Daily Brief Macro: Steno Signals #183 – The Pain Trade is a Weaker USD and more

• Happy Sunday, everyone, and welcome to our weekly editorial on all things macro.
• Everyone I’ve spoken to today has asked me, “How would you go long the USD at the Wellington open?” That, in itself, says a lot about sentiment.
• I’m currently making my way home from the U.S. after meeting with a ton of investors over the past three days, and I’ve come away with the view that a weaker USD is now the pain trade.

• Oil markets in 2024 experienced slow supply and demand growth after years of high volatility
• Heading into 2025, demand is reaccelerating faster than supply, leading to a bullish outlook
• With low inventory levels and a modest supply deficit expected, prices are likely to gradually rise to low 80s Brent basis

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• Rubber production in December suffers a loss of 30%  
• Yokohama Rubber plays Good Samaritan in hour of crisis  
• CMO enabling FSC Certification for Thai rubber for EUDR

• Trump prioritizes reducing US trade deficit by urging nations with trade surpluses to increase oil and gas purchases or face tariffs
• To reduce bilateral deficits, US would need to significantly increase oil and gas exports to Europe, China, South Korea, and Japan
• Trump administration aims to accelerate US oil and gas production growth to meet demand and potentially lower costs for producers to achieve goals of reducing trade deficit and increasing energy exports

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• Concerns about the end of US equity exceptionalism could lead to potential weakness in the dollar
• Deepseek model challenges US exceptionalism in tech and could impact equity markets
• Despite volatility, US equity market still strong, but potential for more bouts of volatility ahead

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• 2024 was a record year for ETF flows, with $1.1 trillion in inflows, resulting in 32% global asset growth
• Eric Balcunas discusses the impact of John Bogle on lowering fees in the industry, estimating savings of $1 trillion for investors
• Innovations in the ETF market include leveraged and crypto exposure ETFs, with predictions of continued growth in the industry reaching $35 trillion by 2034

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• Uncertainty around AI breakthroughs in non-US companies adds a layer of uncertainty to US tech stock valuations
• Impact of AI disruption on emerging markets is uncertain, with potential benefits from democratization of technology but challenges in AI preparedness
• EM fixed income assets may be impacted by market relationships and US equity valuations in response to AI breakthroughs

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• The U.S. oil and gas rig count rose for the first time in eight weeks, as it rose by 6 to 582 for the week ending 31/Jan.
• For the week ending 24/Jan, U.S. oil production fell to 13.24m bpd from 13.48m bpd the week prior.
• The number of active U.S. oil rigs rose by 7 to 479 while gas rigs dropped by 1 to 98. U.S. producers added four rigs in New Mexico.

• Colleagues in the US made an important change to their Fed forecasts this year
• Market sentiment may be jittery in February, with focus on global tech stocks and testing US Exceptionalism narrative
• US Employment report at the end of the week is extra important to watch, with expectations for benign data, but potential risks and noise in the report due to factors like wildfires and updates to population estimates for the household survey.

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• The Fed kept policy rates unchanged as expected, but Chair Powell’s press conference provided key insights on the Fed’s stance
• The Fed’s focus on inflation and asymmetric reaction function suggests a possible delay in further rate cuts
• Range-bound rate environment post-Fed meeting favors short gamma strategies for volatility sellers, while yield curve trading strategies may lack carry opportunities

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