Shownotes Transcript
Hi everyone, I'm Raoul Pal, the CEO and co-founder of Real Vision. Here at Real Vision, we're committed to give you the best knowledge, tools, and network to help you succeed in your financial future. If you're enjoying this podcast, 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. Hello everyone, and welcome to another edition of Macro Mondays. My name is Miguel Rosenwald. I'm your usual host.
And today with me once again, Andreas Steno. Welcome back to the show, Andreas. Thanks very much for having me, Mikkel. Lots of stuff going on. And, you know, yeah, we barely get any sleep because of Trump and all of his, you know, communication just this weekend. It was, it was...
More than enough. Let me put it like that. We have a lot of, a lot of ground to cover in these 30 minutes. This is our weekly dive into the world of macro to give you to give you our attempt at cutting away all the noise and look at what's actually going on underneath the hood. Um,
Remember, this is a sneak peek into all of the analysis and research that we do at Real Vision. If you want to go even deeper and even more actionable, you have to sign up for the pro macro package that gives you access to our couple of weekly articles, as well as our calls with Raoul, our very, very popular monthly pro macro calls where you can get in with your questions. We also take listener questions here, so please post them in the comment section of whichever platform you're using and we'll get along to those along the way.
Remember that even though we do our best and we have a very structured approach to our analysis, that our trade ideas might be... Sometimes maybe good, sometimes maybe shit. So, Andreas, we're getting closer to Liberation Day and it seems like Donald Trump is getting very, very impatient with the number of current issues. Where should we start? Russia?
Yeah, we can do that. I've been thinking a lot about this liberation day. It's obviously on Wednesday, and I'm not really sure what to expect from it. Maybe we're going to be liberated from all of our profits from last year. That's one way of looking at it. At least the market doesn't like what it sees.
And I guess that's kind of the backdrop today. We've had a terrible, very nasty day again today with everything that came out of the White House over the weekend. But I'd like for you to unpack what's going on between Trump and Putin, because, you know, that was kind of a surprise to me to see him sort of ramp up his rhetoric against Russia. So, you know, is this deal off? What's going on?
No, no, I don't think so. I think this is very much what we expected to happen sooner or later. So far, actually, I think it's been surprisingly smooth, the entire negotiation process with Russia. They more or less agreed to a black seat truce. They sort of tiptoed their way towards a general peace agreement. But at some point, this had to become a little bit more rocky or bumpy road. We know that Putin is in a much better negotiation position than the Ukrainians. He's...
it's not a problem for him to carry on the war. And that gives him all the leverage that he needs in these negotiations. So Trump is obviously trying to muscle through a deal. He's trying to use all the available methods of pressure that he has. And at some point, he was bound to become impatient because the time is working for Vladimir Putin. Trump has promised a quick peace. He cannot really drag this out for too long. So I think this is a classic example
at the negotiation where Trump is trying really to up the rhetoric. So obviously he told reporters that he was pissed off with Vladimir Putin, that he was considering increasing sanctions, not necessarily on Russia, because what more can you really increase at this point, but at third-party countries who are still buying Russian oil, that he would increase sanctions or tariffs massively on them.
So obviously increased rhetoric also against Iran. He threatened to bomb Iran if they do not comply and begin to make progress in negotiations with them. So it's very clear that Trump sees these two negotiation paths as interlinked and that he's very displeased with the current rate of progress. Things are simply moving along too slow. But Mikkel, let's assume that he actually needs –
to turn up the heat, so to speak, against Russia via these, I think he calls them second order tariffs, tariffs on countries buying stuff from Russia. When we look at Russian oil flows right now, they're mostly directed towards two countries,
India and China. And India was already at the top of the leaderboard of the countries that I feared for, basically, ahead of Liberation Day because of the very, very large import taxes that they uphold. So India risks a double whammy now of second order tariffs because of their purchases of Russian oil and obviously these reciprocal tariffs coming online on Wednesday.
So India looks to be-- the Indian business case looks really bad right now, let me put it like that. And China, which was otherwise a case doing really well for the first couple of months of the year, is not doing well either. So at some point last week, we got some hints from the Trump administration and some leaks that they could
maybe decide to soften up the package a little bit on Wednesday. And now we're basically back at a very firm stance. So it's just tricky to navigate these back and forth headlines. And, you know, I'm not going to hide it. I have no clue for Wednesday. You know, none of us got any firm clue. It seems like it's down to Donald Trump himself to decide on the levels and the geographical span of these tariffs. His
Economic advisor Hassett was on air yesterday saying, well, I cannot front run what's going to happen on Wednesday. We'll allow Donald Trump to decide. He's seen a lot of analysis this week, blah, blah, blah. So I guess his lieutenants, they're just showing him the numbers and then he will decide, which is, you know, he acts more and more like a king in that sense. Hi, Raoul here.
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it's becoming really, really both tiring and tough to deal with for investors throughout the world. We just need some clarity now. But the thing is, once Trump sets these new levels of tariffs, he loses a little bit of leverage. He loses a little bit of element of surprise in these negotiations because he's
At some point, he has to set these tariffs in stone if markets begin to act again. And it's a very, very tricky situation. I think we are going to see more of this back and forth between the US and Russia. But they are moving towards a deal. They are talking also on some of the financial sanctions in Russia. That's going to be really, really interesting if you reintroduce Russia to the SWIFT system, if you unfreeze some of the frozen assets, etc., and perhaps initially on agricultural exports.
So there are still a lot of movement in the talks between the US and Russia, but Trump is obviously impatient with this. He wants this to move along a lot faster. Yeah, but I mean, at least if we take the stories at face value, Putin has asked for
the reintroduction of a specific Russian bank to the SWIFT system. But that Russian bank cannot be onboarded in the SWIFT system again, unless the European Union is willing to accept that. It's not something that Putin and Trump can agree. Also because of correspondent banks being in the European Union, all sorts of technical financial infrastructure that I'm not going to bore you with, but just goes to show that even though Trump and Putin agree
probably would love to be able to strike this deal on a standalone basis, on a bilateral basis. They really cannot by the end of the day because some of these technicalities are also guarded by the European Union.
Exactly, which brings us back to the potential negotiations between the US and the UN tariffs, which may well include some of these points as well. But anyway, Trump is really trying to move things along here. Some other developments this week, Andreas, we had talk that markets really didn't like. Perhaps the talks about a third presidential term for Donald Trump. Why is that something that markets don't appreciate?
Initially, the market basically cheered on the prospect of Donald Trump becoming a president. I don't think the market, per se, dislikes the economic policy mix of Trump, but I think there's been an underlying assessment, and I shared that assessment, to be honest, that tariffs were
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Thank you.
Pardon my French transitory nature.
that they were used as a negotiation tool, that they would not be implemented with a more sort of long-term viewmaking process behind them, and that we ultimately should expect global tariffs to sort of recede once the dust settled on all of this. I still think there's a decent chance that as of the Liberation Day,
will get tariff news in a more benign direction since, as you say, it sets the scene. From there on, we probably see the negotiation process where, say, India, China, Europe tries to get something in return for lowering some of their trade barriers, something like that. That's always been my base case that we ultimately ended up in such a scenario where we get some slow raise to the bottom.
on trade barriers, but we have a very, very bumpy road before we get there. And Michael, please show the chart on gold. I think we have it with us because I've said for a while that the front running that we're seeing right now in the US economy
Basically, because of the Liberation Day upcoming, it's basically spiraling out of control to a certain extent. If you look at the import volumes in the US economy of gold, of copper, of everything related to these tariffs, it's something you've never seen before. Volumes are extreme. Let me stress that, extreme. When you calculate GDP, you account for the net import.
So if you import more than you export, it's seen as a negative. So that's why the US economy currently looks to be in really bad shape. But I think it's a false flag because it's more of a technicality. You import a lot of stuff before the deadline, and then you probably import a lot less during the second quarter here. Why should you when you've imported all of the stuff before?
So in my opinion, we're going to see a rebound in the US economy also from sort of a technical standpoint after Liberation Day. Not because a lot of stuff has changed, but because we're on the other side of a deadline, which is very important. And the gold price again today, right, we're heading for us, to use Elon's words. How about a rate cut and dress on the back end of these Liberation Day here? So
I think the typical answer from a central bank to a supply shock such as tariffs would be to say, this is something that we'll look through. So we don't care about that one-off effect on import prices. We'll try and look at the medium term. We'll try and look at inflation expectations. We'll try and look at growth expectations. And if I'm right about that, they can easily cut interest rates in either May or June. And it's basically where the market is at.
is guiding the Fed currently. We've seen a tremendous repricing of the Federal Reserve on Friday and here again today on Monday due to the adverse effects on growth from tariffs and so on and so forth. So my point here is just if we can agree that a tax hike, which it essentially is, we can always discuss whether the tax is paid by the exporter, the importer, or the consumer, but it is ultimately a tax on someone. If that tax hike is
is a one-off in nature, meaning that Trump doesn't just repeatedly increase tariffs, then I think the Federal Reserve will treat it as a tax hike. And that's not something they'll respond to by bringing interest rates higher, even though inflation may print above target for a prolonged while as a consequence of it. And then we have the other part of this coin, Mikkel, is that if I write that everything has been imported to the US ahead of deadline,
We're basically talking about products that are not being tariffed, right? Because they were imported ahead of deadline to a large extent. That basically means that this whole consumer price increase is postponed. It's not going to be... It's going to flatten out the inflation shock, essentially. So ultimately, I think we have a very different market ahead of us after Liberation Day, but it's been...
It's been tiring, to say the least. Okay, Andreas. I just want to pick up one thread. We've had some questions on this as well. We discussed this with Raoul last week as well, whether we are close to the bottom in US equities. I just wanted to show you this chart on the paths ahead for S&P 500 after this 10% correction.
you, you, you posted this chart address, uh, and it's, uh, the main point here is if we're in a recession, we can go even lower. If not, we are looking at a, at an upwards correction. What, what's, what's your assessment of this from the next say one to two months? Yes. So first of all, if you look at the chart, right, we haven't updated it with today's closing value because we would actually, um, be reaching for, for, for lower lows. And, um,
I think the basic conclusion here is unless this is some sort of structural event or a 08 style crash, it's very hard to see a lot of downside from here. And if you look at trends like the dollar in weighted terms versus the rest of the world, if you look at trends in bond yields across the globe, if you look at trends in
in money growth, we're talking about some sort of accumulation zone here. It's hard to say whether this is the day where we bottom or it's tomorrow or next week, but we're getting there unless you think a 2008 style crashes on the cards. It would require Trump to get even more hostile in negotiations than what he is right now to bring us there. As I said,
I think it is misunderstood by many. The reason why the US economy looks so quote unquote shit right now, pardon my French, is because of the technicalities surrounding front running of tariffs. Okay, Andreas, let's look a little bit beyond the US. We're going to talk a little bit about France and China here. We have a question coming in from Will here. Could you comment on the sharpness of the recent Nikkei sell-off?
Yeah, it was 4% this morning. It felt like the Black Monday back in the late summer of last year. I think even though there are differences in terms of drivers, I think a lot of what we're seeing in market resembles or feels reminiscent of what we saw in August last year.
Basically, as the dollar-yen trade started moving ahead of the slowdown in equities, we saw some of the same moves in Nikkei. We had, I think, almost a 10% drop, maybe even a tad more in Nikkei back in August. This morning felt a little bit like that. And the point here is that we're seeing a repatriation to some extent of
flows from Japan, from China, from Europe out of the US back towards home soil. That's also why the dollar is weakening. We also saw that back in August, September of last year, and it ultimately led to a rebound in the US. I think something similar to that dynamic is very likely this time around, especially-- and I know you want to bring the discussion further and maybe allow us to shift gear a little bit to talk about China, Europe, and Japan for that matter.
There's nowhere to hide currently. In January and February, you could hide in European or Chinese equities because of some sort of light story that they would see inflows from their own pension funds and so on and so forth. But that story is over as well. Equities are falling off a cliff in Europe and China and Japan as well today. And I think that is exactly why
what we saw as Nikkei plummeted back in August as well, that a local story turned global. And that's where central banks start to react. So I think this is much needed to get a more benign negotiations environment. Take this example, Mikkel. I think European equities were up, say, between friends 15%, 20% in January and February, combination in parts of March.
When equities are up that much in Europe while they're suffering in the US,
the European Union holds no incentive to strike a deal quickly. If European equities start to suffer as well, they hold incentives to strike a deal because equities tell a story about the local economy to some extent. I think what we're seeing right now with this sell-off going from a local one to a global one will eventually lead to a much more benign negotiation
environment because both parties certainly have a reason to agree. Yeah, a more level playing field. So to sum it up, this is a matter of China and perhaps especially Europe,
having gained in the back of this and now needing some tailwind from exports to the US essentially that are missing right now. Yeah. And when US importers were front-running tariffs, they were obviously front-running them via orders to the rest of the world. Otherwise, you're not importing anything. So on the receiving end of all those flows were
German manufacturers, Chinese manufacturers, et cetera. So they're not going to see this artificial boost to their order books in April, May and onwards because that tariff deadline is no longer there. And so, Andreas, just one question that we didn't get around to last week either from JP. At what level do we need to see the DXY fall to for China to be compelled to pull out the bazooka for Global M2? I like the wording here.
I'm not sure you should focus on the DXY since it's so Euro heavy in terms of that discussion on US-Chinese relations and the ability of China to actually boost the local economy. I think the seven handle has always been very, very important when discussing dollar versus the Chinese yuan. We're obviously not there yet. So everything below the seven handle is probably what to watch. When we get below seven, it's much easier for the Chinese authorities to navigate.
On top of that, we've seen a weaker dollar versus a lot of currencies lately, basically, I guess, in anticipation of weakness in the US economy versus the rest of the world. I'm not overly sure that you can just sell the dollar versus everything from here. I think you'll need to be more picky, not least versus Europe, since the whole
Europe breakup story is kind of back today because of a very specific story from Franz Mikl. I don't know whether you want to say a few words around that political story, because I know that parts of our audience will love to hate a little bit on Europe for doing this.
It's a very spectacular story. So Marine Le Pen has been the main opposition politician for the right-wing party in the national rally in France. They have tried to get the presidency for a number of elections. They've always come in second, mainly because the rest of the political system has...
got into coalition against them and basically allied against them. Now, they were looking very, very strong for the upcoming presidential elections. And their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their, their
Let's leave opinions aside. I was quite shocked by this verdict.
I think this is a very, very good case for the national rally. This puts them in a very, very strong position for the next election. First of all, I don't think Marine Le Pen was their best candidate. I think they will have a much better chance with Bardella, who's now likely going to be the frontrunner. And this gives them sort of a martyrdom. They now can point to the rest of the political establishment trying to ban them from the elections.
And I think a lot of the problems that France are facing is what's been driving a lot of elections in Europe over the past years. So let's see if we get some appeals case. In any case, this will be taken down by a lot of Frenchmen as the old political establishment, the globalist establishment trying to ban the Le Pen party once and for all. So I don't know.
Last year, when we had the turmoil around the French government and the French parliamentary elections, I know that many investors, perhaps especially in Asia, were quite afraid of this right-wing government. Do you think that that's still going to be viewed as sort of a tail risk for investors? At least the immediate response to this verdict was to sell French bonds versus other European bonds. So I actually guess...
that the market is taking the same approach as you just did, Mikkel. This is going to be a tremendous platform for the National Rally Party. I had the pleasure of actually meeting Jordan Barillat, whatever his name is in French, in Denmark a while ago. He's
he's actually much more popular than Marie Le Pen is. Some of you will remember her father, also a Le Pen. It's been a family party to some extent for decades. Now, the opportunity is there for a young rising star in that party to shine unless
unless Marine Le Pen's niece will be appointed as the next leader, which is not ruled out. And I guess that would be the biggest mistake they could do. But in any case, I think this is a negative for the narrative around Europe. And it rhymes with what I said earlier, that the growth picture is rolling over in Europe because of a lack of orders. And it
It emphasizes what I just said that I think the anomaly that we had in the first quarter concluding today of extreme outperformance of US assets seen in Europe and China, etc., that it will end by the liberation day. Not saying that everything will just fly away.
from Liberation Day and onwards. But I think the whole notion that the rest of the world will do fine without the US is going to blow into smithereens, basically. So just to sum up, to give people some options here, you're saying that there are no safe havens left. That's not very actionable. That's the opposite of actionable. I mean, that's true for equities, but some options in fixed income commodities, what do you see up there?
I'll try and summarize. I think US assets will eventually rebound on the other side of Liberation Day. I think you should worry if you're massively long Europe or China here, even though we've been banging the drum in that exact story through the early stages of the year. This is a good tactical opportunity to scale down on that, in my opinion.
And in the commodity space, you have a tremendous gold trend going into this tariffs deadline. I'm a little bit less certain after Liberation Day. And I especially think that copper looks like a massive sell case on the other side of Liberation Day. Since we don't have any tariffs yet, maybe they'll come at some point on copper. But it trades with a massive premium, and we've seen the same kind of front running. And then in fixed income,
You know, it's actually been a good idea to take this administration at face value. They've been pretty damn certain about this terrorist approach to negotiations. They've told us over and over and over and over that the purpose is to bring 10-year bond deals lower. They've succeeded to some extent so far. But as long as that's the approach, that's probably something you should listen to.
Great stuff, Andreas. That's all we had time for this week. A couple of questions we didn't get around to. We can get those next week.
Remember to sign up for Real Vision to get access to my talk with the great Marco Papic tomorrow on everything geopolitical. We're going to take a deep dive into that. Keep posted for our shows here. There's a lot of ground to cover. We're looking ahead at Liberation Day, obviously. There will be a lot to talk about next Monday as well, I suppose, Andreas. So thanks a lot to you for joining from your shiny home studio there.
And thanks to all of you for joining in on various platforms. We'll be back 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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