What Did Trump Get Out Of The Xi Summit? | with Andreas Steno & Mikkel Rosenvold | Macro Mondays

Key Concepts

• Yield Curve Uninversion: The process where short-term interest rates fall relative to long-term rates; historically a recession indicator, though its predictive power is currently being questioned.
• Strait of Hormuz: A critical maritime chokepoint for global oil transit; geopolitical tensions here are identified as a primary driver of current inflation.
• Data Center Moratorium: Proposed legislation (e.g., by Bernie Sanders) targeting the rapid expansion of AI infrastructure due to energy consumption and community opposition.
• "Not In My Backyard" (NIMBY): Localized opposition to infrastructure projects, now increasingly applied to the construction of energy-intensive AI data centers.
• Rate of Change: The focus on the velocity of economic shifts rather than absolute levels, cited as a key metric for understanding market resilience.

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1. Macroeconomic Outlook and Interest Rates

The hosts discuss the recent volatility in bond yields, noting that the traditional lessons learned from the yield curve between 1980 and 2020 may no longer apply in the current regime of rising bond yields.

• Yield Curve Signal: Andreas Steno argues that the "uninversion" of the yield curve, which historically preceded recessions (e.g., 2000, 2008), failed to trigger a downturn in 2022–2023. He suggests that a steepening yield curve may now represent a healthy normalization of price discovery rather than a "canary in the coal mine."
• Inflation Data: Recent Consumer Price Index (CPI) and Producer Price Index (PPI) prints were described as "hot." However, Steno attributes part of the inflation spike to a technical anomaly in the "shelter" category—a survey-based measure that doubled up in April due to a missed collection period during a government shutdown in October.
• Policy Expectations: While some analysts like Ed Yardeni suggest a tightening bias and potential rate hikes, the hosts remain skeptical, arguing that if energy and shelter anomalies are stripped out, the case for further hikes weakens.

2. Geopolitics and Energy Markets

The conversation highlights the "Trump-Xi" summit as a pivotal moment for global stability.

• US-China Cooperation: The hosts observe that the US and China have reached a tacit agreement regarding the Strait of Hormuz and oil market stability. This cooperation is credited with keeping oil prices from spiraling despite geopolitical friction.
• The Iran Factor: The resolution of tensions in the Strait of Hormuz is viewed as the "missing piece" to cooling inflation. Positive signs of negotiations brokered by Pakistan offer hope for a de-escalation that could allow the Federal Reserve to return to a rate-cutting agenda.

3. Investment Strategy and Sector Analysis

• Semiconductors: Addressing a viewer question on whether to take profits in semiconductors, Steno advises against it. He uses South Korean export data as a real-time gauge for demand; as long as that data remains strong, he argues the trade remains valid.
• AI Infrastructure: The discussion touches on the "AI Data Center Moratorium Act." While acknowledging the political risks—including concerns about energy usage and the "theft" of intellectual property—the hosts believe that major AI firms (e.g., Anthropic, OpenAI) will likely lobby effectively to mitigate legislative threats before the 2028 election cycle.

4. Notable Quotes

• On the "Life Hack" of buying bonds: "The easiest way to get rich is to inherit the money or get 50 million in cash out of the blue... I don't really see the hack here." — Andreas Steno (referencing Andrew Tate’s bond strategy).
• On market resilience: "I cannot count the amount of insults I received when I said that the rate of change is what matters... but it does." — Andreas Steno.
• On political stability: "It’s not weak growth that kills governments; it’s inflation." — Michael (Mossman).

5. Synthesis and Conclusion

The current macro environment is characterized by a decoupling from historical recession indicators like the inverted yield curve. The hosts conclude that the market's "fierce rally" is supported by better-than-feared global growth momentum and a strategic truce between the US and China. The primary risks to this outlook remain inflation—specifically driven by energy costs—and the potential for political backlash against AI infrastructure. Investors are advised to monitor South Korean export data for semiconductor health and to watch for a resolution in the Strait of Hormuz as the primary catalyst for a potential return to interest rate cuts.