What now after the capitulation?
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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's Tuesday, 13th of May, 2025.

Just to start off today, thanks to those of you who provided some feedback on our plans to do more frequent podcasts and in some cases to make them a bit shorter, day ahead type of podcasts, and maybe once or twice a week going to the or continuing with the larger format with the slide deck and links, which does require a bit more production. I've just always enjoyed sort of the daily pulse of markets, and I hoped that you all did too. It does seem to be a unanimous choice.

approval of the idea to go daily with the mini though appreciating the of course the slide deck and some of the calendar for the data company earnings economic data ahead and things like our links and must reads and I was happy to hear some positive feedback on that account because it's something I really enjoyed doing and discussing because after all

We're just a small group of guys, and we have some ideas, but there are many ideas out there, and we like to share other people with different ideas. Sometimes you can listen to somebody that's very on spot with an inflationary view and another with a disinflationary view, and there's nothing to say that there's anything wrong with that and discussing different ways to see how things might shape up.

Another thing, and I really hate doing this, but I'm going to beg a little bit here. I was just looking in at Apple Podcasts. About half of you all listen to the podcast on your Apple Podcasts app. And there are about 80 reviews out there on – at least that I could access on the web for our podcast. The last one was a bit over a year ago and it was quite negative. I think the podcast has come to a different place again here.

over the start of the year with my return. And I hope for those of you that want to give a five-star review, you can feel a bit motivated to do so. Also, you can not have to listen to me begging for your reviews on Apple Podcasts on a string of these daily ones just to get these reviews pushed to the side. I think we're in a different place. So I'd like for, of course, those reviews to reflect that. So if you care to leave a five-star review, very, very much appreciated if you would do so.

Again, any comments you have about things you'd like to see more of or less of on the podcast, do reach out to us. That email address is marketcallatsaxobank.com. Again, marketcallatsaxobank.com. All right, let's get started for today. Where are the markets today? Well, we saw a continuation of that big reaction, of course, off of the –

The step down from the embargo-like tariff levels, 145, 125, U.S. versus China, China versus the U.S., and the 30-10 replacement for now, at least a 90-day suspension, and the market really grabbing this and running with it yesterday, just blasting above all of the key resistance levels that were being eyed by all of the holdouts there, the bearish holdouts in the case of the equity markets and the dollar bears in the case of foreign exchange.

So we don't really have much left in the way of resistance now in the U.S. markets at least except for the all-time highs, which are still some way off if we look there. But I do think yesterday, despite that, yesterday was pretty much your sort of capitulation day. And I would argue as well that it's sort of the point of maximum good news on the trade front, at least for some time.

If not for the cycle. So it's not to say we can't get a bit more follow on momentum. I just think that the market will be drifting around looking for, for new catalysts, uh, in coming days. And that this was sort of the key moment where those that were holding out have largely capitulated, uh, CTAs, the, the, the technicians that were, you know, as long as the last resistance was in place, we're holding out those, those levels sort of fell somewhat the case in the U S dollar, though. I think the U S dollar relative to, to equities, um,

And it's still showing that we're in some sort of secular move here. I mean, we're still basically in consolidation mode unless we rally significantly further in the U.S. dollar. And I still think that while it does look like this sort of the whole macro trade of the year that was meant to be put on here at the beginning of the year that, oops, U.S. exceptionalism is over.

We've capitulated on that trade. I think we have capitulated for the near term. But if you look at where the dollar is relative to where it started the year and relative to the assumptions coming into the Trump administration, there is still something very much structural in place, a big move here in the dollar to the downside despite this very considerable rally.

And even more so, and even speaking more to that macro story about that there's a shift away from using the dollar as a reserve currency, or at least there are some major players, read China, that are looking for holding major alternatives to the U.S. dollar, perhaps to support the validity of their currency and their country in terms of providing security.

some kind of backing for trade, alternatives to the US dollar going forward. Look at the gold market. So gold has held up here even locally quite well. You see the, for example, euro dollar down to significant new lows below 112. Yes, the volatility in gold has been quite significant, but it is still within the range. Not to say it can't capitulate as well. It's just to point out the divergence in the relative performance.

And then staying with FX a little bit here, it's quite interesting to note that the Chinese renminbi after the weekend has powered even stronger than the U.S. dollar. So in other words, on top of that U.S. dollar strength, you're getting additional strength in dollar C and H. It moved back below 720. New local lows there. But of course, with the strong dollar elsewhere, it means that things like euro versus the renminbi have almost collapsed since their Friday levels.

What's the story there? Well, it's pretty easy to say. This certainly lists a lot of those concerns about the Chinese economy that were there. The Chinese economy was being singled out to the degree it was by this whole situation. So some relief trade there because the renminbi was even weaker than a weak dollar. Now it's even stronger than a strong dollar. So it just makes sense to see that unwinding, you could argue. It could be a little bit of a flex from China to say,

to allow it to strengthen to this degree. But still you have the correlations very much intact here. So it is a bit unusual to see the currency stronger than a strong dollar, but it's still directionally moving in sympathy with the U.S. dollar. And it reminds us that it just seems like these currencies remain joined at the hip.

So if you look at something like the correlation of Euro dollar versus Euro, RIM and B, I ran that for the last two years, the R squared there is something like 61.5%. And a dollar Japanese yen versus CNH Japanese yen. So the RIM and B versus the yen has an R squared over the last two years of more than 80%. So, you know, clearly there's still that directional sympathy. And so until that changes, you know,

I'm wondering how much drama, if any, there will be in really in the dollar-CNH currency pair. I think the drama might be elsewhere in these alternative reserve assets where we've seen tremendous drama, i.e. gold, etc. So where does this put us with the U.S. dollar move? I put in some levels on my latest FX Update. I might put actually a link to that in the podcast description below.

$110.50 is a level I've been touting in your dollar. Maybe $110, you could argue, as a psychological one. That's a really, really key area. I think that's some medium-term stuff there that needs to hold. And dollar again, I've argued $150. It's just very important for that to hold to keep this sort of

Medium term dollar bearish outlook intact. There are some levels that could continue to provide resistance that are further along. It's just it's requiring a lot of patience if we're breaking through these types of levels. I am still contrarian to this dollar move despite the scale that we've seen here. But we need some support from the price action to argue that it's time to get involved again with dollar long – sorry, dollar short trades again.

And one of the reasons I think the ceiling is quite low still here on the U.S. dollar is the U.S. treasury market, where I think that is going to be one of the next key focus points if U.S. yields continue higher. Arguably, if they're allowed via market forces or otherwise to continue higher, this is dollar supportive unless that move is seen as something a bit chaotic, seen as something that is driven by fear of holding U.S. treasuries, fear of U.S. systemic chaos, right?

Regardless, whether it's that kind of fear or whether it's U.S. yields simply heading higher for market supply and demand reasons, I think the point of intervention from the U.S. Treasury is getting pretty close. And we've been moving up in yields after this very strong risk-on event post-weekend to the 4.50% level on the 10-year benchmark. And the 30-year is nearing the 5% level, just 10 or 11 basis points below that.

So, yes, maybe there's a window for the 10-year to go to four and three quarters without some sort of policy prompting from the U.S. Treasury about hinting that it's going to do something to tamp down long yields. But I think that tamping down or capping of long yields will come sooner rather than later if these U.S. yields continue higher. Again, as I've probably said too many times now, I think that's first via –

loosening rules on commercial banks and their treasury holdings without penalizing banks on the supplementary leverage rules, et cetera. And then the only other reason that U.S. treasuries might fall would be because we're starting to see some negative U.S. data coming in. So in other words, I just think there is a – while there is a window for U.S. dollar strength, I think it's a rather small one.

And then on that, of course, with the diffusing of the immediate sort of embargo-like tariff levels, U.S.-China, it does derail this U.S. recession risk in the very near term, the risk that there will be some kind of really ugly downshift in even payrolls, jobless claims, et cetera, in May.

As long as these were seen as holding the higher tariff levels, we avoid that because at 30%, certainly for some consumer goods, you can continue to trade and there will be some big inventory building again for those that weren't doing it the first time around. For example, laying in as one, Anna Wong on X, Wong the W-O-N-G, she's a good follow on X.

This is sort of saving the U.S. Christmas season for retail products at least. Nonetheless, I still am curious on the point of the degree to which we've already seen a bit of an extra push in the U.S. economy in the first quarter on front running of tariffs.

There's been anecdotal evidence of this, uh, in, in purchases of iPhones. It's certainly a major retail item front running those, uh, front running the tariffs, which are there now and will mean higher iPhone prices. Uh, and there's discussion of how Apple is going to, uh, uh, raise its prices. There's been significant, uh, replacement, a market for older iPhones that has been noted. So could see a hangover in the data, uh,

The question is, do we get over the April cycle or not until the May-June cycle? I think looking into the rest of the week, though, we have a few interesting data points that I've mentioned already. We have the CPI number up today. Remember that that March number dropped all the way to 2.8% for the core year-on-year.

a number that was sort of bottling up in the, just in the low threes and suddenly dropped down to 2.8%. We're expecting to see a repeat of that today. Let's see. We also have the retail sales up on Thursday as well as nicely on the same day, a Walmart. And I don't have actually noted whether reporting before or after the close, we'll have to refresh that. And a very important U S company to say the least on the retail front and to hear what they are saying about the state of the consumer market.

But as well, what is the state of the consumer if at one point they're fearing tariffs and fearing things in general, which they have been? So there's been a lot of talk. Of course, this soft data is absolutely collapsing.

And that the hard data will follow where the soft data leads. How much is this reversal going to change the soft data? I'm not sure we're going to get the first indications of that on one of the worst or softest of soft data series out there, the University of Michigan sentiment number on Friday will be the preliminary read for May.

Because obviously the questioning timing of that was probably before the much of it or most of it was before the news of the step down from the tariffs. But

It is worth just reminding that we saw in the April data round on that Michigan Sentiment Survey the lowest expectations reading basically since 1980. So pretty remarkable data series there. And then even the smaller numbers like Thursday's jobless claims after last week saw that that data series, particularly data series, normalized.

We also have some interesting things going on here on the policy front in the U.S., not just what is the U.S. economy going to do of its own accord, but Trump, as the FT is pointing out, as we've pointed out as well, he's pretty much heading left with some of his policy moves here. Very interesting change to the types of expectations you would have had from Trump 1 and from most of his signaling even earlier in this presidency here.

With the allowing the potentially allowing the old tax levels prior to the Tax Cut and Jobs Act from 2000 and help me out, 17, 18, going into effect, it would mean that those highest income earners, 2.5 million or above, would actually revert to the pre-Trump era income tax levels. He's going big time populist on together with RFK Jr.,

on pharma prices, very ugly potentially for that corner of the market, though there's been some back and forth on the drug stocks themselves because the focus is potentially a bit elsewhere on these so-called pharmacy benefit managers.

that are part of the reason why this chaotic US system results in such high drug prices. An area to watch. And then some other themes, like we've seen such disruption here to themes across the board, or so we're seeing in Europe, I think a little bit of relative weakness in equities, at least in places.

The session yesterday in the DAX was not so positive relative to the opening level. We ended positive, but intersession, it was down quite a bit. And then some specific themes have been coming in for some major consolidation, especially defense. The big major EU defense names from Ryan Mattel to Saab to Leonardo.

All in for an ugly couple of sessions recently. Part of that linked to potential for Zelensky and Putin to meet. I actually haven't seen an update on that. That was something that was aired yesterday, a potential in-person meeting on Thursday. I'm not sure if Putin has responded yet, but just a sense that maybe we're heading towards some sort of detente there. But I think part of it as well is just a little bit of a consolidation of what has been working and what hasn't been working yet.

And then finally, I wish I'd pointed out earlier with the discussion of where we are technically, as I've indicated before, crypto has often been a leading indicator on where we're headed in terms of risk sentiment. Pretty interesting to see yesterday's session where you're seeing a couple thousand dollars consolidation in the crypto or the Bitcoin price on a day when everything else was headed in the opposite direction.

It's an indicator that's been working. We'll say maybe it has a chance of continuing to work until proven otherwise. I just think it's a very interesting indicator to follow just to have on the sidelines of your sort of across-the-board menu of things that are going on. Well, so much for having a very short podcast today. We're going on 15 minutes plus here. But I hope you found it interesting, and we'll make an effort. I will not be in the office tomorrow.

for the podcast timeframe, but either Thursday or Friday, we will have a proper podcast with a full slide deck, some interesting links to follow, and our calendar and all that good stuff as well. Have a great trading day ahead. Stay careful out there, and we'll be back soon with the Saxo Market Call.