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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. We begin the sound

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Speaker 2: with stock steady and bond yields moving lower, investors focusing

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Speaker 2: on President atlect Donald Trump's first day in office. Matt

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Speaker 2: Miskin of John Hancock saying, we are likely moving to

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Speaker 2: a new macro regime here, as we have to say

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Speaker 2: goodbye to goldilocks. Before the data was not too hot

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Speaker 2: and not too cold, which left the FED supportive to markets.

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Speaker 2: Now that data is coming in hotter nearly across the board,

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Speaker 2: Matt joins us. Now for more. Matt, welcome to the program.

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Speaker 2: Did this change things for you in any way, shape

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Speaker 2: or form.

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Speaker 3: The Philly Fed index John was through the roof. I mean,

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Speaker 3: it's a little too sunny in Philadelphia right now.

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Speaker 4: It almost seems like and when you see across the

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Speaker 4: I mean the NFIB survey.

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Speaker 3: Also, I mean, some of these moves in the economic

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Speaker 3: data almost look like main stocks in terms.

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Speaker 4: Of their parabolic upside.

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Speaker 3: And when you see this, and then you hear the

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Speaker 3: FED not or FMC members like Waller as you've been

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Speaker 3: addressing saying they're still going to be cutting at it's

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Speaker 3: hard to put those two pieces together. But at the

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Speaker 3: end of the day, you've got a position more for

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Speaker 3: a reacceleration of growth. We're looking down in cap mid

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Speaker 3: cap stocks, industrials. We've been talking about them for a

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Speaker 3: long time, but frankly, the earnings are looking good. They're

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Speaker 3: starting to get more appreciation relative strength.

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Speaker 4: And if there's.

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Speaker 3: More on shoring cap X, that's our favorite place to

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Speaker 3: be in global equities.

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Speaker 2: So matis built on that. How further down in market,

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Speaker 2: camp would you come and would you go down to

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Speaker 2: small camps? And let's just talk about it, Brush, So

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Speaker 2: can small camps work that interest rates coming down?

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Speaker 3: We don't believe so, John, And that is the big

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Speaker 3: difference about reading this macro regime. It's almost like the

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Speaker 3: macro regime playbook is missing pages here, or the pages

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Speaker 3: are so dated you have to go back and get

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Speaker 3: a new addition. Because the small cap industries are just

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Speaker 3: different than what they used to be ten twenty years ago.

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Speaker 3: Now in a booming economy, forty percent of the companies

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Speaker 3: don't make money, and so they really actually would prefer

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Speaker 3: a zero interest rate regime more than a strong economic regime.

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Speaker 3: And MidCap on the other hand, eighty five ninety percent

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Speaker 3: are profitable. You're getting more industrial exposure. You're still getting financials,

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Speaker 3: but that industrial exposure typically is higher quality with a

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Speaker 3: higher ROE. So if you want quality and value combined,

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Speaker 3: which is basically our mantra quality at a reasonable price,

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Speaker 3: we would go to mid MidCap may be the new

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Speaker 3: small cap to implement for this kind of macro regime.

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Speaker 5: Mat can I go back to what you're saying about

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Speaker 5: data looking like memestocks. Peter share of A had to

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Speaker 5: me had basically the same read as you, but his

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Speaker 5: conclusion was something is wrong with the data that you

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Speaker 5: can have a job support that comes in and seventy

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Speaker 5: four out of seventy five economists have a number in

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Speaker 5: expectation below two hundred thousand, yet it surprises.

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Speaker 6: To the upside.

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Speaker 5: Is there a factor that maybe the data as hot

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Speaker 5: as it's showing, is just not correct.

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Speaker 4: It could be.

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Speaker 3: I mean, you know, at the end of the day,

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Speaker 3: these are surveys, and surveys have been the hardest thing

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Speaker 3: to read over this whole cycle since COVID. Basically, surveys

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Speaker 3: have been broken leading economic indicators. Surveys that are trying

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Speaker 3: to lead the economy have just frankly been wrong.

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Speaker 4: They were overly.

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Speaker 3: Pessimistic over the last couple of years as the economy

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Speaker 3: chugged along pretty well, and now they've really whiplashed into

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Speaker 3: more positive, kind of more optimist type outlooks.

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Speaker 4: Now, does real GDP improve, does other activity improve? We'll

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Speaker 4: just have to see.

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Speaker 3: But you've seen such a flip of the switch on

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Speaker 3: survey data at the end of the day, though, we're

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Speaker 3: seeing it in markets. I mean, even just to start

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Speaker 3: this year, I think in the best way, you know,

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Speaker 3: ll cool Day made us.

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Speaker 4: Have said it best. Don't call it a comeback. You're

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Speaker 4: seeing the markets rotate.

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Speaker 3: Industrials, financials, materials are all starting.

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Speaker 4: To be better. Tech isn't working.

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Speaker 3: I know this is like stunning for markets after two

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Speaker 3: years of just tech domination. But a rotation's happening in markets,

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Speaker 3: and that's reflecting probably what's happening in the economy, a

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Speaker 3: better economic outcome.

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Speaker 5: I mean, you see that with an S and P

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Speaker 5: that declines yesterday, even so seventy five percent of the

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Speaker 5: constituents of the S and P were up yesterday. The

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Speaker 5: equal weight it is on track for its second best

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Speaker 5: week over the past year. The only week that was

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Speaker 5: better was after the inauguration of Donald Trump. Matt how

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Speaker 5: enduring is that broadening? Is that better breath of the market.

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Speaker 3: We've been saying that it's got to be an earning's

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Speaker 3: driven rotation in financials this week now, they had low

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Speaker 3: base effects. Q four or of twenty twenty three is

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Speaker 3: when the SVB payouts happen, so that really hurt Q

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Speaker 3: four of twenty twenty three earnings and then Q four

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Speaker 3: of twenty twenty four earnings.

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Speaker 4: We're strong on top of that. But investment banking.

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Speaker 3: You know, you were all just talking about this investment

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Speaker 3: banking businesses are starting to come back and starting to

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Speaker 3: get more strength. We're seeing, you know, the yield curve

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Speaker 3: steep and that helps financials. Financials are the biggest value sector.

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Speaker 3: It's really tech verse financials. If you're trying to make

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Speaker 3: a growth first value decision, if you're going to see

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Speaker 3: that rotation. But the great news of this week was

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Speaker 3: really actually the fundamental side.

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Speaker 4: And it was all those beats by the big banks.

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Speaker 1: You say that the FED is likely done holding markets hands,

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Speaker 1: So then what do you make of Governor Waller yesterday.

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Speaker 4: To me that it was an outlier.

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Speaker 3: And this is where it gets difficult listening to FOMC

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Speaker 3: members because they're going to be all over the place.

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Speaker 3: And if this divergence really happens over the next couple months,

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Speaker 3: I don't think it really helps markets. It's just going

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Speaker 3: to add on certainty. But if you're data dependent, I

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Speaker 3: don't get it. I mean, you just talked about how

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Speaker 3: the CPI report by beat by zero points, zero zero

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Speaker 3: two percent, and trillions of dollars were you know, moved

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Speaker 3: across markets, and even in this little bit, as soon

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Speaker 3: as inflation comes down a little bit, you get the

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Speaker 3: speculative frenzy back in things like crypto, and that's not

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Speaker 3: going to help your inflation problem. Or you're kind of

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Speaker 3: that speculative nature or sentiment of markets.

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Speaker 2: So matt Let's address it. Can I just jump in.

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Speaker 2: It's kind of a world of dice to dependent or

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Speaker 2: is a FED chair I can say dependent.

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Speaker 3: I think that's the latter. I think there's other motives,

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Speaker 3: but you know, at the end of the day, you know,

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Speaker 3: over the course of the year, I think he could

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Speaker 3: be right. I think the way we're looking at this

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Speaker 3: is a two half story of for FED in twenty

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Speaker 3: twenty five. The first half I think they have to

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Speaker 3: be hawkish. I think they have to back off and

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Speaker 3: let the economy settle in see what happens. And then

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Speaker 3: the back half I do think they're going to be cutting.

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Speaker 3: But it's hard to say right now. Look we're going

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Speaker 3: to get in the first half, I think you're just

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Speaker 3: kind of bringing forward an inflationary impulse that you really

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Speaker 3: would rather not have upfront. Here is we're going to

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Speaker 3: reset into the beginning of twenty twenty five. A lot

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Speaker 3: of the inflation and commodities are coming back. That makes

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Speaker 3: me a bit nervous on the inflation front, but it

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Speaker 3: helps the cypical side of equities, and that's what we're

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Speaker 3: leaning into.

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Speaker 1: Well, Matt Let's tayk with commodities for a minute. Scott

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Speaker 1: Bessett yesterday took a moment to directly say if any

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Speaker 1: Russian officials are watching his hearing right now, they should

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Speaker 1: be on guard that potentially they will go after the

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Speaker 1: biggest Russian oil producer, something we saw Biden do in

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Speaker 1: the very last days of his administration. Did you get

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Speaker 1: a sense that actually we're going to get a very

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Speaker 1: hawkish Donald Trump administration when it comes to Russia and

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Speaker 1: sanctions coming into office very shortly.

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Speaker 3: You know, I did not see that on the twenty

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Speaker 3: twenty five bingo card, but what we're seeing yet, you're right.

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Speaker 3: I mean, it's just interesting to see that it weighed.

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Speaker 3: You know, the administration really waited to the end to

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Speaker 3: kind of throw on these sayings, and that is really

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Speaker 3: where oil prices started to respond before all the other

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Speaker 3: sanctions or other supply issues was just kind of breezed over.

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Speaker 3: I mean, WTI was more like seventy dollars. You know,

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Speaker 3: it's kind of breaking that. It almost looked like it

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Speaker 3: was going to break down even further, and then it

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Speaker 3: just really has rallied here. If you wanted disinflation, that

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Speaker 3: oil rise is not good news, But at the end

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Speaker 3: of the day, look, commodities work in these kind of

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Speaker 3: short term spurts.

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Speaker 4: Even coppers is ripping.

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Speaker 3: I think this also has to do with getting ahead

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Speaker 3: of the tariffs more broadly, and just trying to get

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Speaker 3: as much inventory, whether it's supplies, finish goods, ahead of

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Speaker 3: this as possible. You've seen it in the China data.

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Speaker 3: China's basically having this huge export data. They need the

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Speaker 3: commodities to do it. But I don't know if it's

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Speaker 3: really sustainable. Frankly, we believe inflation is going to come

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Speaker 3: down over the course of the year.

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Speaker 4: We think housing prices moderate.

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Speaker 3: So we would actually use this impulse and lean against it,

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Speaker 3: actually maybe grab a little litle bit of duration here.

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Speaker 5: I mean it's a lot matt and only the seventeenth

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Speaker 5: day so far of twenty twenty five. You think people

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Speaker 5: would welcome a long weekend, but you know everybody's going

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Speaker 5: to be glued to their screens waiting to see what

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Speaker 5: happens on Monday. In terms of executive orders, what's your

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Speaker 5: read on how vulnerable the market is to any sort

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Speaker 5: of action from Trump beyond immigration or teriffs.

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Speaker 3: Right now, we're pricing in a lot of good news

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Speaker 3: and sentiment has really skyrocketed to be more positive. I

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Speaker 3: think more broadly, what we're seeing is the biggest liability

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Speaker 3: to this market is the positive sentiment. One of the

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Speaker 3: best things this market had and markets had going in

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Speaker 3: to the last year or so was that, you know,

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Speaker 3: it was pretty bearish and right. The new administration has

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Speaker 3: brought a lot of hope, a lot of optimism, not

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Speaker 3: necessarily bad thing. Again, that's probably driven some economic activity

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Speaker 3: and more capex, deregulation all that. But at the same time,

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Speaker 3: you've got to be careful here looking for everything to

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Speaker 3: go right and thinking that you know, it's all going

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Speaker 3: to be kind of an easy way to navigate this

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Speaker 3: this macro backdrop, there is still policies that could you know,

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Speaker 3: kind of dent some economic growth. There is policies that

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Speaker 3: could create volatility. So at the end of the day,

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Speaker 3: you still got to think about risk management, and again

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Speaker 3: that would bring us to the bond market.

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Speaker 2: Matt Miskin making tears running down like a monsoon. Appreciate it,

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Speaker 2: Sir of Johana Hancock. Here's the latest this morning, Trump's

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Speaker 2: Treasury pick Scot Besson urging Congress to extend twenty seventeen

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Speaker 2: tax cuts, warning their expiration would made any economic crisis.

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Speaker 2: Best in appearing on track for confirmation without specific objections

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Speaker 2: from Democrats during yesterday's hearing. Joining us now is a

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Speaker 2: Botansky of BTIG. Hey is welcome to the program, Sir,

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Speaker 2: We need to talk about executive orders and Trump Day one.

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Speaker 2: I just want to get your thoughts on yesterday. How

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Speaker 2: do you think Scott Beson did.

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Speaker 6: Look, I think it's clear that Scott Besson is a

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Speaker 6: mind at work, and I think that it should be

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Speaker 6: heartened by that, as I think all of us would

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Speaker 6: like a steady hand in that role, someone of his,

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Speaker 6: with his experience in the office advising the president. But John,

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Speaker 6: let's not kid ourselves, right. We are still going to

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Speaker 6: be living and dying day to day by whatever Donald

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Speaker 6: Trump is typing out on his phone's keypad. So I

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Speaker 6: think that it's heartening and positive and best and it's

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Speaker 6: going to be easily confirmed, and he's going to be

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Speaker 6: a stable voice in the Treasury Department and ultimately in

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Speaker 6: the over Office advising the president. But the President himself

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Speaker 6: is going to decide what tariffs are going to go

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Speaker 6: into place and how those are going to be communicated

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Speaker 6: to the market.

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Speaker 1: So we're expecting some one hundred executive orders after Donald

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Speaker 1: Trump is sworn in ISAAC. What do they look like.

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Speaker 6: I think it's going to be a busy day. I

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Speaker 6: think that there's an enormous amount of anticipation around what

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Speaker 6: we're going to see on Monday. I do want our

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Speaker 6: clients in general to be aware of that. Just because

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Speaker 6: it doesn't come out Monday doesn't mean it's not going

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Speaker 6: to happen. I think that there is a bit of

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Speaker 6: a law there in terms of all the different things

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Speaker 6: they want to do. From my seat, I think you're

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Speaker 6: going to see a fair amount of paper focusing on immigration,

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Speaker 6: border security. I think that that's one area where he's

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Speaker 6: consistently said he wants to focus, and I think that

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Speaker 6: there's some administrative levers that he can pull. My cautionary

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Speaker 6: point there is I think that that's going to be

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Speaker 6: one area that you see heavily litigated. So that's one

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Speaker 6: area and one dynamic that we're aware of. I think

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Speaker 6: you're also going to see a fair amount of orders

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Speaker 6: on the energy front and the healthcare front. Those have

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Speaker 6: less risk of litigation generally speaking, so we'll be keeping

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Speaker 6: an eye eye on that, and of course there's a

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Speaker 6: lot of signaling. Ann Marie, right, We're going to have

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Speaker 6: a lot of things that don't actually have teeth, a

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Speaker 6: lot of things relating to the culture wars and things

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Speaker 6: that I don't think that the markets are going to

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Speaker 6: have to worry about all.

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Speaker 1: Too much, and the siglings on the other side as well.

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Speaker 1: Biden is continuing a ton of executive actions used as

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Speaker 1: staffers are starting to pack up their offices currently right

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Speaker 1: now when it comes to tariffs, though, will we get

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Speaker 1: executive orders next week?

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Speaker 6: I think that we're going to get a few. And look,

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Speaker 6: my base case here is still that there's going to

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Speaker 6: be an overarching incrementalism to the tariff policy from the

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Speaker 6: Trump administration. I think that they are cognizant of the

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Speaker 6: economic impact, and I think ultimately they still want tariffs

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Speaker 6: to be used primarily primarily as a negotiating hit. And

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Speaker 6: the way that I think about this is for those

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Speaker 6: negotiating chits to have any value, you still need to

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Speaker 6: prove that you're willing to shoot the hostage if you will,

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Speaker 6: And so from a framing perspective, I think that ultimately

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Speaker 6: they will move quickly on instituting new Chinese tariffs, likely

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Speaker 6: using Section two thirty two or Section three oh one,

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Speaker 6: which takes a few months to get there, and then

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Speaker 6: maybe a few acute areas where they focus on issues

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Speaker 6: that they have a fair amount of political backing for

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Speaker 6: things like going after European autos. But I don't expect

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Speaker 6: the broad based universal tariffs to be where we start from.

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Speaker 1: You make a good point that this is really year

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Speaker 1: five of truck not year one, But what is going

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Speaker 1: to be different from one point zero to two point

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Speaker 1: h Yeah.

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Speaker 6: Look, I think I think emory it's a lot of amplification, right,

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Speaker 6: So we know there's going to be a deregulatory agenda,

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Speaker 6: we know there's going to be a focus on tax

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Speaker 6: cuts and border security, but there's an amplification of some

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Speaker 6: of those issues. So on border security, it's not just

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Speaker 6: focusing on the border, it's also the deportation dynamic that's

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Speaker 6: in play on the tariffs. I think that they have

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Speaker 6: more of an awareness of the different tools, which is

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Speaker 6: why you're hearing so much more about i EPO, which

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Speaker 6: allows the president to impose tariffs based on national emergency.

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Speaker 6: That's something that they didn't really get their arms around

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Speaker 6: until probably halfway through the first term. So in general,

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Speaker 6: I would just say it's more awareness of the levers

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Speaker 6: of power. And then also if the personnel they have

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Speaker 6: around them, you have very well vetted, truly loyal folks

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Speaker 6: around the president, which should allow them to move a

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Speaker 6: little bit more quickly and I think ultimately avoids some

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Speaker 6: of the pot holes that they fell into during the

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Speaker 6: first administration.

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Speaker 5: Well, Isaac, to your point, though, they need to show

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Speaker 5: a willingness in your words, to shoot the hostage, to

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Speaker 5: do the most of extreme measures in order to use

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Speaker 5: it as a negotiating chit. Do you think that that's

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Speaker 5: well enough appreciated. Is this administration that would be willing

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Speaker 5: to go to the extremes?

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Speaker 6: You know, Look, it depends, it depends which client I'm

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Speaker 6: talking to, but I think that there's at least an

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Speaker 6: awareness that the China tariffs are something that he is

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Speaker 6: absolutely serious about. There's a fair amount of debate among

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Speaker 6: the client community that I speak to as to whether

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Speaker 6: there can be a grand bargain with China over time,

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Speaker 6: but I think that we need to have that as

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Speaker 6: our base case, that China is going to be where

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Speaker 6: he moves quickly. Canada and Mexico, I truly think are

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Speaker 6: more about a conversation, more about one off negotiations than

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Speaker 6: anything else. And on the European side, I do think

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Speaker 6: that he is a true believer, especially on the Auto story.

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Speaker 6: So I think what we have now is sort of

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Speaker 6: trying to understand that bridge from rhetoric to reality and

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Speaker 6: trying to get into Donald Trump's mind, in the mind

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Speaker 6: of those who are running this administration as to what

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Speaker 6: they're really going to prioritize, because it's clear they can't

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Speaker 6: do everything, So what is their prior organization hierarchy on tariffs?

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Speaker 5: Well, as Amory started this hour saying, Scott Bessett yesterday

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Speaker 5: laid out several different use cases for tariffs. One of

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Speaker 5: them that seemed to keep coming up was this idea

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Speaker 5: of tariff's as national security, that sanctions pressure the dollar

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Speaker 5: and its reserve status and it makes more sense to

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Speaker 5: use therefore instead tariffs. When it comes to China, Isaac,

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Speaker 5: what is the strategy? Is it negotiation or is it

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Speaker 5: one of national security? And that's why terrafs would be

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Speaker 5: put on.

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Speaker 6: Yeah. Look, I think that it's a full court press,

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Speaker 6: That's how I think about it. And I think that

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Speaker 6: there's more awareness here than there's ever been in terms

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Speaker 6: of we need to have more of a holistic approach

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Speaker 6: in terms of our competition with China. And you heard

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Speaker 6: it yesterday during the hearing. I think it was noteworthy

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Speaker 6: to hear how much was reference in terms of our

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Speaker 6: outbound investment screening. Look, we have screening for if foreign

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Speaker 6: entities want to buy interest in the US. We should

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Speaker 6: also have some awareness and some say as to outbound

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Speaker 6: investment and what that means for acute areas of competition.

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Speaker 6: They think that it's one of the few areas of bipartisanship,

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Speaker 6: and so we've got to be aware of how that's playing,

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Speaker 6: not just politically but also operationally in terms of the

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Speaker 6: different level levers of government they have, from siphius which

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Speaker 6: we've seen with the usdel deal, to acute areas of

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Speaker 6: legislation like we've seen with the TikTok.

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Speaker 2: Ben isaid the horse has bolted, the technology has already lost.

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Speaker 2: I wish we were having this conversation twenty years ago,

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Speaker 2: but we're not. And then I started to hear things

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Speaker 2: like the TikTok CEOs coming to the inauguration. She's invited

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Speaker 2: to the inauguration not turning up By the way, Isaac,

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Speaker 2: what is going to be the approach to things like TikTok?

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Speaker 2: If it is seriously a national security risk and Chinese

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Speaker 2: hackers have infiltrated the Treasury, care who's in charge, they

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Speaker 2: could possibly do the same thing in the incoming administration

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Speaker 2: as well, I don't really understand what the hold up is.

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Speaker 6: Well, look, I'm confused by Congress passing a bill saying

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Speaker 6: that they want to ban TikTok, and now at this

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Speaker 6: eleventh hour, we're seeing many of those lawmakers from both

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Speaker 6: sides of the aisle retracting their previous statement saying we

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Speaker 6: would love a reprieve, we would love to find a

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Speaker 6: way to push this ban out. And so I think

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Speaker 6: that they're always those political wins which are tough to dissect,

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Speaker 6: but by and large, when I try to step back

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Speaker 6: and say what does this actually mean for markets? Was

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Speaker 6: this mean for investors? Is one of the persistent tailwinds

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Speaker 6: that I see from a spending in a appropriations areas,

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Speaker 6: We're going to spend a whole lot more money on

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Speaker 6: cybersecurity as a federal government. There's going to be a

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Speaker 6: whole of government approach to cybersecurity. That is frankly twenty

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Speaker 6: years too late. But in terms of areas, the clients ask,

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Speaker 6: where are we going to plus up spending? Where are

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Speaker 6: we going to spend more and more? No matter who

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Speaker 6: is in charge of that pen, it's cybersecurity and overall

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Speaker 6: just defense and national security.

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Speaker 2: Forgive me for putting you on the spot, but what

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Speaker 2: you actually think happens with TikTok? And the next way,

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Speaker 2: kind I said, what's your buys case?

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Speaker 6: Look, I think that we're going to get the Supreme

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Speaker 6: Court order today. They have a release this morning. My

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Speaker 6: base case has been that when you can bet on

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Speaker 6: DC taking longer than it should, it will. I think

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Speaker 6: that the Supreme Court is likely to say that they're

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Speaker 6: going to continue deliberating on this. There's going to be

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Speaker 6: a temporary injunction for a couple of months while they

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Speaker 6: do so, and that we get their order, I think

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Speaker 6: ultimately upholding the statue, which is negative for TikTok. But

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Speaker 6: we're going to have to wait a couple of months

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Speaker 6: before that comes out.

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Speaker 2: OASAC going to catch up this appreciated busy wait next

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Speaker 2: week for sure. Thank you Isipotanski btig. So here's the

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Speaker 2: lights this morning. Market's prancing for President elect Donald Trump's

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Speaker 2: trained policies, the dollar hovering knit two year highs as

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Speaker 2: tariff uncertainty ways on global currencies. Jane Furley of Rubber

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Speaker 2: Bank writing, Trump may be prepared to back down on

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Speaker 2: his previous preference for a weaker US dollar, particularly if

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Speaker 2: it views the tariffs can do the heavy lifting on

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Speaker 2: addressing the US training balance. Jane joined us Now for more. Jane,

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Speaker 2: didn't work last time? Can it work this time?

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Speaker 7: Well? I think things are a little bit different this time,

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Speaker 7: and I think we know Trump is an experienced politician.

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Speaker 7: He's also I think ready to hit the ground running

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Speaker 7: next week, and I think this time next week we'll

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Speaker 7: be able to answer that question a lot with a

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Speaker 7: lot more clarity, because if he comes through very quickly

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Speaker 7: with executive orders, the market's going to get a very

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Speaker 7: strong flavor as to whether or not what it's priced

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Speaker 7: in in terms of tariffs, in terms of growth, in

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Speaker 7: terms of inflation, is really you know, broad based correct

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Speaker 7: or not.

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Speaker 2: Well, Jane, what do you think is behind the dollar

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Speaker 2: move we've seen? Is it great differentials off the banker

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Speaker 2: superior economic growth and inferior growth abroad or is it

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Speaker 2: really about anticipating the policy changes from the administration.

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Speaker 7: You know, it's both. Certainly. You know, if we just

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Speaker 7: take a snapshot of the US economy now and compare

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Speaker 7: it with for instance, Germany China, what we see is

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Speaker 7: a lot more strength. For instance, if you look at

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Speaker 7: the forecast for growth in the US this year, they're

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Speaker 7: averaging around about two percent. The consensus are roundty percent

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Speaker 7: for the US. It's about half of that for the Eurozone. Obviously,

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Speaker 7: we will know that China's still got growth struggles even

436
00:21:25,920 --> 00:21:28,720
Speaker 7: though it did hit its target for twenty twenty four,

437
00:21:28,880 --> 00:21:31,600
Speaker 7: so that there is a better growth outlok And with that,

438
00:21:32,560 --> 00:21:35,960
Speaker 7: you know, there is evidence of sticky inflation in the US.

439
00:21:36,000 --> 00:21:39,080
Speaker 7: So that's the snapshot right now. And on top of

440
00:21:39,160 --> 00:21:42,360
Speaker 7: that we need to layer in the potential inflationary impacts

441
00:21:42,400 --> 00:21:46,520
Speaker 7: of tarists or of mass deportations for instance. That could

442
00:21:46,560 --> 00:21:49,000
Speaker 7: certainly create a more tightness in the labor market, where

443
00:21:49,160 --> 00:21:52,520
Speaker 7: you know, a very significant proportion of the workers in

444
00:21:52,560 --> 00:21:55,840
Speaker 7: the US are foreign born. Now obviously a lot of

445
00:21:55,840 --> 00:22:00,000
Speaker 7: those have got documentation, but even so we could certainly

446
00:22:00,080 --> 00:22:05,680
Speaker 7: see some inflation or wage prices coming through in certain sectors,

447
00:22:05,720 --> 00:22:08,639
Speaker 7: so you know, agricultural workers, etc. And some others. So

448
00:22:09,240 --> 00:22:13,480
Speaker 7: we do anticipate more inflation. The market is anticipating more

449
00:22:13,480 --> 00:22:16,399
Speaker 7: inflation from Trump, but that's layered on top of what

450
00:22:16,520 --> 00:22:18,440
Speaker 7: is a pretty robust economy already.

451
00:22:18,640 --> 00:22:21,439
Speaker 5: I understand these things are hard to disaggregate. Scott Besson

452
00:22:21,680 --> 00:22:23,640
Speaker 5: did take a run at it yesterday when he said

453
00:22:23,640 --> 00:22:26,400
Speaker 5: for every ten percent increase in tariffs, you would see

454
00:22:26,400 --> 00:22:29,479
Speaker 5: a four percent move in currency markets. Jane, does that

455
00:22:29,640 --> 00:22:30,520
Speaker 5: math square for you?

456
00:22:32,119 --> 00:22:35,159
Speaker 7: It is difficult because who are these tariffs going to

457
00:22:35,160 --> 00:22:38,240
Speaker 7: be on? What about the tip for tap tariffs? You know,

458
00:22:38,600 --> 00:22:41,520
Speaker 7: there is so much to say, so it's very difficult,

459
00:22:41,520 --> 00:22:43,359
Speaker 7: I think, to be to say with any certainty that

460
00:22:43,359 --> 00:22:45,399
Speaker 7: that's exactly the rule of thumb that we can follow.

461
00:22:45,720 --> 00:22:47,080
Speaker 7: But you know, one thing that I think is going

462
00:22:47,160 --> 00:22:50,040
Speaker 7: to be very very interesting during this, you know, the

463
00:22:50,359 --> 00:22:53,480
Speaker 7: next a few years under Trump, is is to what

464
00:22:53,560 --> 00:22:57,840
Speaker 7: extent tariffs are used for foreign policy. Now, we had

465
00:22:57,880 --> 00:23:00,600
Speaker 7: some indication from Bison yesterday at saying that, you know,

466
00:23:00,680 --> 00:23:07,040
Speaker 7: tariffs could be used for broader reasons. We had Trump

467
00:23:07,440 --> 00:23:10,560
Speaker 7: a week or so ago in his press conference, you know,

468
00:23:10,640 --> 00:23:14,280
Speaker 7: talking about the economic power that he could exert on Canada,

469
00:23:14,320 --> 00:23:17,600
Speaker 7: for instance. You know, to what extent are we going

470
00:23:17,680 --> 00:23:20,080
Speaker 7: to have this different type of state craft really under

471
00:23:20,119 --> 00:23:23,640
Speaker 7: Donald Trump? Whereas tariffs are used not just for economic

472
00:23:23,680 --> 00:23:27,280
Speaker 7: policy objectives in the US, but for foreign policy objectives

473
00:23:27,320 --> 00:23:29,920
Speaker 7: in the US, And that is a different ballgame, which

474
00:23:29,920 --> 00:23:31,719
Speaker 7: is very difficult to measure.

475
00:23:32,240 --> 00:23:34,760
Speaker 5: It's something Terry Haynes has been writing about at Pangaea

476
00:23:34,840 --> 00:23:37,600
Speaker 5: for some time, Jane. But it's for those uncertainties that

477
00:23:37,640 --> 00:23:39,600
Speaker 5: you get something like the reporting we've heard of the

478
00:23:39,600 --> 00:23:42,960
Speaker 5: Bank of Japan that officials there do and are leaning

479
00:23:43,000 --> 00:23:45,240
Speaker 5: towards a hike at the end of next week. But

480
00:23:45,359 --> 00:23:48,560
Speaker 5: one a wait until Monday, until we get Trump's inauguration.

481
00:23:48,760 --> 00:23:51,440
Speaker 5: Understand what sort of executive actions he would take.

482
00:23:51,960 --> 00:23:52,720
Speaker 6: What is the.

483
00:23:52,640 --> 00:23:55,679
Speaker 5: Path that Trump might take that would either derail boj

484
00:23:55,800 --> 00:23:57,600
Speaker 5: from hiking or give them the green light.

485
00:23:58,960 --> 00:24:01,600
Speaker 7: Well, you know, I if Trump were to indicate that

486
00:24:01,680 --> 00:24:04,240
Speaker 7: Japan was not in the center of the sites in

487
00:24:04,359 --> 00:24:07,199
Speaker 7: terms of tariffs. But you know, Japan, I think is

488
00:24:07,240 --> 00:24:09,880
Speaker 7: in a very interesting, potentially quite a strong position, because

489
00:24:09,880 --> 00:24:13,199
Speaker 7: we've got to remember that Japan not only is you know,

490
00:24:13,240 --> 00:24:15,640
Speaker 7: the largest holder of US treasuries outside of the US,

491
00:24:15,680 --> 00:24:18,520
Speaker 7: but it's also the biggest provider of US FDI. And

492
00:24:18,560 --> 00:24:21,120
Speaker 7: of course over the last you know, were compared say

493
00:24:21,160 --> 00:24:24,119
Speaker 7: to thirty years ago, the geopolitics between the US and

494
00:24:24,200 --> 00:24:27,359
Speaker 7: Japan have changed significantly. Whereas you know, in thirty or

495
00:24:27,400 --> 00:24:30,960
Speaker 7: so years ago, the US really forced Japan to move

496
00:24:30,960 --> 00:24:33,919
Speaker 7: away from its semiconductor business if it was going to

497
00:24:33,920 --> 00:24:37,560
Speaker 7: protect its manufacturing sector, and really forced Japan, you know,

498
00:24:37,640 --> 00:24:41,320
Speaker 7: to move large auto plants, for instance, into the US. Now,

499
00:24:41,440 --> 00:24:45,120
Speaker 7: you know, Japan sees itself more in certain areas, particularly tech,

500
00:24:45,359 --> 00:24:48,440
Speaker 7: as more of a collaborator, and that relationship I think

501
00:24:48,560 --> 00:24:52,080
Speaker 7: could be strengthened in areas as defense going forward. So

502
00:24:53,200 --> 00:24:57,400
Speaker 7: those sorts of indication perhaps give Japan a little bit

503
00:24:57,400 --> 00:25:00,199
Speaker 7: more strength in terms of the hands that it it

504
00:25:00,240 --> 00:25:02,840
Speaker 7: has gone en off or to play against Donald Trump.

505
00:25:02,920 --> 00:25:05,840
Speaker 7: So certainly not as vulnerable in terms of trade as

506
00:25:05,880 --> 00:25:09,760
Speaker 7: perhaps China, maybe not even as vulnerable as in Germany

507
00:25:09,760 --> 00:25:12,080
Speaker 7: for instance, but I think that's going to become a

508
00:25:12,080 --> 00:25:14,040
Speaker 7: lot clearer over the next few weeks.

509
00:25:14,160 --> 00:25:17,320
Speaker 1: And also warming up to the present elect Japan will

510
00:25:17,320 --> 00:25:20,840
Speaker 1: also be sending their foreign minister to inauguration on Monday, Jane.

511
00:25:20,880 --> 00:25:22,760
Speaker 1: I'd love to get your thoughts on one thing Scott

512
00:25:22,800 --> 00:25:25,960
Speaker 1: Besson said yesterday about sanctions. He said Trump thought that

513
00:25:26,040 --> 00:25:29,160
Speaker 1: potentially the US has gone over as Skis on sanctions

514
00:25:29,200 --> 00:25:32,920
Speaker 1: because of de dollarization. Do you think sanctions are leading

515
00:25:32,920 --> 00:25:34,760
Speaker 1: to de dollarsation around the world.

516
00:25:35,280 --> 00:25:38,000
Speaker 7: Well, if we look purely at just the IMF data,

517
00:25:38,320 --> 00:25:40,359
Speaker 7: there is not that evidence yet. We've hact, if we

518
00:25:40,400 --> 00:25:42,639
Speaker 7: look back over the last twenty years, there is evidence

519
00:25:42,640 --> 00:25:47,040
Speaker 7: of dedollarization, but actually where central bank reserves have moved

520
00:25:47,080 --> 00:25:50,920
Speaker 7: into other curtencies, it has tended to be maybe the

521
00:25:50,960 --> 00:25:53,640
Speaker 7: ausie or the Canada currencies perhaps where over the last

522
00:25:53,640 --> 00:25:56,520
Speaker 7: twenty years there has been some yield for instance. So

523
00:25:56,640 --> 00:26:00,560
Speaker 7: there isn't any firm evidence in the IMF data. Yeah,

524
00:26:00,640 --> 00:26:03,080
Speaker 7: but there does appear to be a logic behind the

525
00:26:03,080 --> 00:26:05,359
Speaker 7: fact that if you are going to be applied by

526
00:26:05,520 --> 00:26:08,479
Speaker 7: US sanctions, then it is in your incentive to stop

527
00:26:08,560 --> 00:26:11,080
Speaker 7: using the US dollar. And we have seen, for instance,

528
00:26:11,160 --> 00:26:13,840
Speaker 7: China set up its different payment system for instance, we

529
00:26:13,880 --> 00:26:17,560
Speaker 7: have seen some more spread of that between its trading allies.

530
00:26:17,800 --> 00:26:21,240
Speaker 7: So it would appear logical that if you were to

531
00:26:21,320 --> 00:26:24,399
Speaker 7: issue more and more sanctions that you will eventually chase

532
00:26:24,880 --> 00:26:28,359
Speaker 7: countries away from using the dollar, So there is I

533
00:26:28,359 --> 00:26:31,600
Speaker 7: think a logic in that and there therefore again you know,

534
00:26:31,640 --> 00:26:35,119
Speaker 7: it comes back to how far can tariffs be used

535
00:26:35,400 --> 00:26:38,280
Speaker 7: as a replacement. So this different type of state craft

536
00:26:38,280 --> 00:26:41,720
Speaker 7: where foreign policy aims can be used again by tariff's

537
00:26:41,720 --> 00:26:45,000
Speaker 7: potentially not just economic policy aims.

538
00:26:45,160 --> 00:26:47,440
Speaker 2: Jane, quickly, just before you go, how many hour was something?

539
00:26:47,480 --> 00:26:50,159
Speaker 2: Before you leave? How do you explain the difference between

540
00:26:50,200 --> 00:26:53,840
Speaker 2: Governor Waller and President Hammock on the f WEBC Because

541
00:26:53,840 --> 00:26:55,920
Speaker 2: the Cleveland Fed President is saying things like we still

542
00:26:55,920 --> 00:26:59,240
Speaker 2: have an inflation problem. Manait policy is only moderately restrictive,

543
00:26:59,240 --> 00:27:01,480
Speaker 2: and Governor wallacane in the last twenty four hours signaling

544
00:27:01,520 --> 00:27:04,040
Speaker 2: he's opened to plenty of rate cuts in twenty five.

545
00:27:04,119 --> 00:27:04,800
Speaker 2: What's that about?

546
00:27:05,680 --> 00:27:07,960
Speaker 7: Well, you know that is surprising, but certainly you know

547
00:27:08,119 --> 00:27:09,600
Speaker 7: we have this in the Bank of England too. You

548
00:27:09,600 --> 00:27:11,040
Speaker 7: know we have this in the Bank of Japan. I mean,

549
00:27:11,119 --> 00:27:13,720
Speaker 7: this is why there is a whole council, you know,

550
00:27:13,760 --> 00:27:16,960
Speaker 7: making policy decisions. We need all those different points of views,

551
00:27:17,080 --> 00:27:18,760
Speaker 7: and of course at the end of the day's which

552
00:27:18,840 --> 00:27:21,640
Speaker 7: way the majority vote will go. And listening to many

553
00:27:21,680 --> 00:27:24,720
Speaker 7: of the other Fed officials, it would certainly suggest to

554
00:27:24,760 --> 00:27:27,880
Speaker 7: me that the majority is one of a cautious outlook.

555
00:27:27,880 --> 00:27:29,840
Speaker 7: Now even Waller, perhaps as an outlier.

556
00:27:30,119 --> 00:27:32,440
Speaker 2: Jane, I appreciate your time. As always, Jane Foley a

557
00:27:32,600 --> 00:27:35,840
Speaker 2: rubberbank there on the FX market. This is the Bloomberg

558
00:27:35,880 --> 00:27:40,600
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559
00:27:40,840 --> 00:27:43,360
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560
00:27:43,359 --> 00:27:46,600
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561
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562
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563
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