Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: with stock steady and bond yields moving lower, investors focusing
Speaker 2: on President atlect Donald Trump's first day in office. Matt
Speaker 2: Miskin of John Hancock saying, we are likely moving to
Speaker 2: a new macro regime here, as we have to say
Speaker 2: goodbye to goldilocks. Before the data was not too hot
Speaker 2: and not too cold, which left the FED supportive to markets.
Speaker 2: Now that data is coming in hotter nearly across the board,
Speaker 2: Matt joins us. Now for more. Matt, welcome to the program.
Speaker 2: Did this change things for you in any way, shape
Speaker 2: or form.
Speaker 3: The Philly Fed index John was through the roof. I mean,
Speaker 3: it's a little too sunny in Philadelphia right now.
Speaker 4: It almost seems like and when you see across the
Speaker 4: I mean the NFIB survey.
Speaker 3: Also, I mean, some of these moves in the economic
Speaker 3: data almost look like main stocks in terms.
Speaker 4: Of their parabolic upside.
Speaker 3: And when you see this, and then you hear the
Speaker 3: FED not or FMC members like Waller as you've been
Speaker 3: addressing saying they're still going to be cutting at it's
Speaker 3: hard to put those two pieces together. But at the
Speaker 3: end of the day, you've got a position more for
Speaker 3: a reacceleration of growth. We're looking down in cap mid
Speaker 3: cap stocks, industrials. We've been talking about them for a
Speaker 3: long time, but frankly, the earnings are looking good. They're
Speaker 3: starting to get more appreciation relative strength.
Speaker 4: And if there's.
Speaker 3: More on shoring cap X, that's our favorite place to
Speaker 3: be in global equities.
Speaker 2: So matis built on that. How further down in market,
Speaker 2: camp would you come and would you go down to
Speaker 2: small camps? And let's just talk about it, Brush, So
Speaker 2: can small camps work that interest rates coming down?
Speaker 3: We don't believe so, John, And that is the big
Speaker 3: difference about reading this macro regime. It's almost like the
Speaker 3: macro regime playbook is missing pages here, or the pages
Speaker 3: are so dated you have to go back and get
Speaker 3: a new addition. Because the small cap industries are just
Speaker 3: different than what they used to be ten twenty years ago.
Speaker 3: Now in a booming economy, forty percent of the companies
Speaker 3: don't make money, and so they really actually would prefer
Speaker 3: a zero interest rate regime more than a strong economic regime.
Speaker 3: And MidCap on the other hand, eighty five ninety percent
Speaker 3: are profitable. You're getting more industrial exposure. You're still getting financials,
Speaker 3: but that industrial exposure typically is higher quality with a
Speaker 3: higher ROE. So if you want quality and value combined,
Speaker 3: which is basically our mantra quality at a reasonable price,
Speaker 3: we would go to mid MidCap may be the new
Speaker 3: small cap to implement for this kind of macro regime.
Speaker 5: Mat can I go back to what you're saying about
Speaker 5: data looking like memestocks. Peter share of A had to
Speaker 5: me had basically the same read as you, but his
Speaker 5: conclusion was something is wrong with the data that you
Speaker 5: can have a job support that comes in and seventy
Speaker 5: four out of seventy five economists have a number in
Speaker 5: expectation below two hundred thousand, yet it surprises.
Speaker 6: To the upside.
Speaker 5: Is there a factor that maybe the data as hot
Speaker 5: as it's showing, is just not correct.
Speaker 4: It could be.
Speaker 3: I mean, you know, at the end of the day,
Speaker 3: these are surveys, and surveys have been the hardest thing
Speaker 3: to read over this whole cycle since COVID. Basically, surveys
Speaker 3: have been broken leading economic indicators. Surveys that are trying
Speaker 3: to lead the economy have just frankly been wrong.
Speaker 4: They were overly.
Speaker 3: Pessimistic over the last couple of years as the economy
Speaker 3: chugged along pretty well, and now they've really whiplashed into
Speaker 3: more positive, kind of more optimist type outlooks.
Speaker 4: Now, does real GDP improve, does other activity improve? We'll
Speaker 4: just have to see.
Speaker 3: But you've seen such a flip of the switch on
Speaker 3: survey data at the end of the day, though, we're
Speaker 3: seeing it in markets. I mean, even just to start
Speaker 3: this year, I think in the best way, you know,
Speaker 3: ll cool Day made us.
Speaker 4: Have said it best. Don't call it a comeback. You're
Speaker 4: seeing the markets rotate.
Speaker 3: Industrials, financials, materials are all starting.
Speaker 4: To be better. Tech isn't working.
Speaker 3: I know this is like stunning for markets after two
Speaker 3: years of just tech domination. But a rotation's happening in markets,
Speaker 3: and that's reflecting probably what's happening in the economy, a
Speaker 3: better economic outcome.
Speaker 5: I mean, you see that with an S and P
Speaker 5: that declines yesterday, even so seventy five percent of the
Speaker 5: constituents of the S and P were up yesterday. The
Speaker 5: equal weight it is on track for its second best
Speaker 5: week over the past year. The only week that was
Speaker 5: better was after the inauguration of Donald Trump. Matt how
Speaker 5: enduring is that broadening? Is that better breath of the market.
Speaker 3: We've been saying that it's got to be an earning's
Speaker 3: driven rotation in financials this week now, they had low
Speaker 3: base effects. Q four or of twenty twenty three is
Speaker 3: when the SVB payouts happen, so that really hurt Q
Speaker 3: four of twenty twenty three earnings and then Q four
Speaker 3: of twenty twenty four earnings.
Speaker 4: We're strong on top of that. But investment banking.
Speaker 3: You know, you were all just talking about this investment
Speaker 3: banking businesses are starting to come back and starting to
Speaker 3: get more strength. We're seeing, you know, the yield curve
Speaker 3: steep and that helps financials. Financials are the biggest value sector.
Speaker 3: It's really tech verse financials. If you're trying to make
Speaker 3: a growth first value decision, if you're going to see
Speaker 3: that rotation. But the great news of this week was
Speaker 3: really actually the fundamental side.
Speaker 4: And it was all those beats by the big banks.
Speaker 1: You say that the FED is likely done holding markets hands,
Speaker 1: So then what do you make of Governor Waller yesterday.
Speaker 4: To me that it was an outlier.
Speaker 3: And this is where it gets difficult listening to FOMC
Speaker 3: members because they're going to be all over the place.
Speaker 3: And if this divergence really happens over the next couple months,
Speaker 3: I don't think it really helps markets. It's just going
Speaker 3: to add on certainty. But if you're data dependent, I
Speaker 3: don't get it. I mean, you just talked about how
Speaker 3: the CPI report by beat by zero points, zero zero
Speaker 3: two percent, and trillions of dollars were you know, moved
Speaker 3: across markets, and even in this little bit, as soon
Speaker 3: as inflation comes down a little bit, you get the
Speaker 3: speculative frenzy back in things like crypto, and that's not
Speaker 3: going to help your inflation problem. Or you're kind of
Speaker 3: that speculative nature or sentiment of markets.
Speaker 2: So matt Let's address it. Can I just jump in.
Speaker 2: It's kind of a world of dice to dependent or
Speaker 2: is a FED chair I can say dependent.
Speaker 3: I think that's the latter. I think there's other motives,
Speaker 3: but you know, at the end of the day, you know,
Speaker 3: over the course of the year, I think he could
Speaker 3: be right. I think the way we're looking at this
Speaker 3: is a two half story of for FED in twenty
Speaker 3: twenty five. The first half I think they have to
Speaker 3: be hawkish. I think they have to back off and
Speaker 3: let the economy settle in see what happens. And then
Speaker 3: the back half I do think they're going to be cutting.
Speaker 3: But it's hard to say right now. Look we're going
Speaker 3: to get in the first half, I think you're just
Speaker 3: kind of bringing forward an inflationary impulse that you really
Speaker 3: would rather not have upfront. Here is we're going to
Speaker 3: reset into the beginning of twenty twenty five. A lot
Speaker 3: of the inflation and commodities are coming back. That makes
Speaker 3: me a bit nervous on the inflation front, but it
Speaker 3: helps the cypical side of equities, and that's what we're
Speaker 3: leaning into.
Speaker 1: Well, Matt Let's tayk with commodities for a minute. Scott
Speaker 1: Bessett yesterday took a moment to directly say if any
Speaker 1: Russian officials are watching his hearing right now, they should
Speaker 1: be on guard that potentially they will go after the
Speaker 1: biggest Russian oil producer, something we saw Biden do in
Speaker 1: the very last days of his administration. Did you get
Speaker 1: a sense that actually we're going to get a very
Speaker 1: hawkish Donald Trump administration when it comes to Russia and
Speaker 1: sanctions coming into office very shortly.
Speaker 3: You know, I did not see that on the twenty
Speaker 3: twenty five bingo card, but what we're seeing yet, you're right.
Speaker 3: I mean, it's just interesting to see that it weighed.
Speaker 3: You know, the administration really waited to the end to
Speaker 3: kind of throw on these sayings, and that is really
Speaker 3: where oil prices started to respond before all the other
Speaker 3: sanctions or other supply issues was just kind of breezed over.
Speaker 3: I mean, WTI was more like seventy dollars. You know,
Speaker 3: it's kind of breaking that. It almost looked like it
Speaker 3: was going to break down even further, and then it
Speaker 3: just really has rallied here. If you wanted disinflation, that
Speaker 3: oil rise is not good news, But at the end
Speaker 3: of the day, look, commodities work in these kind of
Speaker 3: short term spurts.
Speaker 4: Even coppers is ripping.
Speaker 3: I think this also has to do with getting ahead
Speaker 3: of the tariffs more broadly, and just trying to get
Speaker 3: as much inventory, whether it's supplies, finish goods, ahead of
Speaker 3: this as possible. You've seen it in the China data.
Speaker 3: China's basically having this huge export data. They need the
Speaker 3: commodities to do it. But I don't know if it's
Speaker 3: really sustainable. Frankly, we believe inflation is going to come
Speaker 3: down over the course of the year.
Speaker 4: We think housing prices moderate.
Speaker 3: So we would actually use this impulse and lean against it,
Speaker 3: actually maybe grab a little litle bit of duration here.
Speaker 5: I mean it's a lot matt and only the seventeenth
Speaker 5: day so far of twenty twenty five. You think people
Speaker 5: would welcome a long weekend, but you know everybody's going
Speaker 5: to be glued to their screens waiting to see what
Speaker 5: happens on Monday. In terms of executive orders, what's your
Speaker 5: read on how vulnerable the market is to any sort
Speaker 5: of action from Trump beyond immigration or teriffs.
Speaker 3: Right now, we're pricing in a lot of good news
Speaker 3: and sentiment has really skyrocketed to be more positive. I
Speaker 3: think more broadly, what we're seeing is the biggest liability
Speaker 3: to this market is the positive sentiment. One of the
Speaker 3: best things this market had and markets had going in
Speaker 3: to the last year or so was that, you know,
Speaker 3: it was pretty bearish and right. The new administration has
Speaker 3: brought a lot of hope, a lot of optimism, not
Speaker 3: necessarily bad thing. Again, that's probably driven some economic activity
Speaker 3: and more capex, deregulation all that. But at the same time,
Speaker 3: you've got to be careful here looking for everything to
Speaker 3: go right and thinking that you know, it's all going
Speaker 3: to be kind of an easy way to navigate this
Speaker 3: this macro backdrop, there is still policies that could you know,
Speaker 3: kind of dent some economic growth. There is policies that
Speaker 3: could create volatility. So at the end of the day,
Speaker 3: you still got to think about risk management, and again
Speaker 3: that would bring us to the bond market.
Speaker 2: Matt Miskin making tears running down like a monsoon. Appreciate it,
Speaker 2: Sir of Johana Hancock. Here's the latest this morning, Trump's
Speaker 2: Treasury pick Scot Besson urging Congress to extend twenty seventeen
Speaker 2: tax cuts, warning their expiration would made any economic crisis.
Speaker 2: Best in appearing on track for confirmation without specific objections
Speaker 2: from Democrats during yesterday's hearing. Joining us now is a
Speaker 2: Botansky of BTIG. Hey is welcome to the program, Sir,
Speaker 2: We need to talk about executive orders and Trump Day one.
Speaker 2: I just want to get your thoughts on yesterday. How
Speaker 2: do you think Scott Beson did.
Speaker 6: Look, I think it's clear that Scott Besson is a
Speaker 6: mind at work, and I think that it should be
Speaker 6: heartened by that, as I think all of us would
Speaker 6: like a steady hand in that role, someone of his,
Speaker 6: with his experience in the office advising the president. But John,
Speaker 6: let's not kid ourselves, right. We are still going to
Speaker 6: be living and dying day to day by whatever Donald
Speaker 6: Trump is typing out on his phone's keypad. So I
Speaker 6: think that it's heartening and positive and best and it's
Speaker 6: going to be easily confirmed, and he's going to be
Speaker 6: a stable voice in the Treasury Department and ultimately in
Speaker 6: the over Office advising the president. But the President himself
Speaker 6: is going to decide what tariffs are going to go
Speaker 6: into place and how those are going to be communicated
Speaker 6: to the market.
Speaker 1: So we're expecting some one hundred executive orders after Donald
Speaker 1: Trump is sworn in ISAAC. What do they look like.
Speaker 6: I think it's going to be a busy day. I
Speaker 6: think that there's an enormous amount of anticipation around what
Speaker 6: we're going to see on Monday. I do want our
Speaker 6: clients in general to be aware of that. Just because
Speaker 6: it doesn't come out Monday doesn't mean it's not going
Speaker 6: to happen. I think that there is a bit of
Speaker 6: a law there in terms of all the different things
Speaker 6: they want to do. From my seat, I think you're
Speaker 6: going to see a fair amount of paper focusing on immigration,
Speaker 6: border security. I think that that's one area where he's
Speaker 6: consistently said he wants to focus, and I think that
Speaker 6: there's some administrative levers that he can pull. My cautionary
Speaker 6: point there is I think that that's going to be
Speaker 6: one area that you see heavily litigated. So that's one
Speaker 6: area and one dynamic that we're aware of. I think
Speaker 6: you're also going to see a fair amount of orders
Speaker 6: on the energy front and the healthcare front. Those have
Speaker 6: less risk of litigation generally speaking, so we'll be keeping
Speaker 6: an eye eye on that, and of course there's a
Speaker 6: lot of signaling. Ann Marie, right, We're going to have
Speaker 6: a lot of things that don't actually have teeth, a
Speaker 6: lot of things relating to the culture wars and things
Speaker 6: that I don't think that the markets are going to
Speaker 6: have to worry about all.
Speaker 1: Too much, and the siglings on the other side as well.
Speaker 1: Biden is continuing a ton of executive actions used as
Speaker 1: staffers are starting to pack up their offices currently right
Speaker 1: now when it comes to tariffs, though, will we get
Speaker 1: executive orders next week?
Speaker 6: I think that we're going to get a few. And look,
Speaker 6: my base case here is still that there's going to
Speaker 6: be an overarching incrementalism to the tariff policy from the
Speaker 6: Trump administration. I think that they are cognizant of the
Speaker 6: economic impact, and I think ultimately they still want tariffs
Speaker 6: to be used primarily primarily as a negotiating hit. And
Speaker 6: the way that I think about this is for those
Speaker 6: negotiating chits to have any value, you still need to
Speaker 6: prove that you're willing to shoot the hostage if you will,
Speaker 6: And so from a framing perspective, I think that ultimately
Speaker 6: they will move quickly on instituting new Chinese tariffs, likely
Speaker 6: using Section two thirty two or Section three oh one,
Speaker 6: which takes a few months to get there, and then
Speaker 6: maybe a few acute areas where they focus on issues
Speaker 6: that they have a fair amount of political backing for
Speaker 6: things like going after European autos. But I don't expect
Speaker 6: the broad based universal tariffs to be where we start from.
Speaker 1: You make a good point that this is really year
Speaker 1: five of truck not year one, But what is going
Speaker 1: to be different from one point zero to two point
Speaker 1: h Yeah.
Speaker 6: Look, I think I think emory it's a lot of amplification, right,
Speaker 6: So we know there's going to be a deregulatory agenda,
Speaker 6: we know there's going to be a focus on tax
Speaker 6: cuts and border security, but there's an amplification of some
Speaker 6: of those issues. So on border security, it's not just
Speaker 6: focusing on the border, it's also the deportation dynamic that's
Speaker 6: in play on the tariffs. I think that they have
Speaker 6: more of an awareness of the different tools, which is
Speaker 6: why you're hearing so much more about i EPO, which
Speaker 6: allows the president to impose tariffs based on national emergency.
Speaker 6: That's something that they didn't really get their arms around
Speaker 6: until probably halfway through the first term. So in general,
Speaker 6: I would just say it's more awareness of the levers
Speaker 6: of power. And then also if the personnel they have
Speaker 6: around them, you have very well vetted, truly loyal folks
Speaker 6: around the president, which should allow them to move a
Speaker 6: little bit more quickly and I think ultimately avoids some
Speaker 6: of the pot holes that they fell into during the
Speaker 6: first administration.
Speaker 5: Well, Isaac, to your point, though, they need to show
Speaker 5: a willingness in your words, to shoot the hostage, to
Speaker 5: do the most of extreme measures in order to use
Speaker 5: it as a negotiating chit. Do you think that that's
Speaker 5: well enough appreciated. Is this administration that would be willing
Speaker 5: to go to the extremes?
Speaker 6: You know, Look, it depends, it depends which client I'm
Speaker 6: talking to, but I think that there's at least an
Speaker 6: awareness that the China tariffs are something that he is
Speaker 6: absolutely serious about. There's a fair amount of debate among
Speaker 6: the client community that I speak to as to whether
Speaker 6: there can be a grand bargain with China over time,
Speaker 6: but I think that we need to have that as
Speaker 6: our base case, that China is going to be where
Speaker 6: he moves quickly. Canada and Mexico, I truly think are
Speaker 6: more about a conversation, more about one off negotiations than
Speaker 6: anything else. And on the European side, I do think
Speaker 6: that he is a true believer, especially on the Auto story.
Speaker 6: So I think what we have now is sort of
Speaker 6: trying to understand that bridge from rhetoric to reality and
Speaker 6: trying to get into Donald Trump's mind, in the mind
Speaker 6: of those who are running this administration as to what
Speaker 6: they're really going to prioritize, because it's clear they can't
Speaker 6: do everything, So what is their prior organization hierarchy on tariffs?
Speaker 5: Well, as Amory started this hour saying, Scott Bessett yesterday
Speaker 5: laid out several different use cases for tariffs. One of
Speaker 5: them that seemed to keep coming up was this idea
Speaker 5: of tariff's as national security, that sanctions pressure the dollar
Speaker 5: and its reserve status and it makes more sense to
Speaker 5: use therefore instead tariffs. When it comes to China, Isaac,
Speaker 5: what is the strategy? Is it negotiation or is it
Speaker 5: one of national security? And that's why terrafs would be
Speaker 5: put on.
Speaker 6: Yeah. Look, I think that it's a full court press,
Speaker 6: That's how I think about it. And I think that
Speaker 6: there's more awareness here than there's ever been in terms
Speaker 6: of we need to have more of a holistic approach
Speaker 6: in terms of our competition with China. And you heard
Speaker 6: it yesterday during the hearing. I think it was noteworthy
Speaker 6: to hear how much was reference in terms of our
Speaker 6: outbound investment screening. Look, we have screening for if foreign
Speaker 6: entities want to buy interest in the US. We should
Speaker 6: also have some awareness and some say as to outbound
Speaker 6: investment and what that means for acute areas of competition.
Speaker 6: They think that it's one of the few areas of bipartisanship,
Speaker 6: and so we've got to be aware of how that's playing,
Speaker 6: not just politically but also operationally in terms of the
Speaker 6: different level levers of government they have, from siphius which
Speaker 6: we've seen with the usdel deal, to acute areas of
Speaker 6: legislation like we've seen with the TikTok.
Speaker 2: Ben isaid the horse has bolted, the technology has already lost.
Speaker 2: I wish we were having this conversation twenty years ago,
Speaker 2: but we're not. And then I started to hear things
Speaker 2: like the TikTok CEOs coming to the inauguration. She's invited
Speaker 2: to the inauguration not turning up By the way, Isaac,
Speaker 2: what is going to be the approach to things like TikTok?
Speaker 2: If it is seriously a national security risk and Chinese
Speaker 2: hackers have infiltrated the Treasury, care who's in charge, they
Speaker 2: could possibly do the same thing in the incoming administration
Speaker 2: as well, I don't really understand what the hold up is.
Speaker 6: Well, look, I'm confused by Congress passing a bill saying
Speaker 6: that they want to ban TikTok, and now at this
Speaker 6: eleventh hour, we're seeing many of those lawmakers from both
Speaker 6: sides of the aisle retracting their previous statement saying we
Speaker 6: would love a reprieve, we would love to find a
Speaker 6: way to push this ban out. And so I think
Speaker 6: that they're always those political wins which are tough to dissect,
Speaker 6: but by and large, when I try to step back
Speaker 6: and say what does this actually mean for markets? Was
Speaker 6: this mean for investors? Is one of the persistent tailwinds
Speaker 6: that I see from a spending in a appropriations areas,
Speaker 6: We're going to spend a whole lot more money on
Speaker 6: cybersecurity as a federal government. There's going to be a
Speaker 6: whole of government approach to cybersecurity. That is frankly twenty
Speaker 6: years too late. But in terms of areas, the clients ask,
Speaker 6: where are we going to plus up spending? Where are
Speaker 6: we going to spend more and more? No matter who
Speaker 6: is in charge of that pen, it's cybersecurity and overall
Speaker 6: just defense and national security.
Speaker 2: Forgive me for putting you on the spot, but what
Speaker 2: you actually think happens with TikTok? And the next way,
Speaker 2: kind I said, what's your buys case?
Speaker 6: Look, I think that we're going to get the Supreme
Speaker 6: Court order today. They have a release this morning. My
Speaker 6: base case has been that when you can bet on
Speaker 6: DC taking longer than it should, it will. I think
Speaker 6: that the Supreme Court is likely to say that they're
Speaker 6: going to continue deliberating on this. There's going to be
Speaker 6: a temporary injunction for a couple of months while they
Speaker 6: do so, and that we get their order, I think
Speaker 6: ultimately upholding the statue, which is negative for TikTok. But
Speaker 6: we're going to have to wait a couple of months
Speaker 6: before that comes out.
Speaker 2: OASAC going to catch up this appreciated busy wait next
Speaker 2: week for sure. Thank you Isipotanski btig. So here's the
Speaker 2: lights this morning. Market's prancing for President elect Donald Trump's
Speaker 2: trained policies, the dollar hovering knit two year highs as
Speaker 2: tariff uncertainty ways on global currencies. Jane Furley of Rubber
Speaker 2: Bank writing, Trump may be prepared to back down on
Speaker 2: his previous preference for a weaker US dollar, particularly if
Speaker 2: it views the tariffs can do the heavy lifting on
Speaker 2: addressing the US training balance. Jane joined us Now for more. Jane,
Speaker 2: didn't work last time? Can it work this time?
Speaker 7: Well? I think things are a little bit different this time,
Speaker 7: and I think we know Trump is an experienced politician.
Speaker 7: He's also I think ready to hit the ground running
Speaker 7: next week, and I think this time next week we'll
Speaker 7: be able to answer that question a lot with a
Speaker 7: lot more clarity, because if he comes through very quickly
Speaker 7: with executive orders, the market's going to get a very
Speaker 7: strong flavor as to whether or not what it's priced
Speaker 7: in in terms of tariffs, in terms of growth, in
Speaker 7: terms of inflation, is really you know, broad based correct
Speaker 7: or not.
Speaker 2: Well, Jane, what do you think is behind the dollar
Speaker 2: move we've seen? Is it great differentials off the banker
Speaker 2: superior economic growth and inferior growth abroad or is it
Speaker 2: really about anticipating the policy changes from the administration.
Speaker 7: You know, it's both. Certainly. You know, if we just
Speaker 7: take a snapshot of the US economy now and compare
Speaker 7: it with for instance, Germany China, what we see is
Speaker 7: a lot more strength. For instance, if you look at
Speaker 7: the forecast for growth in the US this year, they're
Speaker 7: averaging around about two percent. The consensus are roundty percent
Speaker 7: for the US. It's about half of that for the Eurozone. Obviously,
Speaker 7: we will know that China's still got growth struggles even
Speaker 7: though it did hit its target for twenty twenty four,
Speaker 7: so that there is a better growth outlok And with that,
Speaker 7: you know, there is evidence of sticky inflation in the US.
Speaker 7: So that's the snapshot right now. And on top of
Speaker 7: that we need to layer in the potential inflationary impacts
Speaker 7: of tarists or of mass deportations for instance. That could
Speaker 7: certainly create a more tightness in the labor market, where
Speaker 7: you know, a very significant proportion of the workers in
Speaker 7: the US are foreign born. Now obviously a lot of
Speaker 7: those have got documentation, but even so we could certainly
Speaker 7: see some inflation or wage prices coming through in certain sectors,
Speaker 7: so you know, agricultural workers, etc. And some others. So
Speaker 7: we do anticipate more inflation. The market is anticipating more
Speaker 7: inflation from Trump, but that's layered on top of what
Speaker 7: is a pretty robust economy already.
Speaker 5: I understand these things are hard to disaggregate. Scott Besson
Speaker 5: did take a run at it yesterday when he said
Speaker 5: for every ten percent increase in tariffs, you would see
Speaker 5: a four percent move in currency markets. Jane, does that
Speaker 5: math square for you?
Speaker 7: It is difficult because who are these tariffs going to
Speaker 7: be on? What about the tip for tap tariffs? You know,
Speaker 7: there is so much to say, so it's very difficult,
Speaker 7: I think, to be to say with any certainty that
Speaker 7: that's exactly the rule of thumb that we can follow.
Speaker 7: But you know, one thing that I think is going
Speaker 7: to be very very interesting during this, you know, the
Speaker 7: next a few years under Trump, is is to what
Speaker 7: extent tariffs are used for foreign policy. Now, we had
Speaker 7: some indication from Bison yesterday at saying that, you know,
Speaker 7: tariffs could be used for broader reasons. We had Trump
Speaker 7: a week or so ago in his press conference, you know,
Speaker 7: talking about the economic power that he could exert on Canada,
Speaker 7: for instance. You know, to what extent are we going
Speaker 7: to have this different type of state craft really under
Speaker 7: Donald Trump? Whereas tariffs are used not just for economic
Speaker 7: policy objectives in the US, but for foreign policy objectives
Speaker 7: in the US, And that is a different ballgame, which
Speaker 7: is very difficult to measure.
Speaker 5: It's something Terry Haynes has been writing about at Pangaea
Speaker 5: for some time, Jane. But it's for those uncertainties that
Speaker 5: you get something like the reporting we've heard of the
Speaker 5: Bank of Japan that officials there do and are leaning
Speaker 5: towards a hike at the end of next week. But
Speaker 5: one a wait until Monday, until we get Trump's inauguration.
Speaker 5: Understand what sort of executive actions he would take.
Speaker 6: What is the.
Speaker 5: Path that Trump might take that would either derail boj
Speaker 5: from hiking or give them the green light.
Speaker 7: Well, you know, I if Trump were to indicate that
Speaker 7: Japan was not in the center of the sites in
Speaker 7: terms of tariffs. But you know, Japan, I think is
Speaker 7: in a very interesting, potentially quite a strong position, because
Speaker 7: we've got to remember that Japan not only is you know,
Speaker 7: the largest holder of US treasuries outside of the US,
Speaker 7: but it's also the biggest provider of US FDI. And
Speaker 7: of course over the last you know, were compared say
Speaker 7: to thirty years ago, the geopolitics between the US and
Speaker 7: Japan have changed significantly. Whereas you know, in thirty or
Speaker 7: so years ago, the US really forced Japan to move
Speaker 7: away from its semiconductor business if it was going to
Speaker 7: protect its manufacturing sector, and really forced Japan, you know,
Speaker 7: to move large auto plants, for instance, into the US. Now,
Speaker 7: you know, Japan sees itself more in certain areas, particularly tech,
Speaker 7: as more of a collaborator, and that relationship I think
Speaker 7: could be strengthened in areas as defense going forward. So
Speaker 7: those sorts of indication perhaps give Japan a little bit
Speaker 7: more strength in terms of the hands that it it
Speaker 7: has gone en off or to play against Donald Trump.
Speaker 7: So certainly not as vulnerable in terms of trade as
Speaker 7: perhaps China, maybe not even as vulnerable as in Germany
Speaker 7: for instance, but I think that's going to become a
Speaker 7: lot clearer over the next few weeks.
Speaker 1: And also warming up to the present elect Japan will
Speaker 1: also be sending their foreign minister to inauguration on Monday, Jane.
Speaker 1: I'd love to get your thoughts on one thing Scott
Speaker 1: Besson said yesterday about sanctions. He said Trump thought that
Speaker 1: potentially the US has gone over as Skis on sanctions
Speaker 1: because of de dollarization. Do you think sanctions are leading
Speaker 1: to de dollarsation around the world.
Speaker 7: Well, if we look purely at just the IMF data,
Speaker 7: there is not that evidence yet. We've hact, if we
Speaker 7: look back over the last twenty years, there is evidence
Speaker 7: of dedollarization, but actually where central bank reserves have moved
Speaker 7: into other curtencies, it has tended to be maybe the
Speaker 7: ausie or the Canada currencies perhaps where over the last
Speaker 7: twenty years there has been some yield for instance. So
Speaker 7: there isn't any firm evidence in the IMF data. Yeah,
Speaker 7: but there does appear to be a logic behind the
Speaker 7: fact that if you are going to be applied by
Speaker 7: US sanctions, then it is in your incentive to stop
Speaker 7: using the US dollar. And we have seen, for instance,
Speaker 7: China set up its different payment system for instance, we
Speaker 7: have seen some more spread of that between its trading allies.
Speaker 7: So it would appear logical that if you were to
Speaker 7: issue more and more sanctions that you will eventually chase
Speaker 7: countries away from using the dollar, So there is I
Speaker 7: think a logic in that and there therefore again you know,
Speaker 7: it comes back to how far can tariffs be used
Speaker 7: as a replacement. So this different type of state craft
Speaker 7: where foreign policy aims can be used again by tariff's
Speaker 7: potentially not just economic policy aims.
Speaker 2: Jane, quickly, just before you go, how many hour was something?
Speaker 2: Before you leave? How do you explain the difference between
Speaker 2: Governor Waller and President Hammock on the f WEBC Because
Speaker 2: the Cleveland Fed President is saying things like we still
Speaker 2: have an inflation problem. Manait policy is only moderately restrictive,
Speaker 2: and Governor wallacane in the last twenty four hours signaling
Speaker 2: he's opened to plenty of rate cuts in twenty five.
Speaker 2: What's that about?
Speaker 7: Well, you know that is surprising, but certainly you know
Speaker 7: we have this in the Bank of England too. You
Speaker 7: know we have this in the Bank of Japan. I mean,
Speaker 7: this is why there is a whole council, you know,
Speaker 7: making policy decisions. We need all those different points of views,
Speaker 7: and of course at the end of the day's which
Speaker 7: way the majority vote will go. And listening to many
Speaker 7: of the other Fed officials, it would certainly suggest to
Speaker 7: me that the majority is one of a cautious outlook.
Speaker 7: Now even Waller, perhaps as an outlier.
Speaker 2: Jane, I appreciate your time. As always, Jane Foley a
Speaker 2: rubberbank there on the FX market. This is the Bloomberg
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