The Tariff Battle Heats Up | Macro Mondays: October 27, 2025

Key Concepts

• Rare Earth Magnets: Critical components for various technologies, including fighter jets, missiles, and semiconductors, with China currently holding a dominant position in their supply chain.
• Decoupling: The ongoing process of the West reducing its reliance on China for critical supply chains, particularly in rare earth minerals.
• Inflation: The general increase in prices and decrease in the purchasing value of money. The transcript discusses current inflation levels and expectations.
• Liquidity: The availability of liquid assets (cash) to meet short-term obligations. The discussion touches on factors influencing liquidity in the financial system.
• Trade Truce/Tariffs: Agreements or disputes related to international trade policies, specifically focusing on the US-China trade relationship and the impact of tariffs.
• Investment Cycle: The cyclical nature of financial markets, with periods of growth (bull markets) and decline (bear markets).

Macro Mondays: Trade Truce, Rare Earths, and Inflation Outlook

This episode of Macro Mondays, hosted by Milen and featuring Andreas Steno, unpacks a busy weekend of geopolitical and economic news, offering insights into potential market implications and trade strategies.

1. The China Trade Truce and Rare Earths: A Temporary Respite?

The primary focus of the weekend's news was the potential trade truce between the US and China, stemming from comments by Scott Besson. This development led to a significant relief rally in markets, with the NASDAQ showing a substantial gain in early trading.

• Key Point: The immediate market reaction suggests a positive reception to the prospect of a de-escalation in trade tensions.
• Specifics: The timing of the handshake between Trump and Xi Jinping was uncertain, but it was expected to occur in conjunction with a broader meetup in South Korea.
• Rare Earths as a Leverage Point: A central theme is China's control over rare earth magnets, which are crucial for advanced technologies. The transcript highlights that the West is paying a significant price (sizable concessions) to maintain the flow of these magnets.
• Argument: China has used the threat of curbing rare earth exports as leverage in trade negotiations. While actual export curbs haven't materialized yet, the issue resurfaces regularly.
• Evidence: Previous agreements on trade truces related to rare earths in May were followed by issues in June, necessitating new deals every few months.
• Technical Term: Rare Earth Magnets are essential for manufacturing components in fighter jets, missiles, and semiconductors.
• Perspective: Andreas argues that the West needs to scramble to secure its own supply chains for rare earths, as China holds a significant upper hand. This advantage is expected to persist for at least the next 12 months.
• Real-World Application: The European Union has passed a "Rare Earth Minerals Act," and the US is using federal funding to address this issue, indicating a strategic shift towards self-sufficiency.
• Quote: "I think we need to to scramble to secure our own supply chains in the west." - Andreas Steno.
• Quote: "The geopolitical chessboard might change entirely over the next 12 months. So that's hard to bet on, but it's it's not hard to bet on that that this this advantage will still be China's in 12 months time." - Milen.

2. The Decoupling Trend: A Long-Term Mega Trend

Beyond the immediate trade truce, the discussion emphasizes a broader, long-term trend of decoupling between the West and China, particularly concerning critical materials.

• Main Topic: The West's reliance on China for critical supply chains is no longer sustainable, especially after China has demonstrated its willingness to use this as leverage.
• Example: China used this leverage against Japan in 2010 after a territorial dispute, and now it's being applied more extensively against the US and the Eurozone.
• Data/Statistics: A chart (not shown in transcript but referenced) indicates that even as overall imports between China and the US decrease, the proportion of critical materials within those imports is falling even more significantly, signifying decoupling.
• Real-World Application: The US is actively seeking deals with countries like Australia and Kazakhstan to diversify supply chains away from China.
• Perspective: This decoupling is a multi-decade mega trend, not a Cold War scenario, and both the US and China will continue to trade significantly. However, China's role is evolving as it moves up the value chain.
• Quote: "No matter whether we get a trade deal or not, I think we've crossed the Rubicon... We're past the point where the west can just lean back and accept to be this reliant on China in such an important supply chain." - Milen.

3. Inflation Outlook: Benign Despite Tariffs

The conversation shifts to the recent CPI (Consumer Price Index) print, with a focus on the inflation outlook.

• Key Point: Inflation is not spiraling upwards as widely predicted by investment banks.
• Specifics: The CPI report was described as "benign" outside of energy costs. While electricity and gasoline prices are trending upwards, they are not at catastrophic levels.
• Data/Statistics: Inflation is trending between 2.5% and 3% on a trend basis, which is not the target but also not a catastrophe.
• Argument: Tariffs are being absorbed into consumer prices very slowly and surely, and rising import prices are not being observed to the extent expected.
• Example: Japanese car manufacturers have lowered prices for the US domestic market while hiking them for the rest of the world, the opposite of projections.
• Perspective: Milen expresses satisfaction with their earlier predictions that inflation would not materialize at the scale highlighted by others and that tariff impacts would be distributed globally.
• Technical Term: CPI (Consumer Price Index) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
• Quote: "Inflation is not in the room with us... at least not relative to the expectations that were brought forward by by all of this both central banks and investment banks earlier this year." - Andreas Steno.

4. Freight Rates and Decoupling

The discussion touches upon freight rates as an indicator of economic activity and decoupling.

• Key Point: Freight rates have dropped significantly, despite the ongoing Red Sea crisis.
• Specifics: There were significant spikes in freight rates earlier in the year, partly due to tariff loading. However, current rates are "dropping through the floor."
• Impact: Benign freight rates aid the CPI picture for transportation costs globally.
• Connection to Decoupling: This also reflects the slow building of decoupling between economies and an increase in supply.

5. Audience Questions and Market Insights

The hosts address several audience questions, providing further market analysis.

• S&P 500 Corrections and Growth Momentum: Regarding concerns about lower new orders and ISM prints, Andreas believes the worst of the China trade story is past. While October might show a dip in growth numbers due to container volume impacts, this is seen as a hiccup rather than a major concern, as the problem is already being addressed.
• Silver Outlook: Silver is considered a "decent story" with bullish technicals. Its rise is linked to a weak dollar, manufacturing uptick, the "gold rush" among the global South, and the growing traction of solar energy. While not the biggest portfolio position, it's a relevant theme given the US-global South decoupling.
• Liquidity Drivers: The key variables for unlocking more liquidity are expected to come from the Federal Reserve. There are signs of "reserve scarcity," and the Fed will likely need to add liquidity to control short-term money market rates before year-end. The transcript anticipates clues this week on whether the Fed will end Quantitative Tightening (QT) or provide a forward date.
  • Technical Term: Quantitative Tightening (QT) is a monetary policy tool where a central bank reduces the size of its balance sheet by selling assets or allowing them to mature without reinvestment.
• Federal Reserve's Role: The Fed has not been a source of liquidity creation this year, allowing the Treasury and commercial banks to manage it. However, this is expected to change.
• Quote: "We've seen more and more signs of a... reserve scarcity basically. So the amount of dollars available for commercial banks... is very tight. And that's basically been the missing link in the liquidity equation." - Andreas Steno.

6. Preview of Macro Meets Micro Show

Andreas previews the upcoming "Macro Meets Micro" show, focusing on:

• Thematic Trades: Digesting the rare earth, quantum, and AI trades.
• Valuation Assessment: Calculating whether current valuations for these themes make sense from a macro perspective.
• Business Case Analysis: Examining the viability of mining and processing rare earths in the West.
• Portfolio Guidance: Providing guidance for portfolios amidst volatility, especially as the market is considered late in the investment cycle, potentially peaking around 2026.
• Maniac Markets: Expectation of "maniac markets" with rapid shifts between themes over the next 9-12 months.

7. The Trading Floor Environment

A brief discussion on the environment of trading floors, prompted by a picture of JP Morgan's new headquarters.

• Perspective: Andreas, having worked on trading floors, describes them as challenging environments for concentration and productivity due to constant noise and interaction.
• Argument: Such elaborate setups are not necessary for generating returns, humorously contrasting it with his current setup on an exercise bike.

8. Conclusion and Call to Action

The episode concludes with a reminder about the Real Vision Pro subscription for full access to analysis and trade recommendations.

• Key Takeaway: The market is navigating complex geopolitical and economic shifts, with a focus on long-term trends like decoupling and the strategic importance of critical resources. Inflation remains relatively contained, and liquidity dynamics are evolving.
• Call to Action: Viewers are encouraged to sign up for Real Vision Pro for in-depth analysis and actionable trade recommendations.