The Big Dollar Reset Amidst Tariff U-Turns | Macro Monday ft. Andreas Steno & Mikkel Rosenvold
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Hello out there. Welcome to another edition of Macro Mondays. We're recording to you live here from Copenhagen. After yet another action-packed week and weekend, Andreas, no rest for the wicked. How are you this afternoon? Well, all good. I think it was a really, really interesting week last week, especially...

the size that we have of so-called dollar debasement. The dollar traded in a very odd way last week, and it's obviously something that a lot of people focus on right now. So I think we should spend some time on discussing the dollar outlook as well today, because it's very rare that we see a disconnect between bond markets and foreign exchange markets in dollar terms, as we saw last week. It's very, very rare. I cannot underscore that enough.

We'll do that in a minute.

That also gives you access to no less than two Ask Me Anything shows this week, one with Raoul tomorrow at 2 p.m. Eastern Time, and a dress you host in Ask Me Anything on Wednesday at 11 a.m. Eastern Time. So lots to look out for for pro-macro subscribers.

This is obviously our weekly free show. So this is the show where we try to cut through all the noise and give you the macro overview that you need. And perhaps, Andreas, a good time to play our usual little jingle here, because especially perhaps in times like this, where we are trying to decipher what goes on within Trump's head, remember that all our trade recommendations and research might be... Sometimes maybe good, sometimes maybe shit.

Yes, as usual, Andreas. And before we dive into the dollar and the outlook for that, we have a couple of trade ideas for that as well. We have to touch a little bit upon tariffs. I just want to show you this meme for starters.

Here we get it on the screen. My chairs aren't working. Have you tried turning them on and off again? I mean, Andreas, we talked about last week, what was it going to take for us to be at the bottom? We talked about this. It could be a central bank intervention, the Fed intervening, or it could be a Trump U-turn. So it seems like over the past week, we had, was it two or three, four U-turns? Plenty to go around. What do you make of all this? So, you know, obviously we got...

the U-turn versus all non-Chinese countries basically on earth. We got that last Wednesday. And then we got kind of a sneaky U-turn late Friday on everything related to semiconductors, laptops, desktops, et cetera. Since...

I think the lobbyism from these big companies importing, for example, iPhones from China to the U.S. was very efficient towards the end of last week. I think that's more or less safe to say, right? And, you know, by the end of the day, at least everything really important exported from China to the U.S. is now exempt from tariffs.

I know that they export apparel and stuff like that as well. And a lot of the stuff that you see in Walmart is from China as well, I think roughly 70 to 80%. But we're not talking quote unquote necessities to the same extent as these semis and laptops and iPhones, what have you. And then yesterday, Trump tweeted that nothing was off the hook for

And nothing was exempt, even though the actual press release from the White House on Friday was called clarification of exemptions. And Howard Ludwig then started talking about so-called sectorial tariffs upcoming over the next month or two after a review from the administration. So I'm actually not sure that they will leave out tariffs on iPhones.

in layman terms, but they'll have to investigate how to do it. So they're essentially just postponed as of now, in my opinion. RAOUL PAL: Hi, Raoul here.

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And perhaps that investigation could have taken place before all this, but that's the other issue. Some of the communication around this was that the smartphones and computers had been thrown into the fentanyl bucket, essentially. So the older layer of tariffs put on to combat fentanyl. And to...

to Trump's defense, everything that he sells in his own Trump store, all the mergers that he tried to sell that's made in China, all that seems to be in the high level of tariffs, but apparently not smartphones, et cetera. So yeah, U-turn on U-turn. What does this tell us, Andreas, about this process? Can you really grasp anything and understand anything? How do you view this entire process? If you look at the market price action last week,

Very weak US dollar. Aggressive attempts to sell US Treasury bonds into every close of the US session. We saw that Wednesday, Thursday, Friday. Very aggressive price action in US Treasuries. And

You know, it's ultimately hard to prove at this juncture since we don't have live flow data. But my impression, having watched this price action, is that it's actually local institutions trying to force Trump's hand with dollar selling and U.S. Treasury selling simultaneously. It seems like there is some sort of a Trump put around 450 in the 10-year bond yield.

We've seen U-turns when the bond market started shaking, basically. And using Trump's own words here, we had a little moment in the bond market and I fixed it. That was basically what he said late last week. You could argue that he traded the issue as well, but he ultimately also fixed it. That's fair by backtracking on some of these policies, right? So my point here is that the market...

is now at least partially in control of the US policy mix. The market is forcing Trump's hand here. And when you say that markets are in control on the policy mix here, does that mean that Scott Besant has taken the reign, as some suggest, you think? Yeah, I would assume that.

that Trump, sorry, Scott Besson's phone was, yeah, was used a lot last week. Let me put it like that. I think a lot of hedge funds, banks, CEOs, et cetera, called Scott Besson and told him that this was a really bad idea. And at the same time,

We saw how market participants basically forced Scott Besson's hand and Trump's hand by selling US treasuries in a very aggressive way. And when you see selling of the local currency paired with selling of the local bonds, the local sovereign bonds,

We're talking about an emerging market like price action. You've seen that in the UK a couple of times since they ran out of fiscal capacity. You've obviously seen it in the range of emerging markets that you have a currency crisis and a bond crisis at the same time. But I don't think I've ever seen it in the dollar market during my professional career. It's extremely rare. And

This is also slightly worrying, to be honest, because we're talking about the reserve currency of the world here. I think this chart is very, very telling. It's updated on Friday. And as you can see, we have bond yields and foreign exchange developments basically pointing in opposite directions. And as you can see very visually here, it basically never happens. So why has this dynamic shifted right now, Andreas? This makes no sense to me.

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Thank you.

I think this, you know, you can ultimately look at this as a credibility issue. Because if you're

Currency is not gaining ground when bond yields increase. That's typically attracting FX inflows if you get a higher yield. Something is damn wrong. And I think this is related to, first of all, the flip-flopping that we've seen on trade policies, but also, and this should not be neglected, the story around the Trump administration taking the first legal steps to

to force agency heads to report directly to Donald Trump, including potentially Jay Powell. You know, I'm not saying that there's a clear path for Trump to lay off Powell here, but just the mere fact that we're discussing whether that could be within the outcome space that Trump decides to forcefully act against the Federal Reserve.

It's a part of what we saw last week. And it was a story that got a lot of traction towards the end of the week and obviously not good for the US credibility. No, no. Just to clarify on that, what's happening is that Trump is trying to fire a couple of heads of independent agencies. He's not trying to fire Jay Powell yet, but there are people in similar positions and with similar layers of checks and balances when you want to replace them. I think it was the Labour Party

union relations council, whatever it was, essentially he's trying to get the Supreme Court to accept that the president has the power to replace these figures. And if he's allowed to fire them, then he's allowed to fire Jay Powell, which would be... Potentially, yes. Potentially. That doesn't mean that he'll do it, but it opens up that...

that entire playbook so uh yeah absolutely lots of risk interest uh another thing in dress before we get get further into the dollar here the um

The economic climate we're looking at here, this is a chart I saw of, this is just the past eight weeks. What tariffs are you working under if you're producing phones or if you're importing phones, solar panel and video game consoles? This is just in a span of nine days here. So if you're an importer, if you're a producer, it's very, very hard to take decisions right now. How hard is that going to affect the growth in the US economy, you think, Andreas?

I guess the jury is still out on that, right? Because one thing is to make a U-turn on tariffs, but we don't know whether the real economy is actually able to function under this kind of uncertainty.

And I think, you know, I also included a chart on the US policy uncertainty, basically measured in a quantitative way. And we're talking uncertainty that at least matches what we saw back in March 2020 with lockdowns and all of that, which was, you know, in many ways, the most uncertain environment seen in new financial history, right? That

month of March was absolutely crazy. But we've seen trends that feel kind of reminiscent of that. And if, you know, and I stress, if there's a logic to everything they're doing,

So it could be that they're, you know, trying to sort of nuke the inflation cycle by, you know, resetting the market in a sense here. That's the only thing that seems logical to me. But other than that, it's just it just seems like a big mess. And this, you know.

you can use this uncertainty index as a pretty decent gauge of life growth. So I think there is a negative impact quite clearly from this lack of certainty. If you're a phone producer or a producer of video games or whatever it is,

you'll have to reassess your strategy every other day right now. And that's obviously not feasible. Then you stop making decisions and stop making major investments potentially. So, yeah.

Yeah, and that's essentially why, Mikkel, we should probably expect this very low hiring environment to continue. Because why would you hire a lot of people if you don't have a clue whether tariffs are 20% or 100% in a month from now? You basically don't really know. And that's what I've said all along, that I don't necessarily see tariffs...

as per se a bad idea over the long run. I understand that it's a clever way of taxing goods in an increasingly digitized economy, but you need some clarity on the direction of travel and the level. Otherwise, you cannot take any decisions. And I think what would have been the smart move here was to say to Apple, okay, we'll increase tariffs by 5% every month or every quarter until 2030.

Tell them, okay, you need to bring this back over time and we'll continuously make it increasingly compelling for you as a case to move back. But not this flip-flopping and these extreme moves from one day to the other. It's simply impossible to make any clever decisions.

Also because, Andreas, it seems like the bureaucracy, the port authority, no one was really prepared for how to do this. So it seems like usually the textbook logic is that you introduce new tariffs, you get an inflation hike from that, and then that is absorbed by...

weaker growth in inflation terms. It's been absorbed. It seems like that's been reversed. So you have the weak growth now, but you haven't even gained any revenue from the tariffs yet. So I don't know what's going on here, Andreas. But that's the very interesting thing here, Mikko, because if you look back to March 2020, if we try to compare this shock from the tariff announcements to the shock from the lockdown announcements, what we saw back in the spring of 2020 was an initial drop

uh drop in prices actually even though everything was under lockdown and the supply chains didn't work and i i actually think it's very likely that we'll see the same this time around because you know uh this is just a huge shock for for the global supply chain it's a huge shock on the demand side and the initial response is actually to see lower inflation we may have an inflation

wave upcoming from these tariffs, depending on the levels. You don't really know that right now. But I don't think the first response is to see increased prices, rather the opposite. Last week, we had the inflation report on the consumer level and on the producer level.

Both way, way, way, way below expectations. And I think the two of us, Mikkel, we've been more or less the only ones worldwide highlighting this, that inflation actually did not increase through March. Rather, the opposite, it basically flatlined or maybe even decreased. And I think the same is happening so far in April, in sharp contrast to what's the intuitive outlook.

answer to all of this because it just feels so intuitive. Okay, prices need to go up because of tariffs. It's the same response you get if you ask consumers, right? They think prices are up 10%, but they're not. So there's a perception and a reality on inflation here. And for now, they're actually getting inflation down, which is super interesting because it was one of their key goals, right? So they're actually getting that right, but they're just not harvesting any returns from it because of the uncertainty.

No, no, and that's true for the Eurozone as well, where you have an inflation even low enough to be getting a rate cut later this week. Andreas, I just want to turn to a couple of listener questions here. First on the sell-off of T-bills last week, has it been determined yet if it was Japan or not that sold T-bills last week before the auction? Yeah.

No, but it's true that we actually get some very nitty-gritty numbers from Japan, but with the time lag. So I cannot say yes or no to that question yet. The flow data is simply not known. I think it is feasible that Japan and China played a part in both weakening the dollar and selling US treasuries to some extent last week.

I also think it is increasingly likely that a deal between the US and some of these Asian nations with huge trade surpluses versus the US will include what I typically label some sort of light dollar accord. I think it's one of the very few things that

You can actually find common ground on between the US and China, a weaker dollar versus the Chinese yuan, because they need it in China to be able to stimulate locally. So they're well aware now that they need to find more consumers locally rather than globally in the tariff environment. But they're also very aware that they cannot do that.

as long as the currency is as weak as it is currently. So I think they can find some common ground on this foreign exchange question. And all roads lead to a weaker dollar right now. I think that's very important to underpin. All roads typically lead to Rome, but they're leading to a weaker dollar right now.

So let's just line up the reasons for that. So one thing is that China and the US, this may be where they find some common ground in these negotiations. It's very, very hard for us to tell what's going on behind closed doors here. What other signs do you see of further weakening to the dollar? Yeah, so, I mean, first of all, what you've seen, say, over the past couple of handful of years is

is a massive capital inflow to the US. Buying of MAC-7s and so on and so forth from large institutional investors, typically on a largely unhedged basis, meaning that they buy a US equity, but they do not hedge the foreign exchange risk between the US dollar and say the Euro or the Swedish crown or the Japanese yen or the Canadian dollar, et cetera. So a lot of these foreign investors have bought US equities

with a far from 100% hedged FX risk. So if they start selling some of these US assets, which we've actually seen some early signs of this year,

based on Trump's hostile negotiation tactics and all of that, they'll also have to sell some US dollars along the way. When they're selling their bonds or their equities in the US, they'll have to repatriate the cash to a local currency. And there's some dollars selling around that as well. So that's a very simple, practical reason why the dollar has weakened in recent months alongside this capital flight from the US. But because we've actually seen a

some sort of a light capital flight from the US, which is the first time in a long while. On top of that, I think it will be a major surprise to everyone if the US inflation actually keeps declining into April and May here, which is so far what we see from life gauges. It will probably also allow the Fed Reserve to be more aggressive in easing than what's priced in.

and we're seeing some meaningful mean reversion in the bond trade again today with lower bond yields in the US. So I actually think that both the Federal Reserve and other central banks globally can accept the weaker dollar here. So you're not really getting any firm pushback from any of the big central banks on this trade either. And then, ultimately, if there is just

a tiny bit of merit to this story that Trump wants to increase his direct oversight of the Federal Reserve. You haven't sold the dollar enough in such a case. I cannot stress that enough. I think it's a super strong gold and Bitcoin case if that happens, because it's essentially the ultimate debasement trade in a sense when you start to intervene with the independence of the local central bank. RAOUL PAL:

Those are two suggestions for positioning here, Andreas. Gold and Bitcoins. What else are you looking at to leverage this prospect of a further weakening of the dollar?

So what typically happens when the dollar weakens a lot is that growth actually rebounds around the globe six, nine months later. So it sounds like an awful story, but it's actually an okay story for the globe if the dollar weakens a lot. And that's also why I think there is some common ground to be found between the US and China on this topic, because both administrations are aware that a weaker dollar is actually preferable.

at this young term. And that's

One of the key things that we've been watching over the past couple of months, how a weaker dollar translates into a global pickup in liquidity, a global easing of financial conditions, and so on and so forth. The dollar is a key component for global financial conditions. I actually also think that this could lead to a rebound into May in risk assets in many ways.

at least if we assume that tariffs do not rise again.

made you whenever they conclude this new study on sectorial tariffs, because that still holds the potential to shock things. But for now, I think the analogy of March 2020 is pretty good, pretty solid here. We ultimately ended up with a rebound after that as well, because it allowed for a global coordinated easing. And that's essentially where we're getting at now. Everyone's talking about how to ease...

the pressures coming from tariffs, whether that be the European Central Bank, whether that be the US authorities or the Chinese authorities, everyone's kind of in the same boat on that topic, right? Okay, tariffs are bad. We'll have to ease to mitigate some of those issues. And maybe we'll end up with global coordinated easing as a consequence, right?

Very interesting. Just two more questions here, Andreas, before we begin to round off the show and our trade ideas here. Sarah, expanding on what you just said, is asking, does the US genuinely want to reduce dollar dominance globally, which could be, as you mentioned, a

a side effect from a weakening dollar. So wouldn't that weaken the position on the global stage of the U.S.? How do you view that? Because we've laughed off these theories that the U.S. was done and the yuan was going to take over as the global reserve currency. Yeah, the yuan is not going to take over. Let me just start by saying that if you want to be a global reserve currency, you need...

capital to flow in and out of the country without restrictions you need a solid and liquid bond market and they you know they don't accept either in china they don't accept inflows and outflows on a free basis uh the bond market is not liquid enough to support that story so the yuan is off the table um the euro we've heard that story before you know there's a pretty decent uh bond market in europe both the german italian and french bond markets are decently liquid and

the size is okay-ish for a reserve currency, but nothing is traded in euros, commodities, you name it. I ultimately think it's a bit too early to just say that the dollar is dead here. I think everyone, including China, would actually like to see a weaker dollar here. The interesting thing is that when the dollar weakens,

you typically see an accumulation of dollars from China, Japan, Europe, et cetera, because it's actually where it's the kind of environment where you can accumulate dollars in a reserve. Because if the dollar is too strong, you need to offload dollars to combat that. While if the dollar is weak, you can accumulate a few dollars beneath the hood while the market is moving the dollar in a weaker direction. So I think ultimately everyone's

Kind of in the same boat here. We need a weaker dollar and we'll get a weaker dollar. Scott Besant is aware of this as well. I'm not sure that, you know, I don't really know whether Trump is aware of this, but it doesn't really matter. The end game is that we'll get a weaker dollar out of this. I think it's just such a crystal clear trade right now, in my opinion. Okay, Andreas. A question here from Paul. You already touched a little bit on this. Any bullish opportunities in countries outside of the US right now? What do you have up your sleeve, Andreas?

uh okay michael so i'll i'll maybe also pass that question back back to you at some point but um

I think South Korea is still an interesting case since they're negotiating with the US. And it could be a country that you'll hand a good deal to try and put pressure on China. So we have that in the long-only portfolio. Poland has been a pretty decent bet so far this year on the prospect of some sort of infrastructure slash Ukraine deal, I guess.

But right now, it seems like this whole geopolitical portfolio of Trump is in flames more or less. Nothing is really working right now. I don't really see Russia moving an inch either, but I like the Poland bet because it seems like also the probability of a short-term peace has been taken out of the market. So Poland and South Korea would be two obvious picks from my side.

Yeah, absolutely. I mean, you can tune into the talk also we and you had with Rold in the past weeks, and perhaps you'll also touch upon it in your pro macro AMA here. We do have some decent stock picks in the European, both the defense industry, but perhaps more significantly, the digital infrastructure industry, the cloud services, et cetera, within Europe. That's really getting some love right now, really getting a lot of attention because a lot of European countries are looking at

It's strategically sound for us to have everything, including government data and military data, in US-based cloud services in Mac7 companies. So that's sort of a niche you can look into. You can probably dive more into that in your AMA here on Wednesday, Andreas. But yeah.

Yeah, still some pockets of relief around the globe, even in harsh times. I'd like to conclude with a chart from Financial Times because it's the best overview of what I've been saying for the past couple of months, that the response from consumers outside of the US is crazy.

incredible to what's ongoing in tariff space and to some extent also of course related to the NATO question and Greenland and Canada what have you but this is a chart of the foreign arrivals in in the US you know people are simply staying away and you you could more or less create the same chart no matter which country you look at it's it's incredible and I

This is obviously also one of the reasons why inflation can drop, right? Because if you're an airline company, you're not going to hike your prices into this because the demand is not there. So long-haul flights will get cheaper. Lodging will get cheaper. Eating away will get cheaper. Everything related to services in the US will get cheaper because of this. And this is an extremely overlooked issue.

on this whole terrorist question because obviously there are side effects when you go into an all-out trade war with every single country on Earth. Yeah, and I mean, Andreas, what really, I mean...

I'm definitely not anti-Trump here. We're probably some of the most Trump-leaning guys in Scandinavia here, or at least trying to understand his ways. But I mean, if you're going to enter into an all-out trade war with China, if you knew that was coming and you had that planned, why on earth would you spend the past couple of months alienating all your closest allies, including Europe? Because I know Europe is not worth a lot militarily. I know that. We all get that.

But in a trade war, Europe is quite a useful ally, in my opinion. So that is...

That is a very, very peculiar strategy, to say the least. It could turn out to be a major blunder. Let's see how far this trade war goes along, Andreas. I'm not sure we're going to be talking about it in a few weeks' time. I think the Trump administration has sort of burned its fingers in this and may try to close this entire chapter down. And I think we've kind of established that Trump put around $4.50 in the 10-year run yield.

which is something new. And that's also why there's kind of a relief mood in markets to some extent today. Yeah, exactly. So Andreas, one conclusion here, we've mentioned that over and over again, further weakening of the dollar position for that. Could be gold, could be Bitcoin, any other final trade ideas or recommendation for people out there? No, I think this is the theme to be on top of right now. The dollar debasement is ongoing. And I think

Both the US administration and the Chinese administration have only one thing that can find common ground on, and that's the dollar.

Absolutely. Thanks to you, Andreas, for joining in from the home studio here. Thanks to everyone for watching, whichever platform you're on. We'll be back next week. I might be off because it's Easter. We'll just have to see how we piece that together. Remember to catch Andreas' and Raoul's AMAs over the coming days with the Pro Macro subscription. Check out all our research in there or on steneresearch.com. Thank you very much for joining. We'll be back.

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