US market found some support, but how durable will it be?
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Hello and welcome to the Saxo Market Call. It is Tuesday, 18th of March 2025. Markets trying to get into comeback mode in the U.S. and they're steaming right back along in Europe. I think there's quite a divergence trade that many are talking about now. Of course, we've been talking about it here as well.

At least the last I saw the DAX was up another couple hundred points. Just about everything that I was tracking in Germany was up. We have this key vote on the huge fiscal package today. We'll talk more about that, but I guess the key point here for the biggest market in the world, the U.S. market, is assessing whether this is a normal sort of backfilling type of rally or this could blossom into something bigger.

We've talked about one of the reasons for the weaker relative performance of the U.S. is the risk of a rotation trade. Large money out there second-guessing its egregiously over-allocated – over-allocation to the U.S. market.

And seeking out new opportunities in Europe, for example, the relative fiscal drag in the U.S., relative to fiscal expansion in Europe, et cetera. I mean, and if you look at sentiment, the weekly sentiment numbers from individual investors at remarkably bearish levels, very arguably the CTA community, so CTAs.

those managing sort of technical momentum and trend-driven money will pretty much all be short here after this big move lower. So what does that mean? It means that if sentiment does improve, there's a lot of supply, if you will, on the way back up if passive money flows continue to just plow back into the market and everybody who is bearish and who is going to sell and who is actively managing stops pulling their money and reallocating it elsewhere. And then we could get quite a backfill.

For now, the Rubicon of the 200-day moving average has been crossed in some of the key indices like the NASDAQ 100. And that would be a first sort of milestone if we are to turn this rally into something bigger. I think in the broader sense, though, I think U.S. equity market underperformance is going to be durable for quite some time.

You can follow a slide deck, by the way. We have a slide deck and we have the link to that slide deck in today's podcast description. So go there. You can follow along with what we're talking about. I got some interesting charts up today. What else is up today? We have, as I put on slide two, we have Trump and Putin having some kind of meeting or call today on the future of Ukraine.

Our ears will be peeled for what's going on there. Again, the German Bundestag vote, really critical. I don't think this package would go to a vote if it wasn't sort of predestined that it will pass. And we have the Greens and SPD on board with the two-thirds majority needed to skirt those so-called debt break rules to both have this half trillion euro infrastructure package and the deficit-driven defense spending above 1% of deficit spending.

or for all spending above 1% of GDP on the deficit side. And then in FX, a really uncomfortable squeeze higher for the yen longs ahead of the Bank of Japan, really hard to hang on for those yen longs. And we wonder where the squeeze could take us. We'll take a look at that later. And just to recap, we had our last podcast on Friday, and it was before this bombshell University of Michigan, a sentiment survey came out, the preliminary one for March, and

showing some remarkable trends. It is a sentiment survey. These are soft surveys, and they could just reflect a bit of emotion around the onslaught of headlines linked to the Trump administration, etc.,

has to be discounted with more than a grain of salt. Still, pretty remarkable stuff. I mean, those long-term inflation expectations jacking up to 3.9%. I mean, this is a level not seen since the early 90s. And that expectations component plunging almost 10 points to sub-60 levels. And yeah, so is this reflective of statics?

So stagflation, that is the big risk for the U.S., and this is not a pretty set of figures. Of course, we need to start seeing some of the hard data shape up around this, but it was a remarkable survey result. And then, Oluf, I've got you down the line. We have some renewed Middle East tensions as Israel is going after Hamas once again. Just briefly on what's going on with the oil price, and I'll touch back in with you later on gold and silver.

Yeah, well, we're seeing Brent Crude trading up, well, double-tied as well, obviously trading up for a third day. Here we are approaching $72 in Brent. And it really just highlights how the focus once again has shifted away from worries about demand, the economic growth outlook having been reduced with the current focus on the trade war towards the supply side. And it's something that we have actually been talking about now for the past few weeks that we were actually not

not that negative on crude as we trade a sub 70 simply because of the potential for a supply response to these weak prices. And now we're seeing the demand side potentially, oh sorry, the supply side responding in a different way simply because of the heightened tension in the Middle East.

We know that Trump is gunning for Iran, not literally, but trying to increase pressure through sanctions. And that, if successful, will mean a lot more in terms of lower supply than the few hundred thousand barrels that will be added from OPEC+ on a monthly basis from April. So, yeah, it is the geopolitical risk.

a very weak positioning from hedge funds also forcing a rethink and probably driving some fresh demand into the market. Okay, good stuff. Roll forward to slide three. We have this pretty much a recycled slide from the prior podcast, but just a reminder, some interesting retail names coming up, especially on Thursday with Nike, Darden Restaurants, and Carnival Cruise on Friday.

Those are some interesting, very, very discretionary spending angle type of companies. So interesting to see what they're saying about the economy, what they're seeing, especially towards the latter end of the quarter with the Trump administration coming into power.

All right, roll forward again and just a couple of interesting data points, I think, on where U.S. consumers are. You can see that auto loan delinquency chart there on slide four on the upper left. Basically, the number of auto loans that are 60 days or more delinquent at a record high. That was from an Axios article. This is the subprime category. However, if you look down at the prime, it's not anywhere nearly as bad as it was before.

even before we went into an economic down cycle before the global financial crisis. So it is sort of the weekend of the spectrum problem. Nonetheless, it is putting, of course, these financial structures around these types of loans and how you get packaged and collateralized, putting those at risk. And I wonder actually if some of this ballooning in private equity in recent years has driven lending to people that perhaps shouldn't have been lending as much as they should have. So this could be somewhat of a

An indicator that is showing other things than what you would just sort of first-order thinking see on the headline. And then another one below that, just a headline, a record number of consumers. One should add the record is only going back to 2012 when the data started, but still nonetheless interesting. A record number of consumers in the U.S. this would be making minimum credit card payments as delinquencies also rise.

And then I just wanted to point out on the right, we really haven't started to see any pain in the housing market. And the main reason for that is that people are staying put in their houses when they redid their mortgages at 3%, in some cases even below that, back during the pandemic. And nonetheless, we have prices continue to rise as interest rates rose and as the mortgage rates rose, mortgage rates shown there on red in the chart on the right. So

and then the other the other line there is the existing homes for sale inventory which is near record lows especially adjusted for population so people there's no houses on the market because people are staying put and if we are going into an economic downturn in the us some of these will come onto the market because they'll have to because people need to to move along and i think we'll see the risk of an adjustment in home prices which there should have been given that mortgages shot up as much as they did

You can see how very different this cycle has been from the prior one when a lot of the lending was sort of driven by this crazy behavior, the ninja loans, et cetera, ahead of the global financial crisis, a lot of which was tipped off by the U.S. housing market and the crazy lending that was done to feed that. The lending this time around has been much more responsible, and we don't have that type of behavior. So it's going to take far longer to realize any sort of market pain from this, but something certainly to watch.

All right, let's go forward to FX. And I think I'm going to jump over to you again, Ola, because we have gold. You know, we have this big round number, $3,000, just a remarkable psychological level. We sort of tickled it at one point and went back below, but now we're just blasting right on above. And you and I, I know, are both a little bit disappointed that silver hasn't made a bit more of a fuss of itself. And it is pinned on the recent highs here, but it hasn't really, really broken higher yet, has it?

No, it hasn't. We are just literally sitting near resistance as we record this 34, 10, 15 area. If we do break that, then I can see some additional momentum come into silver, supported by this gold rush that we're seeing. And once again, this is just a

I made a tweet earlier today about how momentum can be your friend but also your foe. Momentum has most certainly been a very friendly companion now for many months for hedge funds and others because the correction has simply been so shallow that there's not really been any need to make any position adjustments.

a relatively smooth ride and it just seems like it's continuing. Now we're above 3,000. If it holds, then yeah, well, we're into new territory. So it's anyone's guess where we go next. But what we're seeing underlying is, I think it's equally important, is really see that the gold miners are really starting to kick up

Come back into gear now. We are seeing in the last year here something, if you look at gold, it's up 40%. Gold miners are taking the GTX, which is the big ETF tracking the major gold miners. It's up close to 50%.

And just this year, the outperformance has been quite significant. More than double, so 15% up yesterday in gold, while the miners up 31%. And it does highlight that this year, ability that gold miners have, when gold price goes up, obviously the profitability and the gold miners goes up more than, well not exponentially, but at least go up faster simply because the costs are the same, whether gold price is trading at 2000 or 3000. So the revenues are going up.

And it's also seemed like a bit of a shield to investors are moving out of some of the more spec driven stocks that we focus on our technology side there into more tangible assets and companies with tangible assets on their books. And that's obviously where mining companies come in. So they're also benefiting from the technology.

the uncertainty we're seeing in the tech sector right now. So yeah, it is a phenomenal movement. As I just highlighted, momentum is your friend. It could also be your enemy. I haven't put a chart in, but if you just take a look up the sugar chart, you will see where that is really extremely

extremely difficult where we have a massive range, but it's going in both. It's just trading range part, but within a massive range, that basically means you get sucked into longs near the highs and you get sucked into short position near the lows. But this is not the case in gold where there's just been almost a straight line.

Yeah. And as mentioned on silver, 3490 was the big cycle high and we're trading just above 34. And we noted in our prior podcast, there's an interesting chart. I felt it was interesting that we put on the potential for something like 43, $44 where 35 spot 22 is a really critical Fibonacci retracement of that entire, I guess it was 2011 high of 50 something dollars down to the lows, wherever those were. I believe. Yeah. Yeah.

yeah sorry we're slightly delayed here on the phone but if also i think it's worth just keep an eye on the gold silver ratio um it's currently trading around 88.60 it's been within an 88 92 range now for well basically all the all of this year

From a technical perspective, if we do break below 88, then in theory that ratio could start heading down towards 84. And obviously, let me just do some quick math here. So 84 current gold prices would take silver to 30, just close to 36.

So just keep an eye on that 88 level. If you start to take that out, that potentially could signal some fresh outperformance of silver. And it's a much thinner market, silver, and a much more volatile market. So the moves can be far, far larger in both directions, can't they? Yeah, absolutely. Yeah. Cool. All right. Thanks, Ola, for joining. I'll let you go and I'll just round this one out. I've got a couple more points to make here on FX if you look at slide five. So you can see the gold and silver readings trending wise on the right there.

Wanted to point out the Norwegian krona has really kicked into gear here. I did a snapshot this morning. It was euro versus the Norwegian krona below 11.50. It's breaking the range's lowest level since the summer of last year. There's a level down at 11.26, still some ways off. And it looks like it's trying to take over the mantle from the Swedish krona as the strongest currency here. Oil prices certainly not hurting on that account.

I guess one risk could be if there's something dramatic from Trump and Putin today and there's some psychological path at least opened up towards lower gas prices. But I still like the Norwegian krona for the medium term here on the general theme of European fiscal, Norway's involvement in that, and even maybe some investments into the Norwegian domestic economy to aid in defensive build-out, et cetera. There's at least one very notable Norwegian defense company

Kongsberg, I think they're called, producing missiles and ammunition and things like that. And then, yes, as you can see there, the yen rally is no more, at least in a broad sense. It's a really ugly backtracking there. Again, that focus on European yields. Boosting higher has taken the spreads in favor of Europe. So Urihan has blasted to new highs.

I would say some of the extension looks a bit dodgy relative to we actually had a quite a negative day for yields yesterday in Europe, and yet Urien posted new highs. So it feels to me like a lot of this is a positioning squeeze. And related to that, if we go roll forward to the dollar yen chart,

you can see there's plenty more room for a squeeze first key area around 151 it was a key sort of low and it saw a backup test there 150 80 to 151 plus you have the 200-day moving average coming in a bit higher just below 152 and really you're not getting existential in terms of a backup until you're getting all the way above the 61.8 retracement at 154 plus so you know

I suspect we turn around at some point, but whether it's here or whether it's a figure or more higher, it's very difficult to tell. We have the key bank of Japan event risk tonight. We have the end of the Japanese financial year into Monday next week. There can be some hedging either way. So it's one to watch, certainly, but looking for at least some point for the turn.

And then a couple of things on risks. So far, we've been sort of more coincident with the risk indicators. We neglected to mention how calm the VIX has been. And in the links you can see on slide eight, actually, I got a great link to our own Kuhn, who sits in Belgium, on why the VIX isn't panicking yet. So we have seen quite a remarkable sell-off and relatively low VIX levels despite the scale of that sell-off.

There was an interesting Bloomberg article talking about how VIX has terribly underperformed people that are trying to use the VIX to hedge relative to actual put options on the S&P. So it's been a very odd market, a very different market from past experiences, especially relative to that big sell-off when the Yen Carry trade was blowing up last summer.

But rolling back to slide seven, what do we see here? Finally seeing credit starting to show little signs of nervousness there. You would expect that if we're getting more into forward fears of an economic down cycle. Really modest stuff so far. So what is that chart on the left? It's merely a Bloomberg measure of the high yield or junk bond spread to U.S. treasuries. So yes, it's backed up, but it came off of almost record low levels yesterday.

So nothing to worry about just yet. And it certainly has not proved a leading indicator. So we can really just observe it more than anything else. And we have our own global risk indicator also did a very poor job of showing any kind of sort of divergence as we headed into this risk-off event. I think part of it is relative or due to the fact that we had such a change of psychology as the Trump administration, where the rubber hit the road there. And previous big sell-offs, as you can see, you saw some sort of diverging trend.

signs of, or sort of the green levels or positive levels peaked at lower levels before we slipped into red. This one went straight from a peak in positivity into a negative risk indicator slide. So that's a bit unusual relative to prior cycles. So every cycle can be a little bit different.

Again, on the must reads, must listens, a few things for you on slide eight. An interesting article, stub article from the South China Morning Post, I guess it's called, scmp.com.

on China, clearly moving fast on AI, coming up with their own models and ways to run them on their own silicon as well. So avoiding the need to run this on NVIDIA. There was some example in there of them running something on Chinese chips at 300% of what it could do on NVIDIA. It was probably optimized in all kinds of ways. Nonetheless, it's just to prove the point that they're moving very fast on AI. And that was already clear with that DeepSeq news.

There's the Kuhn piece on the VIX and what to do about it. A very interesting piece there from our own Saxo strategy team. A good FT commentary. Sorry, it's behind a paywall, but I thought some interesting thoughts on how the Democrats are really dropping the ball here. There's a lot of outrage going on in opposition, but the Democrats are just losing out because they're not showing any sort of coherence on their policy mix. And I think it's because they're beholden to the donor class policy.

that wants to maintain this old establishment that really is no more in terms of the prospects for winning a popular election. That being the neoliberal and establishment donor class will not be able to conjure together, I don't think, a majority, at least not anytime soon. And then I think an important shift in the psychology of the UK government, the Labour government willing to take these very ugly decisions

especially relative to their traditional platform, ugly cuts to social spending, specifically disability benefits. There's an article there from the BBC. I saw an estimate that in one four-year period from 2018-19 to 2022-23, these disability benefits had grown some 67%. So it was just wildly out of control.

And it's interesting to see a labor government having to make these types of vicious decisions. What will it mean? It means they're taking the budget situation very seriously. That's...

In some ways, a starting positive, but it's a starting negative if you think about what it means for the UK economy. So you're getting somewhat like the Trump effect and Trump administration effect with the risk of fiscal retrenchment and a weaker economy. So that'll be interesting to see how the UK economic numbers shape up from here.

Slide nine, keep in mind, this is the macro calendar highlights for the rest of the week. We have the Bank of Japan up tonight. We have a German ZDW survey, which was out just a few minutes ago. I haven't seen it yet. Expecting to see those expectations component of that picking up massively. I'm sure they did pick up, but that's going to be an interesting one to follow month to month from here, especially the present situation, which was mired near record lows. So it can't just be about expectations. It eventually has to be the economy actually delivering.

FOMC, we're not really expecting much from them. They're certainly on hold for this time around. Starting to price that next rate cut in June and just a little over two total rate cuts for the rest of the year. The U.S. economy will really have to go into a tailspin and this inflation will have to stop rising at least, if not actually falling back considerably for the Fed to deliver any more than what is already priced in. Don't think they have an enviable task in putting together a coherent message.

their dot plot will be useless because they don't have any good ability to forecast the economy given all the uncertainties and especially around tariffs etc so really i don't understand how the market really has much to go on with this meeting but of course we need to stay nimble and see what they have to say uh tomorrow then we have the swiss s b

Cut or no cut is the question. They are only priced at just over 70% to deliver that probably a final 25 basis point cut, which would put the rate down to a mere quarter percent. Sweden is on hold now for the duration and the Bank of England on hold now, but looking for guidance on when they plan to cut next. Currently priced mostly, most of the rate cut priced for the May meeting.

And then Friday, we have a national CPI number out of Japan that could be key and win an if the Japanese yen turnaround. All right, that's it for today, except I just want to note that I will be going on the road to the United States as of very early tomorrow morning. I will try to record a podcast or two while I am away. So stay tuned for that. Maybe some road notes. Who knows? For now, though, stay very careful out there, and we'll be back soon with the next Saxo Market Call.