Trump’s Economic Agenda | Andreas Steno ft Mikkel Rosenvold | Macro Mondays
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Hello out there. Welcome to another edition of Macro Mondays. My name is Mikkel Rosvold, your usual host. And also, as usual, I'm joined by you, Andreas. Welcome to the show. Hey, Mikkel. Andreas, we're getting close to that time of year when us Europeans take four to six weeks of vacation and let the Americans work. Are you ready for vacation soon? Well, I think we've had a very decent first six months of the year. It's been volatile.

but we've managed that pretty well. And I'm very thankful that we reiterated the message through April that we were going to see some results from Zephyr

from the trade negotiations, we would also see some U-turns. We were pretty clear around that. And we also found the weak dollar and financial conditions to be sort of a precursor of what's been going on through May and June. We've actually had pretty solid markets and I kind of expect them to continue into July, even though we have a lot of stuff to worry about, given that this tariff step line is upcoming on July 9th. But it's one of those classic walls of worries, right? You know, I've...

had plenty of discussions with hedge funds the past week or so on whether to worry about this deadline. And Friday, late in the session, we obviously got something to worry about with Trump threatening Canada. But all of a sudden, Monday morning, it was actually good news. Maybe I'll ask you to quickly give us a brief of what happened with Canada. Absolutely. Let's start there, Andreas, because...

My gut reaction was that this should be negative for markets and uncertainty over the trade deals. But it seems like we can just have the headline up here that Trump has gotten the reaction that he wanted, I guess, which was to have Canada rescind the digital services tax, which should be very, very, very positive for big tech out of the US. So do you think this is what he was aiming for? And how do you see this fit into the overall trade deadline as we approach that? Yeah.

So, you know, this implementation of the digital services tax had nothing to do with the ongoing trade negotiations, basically, because it was agreed upon roughly a year ago with the implementation date, July 1st. So I think at some point someone noticed Trump, hey, they're going to implement this digital services tax, even though it was agreed upon way before your presidency. A couple of days from now, why don't we try and put some pressure on them?

as a force and outcome. And hey, here we are. First of all, this obviously matters for the trade relationship between the MAC7s and Canada. I think we're talking ballpark between one and a half and two billion dollars a year that they're rescinding in terms of taxation on these big tech companies. And on top of that, it sends a crystal clear signal to, for example, the European Union and other trade partners, don't go down this road.

The European Union has been mulling something similar to this quite a while. It's been a part of the whole notion that Europe would try to repatriate digital infrastructure and stuff like that. But I think this is one of the

bigger results from Trump's negotiation strategy because it's so important to these big companies in the US that they're not faced with extra charges everywhere they go around the globe. And right now, at least if I were negotiating with Trump, I wouldn't dare to add digital taxation to the mix because you basically know his reaction function by now. He'll just try and break your neck. Yeah.

Absolutely. Well, Andreas, we're going to dive much more into the Trump deadlines that we're approaching here in early July, what they might mean for markets and our outlook for the summer. Before we dive into all that, remember that this is a sneak peek into all the research that we publish at Real Vision. So sign up for the pro-tier membership for much more of this, much more in-depth. We try to bring both our hot takes, our best charts, and a couple of laughs into this show. But you should remember that

both our trade ideas and our jokes might be sometimes maybe good sometimes maybe shit

I don't know about our jokes, but at least our traits have sort of overall been slightly more good than shit. But anyway, we'll move on from this, Andreas. Let's start with the laugh of the week, the meme of the week. I think this sets the tone for what's going on right now. We've all been talking about Doge, all been excited about that project, talked about how

And now Elon is out, it seems. It seems like Doge is out completely and it's all about the big, beautiful bill. Somehow, this took me back to some of the shows we did just around the inauguration of Donald Trump, where the message was, we're entering a gold mage for America. All steam ahead, full steam ahead, firing on all cylinders. Then we sort of deviated that a little bit. It seemed like with the liberation day and it's going to hurt that entire narrative.

But now we're back to the big, beautiful bull train. How do you see this, Andreas? You know, obviously, we don't know whether the big, beautiful bill will pass yet, but it seems like they're approaching some sort of inflection point or conclusion already here later this Monday. And in my opinion, the alterations that we've seen to the big, beautiful bill all point in the same direction that they want to stimulate now.

And the spending cuts included in the big, beautiful bill are going to be implemented, say, from 2027 and onwards. And this is a classic example.

political brinkmanship needed to convince people to vote for it now. Say, okay, all the good stuff, we have that right now, and we'll save the bad stuff for later. And it goes hand in hand with one of the hot takes of the week, namely what Don tweeted yesterday. I think we have it on the slide. For all cost-cutting Republicans, of which I'm one, remember, you still have to get re-elected.

And that simple sentence is basically framing the exact content of this big, beautiful bill. The Congressional Budget Office

which should be a bipartisan or objective budget office, laid forward their calculations on the latest version of the Big Beautiful Bill yesterday. And we have that on page seven. We've borrowed that from a Twitter profile. And I've been through the numbers. They match exactly this. And as you can see, the stimulative parts, everything above zero.

They're very front loaded and the way you're paying for this bill is very back loaded. In my opinion, and trust me, I've seen many examples of this, especially in Southern Europe, is that the financing here is pure upticks because by the time you need to implement these spending cuts without prolonging the stimulus,

the Congress at the time will be incentivized to restrike the deal.

So I'm pretty certain that the market will see this as highly stimulative. And it comes on top of everything that the Federal Reserve said last week, which basically pointed in the direction of the Federal Reserve being much more competitive. So for what it's worth right now, at least if this bill passes Congress, which I consider increasingly likely, especially due to a few alterations to Trump's strategy on how to get these

less big spenders from the party to vote for the deal. The bottom line is this is stimulus. It is going to be a year ahead where we're going to fire on all cylinders and they're going to indebt the US Treasury even more.

Yes. And the strategy in jazz, as we've talked before here, is that, okay, we had some savings with those. Okay, we're getting some revenue from tariffs. But the strategy now is to outgrow the deficit, if there even is a strategy. It seems to be. And that obviously has huge implications on markets here.

There is sort of almost a political momentum to this because you see this all the time in the US, I think. And it's, just as a side note here, it makes me very, very concerned about the prospect of EU, Euro bonds being issued because once you start allowing an institution to issue debt,

there's no going back. That's my take on this. It's very, very, very hard for the US Congress, also because they're all getting elected every second year in the House. It's very, very hard to plan much further ahead to make the savings in front of the spending. So, yeah, hugely, yeah. This is exactly why you've seen both parties

financial media but also many hundreds within the macro space labeling

the federal government Leviathan over the past years, because it is so incredibly difficult to stop the train due to how politicians are incentivized. I perfectly share your sentiment related to U-bonds. That's also why we vote against it every time we get the chance here in Denmark, because we're actually one of the few countries paying for it.

And I guess it's a similar dynamic in the US. A lot of people are tired of this, but by the end of the day, stimulus is nice. My own thinking basically from the pandemic and onwards is that you've seen such a range of new tools being implemented in the toolbox.

Take the example of direct transfers, tax credits left and center. I labeled it Oprah-nomics at the time. Everyone got a bailout. You get a car, you get a car, you get a car, you get a car. And it still feels that way. We had an administration here actually campaigning on something different, but it is so incredibly difficult to actually implement.

That's why I think this is an honest U-turn by Scott Besson and Trump. We cannot find a way to cut our way through this. We need to grow.

And I actually consider that strategy better than the spending cuts because spending cuts, you're never going to get those through anyway. So ultimately, they're going to be saved by AI activity gains and all of that, which is basically also the view that Elon Musk has now taken, right? You cannot doge your way out of this. Right now, the headlines are chock full of data breaches and regulatory rollbacks, making us all vulnerable.

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It's as simple as that. Yeah, absolutely, Andreas. So before we get to some of the themes of the week and sort of try and line up Trump's agenda for the next couple of weeks, that's going to be very interesting. Let's just have your take on the macro landscape. We brought along this chart on inflation to growth, so prices. So surely this adds to the measures we've already been through about the big, beautiful bill being stimulative to the economy? Yeah, it does. And the

The big question obviously now is whether this will be very inflationary in a couple of quarters from now. But the backdrop we have as we speak is superb for equities. Let me just reiterate that. And I think that's still...

goes against the prevailing consensus in many ways because a lot of people have remained hesitant to buy into this rally uh because of the july 9th deadlines uh because of the geopolitical mess in the middle east and all of that uh we

kept reiterating that this wall of worries surrounding Iran was one you had to bet against. And I think the wall of worries surrounding terrorists is one you have to bet against as well, because we have a load of positive news upcoming simply because of the reopening of the global trade playing field. There is no longer an embargo de facto in place versus China. We've seen shipping data and shipping volumes rebound.

That is something that will slightly, slowly but surely show up during the month of July in data. We've had very benign inflation prints. We got a very benign inflation print from Germany this morning, again, still the third biggest economy worldwide as far as I remember. So inflation data from Germany, the US, more or less no matter where you look, even Japan has been incredibly benign over these three months since the trade war started.

And that has been a surprise to many, and that's why the market is not positioned for it. When inflation is benign and growth is recovering at the same time, you have basically what you typically label a Goldilocks scenario, right? And it sounds odd to label this as a Goldilocks scenario, but until we see tariffs rising,

feeding through to consumer prices, which will take a while. Maybe we'll get slightly higher prices this month, but it's nothing to worry about now. It's a superb window of opportunity in many ways. And I still think July will be a great month. And this comes on top of the incredible debasement that is ongoing on the dollar right now in relation to the dollar, especially if we get...

Yeah, a new Fed chairman willing to back up this agenda. I'll get back to a few details around how the Federal Reserve already started playing ball with Trump's agenda last week. But speaking about playing ball, Michael, Trump and Lizzie Graham, they played gold. And apparently it yielded some results, you know.

Yeah, you know, I think it kind of feels like Trump is trying to wrap up a bunch of stuff and then probably going on for some golf trips. He's still playing golf already. That's how he's conducting much of his business, obviously. I finally thought yesterday when we heard that Lindsey Graham's Russia sanctions bill was going to be passed that, OK, now we've seen the Trump U-turn on Russia. Now he's turning on the screws. He's going to push for increased sanctions on Russia to sort of force them to negotiate.

Then today we had, and I know it's hardly visible on the right here, but we had rumors that the Department of the Treasury are lifting sanctions on a number of Russian banks when it comes to uranium transactions, it seems. So to be quite honest, Andreas, I had a whole theory planned about how Trump is now

entered a new phase of his relations with Russia. I don't know. It could also be that they're lifting sanctions on some parts and increasing sanctions on other stuff. I don't know. It's very, very hard to say. It's clear that they're using this as a way of getting the big, beautiful bill passed.

But how this is going to materialize, very, very tough to say. So nothing to adjust your portfolio after right now, but something to keep in mind on. I have a few points to make there, Mikkel, because first of all, remember that this, Graham kind of admitted that this is a watered-down version that will allow Donald Trump to add secondary tariffs on countries buying, for example, oil from Russia. But it's not...

by design something that he's forced to do. So it just gives him the option, it adds to his toolbox. I think that's a really good addition to his toolbox ahead of these negotiations. And therefore I support the bill given how it looks now. It doesn't necessarily mean that Trump, like say on July 15th, will add or impose bizarre tariffs on India and China, because those are basically the countries in question here. They buy all the oil from Russia.

on top of that, I actually think it's a clever move, what you see on the right-hand side of the slide, which is showed on uranium, because it is one of the very few things that the US still buys from Russia, right? So they had to get rid of that to not look stupid if they want

started adding energy-like sanctions on countries buying energy from them. Yeah, and to me, I mean, we already talked about uranium becoming part of this, part of new actions from Russia and this could be lifted, but this is also evidence to the nuclear bet that we've been discussing and having on

on our real vision portfolio. We don't want to give too much of that away, but I think this is just further evidence that the Trump administration are very, very serious at pushing in that direction. Obviously you need some uranium to, to fuel power plants. So, so yeah, interesting stuff, Andres. Should we just touch on oil? It seems like oil is finding a new level, quite a low level should be benign for, for inflation pressures in the West.

Do you see any – it seems like oil is even really reacting to production decisions from OPEC or anymore. And the difference was kind of whether the oil market would respond to this Lindsey Graham bill suddenly having a chance of passing Congress. And now it just – obviously, we had the massive spike due to Iran, and we have the massive retracement due to Iran being called soul.

And now it basically seems like the patient is dead, right? The oil is moving nowhere, which is kind of interesting. And I think we're trading very fair right now at close to fair values. The market is oversupplied as long as Iran is allowed to sell and as long as Russia is allowed to sell. Or Russia is obviously not providing a lot of energy to the West right now, but they're selling their energy to India, China, you name it. And as long as they can do that,

We're in a massively oversupplied state of energy affairs. But it's a major deal if Trump imposes tariffs on countries buying energy from Russia because they will obviously have to seek for solutions elsewhere, at least in the interim.

So let's see. We're obviously at least a week, maybe even two weeks away from this grand bill passing Congress, and they need the big, beautiful bills to be passed first. So I don't think it's a market topic for here and now. But now oil is settled, in a sense, and we're close to fair value and volatility is low. I think it's much, much more underappreciated what happened Wednesday last week, Michael. Yeah. I think this is on the press release for the Fed conference.

So, yep. And thank you for bringing that up because, you know, Wednesday last week, the Fed

hosted an if not an emergency meeting then at least an extraordinary meeting uh to discuss the cold soul so-called supplementary leverage ratio uh and the suggestion uh which is now in a hearing period is to lower that supplementary leverage ratio for both gseps basically meaning systemically important banks but also for their um sub companies and

The whole purpose of that exercise is obviously to add liquidity to the system to ensure that treasury trading runs smoothly. But they could have just alleviated the stress in treasury markets by excluding treasuries from the supplementary leverage ratio. But instead, they suggested to lower that ratio all in one.

And the simple way of understanding what that means basically is that a bank like J.B. Morgan or Citibank needs to set fewer dollars aside when they provide you a loan, Mikko. And that is the utmost relevance because it basically means that it frees up dollars that are currently frozen. They're set aside and they're frozen in the system. They cannot move. When you free up that capital...

as soon as someone demands credit it will be blood easier so this is clearly an easing of credit conditions but it is also something that will lead to more dollars flushing around in the system and i have a chart on the bank credit developments uh over the past yeah 10 years or so and you know my back of the envelope calculation on this slr belief of the capital ratios

suggests that we're talking at least a couple of hundred billion. Just on the surface, you could obviously have multiply effects out of this. So at least a couple of hundred billion worth of dollar liquidity will be added if this suggestion goes through, just as it looks. And this is a way of contextualizing it. It's a lot. And it just goes to show that credit is growing. So we're talking maybe a couple of months of peak QE.

just my private banks instead of the Federal Reserve. And this is the first sign that the Federal Reserve is actually willing to almost rubber stamp the strategy from Scott Pesendat and Donald Trump. Suppose that they add a new Fed chairman willing to cut interest rates to 1% to 2%, which Trump asked for yesterday in the Fox interview. And on top of that, a Fed chair that is willing to maybe even, at least in a light direction,

scaled way underpin the yield curve all the way out some sort of light control of the curve that would be big news because it's probably not what the economy needs right now um and i'm kind of getting the vibe that we're slowly but surely approaching the point where a lot of members of the committee are basically parading uh ticketing for that job right um obviously we've had some of the

uh old school members out saying that they're not going to like just support this uh out of thin air but we have plenty of members supporting it now also even vocally um

Chris Waller being the most local. So I think what we're seeing right now is some sort of a faction fight that is slowly but surely brewing with several members being more and more vocal. And I think this will intensify over the summer in an attempt to get the nod basically from Trump and Besant. And, you know, we've seen this movie before, Michael.

not East of Japan back in 2012, 2013. Yeah, that's interesting because it seems like Trump is getting much of what he wants if we assume that the bill gets passed and he's slowly getting what he wants out of the Fed. You pulled up a very, very interesting historical comparison here. Abinomics out of Japan. Why is this comparable?

So late 2012, Shinzo Abe won the election on a platform of stimulating the Japanese economy via monetary stimulus, via structural reform, but also by fiscal stimulus, right? And as most people already knew at the time, the Japanese budget was running hot. They paid too much for their debt. They already had a load of debt. So stimulating...

in that kind of backdrop is difficult without a central bank that supports it. It's the exact same thing we've seen over the past quarter or so, that if the Federal Reserve is not willing to back a big spending strategy, it's difficult when you're already running a debt to GDP of more than 100%, right? As they also did in Japan. I think they're at 180% or something like that now. I've lost count, basically. But the point here is that if the central bank

is forced or, yeah, at least to some extent incentivized to back up a big spending plan when debt loads are already high and the currency is already under pressure, we may get a very, very, very swift depreciation of the currency on the line. So this is the dollar versus the Japanese yen in the six, seven months that followed this Abe election.

He named a new governor of Bank of Japan early in 2013. That governor already, you know, already after the election, we had speculation around it. That's what we see right now in the dollar. The dollar weakens on a running basis. I think we have 11 days in a row with a stronger euro versus dollar. Very rarely see. On speculation that Trump will do something like this, once a governor is named, even though it could be ahead of the, like with the forward start, and that governor starts talking about, okay, we need to print some more dollars to underpin the

the fiscal strategy, you could see a very, very swift move in the dollar. I'm talking 15%, 20%, 25%. And this is obviously speculative because I don't know who's getting the nod, but I think this is within the realm of realistic scenarios now. And it wasn't six months ago. So it's something that you need to consider when planning your portfolio, when taking decisions in a business, that this is a potential scenario.

scenario now. It's feasible that we end up there. Trombonomics emulating what happened in Japan or what happened in Turkey to a certain extent. And there are pros and cons of doing this, but one of the clear implications is that the currency will likely weaken a lot.

And this is not the same as saying that the dollar is done as a reserve currency. It's not the same as saying that the dollar will not be used in global trade. I find those views completely out of sync with what's real. But it could be that the dollar weakens a lot. And we've basically written a whole editorial on how to plan for this because this will have massive implications across assets. We've released that StenoSignals edition 203 today for the Real Vision program.

And it could also have ramifications for the trade deals with China because if the US dollar is to weaken that much, that would essentially give him much of what he wanted in the trade deals with China. So let's see how that all plays out. It's a very, very interesting macro backdrop for the summer. Be sure to check out all our writings on the approach here. We have the trade portfolio with very concrete trade ideas on how to implement this. So lots of great stuff to look out for in there. Any final thoughts or remarks, Andreas? Yeah.

You know, I have sympathy with the view that this dollar doomsday story is oversubscribed to. But I just want to remind you that if Donald Trump appoints a fit chairman with a set list of pockets, that is something I can't remember that we've ever seen before. So all of those, you know,

notions that, okay, this is already positioned for, this is already consensus. I think you can scrap that if this happens, because this may be a historical event. Yes, and you need to look at other geographies like Japan and Turkey for similarities, which is quite astonishing in itself. So that's all we have for this week, guys. Thanks a lot for tuning in. We'll be back next week with more macro content. Be sure to check out all our publications in the meantime.

See you next time.

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