WEBVTT - Trade War Impact on Consumers 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 --> 0:00:27.000 us live on YouTube. 0:00:27.160 --> 0:00:30.240 Themandalignum with us here right now, peat a credit research 0:00:30.320 --> 0:00:32.280 black Rock. We're thrilled that she's with us. We do 0:00:32.320 --> 0:00:35.440 an audible at right now, long ago and far away, 0:00:35.720 --> 0:00:39.920 like think eighteen forty two, there was the Augustinian College 0:00:40.000 --> 0:00:43.960 of Villanova. Wander forward to the class of seventy seven 0:00:44.000 --> 0:00:46.560 and the math guy got out of it and ended 0:00:46.640 --> 0:00:49.960 up the other day becoming Pope Leo. I believe the 0:00:50.040 --> 0:00:54.440 fourteenth Amandolinum. Are you going to move? I mean, I 0:00:54.560 --> 0:00:57.040 know that mister Fink would let he would let you go. 0:00:57.520 --> 0:01:00.000 Do we look for you to do a Bloomberg Surveillance 0:01:00.120 --> 0:01:04.560 interview from the Administration of the Patrimony of the Apostolic 0:01:04.720 --> 0:01:06.120 See anytime soon. 0:01:06.240 --> 0:01:06.960 I would welcome it. 0:01:07.040 --> 0:01:09.760 I'm a massive supporter of the school. Was hoping for 0:01:09.840 --> 0:01:13.200 some divine intervention last night, but it didn't didn't work 0:01:13.200 --> 0:01:13.680 out that way. 0:01:13.720 --> 0:01:15.240 But I love Villanova. 0:01:15.440 --> 0:01:18.039 What I have to ask what was I mean, I 0:01:18.120 --> 0:01:21.520 was watching with missus Keane like everyone at else. What 0:01:21.720 --> 0:01:24.880 was it like when he stepped out on that belt. 0:01:25.520 --> 0:01:27.520 I mean, I've been a massive supporter of the school, 0:01:27.560 --> 0:01:28.840 but it was just so wonderful to see I was 0:01:28.880 --> 0:01:30.800 actually quite surprised. I think others of the school said 0:01:30.840 --> 0:01:32.520 the same thing, even those who were in the loop. 0:01:33.200 --> 0:01:35.440 But it's it's super exciting for all of us. 0:01:35.680 --> 0:01:38.240 Very good. Well, we look forward to speaking to you 0:01:38.319 --> 0:01:43.240 from the administration of the Patrimony of the Apostolics, the Pope. 0:01:43.319 --> 0:01:44.559 What's his favorite chief steak? 0:01:44.640 --> 0:01:46.800 I mean, that's got to be one of the most 0:01:46.840 --> 0:01:47.800 support thing. 0:01:47.880 --> 0:01:51.360 What's what's the most important advice to the Administration of 0:01:51.400 --> 0:01:55.360 the Patrimony of the Apostolic see and their bond portfolio? 0:01:55.400 --> 0:01:57.080 Will it be price up eeled out? 0:01:57.200 --> 0:01:59.120 Good morning? I should say thank you for having me. 0:01:59.640 --> 0:02:02.800 I think one of the most important things I would 0:02:02.800 --> 0:02:06.640 emphasize is maybe the concept of two sided risks has 0:02:06.720 --> 0:02:07.920 really come into focus. 0:02:08.480 --> 0:02:10.400 I would say more over the past few weeks. 0:02:10.440 --> 0:02:15.320 It actually started before the US China trade paused tensions 0:02:15.600 --> 0:02:17.679 of a couple of weeks ago. But I think when 0:02:17.680 --> 0:02:20.800 we're talking to investors there's also a focus on what 0:02:20.919 --> 0:02:24.440 could go right, and I think the fact pattern over 0:02:24.480 --> 0:02:26.440 the past few days was case in point Friday, we 0:02:26.520 --> 0:02:27.919 left it was a bit of a risk on tone. 0:02:27.960 --> 0:02:30.960 We came in yesterday, quite a risk on tone. Corporates 0:02:30.960 --> 0:02:33.160 investors alike don't want to be caught off sides, and 0:02:33.200 --> 0:02:35.160 so I think there's just a recognition of the two 0:02:35.200 --> 0:02:38.480 sided risks. We are actually comfortable selectively moving down in 0:02:38.520 --> 0:02:40.639 credit quality. That's a view that we've had for a while, 0:02:41.400 --> 0:02:43.960 and I think that is actually we're an investor that 0:02:44.080 --> 0:02:46.480 is taking a bit of a longer term perspective. Compounding 0:02:46.480 --> 0:02:48.880 these spreads and yields. I think it's a pretty attractive opportunity. 0:02:49.000 --> 0:02:50.840 So I'm looking at just at the end go function 0:02:50.919 --> 0:02:53.000 of Bloombergate next browser, just kind of look ato where 0:02:53.120 --> 0:02:56.919 things are going in fixed income here. Corporate high yield 0:02:56.919 --> 0:02:59.200 has been like the best performer two point four to 0:02:59.200 --> 0:03:00.919 six percent total return year to date. 0:03:01.120 --> 0:03:01.320 Yeah. 0:03:01.520 --> 0:03:04.639 I mean again, it seems like the market's willing to 0:03:04.680 --> 0:03:05.360 take credit risks. 0:03:05.400 --> 0:03:07.880 Yes, and I think it's notable on a few fronts 0:03:08.000 --> 0:03:11.600 high yield out performing IG in an environment like this 0:03:11.639 --> 0:03:14.800 where there are some residual concerns about growth downside risks, 0:03:14.840 --> 0:03:16.960 and also an expectation that we are slowing from an 0:03:16.960 --> 0:03:17.720 above trend pace. 0:03:17.840 --> 0:03:20.840 I think that's really twofold Paul. One is you're still. 0:03:20.639 --> 0:03:24.600 Able to capture a pretty attractive incremental spread in high yield. 0:03:24.840 --> 0:03:28.440 You don't have as much duration exposure, so when treasure 0:03:28.480 --> 0:03:31.160 yields sell off, you're less impacted in the high old space. 0:03:31.360 --> 0:03:34.560 And then two, importantly, fundamentals between a lot of these 0:03:34.600 --> 0:03:36.040 pockets of the market have converged. 0:03:36.080 --> 0:03:37.800 Actually, if you look at leverage for. 0:03:37.800 --> 0:03:39.840 Double b's, which is the high end of high yield, 0:03:40.200 --> 0:03:42.960 and leverage for triple b's, the low end of investment grade, they're. 0:03:42.760 --> 0:03:45.200 Actually the same. You can see that on the Bloomberg terminal, So. 0:03:45.160 --> 0:03:47.200 That you're not giving up a ton of credit quality 0:03:47.240 --> 0:03:49.560 to move down. They're not giving up a ton in 0:03:49.760 --> 0:03:51.720 fundamental quality to move down in credit quality. 0:03:51.720 --> 0:03:52.200 And we like that. 0:03:52.320 --> 0:03:55.200 See how she pitched the Bloomberg terminal. Let's have her back. 0:03:55.240 --> 0:03:58.760 She knows who listens here. So what's the thought here 0:03:58.800 --> 0:04:01.320 about this Federal Reserve? Again on earlier doesn't think there's 0:04:01.320 --> 0:04:02.400 gonna be a rake cut this year. 0:04:02.600 --> 0:04:05.360 It seems like the Fed officials are priming the market 0:04:05.520 --> 0:04:08.480 to expect really nothing until September at the earliest. 0:04:09.120 --> 0:04:10.520 That the commentary from the. 0:04:10.520 --> 0:04:13.080 Past, I would say several days suggests that I think 0:04:13.120 --> 0:04:16.440 that makes sense if you remove some of the downside 0:04:16.520 --> 0:04:18.960 risks to growth. So we take kind of that left 0:04:18.960 --> 0:04:21.560 tail recessionary case off the table, which we believe we've done, 0:04:21.560 --> 0:04:24.479 and really we weren't expecting a recession anyway, and you 0:04:24.520 --> 0:04:25.719 have above target inflation. 0:04:26.440 --> 0:04:27.160 The urgency and. 0:04:27.080 --> 0:04:29.279 The impetus for the Fed to act preemptively, we think 0:04:29.360 --> 0:04:30.120 is pretty low. 0:04:30.360 --> 0:04:33.479 Fold In we just had Jordan Rochester. I'm brilliant at 0:04:33.520 --> 0:04:40.159 Missoul fold in what the Japanese angst and the indications 0:04:40.360 --> 0:04:44.960 of Pacific rim week dollar angst, what it means for 0:04:45.120 --> 0:04:48.720 full faith and credit investors in the United States. Are 0:04:48.720 --> 0:04:50.440 they linked or are they separate? 0:04:50.680 --> 0:04:52.320 Well, they are linked in some ways. 0:04:52.320 --> 0:04:56.200 That foreign investors own around twenty plus twenty five percent 0:04:56.279 --> 0:04:57.000 of the US. 0:04:56.760 --> 0:04:59.320 Corporate bond market. Does walk away from that, no, I 0:04:59.320 --> 0:04:59.920 think they are. 0:05:00.120 --> 0:05:03.200 Conversations suggest that actually it's just the marginal dollar that 0:05:03.240 --> 0:05:05.640 has a better chance of being deployed at home in 0:05:05.680 --> 0:05:09.080 some of these markets where we're expecting either in Europe, 0:05:09.080 --> 0:05:12.760 for example, fiscal to result in increased sovereign issue ines 0:05:13.000 --> 0:05:15.680 higher yields that maybe weren't available in some of these 0:05:15.720 --> 0:05:17.200 regions for the past several years. 0:05:17.240 --> 0:05:18.200 They're now on offer. 0:05:18.440 --> 0:05:21.680 And so I think corporates, for the incremental dollar are saying, Okay, 0:05:21.960 --> 0:05:24.520 should I be a bit more geographically diversified. That's what 0:05:24.560 --> 0:05:27.680 we're sensing in our conversations, not a wholesale reallocation, but 0:05:27.720 --> 0:05:29.680 for the marginal dollars, should I deploy that at home? 0:05:30.400 --> 0:05:34.120 So again the credit quality outlook here, I mean, if 0:05:34.120 --> 0:05:36.839 we're not heading for a recession, do we have to 0:05:36.839 --> 0:05:38.760 worry about credit quality in general? 0:05:38.760 --> 0:05:38.920 Though? 0:05:38.960 --> 0:05:42.560 Because it seems like, you know, the teriff rights are 0:05:42.720 --> 0:05:45.120 materially higher than they were at the start the year. 0:05:45.160 --> 0:05:47.320 It's got to impact growth from a lot of companies. 0:05:47.360 --> 0:05:48.719 It's a great point. I think we are. 0:05:48.960 --> 0:05:52.000 We are watching pockets of the various asset classes that 0:05:52.040 --> 0:05:54.960 we track that we're under pressure even when growth was 0:05:55.000 --> 0:05:57.560 above trend. So for example, parts of commercial real estate, 0:05:57.720 --> 0:05:59.960 parts of corporate credit, both on the liquid and private 0:06:00.040 --> 0:06:03.360 credit side, parts of the consumer right subprime. These were 0:06:03.400 --> 0:06:06.480 areas that were already under pressure when growth was above trend. 0:06:06.839 --> 0:06:09.240 Now that we're expecting a more challenging growth inflation mix. 0:06:09.279 --> 0:06:12.279 There's really nothing on the horizon that expects us to 0:06:12.360 --> 0:06:14.920 see those companies kind of reverse their fortunes and kind 0:06:14.960 --> 0:06:18.520 of really improve those fundamentals. So that's where we are focused. 0:06:18.520 --> 0:06:22.599 It's more dispersion, not widespread market disruption, So those tales 0:06:22.640 --> 0:06:24.800 of the market are really where we're focused. It really 0:06:24.920 --> 0:06:26.640 underscores the importance of granularity. 0:06:27.320 --> 0:06:29.680 This is a way from your remit, but the ETF 0:06:30.640 --> 0:06:32.920 you know, and of course led by black Rock. Obviously, 0:06:33.400 --> 0:06:36.359 the flows into ETFs I think have surprised me and 0:06:36.400 --> 0:06:40.080 Paul both inequities advance. Are you surprised that money needs 0:06:40.120 --> 0:06:43.320 to find a warm place here given all the political. 0:06:42.800 --> 0:06:45.159 Diversion, I would say yes. 0:06:45.200 --> 0:06:47.760 The flows even in if you look at just regular 0:06:47.839 --> 0:06:50.240 mutual fund flows, even in high yield, over the past 0:06:50.240 --> 0:06:52.680 few weeks, they've rebounded pretty nicely. Keep in mind, though 0:06:52.720 --> 0:06:55.480 those fun flows only capture a portion of the market. 0:06:55.520 --> 0:06:59.359 They're not capturing the entire investor base that's in corporate credit. 0:06:59.400 --> 0:07:01.760 And actually you can see it in the spread reactions 0:07:02.200 --> 0:07:04.839 that there is these white These moments of widening have 0:07:04.920 --> 0:07:06.960 been short lived because that money is coming in. 0:07:07.320 --> 0:07:11.280 Did you watch Jalen Brunson at Villanova of course like Arena. 0:07:11.920 --> 0:07:12.880 No, no, we were. 0:07:12.880 --> 0:07:14.800 We were not there at the same time, but I 0:07:14.880 --> 0:07:17.440 watched him when he was at Villanova when I was out. 0:07:18.120 --> 0:07:20.760 Was he yeah, the whole Yeah, I mean the whole 0:07:20.760 --> 0:07:24.600 team is just like, I think, a masterclass in execution 0:07:24.680 --> 0:07:27.360 when they were at Villanova and Jay Wright was wonderful obviously, 0:07:27.520 --> 0:07:29.320 and that's the thing, and they were all together. 0:07:29.600 --> 0:07:32.680 Coach, I'm gonna call my relatively young coach, middle aged 0:07:32.720 --> 0:07:35.600 coach this whole nil thing the transfer portal, he said, 0:07:35.600 --> 0:07:37.800 I'm at it. 0:07:37.040 --> 0:07:40.080 The one year, two years Brunson played three or four years. 0:07:40.080 --> 0:07:42.720 I see, yeah, So, I mean that's Jay Writ's one 0:07:42.760 --> 0:07:44.520 of a handful of great, great coaches. 0:07:44.800 --> 0:07:47.240 I'm not I lift up Shack today just because I 0:07:47.240 --> 0:07:50.559 thought he was hilarious just today doing the bicep curl 0:07:50.600 --> 0:07:52.920 with a guy. You know, he picked up a guy 0:07:53.360 --> 0:07:56.160 and was doing a bicep curl. And again Shack played 0:07:56.160 --> 0:07:59.240 three four years. Yep, I know they ruined the game. 0:07:59.320 --> 0:07:59.480 Huh. 0:08:00.120 --> 0:08:03.000 It's it's okay. They ruin the game, Miss Wyman. 0:08:03.520 --> 0:08:06.480 I enjoyed it even I enjoyed watching them, even though 0:08:06.520 --> 0:08:07.840 they come wasn't what we wanted. 0:08:08.160 --> 0:08:11.240 Whose Whose tickets do you get for tomorrow night? 0:08:11.680 --> 0:08:13.040 Nobody's tickets. I just. 0:08:15.760 --> 0:08:17.200 Salesperson. 0:08:17.240 --> 0:08:19.040 I've got to take golden tickets somewhere. 0:08:19.400 --> 0:08:22.160 Takes Maybe after today, maybe I'll have something. 0:08:22.160 --> 0:08:22.560 I don't know. 0:08:23.360 --> 0:08:27.000 She's available in New York Wall Street for tomorrow, Amanda 0:08:27.080 --> 0:08:29.720 Light And thank you, Thank you, particularly thank you for 0:08:29.800 --> 0:08:34.640 those comments on the Augustitian College of the Villanova. Greatly 0:08:34.679 --> 0:08:35.439 appreciate that. 0:08:41.280 --> 0:08:44.840 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:08:44.920 --> 0:08:48.080 weekday afternoons from seven to ten am Eastern. Listen on 0:08:48.160 --> 0:08:51.840 Applecarplay and Android Auto with the Bloomberg Business app, or 0:08:51.960 --> 0:08:53.520 watch us live on YouTube. 0:08:53.640 --> 0:08:56.520 He's really something. He's at Missouli with Dom Constant and 0:08:56.520 --> 0:09:00.840 Steve Hudo, Jordan Rochester Holtz Court in London, and all 0:09:00.880 --> 0:09:03.720 I can say is there's sort of these distant articles 0:09:03.880 --> 0:09:07.199 of people from the West writing about Japan and they 0:09:07.240 --> 0:09:10.439 cite the numbers and there's real anks. It's priced down, 0:09:10.600 --> 0:09:14.679 yield up and then out on LinkedIn, where he's brilliant. 0:09:14.760 --> 0:09:17.120 And also of course all of his research from a zoo. 0:09:18.000 --> 0:09:22.800 There's this absolute authority from Jordan Rochester of what it 0:09:22.920 --> 0:09:29.480 means when long term Japanese paper goes lower price, higher yield, 0:09:29.600 --> 0:09:33.160 including the forty year piece Jordan. Let's start with a 0:09:33.240 --> 0:09:37.920 why why is it priced down yield up for Japanese 0:09:38.000 --> 0:09:38.840 long term debt? 0:09:39.800 --> 0:09:42.120 Well, it's a mixture of things, Tom good Morning. The 0:09:42.160 --> 0:09:44.520 main thing is because the Bank Japan is in a 0:09:44.600 --> 0:09:47.680 hiking cycle. So typically at the very start of a 0:09:47.760 --> 0:09:49.920 rate hiking cycle, when you're leaving the. 0:09:50.000 --> 0:09:52.240 Zero lower bounds is what Japan's been doing. 0:09:52.679 --> 0:09:55.240 The long end does sell off as markets price in 0:09:55.360 --> 0:09:58.400 a higher risk of higher rates for longer and that's 0:09:58.440 --> 0:10:01.360 what happened with the ECB's example, when they escaped Qi 0:10:02.040 --> 0:10:04.560 in twenty seventeen. When they did that, you saw a 0:10:04.600 --> 0:10:07.560 big steepening in the curve in Europe, and that's been 0:10:07.600 --> 0:10:10.160 what's happening in Japan. The other part of it as well, 0:10:10.320 --> 0:10:13.560 is because of the life insurance and pension funds demand 0:10:13.600 --> 0:10:17.599 for the long end being softer. That's because their liabilities 0:10:17.640 --> 0:10:20.240 are getting smaller as interstrates a rising this kind of 0:10:20.280 --> 0:10:22.720 the mathematics of a pension fund. And the third reason 0:10:23.280 --> 0:10:26.959 is much more higher foreign participation in Japan's long end, 0:10:27.080 --> 0:10:30.400 which isn't great to see because it does invite more 0:10:30.480 --> 0:10:34.000 qualtity and speculation than previously, which was more of a 0:10:34.040 --> 0:10:36.439 domestically owned market. We've actually seen a lot of hedge 0:10:36.440 --> 0:10:39.440 funds and foreign real money move into that space. 0:10:40.320 --> 0:10:42.920 I look sure Damian SSR has been a huge value 0:10:43.000 --> 0:10:48.720 add weak Taiwan dollar, Singapore dollar even rolling over in others. 0:10:49.320 --> 0:10:53.880 Measure the contagion of the Japanese challenge and what it 0:10:53.960 --> 0:10:57.200 means for other Pacific room countries, and of course what 0:10:57.240 --> 0:11:00.000 it means for the United States. 0:11:00.000 --> 0:11:01.920 Sometimes when we talk about the US or Europe, we 0:11:01.920 --> 0:11:04.040 talk about the bubble. We don't think about what's happening 0:11:04.040 --> 0:11:06.240 outside that will feed through, and Japan is a clear 0:11:06.280 --> 0:11:08.920 one for that. The yen has been the carry trade 0:11:08.920 --> 0:11:12.800 funder of the past two decades, and that applies to 0:11:12.880 --> 0:11:15.640 the front end and also the long end. Borrowing in 0:11:15.720 --> 0:11:18.319 Japan at low rates and investing that in the US 0:11:18.800 --> 0:11:22.400 at higher rates of return. Well, now domestic rates are 0:11:22.480 --> 0:11:24.800 rising in Japan. You have to have either a higher 0:11:24.880 --> 0:11:27.240 rate of return through investment in the US. So therefore 0:11:27.240 --> 0:11:30.200 it means US fixed income will underperform and rates will 0:11:30.240 --> 0:11:33.280 go higher in the US, or you need essentially to 0:11:33.360 --> 0:11:35.800 move that money back to Japan, and you're having a 0:11:35.800 --> 0:11:38.680 mixture of both, and that's leading to the yen strength. 0:11:38.679 --> 0:11:40.800 We're looking for one thirty eight in dollar end by 0:11:40.840 --> 0:11:43.600 the year end, down towards one thirty six or lower 0:11:43.720 --> 0:11:45.320 when we get to March, and that's because of the 0:11:45.320 --> 0:11:48.760 Boj's hiking cycle mainly, but it's also because of this 0:11:48.960 --> 0:11:50.560 de dollarization. 0:11:49.960 --> 0:11:51.520 Story as well as playing in the background. 0:11:51.679 --> 0:11:54.880 I don't want to overemphasize that the dollarization story, it's 0:11:54.880 --> 0:11:58.360 not sell America. But what we are talking about is 0:11:58.400 --> 0:12:00.599 the rest of the world outperforming the US and the 0:12:00.640 --> 0:12:01.560 second half this year. 0:12:02.240 --> 0:12:05.559 So again you mentioned the dollar and the Bloomberg Dollar 0:12:05.640 --> 0:12:08.760 indexes down, you know, almost eight percent from its recent high. 0:12:08.760 --> 0:12:12.079 Here cannot seem to find a bid. While US equities 0:12:12.080 --> 0:12:15.480 have rebounded most of the sell off they saw earlier 0:12:15.640 --> 0:12:18.800 this year. What's your six to twelve month view of 0:12:18.840 --> 0:12:19.480 the US dollar. 0:12:20.920 --> 0:12:22.840 In the short term, I'll actually be a buyer of 0:12:22.840 --> 0:12:25.600 the dollar because I think that the trade has got 0:12:25.640 --> 0:12:27.800 a little bit ahead of itself. We're looking for one 0:12:27.960 --> 0:12:30.600 twenty euro dollars, so there's still more room to go, 0:12:30.960 --> 0:12:33.480 but we've already rallied quite significantly, and in cable we're 0:12:33.480 --> 0:12:36.760 already out one thirty six to for year end, for example. 0:12:37.080 --> 0:12:39.600 But long term it's I think what we're going to 0:12:39.640 --> 0:12:42.040 see is a reaction to the tariffs in Q three 0:12:42.040 --> 0:12:44.520 and Q four from Japan, from Europe and the rest 0:12:44.559 --> 0:12:47.679 of the world, including China, fiscal STEAMNUS will come down 0:12:47.720 --> 0:12:51.679 the pipeline reform in an effort to boost growth. Because 0:12:51.679 --> 0:12:53.920 the US tariffs will hit the rest of the world growth, 0:12:54.280 --> 0:12:56.680 those countries will have to respond in their own way, 0:12:57.000 --> 0:12:59.760 and that will lead to expectations of growth picking up 0:12:59.760 --> 0:13:01.760 for next year. So it's kind of a down and 0:13:01.840 --> 0:13:04.160 up for the growth outlook, I think for the rest 0:13:04.160 --> 0:13:05.960 of the world, and that's why we have the dollar 0:13:06.040 --> 0:13:07.920 un performing because typically when the rest of the world 0:13:07.960 --> 0:13:11.240 does fiscal reforms and picks up, the dollar weekends in 0:13:11.280 --> 0:13:13.960 that environment. But short term, I think everybody short the dollar. 0:13:13.960 --> 0:13:15.560 I think every guest on here will probably tell you 0:13:15.600 --> 0:13:17.520 that there's very few out there pushing. 0:13:17.240 --> 0:13:17.840 For long dollar. 0:13:18.080 --> 0:13:20.920 And we are starting to see the normal correlations of 0:13:21.040 --> 0:13:23.920 foreign exchange to interest rates picking back up, and at 0:13:23.920 --> 0:13:26.040 the moment they say the dollar's fair value, and I 0:13:26.160 --> 0:13:27.959 just worry that everyone's got the same trade on. 0:13:28.640 --> 0:13:31.840 Rest of world what's the best rest of world trade 0:13:31.920 --> 0:13:33.640 right here visa VI the dollar. 0:13:33.679 --> 0:13:37.480 Do you think, well, the euro is the one which 0:13:37.520 --> 0:13:38.840 stands out because of Germany. 0:13:38.840 --> 0:13:40.640 I mean, just look at their defense sector. 0:13:40.720 --> 0:13:44.120 Ryan Metal and a few other names just extremely outperforming 0:13:44.920 --> 0:13:47.160 of our names within their sector. And that's because the 0:13:47.200 --> 0:13:50.160 German fiscal taps have been turned on, the debt break 0:13:50.200 --> 0:13:53.280 has been reformed. So that's where I'd be looking for Sterling. 0:13:53.280 --> 0:13:56.000 I'm less interested in and the Yen. Of course, we're 0:13:56.160 --> 0:13:58.720 bigger players of rates and we think that the yen 0:13:58.760 --> 0:13:59.800 will strengthen. 0:14:00.160 --> 0:14:02.960 Ester with us in London with Missoul can't say enough 0:14:03.000 --> 0:14:06.000 about their research improvement over the last four or five 0:14:06.080 --> 0:14:10.080 six years. Stephen Rushudo guide in the ship, dom constant 0:14:11.120 --> 0:14:14.719 writing brilliant research in Jordan Rochester with them as well. 0:14:14.800 --> 0:14:19.080 Jordan's a film in here, fold in here, excuse me, Jordan. 0:14:19.120 --> 0:14:22.120 There's this basketball team called the New York Knicks, and 0:14:22.160 --> 0:14:24.840 I can't think this morning. It's sort of like the 0:14:24.880 --> 0:14:30.360 Tots before the europe will win Jordan, but we're praying Jordan. 0:14:30.520 --> 0:14:36.400 Fold in here, the Rashudo GDP call and Dominic's brilliant work. 0:14:37.000 --> 0:14:40.880 And now you get to know fed rate increases this year. 0:14:41.840 --> 0:14:43.920 At least a good trade as well, because what we 0:14:43.960 --> 0:14:45.920 think is there's going to be no Fed cuts this year. 0:14:46.400 --> 0:14:48.800 Steve's got one and a half percent GDP forecast but 0:14:48.840 --> 0:14:51.200 a three and a half percent inflation, So your nominal's 0:14:51.200 --> 0:14:53.800 at five and the Fed's going to be looking at 0:14:53.800 --> 0:14:56.720 three and a half inflation. That's not an environment where 0:14:56.720 --> 0:14:59.400 you're cutting rates. You need to have really big weakness 0:14:59.440 --> 0:15:02.120 in the labor mind to do so. However, what Constant 0:15:02.120 --> 0:15:04.280 would point out, and what I point out too, is 0:15:04.320 --> 0:15:06.960 that this market is very much inclined to say that 0:15:07.000 --> 0:15:08.920 there's a very high bar to get to get this 0:15:09.040 --> 0:15:11.280 market to think hikes are the next move by the Fed, 0:15:11.640 --> 0:15:14.400 the market will continue to think that cuts the next move, 0:15:14.720 --> 0:15:16.760 but we are of the view it won't happen this year. 0:15:17.120 --> 0:15:19.400 So what that means for trades is we like front 0:15:19.520 --> 0:15:22.640 end flatteners. So price out the rate cuts for this year, 0:15:22.880 --> 0:15:24.960 pricing more cuts for next year, because that's how this 0:15:25.040 --> 0:15:25.880 market is biased. 0:15:25.960 --> 0:15:27.240 So we have a steep we can have. 0:15:27.200 --> 0:15:29.520 A flattening of the curve. More cuts, price for twenty 0:15:29.520 --> 0:15:31.120 twenty six, less for twenty five. 0:15:31.280 --> 0:15:34.680 Global Wall Street brands that what you just heard whether 0:15:34.720 --> 0:15:37.760 you agree or disagree. The heart of the matter is 0:15:37.840 --> 0:15:43.800 Missoul gets to a pop in five percent nominal gdp Jordan. 0:15:43.960 --> 0:15:49.680 It's a completely different nominal GDP than a normal nominal gdp. 0:15:50.280 --> 0:15:53.320 How does the litmus paper your world? How does the 0:15:53.360 --> 0:15:57.640 litmus paper of the system FX deal with this weird 0:15:57.880 --> 0:16:00.680 wacko five percent nominal GDP. 0:16:02.200 --> 0:16:04.720 It's not too whacko, Tom, But what it does mean 0:16:04.800 --> 0:16:08.120 is that the equity earning space, for example, will be 0:16:08.120 --> 0:16:10.240 in a healthy spot even though the real GDP is 0:16:10.320 --> 0:16:12.600 low because real GDP has been roughly around two to 0:16:12.680 --> 0:16:15.960 three in the US for some time, their earnings potential 0:16:16.040 --> 0:16:19.760 will be inflation adjusted with the tariffs and so forth. 0:16:19.920 --> 0:16:22.600 We've still got five percent nomenal GDP growth. This is 0:16:22.640 --> 0:16:25.920 an environment where it's not us outperformance on a real 0:16:25.920 --> 0:16:28.880 GDP perspective, but you will see the equity market hold up. 0:16:29.080 --> 0:16:30.880 So we're not looking for a big risk off in 0:16:30.920 --> 0:16:32.960 the equity market as a result of that, and that 0:16:33.080 --> 0:16:36.000 means the dollar can weaken. That's the sort of story 0:16:36.040 --> 0:16:37.880 that we have that helps us get that one twenty 0:16:37.880 --> 0:16:38.480 by year end. 0:16:38.760 --> 0:16:40.840 I mean, it's a narrative, you know, I mean, I mean, 0:16:41.000 --> 0:16:42.240 you know, I don't know if he's going to be 0:16:42.320 --> 0:16:45.880 right or wrong, but I would suggest Paul, very few 0:16:45.960 --> 0:16:52.440 people are guessing now stocks higher within the sixteen hundred 0:16:52.440 --> 0:16:54.680 Pennsylvania Avenue news flow. 0:16:54.840 --> 0:16:58.080 Yeah, exactly, it's a lot of noise out there. Jordan. 0:16:58.720 --> 0:17:01.840 We saw Germany's several months ago really step up their 0:17:01.840 --> 0:17:04.800 commitment to spending more on their infrastructure on their defense. 0:17:05.920 --> 0:17:08.400 Can the rest of Europe do that as well? Or 0:17:09.119 --> 0:17:10.400 is that just a flash in the pan. 0:17:11.720 --> 0:17:13.800 I wish they could, but the answers no. 0:17:14.000 --> 0:17:16.480 I mean, look at France, they really struggled to pass 0:17:16.480 --> 0:17:18.719 a budget just last year, they had to hold an 0:17:18.760 --> 0:17:22.440 election over it and everything, so they're fisically constrained running 0:17:22.480 --> 0:17:25.639 up against the buffers. Italy has been much more well behaved, 0:17:26.000 --> 0:17:28.280 but it also would be running up against the buffers 0:17:28.720 --> 0:17:31.040 of the rules, even though the rules have been suspended. 0:17:31.760 --> 0:17:34.760 There's only so much the market will will take before 0:17:34.960 --> 0:17:37.560 punishing them as well in their bond market. And then 0:17:37.600 --> 0:17:40.600 the same for the UK, where the Chancellor is really 0:17:40.640 --> 0:17:45.200 struggling to tinker around with spending and tax pledges that 0:17:45.240 --> 0:17:48.080 she's made without breaking her own fiscal rules, and we 0:17:48.280 --> 0:17:50.800 actually could see a bit more spending on the government 0:17:50.880 --> 0:17:53.480 side in the UK, but higher taxes at the next 0:17:53.480 --> 0:17:57.000 October budget. So it really boils down to can the 0:17:57.080 --> 0:18:00.439 EU get around this by doing joint tissue, and I 0:18:00.480 --> 0:18:02.560 think that's what we might see. There's a big summit 0:18:02.600 --> 0:18:04.000 coming up in June. We've got a few dates in 0:18:04.080 --> 0:18:06.439 June at the G seven middle of June, fifteenth to 0:18:06.440 --> 0:18:09.200 the seventeenth, there's a NATO summit, and there's an EU 0:18:09.280 --> 0:18:11.920 Defense summit towards the end of June. If we get 0:18:11.960 --> 0:18:16.000 one of those leading to joint issuance becoming a story 0:18:16.359 --> 0:18:18.879 that could help the Europeans out of this because that 0:18:18.880 --> 0:18:21.560 would be triple A rated. It wouldn't have any of 0:18:21.600 --> 0:18:23.800 the problems of France and Italy involved. 0:18:23.520 --> 0:18:25.480 Out six months even to the end of the year. 0:18:25.520 --> 0:18:29.639 What is the Jordan in Rochester big figure currency pair 0:18:30.359 --> 0:18:32.520 where Lisa Matteo may profit. 0:18:34.119 --> 0:18:36.280 I think essentially your holidays to Europe will get a 0:18:36.280 --> 0:18:37.000 bit more expensive. 0:18:37.080 --> 0:18:39.879 Tom. The one twenty call we've made on euro is 0:18:40.280 --> 0:18:40.880 the key one. 0:18:41.119 --> 0:18:44.480 The one thirty eight on Dolly n Sterling is where 0:18:44.520 --> 0:18:47.400 it all but less benign with actually our target now. 0:18:47.480 --> 0:18:49.680 So I think there's if I was biased to sell something, 0:18:49.720 --> 0:18:50.879 it would be starling. 0:18:50.520 --> 0:18:53.720 Because as euro came at one sixteen, you're going to 0:18:53.760 --> 0:18:57.320 one twenty, a little bit above the historic set. Fine, 0:18:57.600 --> 0:19:00.040 at what level euro do we begin to say the 0:19:00.480 --> 0:19:04.240