WEBVTT - Markets Soar on US-China Trade Truce 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.200 --> 0:00:32.279 Begin strong with jeffre You, Senior Strategy Seema Bny. Jeff you, 0:00:32.320 --> 0:00:33.880 thank you so much for joining us. Let me go 0:00:34.000 --> 0:00:36.760 right to the terriffs. Michael Brown in London has a 0:00:36.760 --> 0:00:40.720 wonderful tweet out. So the US went from negligible tariffs 0:00:40.760 --> 0:00:43.960 on China to ten percent, then twenty, then fifty four, 0:00:44.000 --> 0:00:46.479 then one oh four, then one forty five, and now 0:00:46.479 --> 0:00:49.400 we're back to thirty and ninety days. Jeff you, is 0:00:49.560 --> 0:00:53.960 China advantaged by this round trip on tariffs? 0:00:54.640 --> 0:00:57.720 Well, roundtrip and detailing how long? Right, I'll just highlight 0:00:58.120 --> 0:01:02.520 simultaneously when that joints came out, China actually put out 0:01:02.680 --> 0:01:07.600 a twenty thirty five white paper on security and resilience. Okay, 0:01:08.000 --> 0:01:10.120 that round trip is going to last years and years 0:01:10.120 --> 0:01:12.360 and years, or rather it's not a round trip at all, 0:01:12.560 --> 0:01:16.120 so they're looking to perhaps get some dat in the 0:01:16.120 --> 0:01:19.760 short term paper things over stability the target restructuring of 0:01:19.800 --> 0:01:21.640 the economy and the medium to longer term. So in 0:01:21.760 --> 0:01:23.920 terms of long term strategy for Beijing, this doesn't change 0:01:23.920 --> 0:01:24.160 a thing. 0:01:24.319 --> 0:01:27.080 And for the export numbers, I'm going to say forty 0:01:27.120 --> 0:01:30.440 eight hours ago showing buoyant exports out of China to 0:01:30.800 --> 0:01:35.200 other nations. This delay in the trade war, this round 0:01:35.240 --> 0:01:38.360 trip by President Trump, doesn't it give a more time 0:01:38.720 --> 0:01:43.360 to organize and disperse their supply chains to other nations. 0:01:44.360 --> 0:01:47.480 And one hour ago, I believe China's just signed deals 0:01:47.480 --> 0:01:52.000 with Lula detailing billions and billions of investment into Brazil 0:01:52.080 --> 0:01:55.520 and vice versa. And you think about agricultural supply chains potential. 0:01:56.320 --> 0:01:58.400 So South America is a very large market for Chinese 0:01:58.440 --> 0:02:01.840 evs for example. All of that is taking place in 0:02:01.920 --> 0:02:04.920 the background, and let's look at how chum weather. China 0:02:04.960 --> 0:02:09.119 reaches some form of agreement with Europe on evs as well, 0:02:09.160 --> 0:02:11.880 you know that's going to be a big one. So 0:02:11.960 --> 0:02:15.240 Beijing's not done in terms of its broader focus on 0:02:15.320 --> 0:02:18.440 diversification that also need to restructure its own economy as 0:02:18.440 --> 0:02:19.840 well in favor of domestic demand. 0:02:19.919 --> 0:02:21.120 Whereas from the US. 0:02:20.880 --> 0:02:24.359 Side, hopefully that it's a short term blip, and we'll 0:02:24.360 --> 0:02:27.240 need to see whether it can continue US exceptionalism, because 0:02:27.400 --> 0:02:29.000 that's in the mind of all investors right now. 0:02:29.600 --> 0:02:33.360 So, Jeffrey, we're seeing a rally in the Bloomberg Dollar 0:02:33.480 --> 0:02:35.800 Index here. How do you think about the US dollar here? 0:02:37.160 --> 0:02:39.079 Well, a lot will depend on the FED and also 0:02:39.200 --> 0:02:43.120 you know how the economies pursued in terms of growth, 0:02:43.200 --> 0:02:45.280 right I look at dollar Asia because that's where the 0:02:45.360 --> 0:02:48.200 volatility has been right now, and there's this view that, oh, well, 0:02:48.200 --> 0:02:51.359 their Asian currencies need to appreciate up ahead that that 0:02:51.480 --> 0:02:54.760 to Tom's favorite theme, Yes, appreciate, But in real terms, 0:02:55.040 --> 0:02:57.200 how do we square the circle here? Well, that means 0:02:57.240 --> 0:03:01.000 fiscal stimulus across Asia. That can afford it to boost 0:03:01.040 --> 0:03:04.400 our own economies, to boost the domestic site, bring inflation 0:03:04.680 --> 0:03:07.520 up in Asia, and I think that will help paper 0:03:07.560 --> 0:03:09.880 global growth over and for the US. I don't see 0:03:09.880 --> 0:03:12.160 that as a bad thing either. It's the rebalancing process 0:03:12.360 --> 0:03:15.240 and perhaps the exceptionalism can continue with a softer dollar 0:03:15.280 --> 0:03:16.600 to stimulate the US economy. 0:03:16.639 --> 0:03:19.280 And Paul brilliant to bring up the Bloomberg Dollar Index, folks, 0:03:19.360 --> 0:03:22.360 this is a more emerging market. Adding in China index 0:03:22.440 --> 0:03:24.920 off of dxy the symbol and for those of you 0:03:25.000 --> 0:03:29.519 with a terminal in your car nationwide dbdxy. Paul, we've moved. 0:03:29.520 --> 0:03:32.160 It's an elegant chart. Yep. I did it log rhythmic 0:03:32.160 --> 0:03:35.000 because Jeff us with us and we're out two point 0:03:35.200 --> 0:03:39.640 six standard deviations up, so's it's not like a fiery 0:03:39.800 --> 0:03:42.400 rally in the dollar. But it's a legitimate move. 0:03:42.400 --> 0:03:44.480 Jeffrey, when you see the risk assets. Let's just take 0:03:44.480 --> 0:03:47.360 the US equity markets here rallying three four percent here today. 0:03:47.400 --> 0:03:48.440 What does that tell you? 0:03:49.760 --> 0:03:52.120 I think that tells you and that people are viewing 0:03:52.120 --> 0:03:55.400 this stability as being prioritized by this administration, and the 0:03:55.480 --> 0:03:59.840 stability is being prioritized by all administrations and globally ultimately 0:04:00.160 --> 0:04:03.760 this uh, this loosens financial conditions and it's good for 0:04:03.840 --> 0:04:05.680 risk appetite, so you know, no one really wants to 0:04:05.720 --> 0:04:08.040 rock the boat. And that is back in the pricing here. 0:04:08.400 --> 0:04:09.960 But up ahead, I think let's just see you know 0:04:10.000 --> 0:04:13.200 where US growth, how US growth is going to consolidate, 0:04:13.800 --> 0:04:15.360 and I think this will hinge on the FED. And 0:04:15.400 --> 0:04:17.000 I think again, you know, this is where the domestic 0:04:17.000 --> 0:04:19.320 side of the US inflation, the labor market that's going 0:04:19.360 --> 0:04:20.200 to matter a lot more. 0:04:20.320 --> 0:04:22.440 Is it so cool that we have Jeffrey You and 0:04:22.520 --> 0:04:26.960 Jordan Rochester back to back. Let's continue with jeffre you 0:04:27.000 --> 0:04:27.800 a little bit more. 0:04:28.040 --> 0:04:31.440 Hey, Jeffrey, you know we had stories just as recently 0:04:31.480 --> 0:04:34.919 as a week ago of ships coming from China turning 0:04:35.000 --> 0:04:37.880 around and going back to China, not coming to the 0:04:37.880 --> 0:04:39.000 port of Los Angeles. 0:04:40.240 --> 0:04:42.680 How do we think about that? That's the key question? 0:04:42.760 --> 0:04:44.680 Yes, exactly where are ships going now? 0:04:44.800 --> 0:04:48.360 Where a Hawai stecked up like Newark exactly? 0:04:48.640 --> 0:04:51.760 So, so what I would focus on right now? And 0:04:51.800 --> 0:04:56.120 I know the commerce departments very focused on transshipments, but 0:04:56.279 --> 0:04:58.080 are we seeing a pickup in Chinese ship and the 0:04:58.240 --> 0:05:01.799 likes of Malaysia, Singapore, Southeast how those deals have progress? 0:05:01.920 --> 0:05:04.160 And then are you going to see a corresponding pickup 0:05:04.279 --> 0:05:07.800 in exports you know from these regions are to the 0:05:07.920 --> 0:05:10.520 US as well. But then let's see how much volume 0:05:10.560 --> 0:05:14.120 clears customs in the US from Asia in general? Is 0:05:14.160 --> 0:05:15.840 that coming down? If not? And I don't think it 0:05:15.880 --> 0:05:17.600 will come down that much because demand is going to 0:05:17.600 --> 0:05:20.240 be in place. What's the weighted average pricing that matters 0:05:20.279 --> 0:05:22.680 for the FED? Will that feed into inflation? So I 0:05:22.680 --> 0:05:25.400 don't worry about supply, but there's still will be a 0:05:25.440 --> 0:05:27.920 price issue and that's something that the FED will need 0:05:28.000 --> 0:05:30.400 to look into when setting policy, and ultimately that's what 0:05:30.520 --> 0:05:32.200 USXC markets will react to as well. 0:05:32.400 --> 0:05:37.560 Jeff you've fooled the bonds, the currency, the commodity correlations 0:05:38.240 --> 0:05:43.400 into the equity market. For our listeners seeing this relief rally, 0:05:43.800 --> 0:05:46.760 is it all clear for Jeffrey? You in the stock. 0:05:46.520 --> 0:05:51.239 Market, US exceptionalism means you buy stocks, you buy US stocks, 0:05:51.279 --> 0:05:53.839 you buy US bonds, and you buy the dollar. We 0:05:53.880 --> 0:05:56.719 think that the only thing which may decorrelate slightly or 0:05:56.839 --> 0:05:59.320 not just be as full on is on the dollar 0:05:59.360 --> 0:06:02.760 side to compensate for maybe a little bit more risk 0:06:02.760 --> 0:06:05.640 premia due to the recent uncertainty is a softer dollar. 0:06:05.680 --> 0:06:07.400 But again, this shouldn't be seen as a bad thing. A. 0:06:07.560 --> 0:06:10.080 It's something that the Trump administration, perhaps on and off, 0:06:10.080 --> 0:06:12.560 has been talking about. But b what if US companies 0:06:12.600 --> 0:06:16.440 become exporters as well, then you can benefit from that 0:06:16.640 --> 0:06:20.039 FX earnings translation that Europe, Switzerland, you know, Japan and 0:06:20.120 --> 0:06:23.640 even China Asia they always look for so that correlationship 0:06:23.880 --> 0:06:25.800 is perhaps taking place, But don't read it as a 0:06:25.839 --> 0:06:28.280 negative for US exceptionalism, at least not yet. Let's say 0:06:28.279 --> 0:06:29.680 if US companies can adapt. 0:06:29.680 --> 0:06:33.960 This round tripidness. Here's Lula of Brazil Folcus. This is 0:06:34.000 --> 0:06:40.120 a Bloomberg headline. Brazil's Lula says can't understand Donald Trump's 0:06:40.160 --> 0:06:44.440 tariffs and not making that up. That's the actual headline. Jeffrey, 0:06:44.480 --> 0:06:50.080 You heads are spinning over this modern neo mercantilist policy. 0:06:50.800 --> 0:06:54.920 What's the outcome that you see a complete capitulation by 0:06:55.040 --> 0:06:56.000 President Trump? 0:06:58.080 --> 0:07:00.000 I would say, you know, Beijing in the US ultimately 0:07:00.000 --> 0:07:04.000 the world view that free trade or rather so any 0:07:04.080 --> 0:07:06.640 unwinding of trade decoupling as both sides and Treasury secreted. 0:07:06.680 --> 0:07:10.480 Beston has stated, there's no win in this right, so 0:07:10.520 --> 0:07:14.280 it's les Lee's for all. So there is a vested interest, 0:07:14.400 --> 0:07:16.440 or rather there is an interest for the global economy. 0:07:16.440 --> 0:07:20.320 Beijing has said this for stability, so that is something 0:07:20.400 --> 0:07:22.880 I think that both sides are now very focused on. 0:07:22.920 --> 0:07:25.120 But over the medium to longer term for the US 0:07:25.160 --> 0:07:28.480 and for China, restructuring is needed. And for Europe, look 0:07:28.520 --> 0:07:31.320 at how much Europe has rallied this year on account 0:07:31.400 --> 0:07:34.920 of Germany focused more on domestic demand. That is healthy, 0:07:34.960 --> 0:07:37.400 and that's something Bessent has highlighted, and there's absolutely correct 0:07:37.400 --> 0:07:40.800 in this right. Restructuring in favor of domestic demand matters 0:07:40.800 --> 0:07:43.960 for the exporters in China, in Japan, in Europe, and 0:07:44.000 --> 0:07:46.200 the hope is from markets that they continue along that. 0:07:46.360 --> 0:07:48.800 So as an exit investor, you focus on the domestic 0:07:48.800 --> 0:07:51.400 elements in Europe and in Asia which have been underpriced 0:07:51.440 --> 0:07:51.920 for so long. 0:07:52.080 --> 0:07:54.080 Jeff, for you, thank you for getting a started, senior 0:07:54.120 --> 0:07:56.440 strategist be and why I greatly appreciate that. 0:07:56.640 --> 0:08:00.560 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:08:00.600 --> 0:08:03.920 starting at seven am Eastern on Applecarplay and Android Auto 0:08:04.000 --> 0:08:06.960 with the Bloomberg Business App. You can also listen live 0:08:07.040 --> 0:08:10.640 on Amazon Alexa from our flagship New York station Just 0:08:10.680 --> 0:08:14.080 Say Alexa, play Bloomberg eleven thirty someone. 0:08:13.720 --> 0:08:17.880 Else correlating beautifully and publishing on LinkedIn. This morning, Paul, 0:08:17.880 --> 0:08:20.760 why don't you bring in mister Rochester here at Missouo. 0:08:20.600 --> 0:08:23.320 Jordan Rochester he is head of fixed income, credit and 0:08:23.320 --> 0:08:28.160 Commodities macro strategy at miszou Ho Jordan. We wake up 0:08:28.200 --> 0:08:30.120 to the news this morning that the US and China 0:08:30.160 --> 0:08:33.240 will temporarily lower teriffs on each other's products, and the 0:08:33.280 --> 0:08:35.920 news Jordan is the US reduced its levites from one 0:08:36.000 --> 0:08:38.720 hundred and forty five percent to thirty percent, in China 0:08:38.720 --> 0:08:41.040 will reduce its duties from one hundred and twenty five 0:08:41.080 --> 0:08:44.360 percent to ten percent. Is it back to business as 0:08:44.440 --> 0:08:45.240 usual Jordan. 0:08:46.480 --> 0:08:48.920 It's back to business like it was in March. 0:08:49.160 --> 0:08:51.240 So the effective time for right, if you take all 0:08:51.240 --> 0:08:53.560 of this sort of exemptions, has gone from one hundred 0:08:53.559 --> 0:08:56.240 and eight on you on Chinese exports to US, so 0:08:56.280 --> 0:08:58.199 about twenty seven if you take it all in. 0:08:58.559 --> 0:08:59.960 So that's why we were in March. 0:09:00.080 --> 0:09:02.240 We were lower than that, of course before Donald Trump 0:09:02.280 --> 0:09:04.280 took it to the White House, so there could be 0:09:04.320 --> 0:09:06.880 a bit more to go. There's a few caveats as well. 0:09:06.920 --> 0:09:09.920 This is a ninety day reprieve. Things could escalate flower 0:09:09.960 --> 0:09:12.800 down the line. But in the sort of press conference 0:09:12.840 --> 0:09:16.840 with Scott Best earlier, what was quite clear was the 0:09:16.920 --> 0:09:20.200 hurdle to extending beyond ninety days is quite low. 0:09:20.320 --> 0:09:22.360 It was just as long as talks remained constructive. 0:09:22.720 --> 0:09:24.920 So it's quite clear that Scott Bessett leaned the charge 0:09:24.960 --> 0:09:28.400 on this in Switzerland that there is a move by 0:09:28.400 --> 0:09:30.520 the US to get rid of what was a de 0:09:30.600 --> 0:09:34.199 facto trade tariff embargo, a trade tariff wall. It was 0:09:34.240 --> 0:09:37.400 such a high tariff that business was freezing up, and 0:09:37.440 --> 0:09:40.440 as the previous speaker was talking about, lots of trade 0:09:40.440 --> 0:09:44.080 shipments were being re routed and Chinese exporters were considering 0:09:44.120 --> 0:09:48.240 ways of paying for the tariffs at lower prices. 0:09:47.880 --> 0:09:48.920 Than what they possibly are. 0:09:48.960 --> 0:09:52.360 So there's all these sorts of complex parts of international 0:09:52.440 --> 0:09:54.960 trade that the sort of cogs were being put into motion. 0:09:55.400 --> 0:09:57.240 Now they don't need to be at the same level 0:09:57.240 --> 0:09:59.440 because we are now down to the tariff rates that 0:09:59.520 --> 0:10:01.439 I think US firms can swallow. 0:10:02.640 --> 0:10:05.360 So what's next to you? If you're in the C suite, 0:10:05.320 --> 0:10:10.400 you're CEO, your CFO, you're purchasing manager. How do you 0:10:10.480 --> 0:10:12.680 navigate here? Do you think I mean, I mean much 0:10:12.760 --> 0:10:15.559 less being an investor here? If you're just an executive 0:10:15.600 --> 0:10:17.079 trying to run your business. 0:10:18.520 --> 0:10:21.920 Well before Liberation Day, it was quite clear what a 0:10:21.960 --> 0:10:26.079 lot of firms had been doing was that China might 0:10:26.120 --> 0:10:29.200 have been the original creator of an item, but it 0:10:29.240 --> 0:10:33.360 was being shipped to a third country and final construction 0:10:33.440 --> 0:10:36.719 of that product was being made in Vietnam or elsewhere, 0:10:36.960 --> 0:10:39.360 and then ships to the US at lower tariff rates 0:10:39.360 --> 0:10:42.440 than what was previously applied upon China. What changed on 0:10:42.480 --> 0:10:44.719 Liberation days everybody got this ten percent tariff, so it 0:10:44.800 --> 0:10:47.480 becomes a lot less effective to do so, even for 0:10:47.559 --> 0:10:51.319 countries with free trade agreements that there's a ten percent tariff, 0:10:51.559 --> 0:10:53.600 and then there was the extra kicker there was a 0:10:53.760 --> 0:10:57.000 higher rates of reciprocal on top of that, and countries 0:10:57.120 --> 0:10:59.680 like Vietnam and others who had been part of this 0:10:59.800 --> 0:11:03.840 China needs rerouting system face a much larger tariff. So 0:11:04.160 --> 0:11:06.640 if you're in a C suite right now, you're thinking, well, 0:11:06.760 --> 0:11:07.160 I can't. 0:11:07.240 --> 0:11:09.199 It's hard for me to avoid tariffs. 0:11:09.200 --> 0:11:14.160 It's more about going with the importer of choice that 0:11:14.200 --> 0:11:16.520 can help your supply chain in the first place, but 0:11:16.600 --> 0:11:18.320 also bringing it back to the US. I think this 0:11:18.400 --> 0:11:21.080 is a key part of the administration's focus. If it 0:11:21.120 --> 0:11:23.360 can be produced in the US for a similar economic cost, 0:11:23.360 --> 0:11:24.760 it will be sorgan. 0:11:24.880 --> 0:11:28.040 Have you the terrific Massouu team not only in Tokyo 0:11:28.200 --> 0:11:32.080 but in London and worldwide. Have you and Dominic constant 0:11:32.160 --> 0:11:36.959 sever shootout, have you come up with an optimum terraff 0:11:37.240 --> 0:11:42.520 statistic something less than ten percent back towards a blended 0:11:42.600 --> 0:11:45.720 three percent level. We were at. Is there a tip 0:11:45.760 --> 0:11:48.720 point where we get an optimum tariff? 0:11:50.080 --> 0:11:52.080 I think getting down to three or four percent like 0:11:52.120 --> 0:11:55.840 it was is pretty much impossible with this administration. But 0:11:56.120 --> 0:11:59.360 the level to consider the number is that the effective 0:11:59.440 --> 0:12:02.840 tariff rate that the sort of cell side consensus amongst 0:12:02.840 --> 0:12:06.440 banks were expecting on Liberation Day was roughly between twelve 0:12:06.480 --> 0:12:07.680 and a half to seventeen and a half. 0:12:07.720 --> 0:12:10.120 So let's call it fifteen in the middle we get 0:12:10.160 --> 0:12:10.760 If we get an. 0:12:10.720 --> 0:12:14.679 Effective tariffreight back down to fifteen percent, this market will 0:12:14.920 --> 0:12:17.079 handle it pretty well because we went into Liberation Day 0:12:17.120 --> 0:12:19.720 with the stock market down three or four percent year today, 0:12:19.800 --> 0:12:23.560 but nothing too crazy, and most self side analysts were 0:12:23.559 --> 0:12:26.800 expecting stock market to rally into year end. So if 0:12:26.800 --> 0:12:29.160 we get that number, Tom, that's the crucial tipping point, 0:12:29.160 --> 0:12:31.840 and the moves from China today really do get us 0:12:31.840 --> 0:12:33.520 closer to that bol As. 0:12:33.400 --> 0:12:36.679 An economist, where's your tip point? In the second vesper? Yes? 0:12:37.040 --> 0:12:37.640 What percent? 0:12:38.720 --> 0:12:38.760 What? 0:12:39.400 --> 0:12:42.679 Seriously? What percent tariff? Would you say? I don't care 0:12:42.720 --> 0:12:44.480 about the tariff. I need a second vestment. 0:12:44.520 --> 0:12:46.120 I need a second vestment. I don't I have a 0:12:46.120 --> 0:12:48.800 trade deficit with Italy right now? Buying my vest of 0:12:48.800 --> 0:12:50.960 four thousand dollars. I think, Jordan, what do we do 0:12:51.000 --> 0:12:51.800 here in the marketplace? 0:12:51.800 --> 0:12:51.920 Here? 0:12:51.960 --> 0:12:56.000 How much risk this morning are you suggesting your client 0:12:56.040 --> 0:12:56.800 to take here. 0:12:58.440 --> 0:13:01.600 In a big way, We've got a use the recent narrative, 0:13:01.720 --> 0:13:04.640 which is the sell America theme, which I never truly 0:13:04.679 --> 0:13:06.200 believed in as a theme. 0:13:06.240 --> 0:13:08.440 It was mostly a positioning point of view. 0:13:08.440 --> 0:13:11.959 It was an unhedged dollar exposure that needed to be hedged. Well, 0:13:11.960 --> 0:13:14.960 now it's been hedged, and the reasons for hedging it 0:13:15.040 --> 0:13:18.800 have really really fallen down if you think about it. 0:13:19.160 --> 0:13:22.320 And so a lot of the euro dollar buying we 0:13:22.360 --> 0:13:25.160 saw will not be fully unwound. But you're not gonna 0:13:25.160 --> 0:13:27.000 have the same pace of buying the same with the 0:13:27.080 --> 0:13:28.760 yen as well. So I think the dollar's going to 0:13:28.800 --> 0:13:31.200 rebound here because you've got essentially a lot of people 0:13:31.240 --> 0:13:35.480 who've positioned for continued dollar weakness, but forgetting that this 0:13:35.600 --> 0:13:37.920 is a market that has about three or four different 0:13:38.000 --> 0:13:41.000 narratives per year, and we're currently now going into a 0:13:41.040 --> 0:13:44.200 reversal of tariff tensions, and that will lead to dollar strength. 0:13:44.240 --> 0:13:44.839 On the back of it. 0:13:45.240 --> 0:13:48.719 Euro on one ten, it's under a one eleven ninety eight. 0:13:49.000 --> 0:13:52.400 I can't imagine if you formulated a new euro call, 0:13:53.520 --> 0:13:55.640 Jordan Rochester, can you get back to a one oh 0:13:55.720 --> 0:13:58.200 five or Dare I say we need a parody call 0:13:58.360 --> 0:13:58.719 in May? 0:14:00.160 --> 0:14:03.120 No, we're not going to those levels, So we have 0:14:03.160 --> 0:14:05.160 to split it into short term versus long term. Short 0:14:05.240 --> 0:14:07.240 term I talk about dollar strength there. That's kind of 0:14:07.240 --> 0:14:11.040 what needs to happen. The market's very short the dollars. However, 0:14:11.280 --> 0:14:13.280 longer term, I actually think your dollar gets to one 0:14:13.320 --> 0:14:15.600 twenty by year ends rather than the sort of one 0:14:15.840 --> 0:14:19.320 five level, which is what rate spreads currently would suggest. 0:14:19.360 --> 0:14:22.360 We've had this real problem in FX where rates are 0:14:22.360 --> 0:14:24.440 saying the euro should be weaker than what it is. 0:14:24.720 --> 0:14:27.720 But anyway, I digress one twenty by year end. Why 0:14:27.960 --> 0:14:30.880 it's because of this German fiscal story, EU joint issuance 0:14:30.960 --> 0:14:33.520 is possible and also EU reform. So we're going to 0:14:33.520 --> 0:14:37.560 see an expansion of European growth potential later this year, 0:14:37.920 --> 0:14:40.680 and that'll keep the idea of one twenty alive in you. 0:14:40.840 --> 0:14:42.360 I got to squeeze, so we're going to stop the 0:14:42.360 --> 0:14:47.640 show for Jordan Rochester. Are you suggesting with joint issuance 0:14:48.200 --> 0:14:53.640 that we finally get a coordinated fiscal policy out of Brussels. 0:14:55.080 --> 0:14:58.400 We've already had joint issuance before during the COVID pandemic, 0:14:58.520 --> 0:15:02.000 and so do we a crisis that triggers them to 0:15:02.040 --> 0:15:04.680 move again. The trade tensions were causing that crisis. I 0:15:04.720 --> 0:15:06.800 know things have come down in recent weeks, so therefore 0:15:06.840 --> 0:15:09.360 it doesn't feel as urgent as before. But the EU 0:15:09.480 --> 0:15:11.640 is looking at the US as a less trusted ally 0:15:11.960 --> 0:15:13.560 and that's going to lead to them thinking we need 0:15:13.600 --> 0:15:15.840 to boost our defense spending. That there's a summit on 0:15:15.880 --> 0:15:18.120 that in June and that will be the outcome of that. 0:15:18.560 --> 0:15:21.000 But for the other things, such as EU reform, that's 0:15:21.080 --> 0:15:23.200 going to be much more harder and longer to do. 0:15:23.520 --> 0:15:26.760 But you do have us Lavon Delaine and other EU commissioners. 0:15:26.240 --> 0:15:26.760 Pushing for it. 0:15:26.840 --> 0:15:29.920 So answer your question, I think joint commission has dropped 0:15:30.000 --> 0:15:32.800 US a probability in the past two weeks, but it 0:15:32.840 --> 0:15:34.080 still remains on the cards for me. 0:15:34.800 --> 0:15:36.680 Jordan Wrchester, thank you so much. 0:15:36.760 --> 0:15:45.800 With Missia, you're listening to the Bloomberg Surveillance Podcast. Catch 0:15:45.880 --> 0:15:48.920 us live weekday afternoons from seven to ten am Eastern 0:15:49.120 --> 0:15:52.760 Listen on Applecarplay and Android Otto with the Bloomberg Business 0:15:52.760 --> 0:15:54.920 app or watch us live on YouTube. 0:15:54.960 --> 0:15:56.600 We're going to rip up the script right now. We 0:15:56.640 --> 0:15:59.680 can do that with Lori kelvisin incredibly gifted and I 0:15:59.720 --> 0:16:03.200 want to playoff Doug cass a smart note today, which 0:16:03.240 --> 0:16:09.240 is I'm paraphrasing mister cass effective Immediately, the Tarorff thing 0:16:09.320 --> 0:16:12.560 is sort of pushed aside, whatever the end outcome is, 0:16:13.120 --> 0:16:15.760 and all of a sudden, the stock market is beholden 0:16:15.800 --> 0:16:19.720 to the bond market and the debate over fiscal the 0:16:19.760 --> 0:16:23.160 debate over the tax bill. Cass trying to move into 0:16:23.680 --> 0:16:27.360 the summer of twenty five like the dreaded New York 0:16:27.480 --> 0:16:31.160 Yankees are moving into the summer of twenty twenty five. 0:16:31.760 --> 0:16:37.440 What do high yields do to the Lori kelvisina space, Well, 0:16:37.440 --> 0:16:38.040 looking just. 0:16:38.040 --> 0:16:40.480 Like higher treasury yields generally, I mean, you know, it 0:16:40.680 --> 0:16:43.800 depresses valuation multiples. I mean that's what we tend to see. 0:16:43.880 --> 0:16:46.840 And I would also point out though that when I've 0:16:46.840 --> 0:16:49.560 done my back testing and my modeling, I'll nerd out 0:16:49.560 --> 0:16:52.360 on you for a minute, we actually find the inflation 0:16:52.520 --> 0:16:55.520 rate is a little bit more sensitive with pees if 0:16:55.560 --> 0:16:57.080 you go all the way back to the sixties, as 0:16:57.080 --> 0:16:59.560 opposed to bond yields, So the bond yields matter. But 0:16:59.840 --> 0:17:02.360 I I don't think we're totally done with this tariff 0:17:02.360 --> 0:17:05.240 moment and the inflationary impacts. I would like very much 0:17:05.280 --> 0:17:07.600 to get out of this tariff moment. But I don't 0:17:07.640 --> 0:17:09.360 know if I quite agree with mister Cass that we're 0:17:09.359 --> 0:17:10.000 totally done. 0:17:10.000 --> 0:17:12.879 Oh okay, well I'm paraphrasing, and Doug, maybe will you 0:17:12.920 --> 0:17:14.879 know call up and say time you're wrong. I didn't 0:17:14.880 --> 0:17:19.760 say we're totally done. The chaos folks this morning is crazy. 0:17:20.600 --> 0:17:23.399 What will people do in the mid cap, small cap 0:17:23.520 --> 0:17:27.439 small business space. They're not Apple. Their heads have to 0:17:27.480 --> 0:17:29.120 be absolutely spinning. 0:17:29.280 --> 0:17:29.520 Yeah. 0:17:29.520 --> 0:17:31.920 So look, I would say, as you think about the 0:17:31.960 --> 0:17:34.960 size of businesses, right, I think the bigger the better 0:17:35.080 --> 0:17:38.359 in terms of your ability to navigate whatever problem, whatever 0:17:38.440 --> 0:17:41.120 headwind is out there for margins. And so while we've 0:17:41.160 --> 0:17:44.160 dialed down the China tariffs this morning, at least temporarily, 0:17:44.680 --> 0:17:46.760 we're still in a worse place than we were a 0:17:46.800 --> 0:17:48.800 couple of months ago, right, And so there are still 0:17:48.800 --> 0:17:51.119 things that have to be navigated and dealt with, and 0:17:51.160 --> 0:17:53.720 I do think small and mid cap companies have less 0:17:53.720 --> 0:17:56.920 of an ability to do that than the bigger cap companies, 0:17:57.720 --> 0:17:59.840 and you know, we are mostly done with S and 0:17:59.880 --> 0:18:00.879 P reporting season. 0:18:00.880 --> 0:18:02.880 We've still got a lot of smid companies yet to report. 0:18:02.920 --> 0:18:04.400 So I'm sure we're going to get an earful about 0:18:04.440 --> 0:18:06.040 this issue and we'll find out whether I'm right or 0:18:06.040 --> 0:18:08.639 wrong on that, But that is my general rule of thumb. 0:18:09.400 --> 0:18:11.600 That being said, small cap futures are up like five 0:18:11.600 --> 0:18:15.280 percent last I checked, so the markets are clearly celebrating 0:18:15.320 --> 0:18:16.680 in here. But that would be kind of the one 0:18:16.720 --> 0:18:18.199 word of caution I'd throw out at you. 0:18:18.600 --> 0:18:22.000 So, how has your investment out looked for equities changed 0:18:22.000 --> 0:18:22.920 this morning, if at all? 0:18:23.400 --> 0:18:25.800 You know, it's it's interesting. You know, I was watching 0:18:25.880 --> 0:18:28.160 everything last night. The best Mother's Day gift, I guess 0:18:28.280 --> 0:18:30.000 was that we got the news at night, not in 0:18:30.000 --> 0:18:31.919 the middle of the day, so we you know, all 0:18:31.920 --> 0:18:35.000 the moms could enjoy the day. But look, I think 0:18:35.040 --> 0:18:38.080 that we have known that there was a tension in 0:18:38.119 --> 0:18:40.240 the modeling right now, right so I look at a 0:18:40.280 --> 0:18:42.080 bunch of stuff, and I can give you like six 0:18:42.200 --> 0:18:44.720 or seven different things that said we had hit maximum pain. 0:18:45.640 --> 0:18:46.800 One of those was the rate. 0:18:46.640 --> 0:18:49.880 Of upward revisions, which hit twenty eight percent for both 0:18:49.960 --> 0:18:52.160 small and large cap a few weeks ago, and when 0:18:52.160 --> 0:18:54.000 we updated that at the end of the last week, 0:18:54.880 --> 0:18:57.480 small cap provisions were up to forty percent to the upside, 0:18:57.560 --> 0:18:59.400 and large caps move up to like thirty. 0:18:59.160 --> 0:19:00.000 Four to thirty five percent. 0:19:00.560 --> 0:19:03.080 So anyway, we've seen like these various stress indicators that 0:19:03.119 --> 0:19:06.560 are healing, but we also know that there's some uncertainty 0:19:06.600 --> 0:19:09.000 and there's some you know, there's some headwinds out there 0:19:09.080 --> 0:19:11.560 right from all the disruption that we've had, and that's 0:19:11.560 --> 0:19:14.159 not just trade and tariff disruption. That's the news we 0:19:14.200 --> 0:19:16.840 got out of healthcare this morning, right, that's the news 0:19:16.880 --> 0:19:19.160 we got about dose. If you look at the Challenger data, 0:19:19.160 --> 0:19:22.520 the Doge layoffs are consistent with what we see in recessions. 0:19:22.720 --> 0:19:24.320 So we've still got a lot of that stuff to 0:19:24.359 --> 0:19:27.640 sort through. I will tell you the cinnamon indicators, bullish 0:19:27.840 --> 0:19:31.840 economic indicators less so that tension. You know, the bulls 0:19:31.840 --> 0:19:33.399