for power or the switch from fossil fuel-based production to gas or to power, electricity, in which

where gas will be an important part, but which obviously will also need to require the increased expansion of the grids. So the conductor, i.e. copper, can deliver all that extra power. But the gas story is also one that's interesting, John. Yeah, and back when we were doing a podcast together in the previous –

In the past, I always remarked that U.S. gas is just so incredibly cheap, a fantastic energy source, and it's practically free when it's trading down there at $2 for whatever the unit is. I always forget these darn units. You're much more sharp on that, obviously, than me.

You've got a great comparative chart there on slide nine showing that there's still very cheap gas in the U.S. compared to the rest of the world, but it's a heck of a lot less cheap in relative terms than it has been. How much more can this convergence happen?

Well, only to the extent that it's still profitable to ship LNG from the US to Europe because that's really part of the story that eventually will help – hopefully will help alleviate some of the storage pressures in Europe and we could see prices drive down. But it's literally down – Dutch TTF benchmark gas in Europe down 40% almost in the last month.

Spring is just around the corner. It's a nice warm day in Copenhagen today, relatively. And we're also seeing the markets trying to price in a potential peace dividend on the assumption that any peace deal would potentially fairly quickly lead to renewed gas supplies from Russia. Clearly not to the extent that we've seen in the past.

At the same time in the US, as you mentioned, John, gas prices are cheap. Will they stay cheap? I don't think so. Over time, they are likely to rise. We are seeing in production obviously being near record highs, but we're also seeing demand continue to increase and that will increase.

There will only be one direction for demand in the coming years, and that's higher. So narrowing down to levels where obviously LNG, the cost of shipping LNG, gas and regassing is still profitable. All right. Let's look at the links today. I don't want to spend too much time on this. The podcast is going on time-wise. But again, that Rosenzweig interview, really fascinating. Also just talking about not just energy.

And whether he's bullish or bearish, he is quite bullish. But the timing is getting right, in his view at least.

for this to take off under investment in energy and just a general bullish commodities story and the types of things that lead to this bullish shift, including a shift in monetary regimes. Fascinating discussion there. I really highly recommend that. He's got both a bit of confidence and a bit of humility when discussing some of the topics. It's a refreshing combination. And then a really fascinating thing, Ola, I don't know if you picked up on this, this

This character who's invented some kind of new mining technology that he think is really going to cause a massive change in how easy it is to, it sounds like, get copper extracted, some kind of a way to crush or pulverize rock that is just incredibly cheap with something called iPulse or something like that. Something I wanted to dig deeper into. Anyway, just a little tease there. Let's not go into depth there. And then the latest Michael Every article.

appearance on Macro Voices. A really good conversation there. He's running through some of the more recent, not the very most recent because I think it was recorded on Tuesday, but some of the points that we've touched on before, that the Ukraine, that the U.S. is trying to, you know, it's doing what it's doing and trying to normalize relations with Russia in an attempt to do a so-called reverse Nixon, pull Russia out of the alignment with China and Iran and North Korea, etc.,

And, yeah, basically signaling that everything is about pivoting policy against China and that this Mexico and Canada stuff is mostly for show. That's his assumption. It's my assumption as well. And that really the end outcome they're looking for is for them to align one-to-one with the U.S. on its limitations policy.

trade and terrorism trade, et cetera, against China. But the much deeper conversation than that, also, why does the US want to do a sovereign wealth fund? He answers that question with an interesting example, et cetera. Always worth listening to him. And then we have the general concept that I agree with. It's behind a paywall with the FT, but Europe is

really doesn't have much room for fiscal expansion outside of Germany. And even within Germany, if you're going to do something dramatic to do this Europe-wide, there's going to have to be some exchange of resources

If you're going to build a military, it has to be the cost of something. And that cost that is the biggest is the welfare state. So how does that go down with the population in Europe that very much likes its welfare state to a large degree, even though some actors in the private sector don't like it? So an interesting discussion of the tensions there.

Of course, it's U.S. Jobs Report Day. I think anything that's in line, the market will just get along with business. I think something negative will play along the lines you would expect. Dollion sharply lower, rates coming back down a little bit, euro-dollar extending higher, et cetera. If we get a strong report, I wonder if we, beyond a sort of a brief train wreck of volatility, whether it has any kind of lasting impact.

any kind of lasting effect because I think the general consensus is there's concern about the state of the US economy and employment is the most lagging of indicators. Anyway, I've also put up all the key data points for the coming week.

And we have at the weekend Canada electing its new liberal party leader. It could be interesting. All parties have turned virulently anti-Trump because the entire Canadian population is extremely irritated with President Trump. So the question is, is there something salvageable in that relationship going forward? It's a –

I can understand the tactic here that the Trump administration is trying to accomplish. The way they're doing it is about the least efficient way you could do it, in my opinion. But let's see if they get the success they want in the form of Canada also moving and aligning its trade policies with Canada.

those of the U.S. for the great external enemy, for the U.S. rival, or however you want to call it, which is China. All right. Gone on a little bit too long today, but I hope you enjoyed it nonetheless, of course, and have a wonderful weekend when you get there. Stay very careful out there, and we'll be back early next week with the next Saxo Market Call.