A Path to Trade War Diffusion | Andreas Steno Larsen ft Mikkel Rosenvold | Macro Mondays
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please take a moment to give it a five-star rating. It truly helps us continue to bring top-tier content. Thank you so much. It's been quite the weekend again, Andreas. We were leaving a football match yesterday evening when we got the news of a trade deal. I don't know if you can call it a deal. We'll get back to that between the US and China. Lots of movements in the market and perhaps some upside to crypto, as we talked upon last week. Lots and lots to talk about today.

Before we get started, Andreas, just for all you listeners out there, thank you for joining. Please drop us your questions, whether you're watching on Twitter or YouTube or in the Real Vision app. We'll try and grab as many of them as possible during the show. Remember to tune in to Andreas' State of the Union this tomorrow. It's Wednesday. Wednesday. Monday today. Wednesday. The day after tomorrow for pro macro subscribers at Real Vision. Really looking forward to that, Andreas.

Remember, this is a sneak peek into all the analysis and research that we do. This is a 30-minute format, so we're not going to be able to cover everything, but it should give you an idea of where we are positioned and how we view the macro landscape. You can get access to our full research and full coverage of the macro world at Real Vision with the Pro Macro package. And also remember, we try to be as actionable and specific as possible, but...

Perhaps it's a good time for our usual disclaimer here.

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Absolutely. Always good to get that in there. So, Andreas, before we jump into trade and Bitcoin and everything, I want to start off in a trade car somewhere in Europe. We have a picture here. Let's

Let's get it up. It's actually a video, but I'm not sure Real Vision are allowed to show video of what's actually going on in the trade car. Still debated a little bit. So rumors that Kirsten Armer, Manuel Mekong and Friedrich Merz, the new German chancellor, they were, of course, discussing potential peace in Ukraine, among other topics.

And it seemed like something else was going on. Rumors of cocaine usage in this trade car that Macron was hiding this back. You've probably seen the video. I don't know if you have any takes on this address. Is this how it goes on? Well, uh,

I have one take and one take only. If you take a look at Friedrich Merz, would you guess that he was a cocaine user? It's certainly not a coke pullover that he's done in there. So no, no, no. I mean, as far as I can see, if you zoom in on this, it's actually tissue. Yeah, it is. I think this is a little bit far-fetched. I wouldn't suspect Friedrich Merz of having the little spoon there already within that. That would be a huge surprise for that type of guy. But...

Anyway, great banner address. But maybe on a serious note, right? We've obviously already heard from Zielinski that he's potentially willing to meet Putin and

given the precondition of some sort of truce being, uh, pre-agreed upon before meeting in, in Turkey, as far as I remember, right? He's already, he's already sort of backtracking that as well. Uh, so I think it's most likely that there will be some meetings in Istanbul. It's not necessarily Zelensky and Putin, them meeting up and shaking hands would, would, would be quite the photo op. I'm not sure that that's what we're going to see, but we are going to see perhaps some direct negotiations with the U.S. as mediators, uh,

a big step towards peace. Let's see. It might break down completely. There's still a lot of distance between the two parties. The Russians are not necessarily eager to conclude a peace deal. I think what the Ukrainians are trying to do here is they're trying to force

an outcome and that's the thing usually these processes you think oh they're going away end up one way or the other well not necessarily sometimes they sort of fizzle out and the russians are quite comfortable with that so the ukrainians are trying to force one of two outcomes either a peace deal or a refusal of a peace deal because the if the russians refuse a peace deal they might be able to uh reignite the american support for the ukrainian war effort

And that's the other outcome that they can live with. The middle ground, the fizzling out where the Americans don't really send any more weapons and the war sort of goes on, that's a non-starter for the Ukrainians. So I think that's why Zelensky is so eager to catch up on Putin's invitation to meet in Istanbul. We'll see what happens in Dresden.

Will it have huge effects on markets? I think it could send some positive waves through the markets. I'm not sure it's going to be a huge game changer in the short term, but definitely a situation. Michael, if you look at the price action today, we've actually seen some of the defense stocks selling off among other places in Germany. So I guess there is some merit to the view that the market at least is taking advantage

some comfort in what we've seen over the weekend. You know, there's a path to some sort of a negotiation process here. We obviously also got, after a bit of a hiccup, some sort of peace deal between Pakistan and India. Let's see whether that's lasting. So defense stocks are actually down. And I take some value from that in terms of signaling here. Absolutely agree, Andreas.

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Another place where negotiations are taking place, Andreas, is Geneva. We'll have the picture here of Scott Business. I think this is from Geneva anyway. Yeah.

A wild ride this weekend over, I think it was Sunday morning our time, suddenly news emerged that the Chinese had left the building. They had stormed out and it appeared they just went for a pizza or something. And then by the end of the evening, as I mentioned, you and I were at a football match in Copenhagen leaving the stadium. We got the news that a deal had been signed.

Does this really constitute a trade deal, in your opinion, what we've been hearing so far? It seems a little bit... It's more like a trade truce, in a sense, or another pause, right? Well, we're kind of in the same scenario for China that we have for the trade relationship with the rest of the world now, in many ways. We're back below April 2nd levels.

So, you know, after the press conference with Scott Besson, we know that they're at 30% for the next 90 days, at least if we take it at face value. I think the Chinese messaging is slightly different. That's at least my take. They're trying to communicate that this is like a first step towards some sort of short-term peace, but it doesn't necessarily mean that a big plan has been agreed upon. They just agree on...

trying to figure out what to do to reconnect to each other, which is, of course, a major U-turn compared to where we were just a few weeks back. It also means that a lot of the ships headed towards the US will be able to unload their goods at lower tariffs, which is obviously much needed. So no matter how you describe this, it has to be taken as a positive.

you know, it's as simple as that. And the market reaction is not

It's not massive, but we obviously see bond yields up, gold down, equities up, etc. Everything is textbook, given that we've seen a U-turn on China tariffs. And it was much needed, given the risk of the embargo spilling over to empty shelves and all of that in the US. Yeah. I want to just grab a quick listener question before we move on to more of a classical macro analysis here, Andreas, from Tom here. Hi, fellas.

Does the US dollar continue its long-term downward trend in light of the China-US tariff walkback? I struggle to see an outcome that does not include a weaker dollar ultimately here. I think it's one of the few areas where they actually have something in common because the Chinese administration is very keen on stimulating domestic demand.

And it's actually a good thing for domestic demand to have a stronger local currency, especially when you look at it from an import perspective. It's also good for domestic demand if the Chinese administration is capable of actually stimulating the economy. And it's much easier for them to do so if you have a weaker dollar. And on the other side of the equation, you obviously have the U.S. administration saying,

with two key strategic goals here. One, close the trade deficit. Second, get the Chinese to buy some US treasuries again. And the weaker dollar solves both these issues. So my take is, yes, when these talks conclude at some point, I think they'll end up

with some sort of common understanding on the fx regime from here including a weaker dollar very interesting how do you do that in a trade deal can you like say uh we're sending some limits for the dollar is it more of an understanding that we're both walking working in this direction well they obviously need to provide the market with some dollar liquidity in return for this we've discussed this topic over and over here at real vision

Whether it's directly from the Federal Reserve is debatable since Jay Powell is not really playing ball. So they'll probably have to come up with some creative solutions from either the U.S. Treasury or from the private banking system to add dollar liquidity to the system.

but they can ensure that the dollar liquidity is plentiful. Also outside of US borders, they can probably also negotiate some deals around swap lines, etc. Allowing the Chinese easier access to dollar funding. So I think it's manageable, even without Jay Powell necessarily being in the same boat. So sure, Scott Besson is very well aware of

the you know liquidity wizardry that he uh he needs to summon here okay andres let's have a look at some of the macro factors that we usually dive through here because i think that this is a very interesting crossroads in markets if we are hopefully getting a little bit past this entire trade issue so more liquidity coming up a growth picture slowly improving

Yeah, that would be my best guess now. I mean, we're obviously now casting the US economy and it started plateauing already last week, you know, from a very, very steep downwards trajectory. And my assumption would be that we, you know, get some sort of relief in the US economy over the next one or two weeks. And that's, you know, all you need when the base case was a recession. And, you know, the market base case kind of was a recession just a week ago. Yeah.

I think this is another good example of, you know, how the Trump playbook is in a sense. And I need to remind myself of this every single day. And, you know, I'm not always able to, to be honest, but the rhetoric is sometimes not synchronized with the reality of the administration in a sense, because

We've seen that over and over. Big, big, big words trying to force some outcomes and they've probably received some light,

either purchasing targets from the Chinese administration or something very concrete in return from taking these tariffs lower. 100,000 Tesla. I honestly think they will end up with some very concrete purchasing targets as they did in the first trade deal they signed back in 2019 during the first Trump era. So,

Yeah. It's, it's something you have to remind yourself of all the time that, you know, Trump is, is a man of big, big words. Uh, and by the end of the day, he's trying to force some outcomes and he will dial back to get some of these outcomes, um, sorted basically. Yeah. It's a bit of a shock and awe tactic essentially. Stop and go policy basically. Complete shock therapy to everything. And then things will, we'll, we'll find a natural level relatively quickly. I

And we're almost back to pre-liberation day levels on many accounts. Okay, Andreas. But, Michael, over the weekend, I think it was very, very interesting to see some of the most bummed out trades performing well. Even Ethereum was on a tear on Friday and Saturday, I think it was. Getting a lot of love out there on the social media. Yeah. After a...

Yeah, a plethora of abuse. You know what I mean? But Ethereum is, I don't know whether it's back, but after a few days of positive trends, at least some people there are tweeting positively about it. The point here is that those things such as Ethereum have been used as

short sellers in what I call delta neutral strategies. So take the example of the world of crypto. During this liberation day meltdown scenario, I think a lot of people, and we have anecdotal evidence of it, but we also have positioning data supporting it. It seems like those people trying to find relative value in the crypto space used Ethereum as the short vehicle against some long vehicles.

And, you know, when you get a dial back of the initial exogenous shock leading to this short selling of Ethereum, you obviously have some people dialing back on their positions as well. And I think that's basically what's going on here. Another interesting thing and exact same logic is that we see oil prices going higher very swiftly after this announcement on Sunday.

Again, because a lot of people used short oil as a vehicle to kind of hedge against everything that was ongoing. So you need to be very much aware of the vehicles used for short selling during the month of April, because they will be tested very, very, very fiercely by the market in the next couple of weeks. Before we get to this week's bell curve, Andreas, sort of the climax of the show. I know you love those. Let's just touch upon, we talked liquidity, talked a little bit about growth.

We're getting some inflation numbers this week. I don't know if we're getting answers on that, but I mean, sort of the final component, where do you see that? Yeah, so pro-macro subscribers will be able to read my entire takeaway from this Geneva meeting. But I think one of the key battlegrounds for the next couple of weeks is whether inflation expectations will drop again. If you look at survey-based inflation, inflation

no matter whether you use the University of Michigan survey or the New York Fed survey, we've seen a material increase due to people getting scared about inflation because of tariffs. But now you've basically dialed back the initial issue. So I suppose that inflation expectations will have to drop again. And that's what's a bit surprising to me watching the price action today, because it seems like the market is still in camp inflation,

despite this truce on tariffs. I think Wednesday's CPI report, no, sorry, Tuesday's CPI report, it's typically on a Wednesday, but Tuesday's CPI report this week will be another eye-opener that inflation is not seen anywhere. And, you know, even during the month of tariffs here, we haven't really seen price increases in all of the price data that we follow live. So,

If retailers and likes did not increase prices during the month of April, why should they increase them during May and June? Now that the issue has been at least partially dialed back, I don't really see that. So maybe the outlook and the outcome of all of this bullshit is...

growth expectations rebounding from, you know, recession-like levels and inflation expectations retracing from stagflation-like levels. If inflation expectations drop and growth expectations increase, that's what we call a Goldilocks environment. That's what I was there to that. Because what more can you ask for? I mean, not a lot. So, you know...

I'm not sure whether this was always the plan, but if you look at various forward-looking indicators for the second quarter, it looks pretty bullish. There's a saying in Denmark, Andreas.

a tale of a Norwegian who's banging his head against the wall. And his friend comes up and asks him, why are you banging your head against the wall? It feels so good when I stop. That's what we're looking at here. Thanks so much, David, because everything rebounds once you're out of the other end of it. I don't know. Well, I guess you alternate the...

need to assess this come year end when you have like the final score yeah um according to scott besant uh most trade and terror stuff will be sorted by year end that's his new like ultimate deadline uh and my best guess right now would be that uh yeah we're a lot higher than we are today very interesting okay address so golden goldilocks scenario right now yes sounds incredibly interesting

We'll get a little bit back to how to position and timing for that. Let's get to the bell curve, because I want you to explain this. It's my absolute intention, we'll get it on the screen here, to bring a bell curve every week. An IQ bell curve, I should say. Bell curves can be a lot of things, but this meme, you probably all know it. This one has a little extra feature to it, which is sort of a, I don't know what you call those, two coke cans with a line in between them, walkie-talkies. So...

Obviously, the middle ground, the pump is over, and both the low end and the high end are connected and expecting a bull run essentially here. The retards are coming. The retards are coming. I actually have a point to make there. If you look at flow data, the retards, sorry, actually outpaced those supposed to be the professionals. So joking aside,

The retail crowd bought the dip much earlier than the institutional crowd. And the institutional crowd is still not...

uh fully um you know reinvested after this whole liberation day shit show and i think that's really really uh interesting and big kudos to all of you out there buying the dip because that was the right thing to do uh when all of the professionals um ran for the hills yeah i expected five percent inflation and a huge recession which i also expected myself to be completely fair so so address uh

I just want to... And I think, you know, to be honest, and that's one of the things that I really like about, you know, the US investor sentiment and Americans in general, they, you know, they buy the dip because that's how they're designed. I mean...

uh, a better tomorrow than today. Reprieve rich. Yes. Uh, and, uh, I, I love that culture. I have to admit that you don't get that a lot in Northern Europe to be fair. It's, it's a lot more gloomy. So Andreas, um,

a question actually summing up my question as well here from david what are your favorite trades investment giving the trade news and the likely lower cpi numbers with this week so this goldilocks scenario uh what are you looking at um yeah so i'll highlight one trade uh and then you can go have a look in our portfolio uh in the pro macro tier to find the rest but if inflation surprises on the low side

I think the whole consumer discretionary sector is the one to watch. Why is that? Well, you do not take a lot of discretionary spending decisions amidst the uncertainty that we saw during April.

And if inflation is on the rise, you focus your money on necessities and not on discretionary spending decisions such as buying a Tesla and so on and so forth. The two biggest names in the consumer discretionary basket are Tesla and Amazon. I think they should both thrive on the back of what happened in Geneva.

You could argue that for Tesla, there is a risk that the Chinese will demand some sort of access to the US market on cars, but I don't know. That's at least the risk. But I think Tesla, Amazon, the likes, they look incredibly good, given that they've been bumped out, given that we are pretty far from the levels we saw pre-liberation day in that particular niche of the equity market.

So discretionary spending will rebound on this. That's my best guess. Very interesting, Andreas. Just time for one more question here related to the performance of pros against the retail crowd here from David again. Doesn't the price action tell us that the pros were actually especially short tech during this month? Yes, and maybe even more so short Tesla. Yeah.

And we've alluded to this over and over and over again, that especially outside of the US, a lot of big institutions sold US tech names in response to this whole tariff debacle. And I'm not really sure whether I follow the logic behind doing so, because it was more probably just...

a a symptom of that being one of the more like simple uh expressions of an anti-you of a stance in a sense uh so you're absolutely right david and we can also track that from various positioning measures that they uh yeah they haven't been as under invested in the whole um exponential trade uh than right now for quite a while maybe since late 2022.

So I think there's, you know, look at NVIDIA and it's still far from peak levels. And as we discussed after the DeepSeq scan, all of that, you know, lower prices on GPUs will actually increase demand over time. And as soon as the business cycle picks up, that's very, very good news for the semiconductor companies. TSMC had tremendous numbers out for Q1, by the way. I think it was up, sales were up 45%, something like that.

Should we just touch upon finally, Andreas, a bit of news that affected us a lot in Denmark yesterday, that Donald Trump is trying to push down prices on prescription drugs, most notably obesity drugs, a lot of them produced by Novo Nordisk, Eli Lilly, et cetera. From a macro standpoint, another disinflationary move? Well, yeah. On that specific sector? Yeah, but... Yeah, and...

You don't see an outcome here, including higher prices, right? I think it's one of those things that have been tried before. And they even tried more or less the same exercise during the first Trump era without succeeding.

Uh, we've obviously seen this Bernie Sanders led committee, uh, in the Senate during the Biden, uh, administration as well without a lot of luck. Um, so let's see whether, um, there will be any merit to, to, to this executive order. What they can do is obviously to impact the price levels in, um, uh, in Medicare. Um, so, uh, uh,

The public part of this, sure. I'm less certain about the private part of it. Yeah. Makes total sense, Andrea. Any final points? What can people expect from your State of the Union this Wednesday if you tune into that?

So what's really interesting is that the tide has turned in terms of relative macro momentum in the US versus Europe versus China. So what we do in this state of the unit is that we basically look at the live macro momentum across the globe through the lens of our now casting techniques. And then we go from macro to micro, including some very, very specific cases on how to utilize this environment.

And we've had tremendous luck with some of our European bets during the first quarter. The tide is now turning a little bit on these things. And we'll have to see whether the flow picture will fully revert to the US, which is probably my best guess right now. But you'll have to watch the whole State of the Union speech on Wednesday to get all the details. Yeah.

I'm anxious to see whether the producers here at Real Vision, all the time when we do these large Q&A sessions, they group the listener questions into thematics. And they're used to label questions around Europe in the emerging markets label. I'm anxious whether we'll get back to that. It is our producer, Brian Caputo. So even with that Italian surname, he's still labeling us in the emerging market here. Old country economy. Thanks, Brian.

So thanks to Brian. Thanks to you, Andreas. Thanks to everyone for watching. Tune in to Andreas' State of the Union tomorrow and be sure to check back on Monday where we're back with the latest news in this macro world. Thanks a lot for joining. We'll see you next week. If you liked this episode, I'd love for you to head over to realvision.com forward slash join for a free membership. Start your journey today to unfuck your future. Just one click away.

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