MAD Macro - Hello Xi, How Are You?
Yes, We Are Supposed To Talk Today
Yes, Hello We Need To Talk. (Pause) Are You Still There?
Tin Man, “Sorry, sorry, Xi, just dozed off there for a second. Yes, TikTok to you too. I love the service. My campaign is using it to connect with young people but you need to tell your people to sell it.”
Xi, “ Really, that’s what you are calling me about, TikTok?”
Tin Man, “No I have a few other things on this index card, but we won’t agree on any of them. I will just list them. First, stop helping Pootie. Second, stop with the drug stuff. Third, don’t make any moves on Taiwan. Lastly, stop hosing down the Philippine fishing ships. That’s it, I’m tired so let’s keep this short.”
Xi, “Wait, lets discuss some of the details.”
Tin Man, “ Listen, Janet Yellen will be over to see you next week. You two figure out all the monetary and trade stuff. Jake Sullivan deals with everything else. He will give you a call soon. Oh, and remember Blinken is coming to see you as well. ”
Xi, “Ok, I get it. That’s all you want to talk about. Nice, it’s a little late my time anyway. It’s morning for you, why are you so tired?”
Tin Man, “I usually take a mid-morning nap.”
Xi, “Ok, take care, let’s talk again soon. My guys will say we had a nice conservation.”
Tin Man, “Me too. The binder lady will say we had a nice conservation.”
The WSJ has a good article on Janet Yellen today, linked here. It’s interesting how the world and China have changed from when Janet first visited China in 1998 as part of the Clinton Administration’s state visit. The article is a very good look back at our trade relations with China. It sounds like Janet is going to raise tariffs on China to “do what it takes to protect vital U.S. industries”. The evolution of a free trader into a protectionist, Janet Yellen.
Paul Krugman, my favorite lefty economist, has a new article about inflation in today’s NYT, linked here. He is worried about supply chain problems again. Reading between the lines, he is starting to make the argument to ease monetary policy despite the recent sticky inflation reports. Remember, inflation really was just a transitory supply chain problem like 1940. War is bad for global supply chains. So are attacks on cargo ships in the Red Sea, low levels of water in the Panama canal, ships crashing into bridges in Baltimore and earthquakes in Taiwan. Just a guess, but Paul will be calling for the Fed to ignore any uptick in inflation and start easing in June. His real reason will be to save democracy.
Bloomberg is reporting today that the Tin Man has canceled plans to buy crude oil for the SPR in August and September. They were going to buy 3 million barrels. They canceled the planned purchase because they are “keeping the taxpayer’s interest at the forefront”. No, the Tin Man is keeping the election and $4 gasoline at the forefront. The SPR currently has 363 million barrels of crude oil down from 600 million barrels in 2022. Remember, the Tin Man’s greatest commodity trade of all time was when he sold 180 million barrels after the Ukraine war started. Great commodity trades have two sides to them. In this case, the sales were great but he never covered the short sale. He first expected to buy it back below $76. Then he moved it up to $79 and bought a little. Today it’s trading $85.50. Sorry, Tin Man, you missed it. The Hunt brothers made a great silver trade but they never sold, turning the greatest trade into the worst trade ever. The Tin Man may have done the same thing.
Markets are a little lower this morning after a down day yesterday. Both the S&P and NASDAQ 100 futures are testing steep up trend lines. A clear break could trigger technical selling. There was a major earthquake in Taiwan last night and there are fears of supply chain disruptions for semiconductor chips and Apple phones. We get the ISM Services PMI this morning at 10 am. The ISM Manufacturing PMI report was much stronger than expected on Monday which triggered the recent rise in interest rates and the U.S. dollar.
I included a hard to understand slide from Krugman’s article today. What I think he is saying, is that using Yellen’s model, inflation was all supply chain problems. So forget about any uptick in near-term inflation, ease in June to save democracy. I updated the U.S. Dollar Index, U.S. 10yr yield, U.S. 10yr-2yr yield spread, WTI crude oil, spot gold, bitcoin, S&P futures and NASDAQ 100 futures charts below.
Interest rates and the dollar are close to unchanged after rising this week on the ISM Manufacturing PMI report Monday. The curve has steepen a little this week. My personal view is that the Fed will move ahead with easing in June despite stick inflation. The curve will steepen quickly turning positive on both inflation fears and deficit fears.
Crude oil is higher again trading above $85. Gold is a little lower after making new all-time highs again overnight. Bitcoin is unchanged after a sharp decline yesterday.
Both S&P and NASDAQ 100 futures are a little lower this morning waiting for the ISM Services PMI at 10 am.
IMPORTANT DISCLOSURES AND DEFINITIONS
Unless otherwise stated, Bloomberg is the source of all data and charts.
S&P 500 futures are a type of derivative contract that provides a buyer with an investment priced based on the expectation of the S&P 500 Index’s future value. Nasdaq 100 futures are commodities futures products traded within the equity futures sector. West Texas Intermediate (WTI) oil is a benchmark used by oil markets, representing oil produced in the U.S. Brent Crude Oil is a blend of crude oil recovered from the North Sea in the early 1960s, whose price is used as a benchmark for the commodity's prices. The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. UBS Bloomberg Constant Maturity Commodity Index is a total return rules-based composite benchmark index diversified across commodity components from within specific sectors.
The information herein represents the opinion of the author(s), an employee of the advisor, but not necessarily those of VanEck. The securities/ financial instruments discussed in this material may not be appropriate for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/financial instrument, or to participate in any trading strategy.
Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.