Weekly Macro Note: Assessing the TACO Magnitude, The Carry Trade, Asian Currency Update, & More

In the Weekly Macro Note - we assess the latest 'super-TACO', the Carry Trade, an Asian Currency Update, & much more.

Don Johnson (@DonMiami3), Chief Economist

Good Sunday evening MacroEdge Readers & Community,

I hope you’ve had time to catch up on both Part 2 of 5 of our AI Bubble & Data Center Construction series on Friday evening and our Redeye Macro Note yesterday evening. There was plenty to take away from the broader data center theme - which is now starting to experience broadening pressures - and yesterday we covered the enormous ‘TACO’ announcement from the evening and how it will weigh on markets, particularly in the oil and gas space this week. We also have very public announcements on the part of the Treasury in ‘yenterventions’ - with the yen popping considerably higher in recent days as the US has begun to intervene to save the yen from further weakening. While all of this is happening, it looks like the administration in charge is ‘pulling all of the stops’ to intervene in markets now going into midterm season, which hits full swing come September. With just 3 months until the midterms, the Trump Administration knows that with high energy prices, inflation, and poor nominal equity performance, they are in for a world of hurt in election performance terms.

This weekend we saw one of the largest ‘TACO’ announcements we’ve seen to date - which we discussed yesterday evening. Friday evening after market close, there was an announcement that the Trump camp was going to begin a massive bombardment against critical Iranian infrastructure - which was quite obviously a fallacy if you’ve been following action in the bond markets and in oil markets. I highlighted Friday evening that the 10Y action, oil prices, and sideways action were the perfect formula for that announcement to never happen - and sure enough, come Saturday evening it was all walked back. Interestingly enough, this corresponded with the launch of the $100K/month paid Truth Social feed for insider and early traders to get the posts before they are leaked to the public. What’s interesting about that is we will now know that there has potentially been a post if markets start to move before any headline has even hit the tape… I don’t expect this service to have a very useful lifespan in the post-midterm world, but for the next 3-4 months, there’s a viable revenue stream for the family as the war continues.

In futures markets overnight, the Nasdaq is up about 0.8%, while the Dow is up about 0.5%. WTI is down about 5.5%, which I expect will reverse as soon as we have confirmation that the Iranian side is not participating in this suggested ‘deal’ called-out on Saturday evening. There has already been a tanker targeting during this period of time, but I do not expect Iran to retract control over the Strait of Hormuz for at least the remainder of the year. The reality is that a major part of the war has shifted to the commodity-price front and we’re seeing that play out with these ‘TACO’ headlines. Iran does not want Brent to live believe $85/bbl, and the US certainly does because of the inflation risk and underlying price pressures, and China also wants to see oil prices at a level with their buffer that punish the United States, but don’t harm demand to any great degree from the manufacturing products that they sell… ie: a recession, but not a depression. Everything in this world of instantaneous revolves around immediate policy intervention - and from South Korea, to the US, Japan, and beyond - that is precisely how policy operates in the world today.

Tonight we’re going to keep it quite brief on the report side of things - because things are changing so quickly and we’ve got the next update coming Tuesday evening. The ‘run it hot’ dynamic that is being pushed is eventually going to contribute to a September rate hike whether or not it is desired, and that’s regardless of oil prices being at $70/WTI or $90/WTI. I’ve positioned ourselves on the oil and gas side to be rather insulated from these silly swings - and I would focus on the businesses that maintain a very low cost basis to benefit from the near-inevitable price upside when it comes. Such is the commodity world… right?

This evening - we’re going to cover the following, briefly… I had a fantastic and very brief weekend in southern Arizona, and I look forward to getting back to the office tomorrow evening. This was a rather successful trip, and I will share more on it in the Wednesday evening update - talking about our operation from a higher level. Weekly Macro Note breakdown:

• Reports for the Week

• Macro Data Ahead

• Assessing the TACO Magnitude

• The Carry Trade and Asia Update Pt. 6

• Crypto… Not a TACO Participant?

Since there’s been so much data published on our end in the last 48 hours, I want to make sure everyone stays caught up. If you haven’t read the last two reports, I highly recommend

Reports for the Week

• (Tuesday) War Note

• (Wednesday) MacroEdge Offerings Arriving in August, Non-Op Oil and Gas Opportunities

• (Thursday) Midweek Macro Note, Global Bubble Index Update

• (Saturday) Redeye Macro Note

• (Sunday) Weekly Macro Note

Not yet upgraded to paid MacroEdge Ozone…? Don’t miss all of our research, data, portfolio strategy, and new releases coming throughout the month of August below:

Thank you all for getting us in the Top #100 financial Substacks two days in a row this week, to match. I am confident that by October, we’re going to live on the Top 100 list on a much more permanent basis - which speaks volumes as to the power of our data, research, team, and so much more:

Macro Data Ahead

• Monday- (US) ISM Mfg, S&P Mfg, Construction Spending (June)

• Tuesday - (US) JOLTS, US Trade Balance

• Wednesday - (US) ISM Services, ADP Employment Change, S&P Services

• Thursday - (US) Q2 Productivity and Claims (useless…)

• Friday - (US) Nonfarm Payroll Data

As another employment data week - I think these reports are meaning less over time. With such flawed methodology, reporting, and poor survey response rates - I am paying less and less attention to them over time. A lot of what they serve to do is reinforce the popular narrative (or things already known - like surging retirements) while at the same time providing cover for a much weaker labor market than they are making it out to be.

For mega-cap earnings this week - just Novo and LLY… so not a whole lot there.

It’s going to be a geopolitical + employment-focused week, and continue to pay attention to the events in Japan as the administration remains extremely active in markets (now across the globe), which is a theme I expect to accelerate going into midterms.

Assessing the TACO Magnitude

While enormous in terms of the capitulation level (Trump essentially giving up the war and Iran many things that they want), I do not expect this latest little pause to last any serious amount of time. That is primarily demonstrated from the last 6 months of the conflict - and due to the fact that Iran wants to keep Brent above the $85/bbl level - capitulation on their end, to terms not written by them - seems very unlikely.

For the magnitude in the overnight hours:

This is a relatively muted reaction in everything except crude and gasoline. Both are down about the same this evening - and I expect that this current reaction in the oil markets lasts for about 3-4 days before changing course once again. The war remains very fluid, and I do not think it will be ending anytime soon, even if we see a resumption in the very fragile MoU that was agreed to the first time around. I do suspect that Iran and China are well aware of the TACO at this point in time - though this time is unique because there’s really no offramp for Trump even if he continues to try and search for one.

For WTI - another Sunday-night gap down driven by a Saturday evening headline:

The tech sector is trying to land outside of this parabolic rounded top move - but this is not a certainty going into mid-week.

(Continued below: Assessing the TACO Magnitude, The Carry Trade & Asia Update, Crypto… not a TACO Participant?)

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