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Speaker 2: Amazon shares down about three percent in the after hours.
Speaker 2: The company sees third quarter operating income fifteen and a
Speaker 2: half to twenty point five billion dollars. I was in
Speaker 2: line with estimates that are at nineteen point four two billion.
Speaker 2: I guess maybe on the lower side it's not in line,
Speaker 2: and that could be why the stock is moving a
Speaker 2: little lower. Sad quarter operating income though blue past estimates
Speaker 2: at nineteen point one seven billion dollars.
Speaker 3: Yeah, I do think that third quarter operating income could possibly,
Speaker 3: especially the downside or the lower end of the estimate,
Speaker 3: be problematic. Let's see what our team has to say.
Speaker 3: It is such a massive company, as you know, we
Speaker 3: need two Bloomberg Intelligence analysts to really break it down
Speaker 3: with us. Is Senior technology analyst Anna rog Rana and
Speaker 3: senior analysts. Excuse me for e commerce and at leisure,
Speaker 3: Punam Goyle at a RAG out there in our Chicago bureau,
Speaker 3: and we've got Punum in our Princeton bureau. Hey, Anag,
Speaker 3: I want to start with you because AWS is always
Speaker 3: so important when it comes to the top and bottom
Speaker 3: line here at Amazon. Walk us through what we got
Speaker 3: on that side of the business.
Speaker 4: Yeah, I mean, as you see, you know, they met
Speaker 4: expectations on aw's growth of seventeen percent in constant currency.
Speaker 4: But you know, this is where we are saying that
Speaker 4: this is probably not good enough because Microsoft beat by
Speaker 4: a big number, Google beat by a big number, and
Speaker 4: the big question is going to be, you know, why
Speaker 4: didn't Amazon beat by a big number? And I think
Speaker 4: that's going to be probably one of the most important
Speaker 4: questions on the call, and we look forward to hearing
Speaker 4: what management has to say about it.
Speaker 2: I want to bring in Punham here because one thing
Speaker 2: that I noticed when I was reading this in real
Speaker 2: time the statement from CEO Andy Jasse also president over
Speaker 2: at Amazon Punham how much he talked about the connection
Speaker 2: between the shopping experience for Amazon's core customer and artificial intelligence,
Speaker 2: because up to now and maybe I'm wrong, but I've
Speaker 2: thought about AI and the context of AWS. But what
Speaker 2: he's trying to communicate to investors is the effect that
Speaker 2: AI is happening is having on how people are buying stuff.
Speaker 2: Is it actually doing that?
Speaker 5: Yeah? Absolutely. You know, AI is a big deal in
Speaker 5: e commerce and Amazon's been investing a lot to improve
Speaker 5: the customer experience. It starts with search. Right when you
Speaker 5: go to Amazon and you're searching something, They've just improved it.
Speaker 5: And they've also launched Rufus, which is their AI or
Speaker 5: your personal assistant, So that's really been helping shoppers and
Speaker 5: just you know, figure out what they want to buy.
Speaker 5: You want to buy a microwave, but what microwave is better?
Speaker 5: The shopping assistant helps you not only bring choices forward,
Speaker 5: but also helps you navigate through the descriptions of pricing, etc.
Speaker 5: So it really helps improve conversion. And that's where AI
Speaker 5: is helping on the shopping side.
Speaker 2: Are you what metrics do you look at Punham to
Speaker 2: make sure that the investments that they're making are actually
Speaker 2: leading me to spend more money on Amazon?
Speaker 5: So Amazon doesn't share all the metrics that we'd like
Speaker 5: to see, but we know that they've talked about conversion
Speaker 5: and how that's improving. So I think that's the number
Speaker 5: one metric to any extent when we get color around that,
Speaker 5: I think that is what's most important. If you think back,
Speaker 5: online conversion just broadly speaking, is in the load to
Speaker 5: miitsigledgit range. So only about five percent of shoppers that
Speaker 5: go online to shop actually transact. It's very very low
Speaker 5: compared to a brick and mortar store, and every little
Speaker 5: that Amazon does on AI or anything else is going
Speaker 5: to help boost that conversion. It's higher on Amazon.
Speaker 3: Of course, Let's remind everybody that in the aftermarket following earnings,
Speaker 3: Amazon down about two point six percent. Here it's only
Speaker 3: up about seven percent year to date. Ada rog you know,
Speaker 3: you talked about, you know, the blow out numbers that
Speaker 3: we've gotten from the likes of Alphabet and others. When
Speaker 3: it comes to cloud aws, as we said, the growth
Speaker 3: was in line with what the street was expecting. What
Speaker 3: might why might they not have outperformed what we got
Speaker 3: from some of the other hyperscalers.
Speaker 4: You know, the first thing is they are much larger
Speaker 4: than all the others. Their run rate is over one
Speaker 4: hundred billion dollars, so you know, that's one factor, and
Speaker 4: you know, to be very honest, growing seventeen eighteen percent
Speaker 4: at one hundred billion is not a bad deal. But
Speaker 4: the second part is when you look at somebody like
Speaker 4: a Microsoft, they are getting a bit the benefit of
Speaker 4: you know, chat GPT transactions being run on their cloud.
Speaker 4: So you know, that's that's a huge benefit for them.
Speaker 4: Amazon doesn't have that option, frankly, because they don't have
Speaker 4: a chat gipt like you know.
Speaker 6: Application that's running.
Speaker 4: A lot of what they're doing is on the enterprise side,
Speaker 4: and those applications are currently in the build phase, which
Speaker 4: means over the next several years we should see the
Speaker 4: trickle down effect of those usage you know, driving up awis.
Speaker 4: So I think there is a timing mismatch. I don't
Speaker 4: see you know, them as being inferior in any way
Speaker 4: to some of.
Speaker 6: The other cloud providers.
Speaker 4: In fact, as I said, they are the largest with
Speaker 4: probably the most services out there right.
Speaker 2: Now, do they stay the largest? I mean, they certainly
Speaker 2: were early into this. I think you could say that
Speaker 2: they helped invent this. I mean Andy Jasse certainly, that's
Speaker 2: why he's CEO. After heading up the eight Amazon Web
Speaker 2: services and then being picked by Bezos to take this job.
Speaker 2: Would you say that they're comfortably in first or is
Speaker 2: Azure at Microsoft on Iraq? And also is Google Cloud
Speaker 2: doing a good job of catching up?
Speaker 4: They're both doing a very good job of catching up.
Speaker 4: And as I said, you know, Microsoft has an inherent
Speaker 4: advantage there.
Speaker 6: So maybe down the road, you know, several.
Speaker 4: Years from now, let's say three to four years, they
Speaker 4: would be neck to neck. But you know, one of
Speaker 4: the things is this is a market where we think
Speaker 4: the entire market is growing much bigger. You know, we
Speaker 4: don't see five years from now ew as being a
Speaker 4: smaller business than where it is right now.
Speaker 6: The rate of growth depends.
Speaker 4: On the propensity of enterprises to spend on technology, but
Speaker 4: we think all three of them will benefit with cloud
Speaker 4: becoming much bigger over the next three to five years.
Speaker 3: We should point out some more of the statistics on
Speaker 3: Amazon online stores net sales sixty one point five billion,
Speaker 3: up eleven percent year over year, physical stores net sales
Speaker 3: about five point six billion, up seven and a half
Speaker 3: percent year over year. Third party seller services net sales
Speaker 3: forty point three five billion, that's up eleven percent year
Speaker 3: over year. Put them, you know, they also say in
Speaker 3: some of the commentary or conviction that AI will change
Speaker 3: every customer experience is starting to play out. So we
Speaker 3: talked about it a little bit earlier. I mean, what
Speaker 3: they are doing in terms of getting people to spend
Speaker 3: more time on the platform, spend more time on the platform,
Speaker 3: it's all happening.
Speaker 5: Yeah, it's happening. I mean all the numbers that you
Speaker 5: just cited, they have performed expectations. So whatever they're doing,
Speaker 5: and they're doing a lot, they're doing it right. We
Speaker 5: think that Amazon is making the right moves to expand
Speaker 5: their retail footprint online. Once again, you know, it comes
Speaker 5: back to what a customers want. They want everything and
Speaker 5: Amazon's a marketplace that really sells a lot of different
Speaker 5: types of goods and they want the speed and speed
Speaker 5: is key here because you can get things same day
Speaker 5: or next day from Amazon without paying a fee being
Speaker 5: a Prime member. So that's really key here. And the
Speaker 5: numbers in the second quarter were actually quite impressive on
Speaker 5: the retail side. They did do really well. Prime Day
Speaker 5: sounds like it was a great success. We'll hear more
Speaker 5: on the call, but the numbers outperformed on the retail side.
Speaker 3: Is there a read a follow through, if you will.
Speaker 3: When it comes to what this tells you about kind
Speaker 3: of consumers and the US economy.
Speaker 5: Yeah, I think consumers are focused on value, and I
Speaker 5: think Amazon does give you value. They are trying to
Speaker 5: keep prices low, and this may be a function of
Speaker 5: that where you know, as consumers shop around and they're
Speaker 5: seeing price hikes due to tariffs, either they've already started
Speaker 5: or they're coming up, they're finding deals on Amazon. So
Speaker 5: they're going there and that's a nice place for Amazon
Speaker 5: to be as we move forward into the second half.
Speaker 3: I want to ask both of you, and let me
Speaker 3: start with you put them. I mean, what are you
Speaker 3: thinking about that you want to listen for on the
Speaker 3: call that the company does with analyst and investors top
Speaker 3: of mine or what you would be asking?
Speaker 5: Yeah, for me on the retail side, it's really the
Speaker 5: terror of question and the diminimus question. You know, we
Speaker 5: know we're losing the dominamous exemption, so how should we
Speaker 5: think about that in terms of their third party, especially
Speaker 5: where they do rely on some of those drop shipping,
Speaker 5: especially Hall. And then the second thing I'm looking for
Speaker 5: is just how they're going to be pricing the goods
Speaker 5: as we move into the second half, because for now
Speaker 5: we have been somewhat insulated with a ten percent pause
Speaker 5: on most goods outside of China, but that we know
Speaker 5: is changing in the back half.
Speaker 2: A honorock, come on back in here, because one thing
Speaker 2: that we're I'm looking at the write ups right now,
Speaker 2: and it does seem like, you know, what we said
Speaker 2: at the beginning that this operating profit estimate for the
Speaker 2: current quarter really underwhelmed. Why is it that Amazon doesn't
Speaker 2: get rewarded for being less profitable the same way that
Speaker 2: other companies are rewarded for this or maybe the better
Speaker 2: way to ask it would be, you know, the measure
Speaker 2: of capex and why you know, investors are so okay
Speaker 2: with meta platforms spending so much money, but Amazon's operating
Speaker 2: profit not coming in as high as they thought it would.
Speaker 2: Is it because metas just printing money and has a
Speaker 2: higher margin business.
Speaker 4: I mean, you have to remember, you know, Amazon has
Speaker 4: a lot of retail footprint also, so you can't really
Speaker 4: equate them to a tech company as is.
Speaker 6: I mean, it's only the aw as part of it.
Speaker 4: But frankly speaking, if you go back to the history
Speaker 4: of Amazon for probably ten fifteen years, you know, they
Speaker 4: did were extremely unprofitable, and people you know, still rewarded
Speaker 4: for them. You know, in our view, profitability story has
Speaker 4: been amazing over the last three to four years. Look
Speaker 4: at where AWSS gone from low twenties to the thirties.
Speaker 4: Now today, it was a bit lower than what consensus
Speaker 4: were anticipating, but you know, it ebbs and flows because
Speaker 4: of the capex that they are investing in throughout their ecosystem.
Speaker 6: Imagine a business.
Speaker 4: I mean last quarter their AWS profit or our operating
Speaker 4: margins were thirty nine point five percent. I mean, that's
Speaker 4: a forty percent margin business. That's that's pretty impressive across
Speaker 4: any you know, tech platform. So again it is lumpy,
Speaker 4: but that's because of investments, that's because of how they hire.
Speaker 4: You know, we think longer term, that is still a
Speaker 4: forty percent margin business.
Speaker 3: So I want to put the same question I asked
Speaker 3: a punam Anag what you are thinking that you want
Speaker 3: to know a little bit more about when the company
Speaker 3: gets on the calls with analysts and investors.
Speaker 4: Yeah, the two things that we want to know is
Speaker 4: what's happening to your capex. Now, my gut feel is
Speaker 4: they will want to take the capex up because all
Speaker 4: the other cloud providers have done it, so they can't
Speaker 4: really be left behind. But then the second question is, well,
Speaker 4: can you give me an idea for all the capecks
Speaker 4: that's going in? What kind of AI workloads are you seeing?
Speaker 4: And if you are seeing some AI workloads, you know,
Speaker 4: why not disclose that number and you know, talk about
Speaker 4: it openly as Microsoft has done in the past, you know,
Speaker 4: one and a half to two years.
Speaker 2: Hey, Punam Guile, I want to bring you back in
Speaker 2: here because you cover e commerce and ath leisure. Carol
Speaker 2: asked you a really good question about if we can
Speaker 2: get any insight into the consumer and the health of
Speaker 2: the consumer by reading into these numbers, would you say
Speaker 2: that Amazon is well positioned if you indeed believe that
Speaker 2: we could be entering a downturn. We did see this
Speaker 2: question asked yesterday at the Federal Reserve by one of
Speaker 2: our own reporters, and referencing that vantage score report that
Speaker 2: high income consumers are actually missing on their bills right
Speaker 2: now when it comes to autos and credit cards? Is
Speaker 2: Amazon well positioned to be a player if we do
Speaker 2: see a downturn.
Speaker 5: I think if we see a downturn Amazon's not going
Speaker 5: to escape the ramifications of that. But that said, compared
Speaker 5: to everyone else in retail, I do think Amazon will
Speaker 5: fare better than the rest, and I do think that
Speaker 5: they will continue to attract the value customer who's just
Speaker 5: looking for deals and looking for value. Because at the
Speaker 5: end of the day, when you think about how retailers buy,
Speaker 5: those with scale have buying power, and Amazon has over
Speaker 5: seven hundred billion dollars in GMB based on our estimates,
Speaker 5: I can't think of a retailer bigger than that in
Speaker 5: the US that has buying power.
Speaker 3: All right, put them, We're going to let you go.
Speaker 3: Put them go. Our senior analyst for e commerce and
Speaker 3: at leisure, we're going to be watching out for her
Speaker 3: research and commentary. Also following the company call, she is
Speaker 3: of course with our Bloomberg Intelligence an rug before you go,
Speaker 3: at least for this moment, Apple should be crossing in
Speaker 3: less than ten minutes time. What will you be looking
Speaker 3: out for here?
Speaker 4: We really want to know what commentary they have around
Speaker 4: AI initiatives and what is the policy at this point
Speaker 4: in terms of adding you know, other third party models
Speaker 4: onto the ecosystem. When we look at the results, we
Speaker 4: think we're going to get a push or a pull
Speaker 4: forward of demand from you know, the loss for the
Speaker 4: last quarter, but next quarter guidance is extremely important, which
Speaker 4: we don't think is going to be that great.
Speaker 3: I feel like we keep saying we want to know
Speaker 3: more about AI. What do you do? And what do
Speaker 3: you do? And Ana rug Rana, thank you so much,
Speaker 3: senior tech analyst at Bloomberg Intelligence. They're in our Chicago.
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Speaker 2: I want to bring in Ivan fine Seth, research director
Speaker 2: and chief investment officer at Tiger's Financial Partners. The firm
Speaker 2: is more than five hundred million dollars in assets under management.
Speaker 2: They've got both Apple and Amazon stock for clients. He
Speaker 2: joins us from New York City. What do you make
Speaker 2: of this? It was a pretty massive beat on the
Speaker 2: top line, really a massive beat across every category. Slight
Speaker 2: beat when it came to China, iPad revenue slightly below expectations.
Speaker 2: What are your first impressions?
Speaker 7: Well, I think there was a lot of caution going
Speaker 7: into the quarter, and they were strong on revenue, definitely
Speaker 7: strong on iPhones and strong on iPhone sales in China.
Speaker 7: Those are the key concerns. I think that even Tim
Speaker 7: Cook just commented that pull forward sales based on tear
Speaker 7: on tariffs were only a small part from what they
Speaker 7: were seeing.
Speaker 2: So then why do you think the iPhone beat was
Speaker 2: so big?
Speaker 7: It just could be where we are in the upgrade cycle.
Speaker 2: But we're in a time where people hold onto their
Speaker 2: phones for longer and wait to buy it because that
Speaker 2: new one comes out traditionally in September late September.
Speaker 7: There's still a lot of you know, twelves out there,
Speaker 7: so people may you know, can't maybe hold off or
Speaker 7: the promotion. We're still seeing a lot of promotions from
Speaker 7: the carrier providers like AT and T, T Mobile and Verizon,
Speaker 7: so the promotions drive sales. Maybe it is, like Sarah said,
Speaker 7: concerns over higher tariff driven prices and people are upgrading now.
Speaker 7: So either way, there was a lot of concern that
Speaker 7: it could have been a weaker than expected quarter, and
Speaker 7: it was a much stronger than expected quarter, especially in
Speaker 7: three key areas overall revenue, iPhone sales and China iPhone sales.
Speaker 3: All Right, so you've got Tim Cook saying today Apple
Speaker 3: is project Reporter Jude quarter revenue record with double digit
Speaker 3: growth and iPhone Mac and services and growth around the
Speaker 3: world and every geographic segment. So highlighting that, you know,
Speaker 3: the big question that we had ivan they're going into it.
Speaker 3: And one of the things that was top of mind
Speaker 3: is AI. Right in a week, in a couple of
Speaker 3: weeks where we've been looking at the hyperscalers, the big spend,
Speaker 3: the return on investment as a result of that, what
Speaker 3: about on AI? How big a deal is that for you?
Speaker 3: When you look at Apple, it is a big deal.
Speaker 7: And they still really have not like wowed on ai yet,
Speaker 7: and you know, they're talking about partnering working with other
Speaker 7: AI providers. I mean, Siri still needs a lot of improvement.
Speaker 7: A lot of the functionality that is out there is
Speaker 7: pretty good as far as pictures and text and email
Speaker 7: messages to integrate AI, to help facilitate the you know,
Speaker 7: editing of pictures and sending texts and emails. But I
Speaker 7: think they still have a long, you know, a long
Speaker 7: way to go. Because Apple has always had a tremendous
Speaker 7: wow factor, and you know, AI has really not been
Speaker 7: at the level that everybody is expecting from Apple, So yeah,
Speaker 7: that is an opportunity. But services revenue did increase nicely,
Speaker 7: which is another key point. So those I think are
Speaker 7: really that's the fourth of the total four key points
Speaker 7: that everybody was focusing on are.
Speaker 3: Ian King sharing with the team on the live blog service.
Speaker 3: Revenue up thirteen percent, Wearables provided sales that actually showed
Speaker 3: a contraction of about eight point six percent. Max sales
Speaker 3: an increase of fifteen percent. I've had revenue a decline
Speaker 3: of eight percent, and iPhone had revenue an increase of
Speaker 3: thirteen percent. AI. Why is it so tricky for Apple?
Speaker 3: They're continuing to lose some top talent. Why is it
Speaker 3: so tricky for them ivan that they can't seem to
Speaker 3: get it together.
Speaker 7: Maybe the conundrum because Apple is viewed as an incredibly
Speaker 7: innovative company, and while they're never the first mover. They
Speaker 7: didn't invent the smartphone, but they took it to the
Speaker 7: next level. They didn't invent the iPod, took it to
Speaker 7: the next level. So each thing that they address, they
Speaker 7: take it. They're not the first mover but they do
Speaker 7: take it to the next level. So everybody has high
Speaker 7: expectations as far as Apple and intelligence or AI, so
Speaker 7: I think that is part of it, and they really
Speaker 7: haven't come out and wowed everybody. The other area that
Speaker 7: I think is important, well, I think the Vision Pro
Speaker 7: as a concept was really great, but I didn't think
Speaker 7: they were going to sell that many of those headsets
Speaker 7: at thirty four hundred dollars, and I expected at some
Speaker 7: point they would come out with a more streamlined version,
Speaker 7: a much more cost competitive version. And I also am
Speaker 7: a big believer at the in the smart glass concept
Speaker 7: that Meta is doing very well with, and I think
Speaker 7: we will see some type of smart glass concept from
Speaker 7: Apple that integrates across all of its devices as far
Speaker 7: as the phone and the watch, where you could you
Speaker 7: keep the phone in your pocket and do a lot
Speaker 7: of things as far as communication, make and receive calls
Speaker 7: and you know, video and pictures in real time and
Speaker 7: communicate just like you would on FaceTime through the pair
Speaker 7: of Apple smart glasses.
Speaker 2: Oh yeah, I already talk to myself with my phone
Speaker 2: all the time. I can just talk to myself more
Speaker 2: in glasses. That's that's totally fine. Certainly You're right, I've
Speaker 2: in the form factor for the vision Pro much different
Speaker 2: than metas ray Ban Sunglasses. Hey aarn Mark German repeatedly
Speaker 2: saying essentially this, and I'll read it right from the
Speaker 2: live blog. This is nothing new to our audience because
Speaker 2: Mark says it all the time. He writes, as I've
Speaker 2: been saying, despite concerns about the performance of Tim Cook
Speaker 2: from some analysts, there is no universe in which the
Speaker 2: board will replace him with this type of quarter. It's
Speaker 2: essentially impossible. Do you agree with Mark's assessment there Ivan
Speaker 2: that Tim Cook is there to stay despite the challenges
Speaker 2: of the company's experience. When it comes to AI, he.
Speaker 7: Has done a phenomenal job. He's created tremendous shareholder value
Speaker 7: in returns since his tenure as the CEO. Companies hit bumps,
Speaker 7: Apple has innovated tremendously under his time as CEO. So
Speaker 7: he's done a great job. And I don't think any
Speaker 7: of the issues that have investors that are concerns right
Speaker 7: now are really you know, being could be tied to
Speaker 7: some kind of fault of his. So I think it's
Speaker 7: highly unlikely that they will replace him, and I think
Speaker 7: that Apple will come back strong in AI, and I
Speaker 7: think we will see the next generation of some kind
Speaker 7: of you ar VR headset moving more toward the glasses
Speaker 7: type of form factor of which you look. They have
Speaker 7: a billion and a half iPhone users. They have a
Speaker 7: over two billion ecosystem of Apple product users that are
Speaker 7: eager to adopt Apple products and buy Apple products. The
Speaker 7: integration across their products is tremendous and they just enhanced
Speaker 7: that further with the recent announcement of the Glass Operating
Speaker 7: System that standardizes the interaction of all the devices.
Speaker 3: Hey, just one last question. As we see Apple shares
Speaker 3: up about two percent here in the aftermarket, anything that
Speaker 3: makes you want to buy Apple shares here?
Speaker 7: I always we have a buy on it. We've got
Speaker 7: two twenty price target. We're probably going to reevaluate and
Speaker 7: raise it, and I think on any weakness it has
Speaker 7: been a buy and I think that they will surprise
Speaker 7: the positive for AI and the services revenue also is
Speaker 7: a tremendous driver of growth and profitability, and that will
Speaker 7: continue as well.
Speaker 3: All right, good stuff, Ivan, Thank you so much. I've
Speaker 3: and find Seth He is Research director, chief Investment Officer
Speaker 3: of at Tiger's Financial Partners. They've got over five hundred
Speaker 3: million in assets under management. Joining us here in New
Speaker 3: York City again watching Apple shares hire in the postmarket
Speaker 3: after they reported earnings and some strong numbers outperformance there,
Speaker 3: stock up two percent.
Speaker 1: This is the Bloomberg Business Weekdaily Podcast. Listen live each
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Speaker 3: The Fed, the trade, the markets, tariffs, everything that we
Speaker 3: are keeping a watch on on this Thursday, even though
Speaker 3: it feels like a Friday, it is still Thursday. In particular,
Speaker 3: we want to dig a little bit into what we've
Speaker 3: seen in the dollar and the FX trade.
Speaker 6: JT.
Speaker 3: Bardoisee is with us. She's director in FX Strategy for
Speaker 3: TV Securities. Back here in our studio. Good to have
Speaker 3: you here. A lot coming at investors. We've seen some
Speaker 3: strength as of late in the US dollar. Let's go
Speaker 3: back to the macro. What's of note, especially in a
Speaker 3: week where we've heard from the Fed got a decision,
Speaker 3: We have the White House still doing trade deals and
Speaker 3: tariff deals, there's some extensions. We're trying to figure it out.
Speaker 3: What's the important macro trade right now for the US dollar.
Speaker 8: Thank you so much for having me. Always a pleasure
Speaker 8: to join both the field in the studio. I think
Speaker 8: what we have learned from this week is that you know,
Speaker 8: there is still a lot of uncertainty even with the
Speaker 8: trade deals being announced, particularly on the data side. With
Speaker 8: the trade deals being announced, you're obviously getting less confusion
Speaker 8: on the trade front. With you being the largest trading partner,
Speaker 8: you have some certainty on what that tariff trade now
Speaker 8: looks like. But unfortunately the Fed that come out yesterday
Speaker 8: and told you that there's still a lot of uncertain
Speaker 8: uncertainty of on the data front had warrants a lot
Speaker 8: of caution, a lot more caution than what markets were
Speaker 8: priced for going into the meeting. Markets were more than
Speaker 8: fifty percent price for a September cut. They felt comfortable
Speaker 8: with the fact that the fact should becoming an easy
Speaker 8: interest rates, but Power gave no such indication because there's
Speaker 8: still a big risk out there, particularly on the inflation side,
Speaker 8: which is severely underpriced by markets right now. Which is
Speaker 8: what we've learned that while you are getting a little
Speaker 8: bit more clarity on the trade front. Now we're utterly
Speaker 8: data dependent because on the macro growth and inflation side,
Speaker 8: there's still a lot of uncertainty which is not resolved
Speaker 8: with just us knowing those treets.
Speaker 2: Why do you think inflation is being mispriced by the
Speaker 2: market right now?
Speaker 8: So this is actually a very interesting question. So we
Speaker 8: actually have some in house models, which is where we
Speaker 8: actually track trading currencies on the basis of different macro factors.
Speaker 8: So our macro factor, our growth factor, our equity factor,
Speaker 8: all of those factors are making a lot of money,
Speaker 8: but our inflation factor has actually been losing money, which
Speaker 8: is an indicator to me that FX markets have actually
Speaker 8: not been paying attention to data. They think that with
Speaker 8: the tariffs and the uncertainty around the trade deals, focus
Speaker 8: has primarily shifted to the growth outlook. But one thing
Speaker 8: we are now realizing it that the baseline tariff rate
Speaker 8: is no longer ten percent. It's at least fifteen percent,
Speaker 8: which is also interesting because we don't know what that
Speaker 8: pass through inflation will look like. The last CPI report.
Speaker 3: That side Mitchelle on our FED specially said yesterday like
Speaker 3: the range was more like either I can't remember eighteen
Speaker 3: to twenty, but it's much higher than the ten percent
Speaker 3: that we've all been talking about.
Speaker 8: Yes, and the last CPR report had the market reaction
Speaker 8: was very telling. We had a downside surprise, but markets
Speaker 8: took it hawkishly because you saw the first signs of
Speaker 8: inflation tariff pass through into the goods categories, particularly into toys,
Speaker 8: which markets took to be very hawkish, even though the
Speaker 8: core CPI was a downside miss.
Speaker 3: And forgive me, I meant Bob Michael. So what's interesting
Speaker 3: is all right, so wait, so what does this mean
Speaker 3: for the dollar?
Speaker 7: Then?
Speaker 3: Going forward?
Speaker 8: In your view, I would say that you know, we
Speaker 8: are bullished at all or in the short term tact
Speaker 8: you still have August first, the deadline tomorrow, which is sticking.
Speaker 8: But there's two scenarios which can play out with most
Speaker 8: of the countries. Either you don't get a trade deal,
Speaker 8: which brings in a lot more uncertainty and volatility into
Speaker 8: your local assets. Or the second part is you do
Speaker 8: get a trade deal, but on terms which appear more
Speaker 8: favorable to the US than your country, which is now
Speaker 8: actually leading into US local equity market out performance over
Speaker 8: other countries. Equities. Both of these are actually dollar positive,
Speaker 8: so thankfully, in the short term this makes my job
Speaker 8: a little bit easier because irrespective of a deal or
Speaker 8: no deal, it should feed into a little bit of
Speaker 8: a dollar bounce in the short.
Speaker 3: Term stronger dollar. They are possibly problematic for US multinationals
Speaker 3: in terms of selling their good So is that something
Speaker 3: to think about when we look at profits and profitability
Speaker 3: going forward?
Speaker 8: Not yet, because we do think that this taller bounce
Speaker 8: will be a bounce. It will not, you know, bring
Speaker 8: up that you know, dry is back of the US exceptionalism.
Speaker 8: We won't get euro back to one O five or
Speaker 8: below that one thing. It's that kind of a move. Okay,
Speaker 8: it's more for short term adjustment, which market needed given
Speaker 8: what was priced.
Speaker 3: We promise more time later. We love having you on
Speaker 3: with us.
Speaker 6: J T.
Speaker 3: Bardoase, she's director in FX Strategy for TD Securities.
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Speaker 2: Tariffs and Trade Front and Center. The August first deadline
Speaker 2: is fast approaching tomorrow. It's not so called Liberation Day
Speaker 2: April second. No, it's not July ninth, which was the
Speaker 2: other one.
Speaker 4: Other one.
Speaker 2: Yeah, now we're at August first, is the deadline. But
Speaker 2: there's an extension with Mexico correct, and we're.
Speaker 3: Still waiting to find out kind of where we are
Speaker 3: with US China. Maybe we'll get an update a little
Speaker 3: bit later on today.
Speaker 2: But separately with all this, there's the big question the
Speaker 2: president's trade war. It's facing a crucial test as federal
Speaker 2: appeals court here is a challenge to his use of emergence,
Speaker 2: the powers to impose sweeping tariffs on imports. The question
Speaker 2: seems basic, but it's pretty complex. Are these tariffs even legal?
Speaker 2: Eric Larson is with us. He's Bloomberg News, a legal reporter. Eric,
Speaker 2: Are they legal?
Speaker 5: Well?
Speaker 9: I think ultimately the Supreme Court is going to answer
Speaker 9: that question. But they did address it today in the
Speaker 9: Court of Appeals for the Federal Circuit, which is an
Speaker 9: appeals court in Washington. Because it's such an important case.
Speaker 9: They had all eleven judges in in that court hear
Speaker 9: these arguments today. They were something that that both sides
Speaker 9: have been preparing for for months now. One side, all
Speaker 9: the Democratic led States filed a lawsuit and a group
Speaker 9: of small businesses and they of course one at the
Speaker 9: US Trade Court which found these tariffs were illegal, the
Speaker 9: ones that were issued under the emergency law. So this
Speaker 9: hearing was to determine whether or not the Trade court
Speaker 9: decision will be affirmed or overturned.
Speaker 3: What are the arguments on both sides?
Speaker 9: Well, the States in the small business is that sued
Speaker 9: say that this emergency law that Trump cided from nineteen
Speaker 9: seventy seven doesn't say anything about tariffs and it was
Speaker 9: never intended to be used for the president to issue tariffs,
Speaker 9: certainly not sweeping global tariffs against all of our trading partners.
Speaker 9: They on top of that, they argue that the national
Speaker 9: emergencies that Trump declared in order to invoke this law
Speaker 9: are bogus, that the trade deficits, as Trump said that
Speaker 9: the persistent US trade deficits are a national emergency, a
Speaker 9: threat to our national security, and that justifies issuing these tariffs.
Speaker 9: Same with fentanol. He said that that crisis in the
Speaker 9: US warrants big tariffs against Mexico and Canada and China.
Speaker 9: So these emergencies, the States, small businesses, they say they're bogus.
Speaker 2: Section two thirty two is this is what was invoked
Speaker 2: in the first Trump administration with China. Correct.
Speaker 9: Well, that's the thing is there are a bunch of
Speaker 9: different trade laws that can be us used legally and
Speaker 9: arguably to issue big tariffs in a lot of different situations.
Speaker 9: That this law in particular has never been used to
Speaker 9: issue tariffs before. So there's all these other ways section
Speaker 9: two thirty two. And one of the judges today was
Speaker 9: asking the Justice Department lawyer about that, saying, we have
Speaker 9: all these other trade laws that a president can use
Speaker 9: to issue tariffs. What's the point of all those if
Speaker 9: a president can just use this one to do whatever
Speaker 9: he wants.
Speaker 2: Could that be a backup plan for the president if
Speaker 2: the court strikes down at least this methodology of sweeping tariffs,
Speaker 2: could the president go back and use another part of
Speaker 2: the law.
Speaker 9: I think that a lot of critics of these tariffs
Speaker 9: have even said that that is something that is possible,
Speaker 9: that there's other ways that Trump could could put these
Speaker 9: tariffs in place. Their issue and their issue all along
Speaker 9: in these lawsuits has been that Congress has the power
Speaker 9: over taxing and tariffs, and that this is a massive
Speaker 9: tax on all Americans who are paying the bulk of
Speaker 9: these of these tariffs, so that that's something only Congress
Speaker 9: can do, and that this law was just never intended
Speaker 9: to be a blank check for any president to issue
Speaker 9: whatever tariffs who wants, at whatever rate against any country
Speaker 9: for any period of time.
Speaker 3: Is this once again about presidential authority?
Speaker 9: Is that the correct so many of the other cases
Speaker 9: that have been going on against the Trump administration.
Speaker 3: So this is what I'm wondering. Like here we are, Eric,
Speaker 3: as you know at Bloomberg, often the top stories and
Speaker 3: most read stories, certainly over the last couple of weeks
Speaker 3: and for a long time, have been about trade deals
Speaker 3: in tariffs, and we've seen market certainly react on that.
Speaker 3: If tell us about if this goes to the Supreme Court,
Speaker 3: or if this decision go is a decision that requires
Speaker 3: it to go to the Supreme Court, is it possible
Speaker 3: that all of these headlines could be made insignificant and
Speaker 3: not important and not real.
Speaker 9: Well, that's a huge question.
Speaker 6: Right.
Speaker 9: We already have these terrorifts being baked into the global
Speaker 9: economy while they're being debated, because this same appeals court
Speaker 9: allowed them to stay in effect. While this appeal proceeds.
Speaker 3: But there's a big question mark.
Speaker 9: There's a big question mark all of them. But as
Speaker 9: we're seeing as we're seeing a lot of countries are
Speaker 9: going ahead with negotiating and some of them reaching deals.
Speaker 9: We haven't seen all the details on them yet, of course,
Speaker 9: but they're they're certainly trying to reach these deals, and
Speaker 9: there is a chance that potentially the Supreme Court ultimately
Speaker 9: could decide that they're illegal. Perhaps they don't want future
Speaker 9: presidents to have the same kind of blank check, so
Speaker 9: they these countries might have to go back to the
Speaker 9: drawing board.
Speaker 3: Well, have any other presidents ever done this? In terms
Speaker 3: of no, okay, no, I.
Speaker 2: Think, I mean, I think the hard part about this
Speaker 2: is that, you know, we heard this from feted Cher
Speaker 2: jpwell yesterday. The uncertainty, yeah, is going along with this.
Speaker 2: So it's like if you're if you're a company that
Speaker 2: is trying to figure out, Okay, we need to get
Speaker 2: these things from here, and we need to communicate to
Speaker 2: investors how much it's going to cost us now in
Speaker 2: this new environment. That's a challenge. Yet we haven't necessarily
Speaker 2: seen that reflected in the company earnings, at least to
Speaker 2: the extent of at least in this quarter, Carol, Right,
Speaker 2: you remember last quarter where we heard all the uncertainty
Speaker 2: from the airlines. We heard concerns about ripping up guidance
Speaker 2: moving forward. If you're an investor and you're looking for
Speaker 2: some sort of resolution here, is there a realistic timeline
Speaker 2: for this or is this just going this drum beat
Speaker 2: just going to continue as it makes its way to
Speaker 2: the Supreme Court.
Speaker 9: I think that the Supreme Court, when it gets there,
Speaker 9: is going to probably move expeditiously on this. They can
Speaker 9: move quickly in cases that are extremely important. They could
Speaker 9: also just they could also just let whatever the lower
Speaker 9: court ruling is sort of stand. Right say, if Trump
Speaker 9: loses at the Federal Circuit and they don't take it
Speaker 9: up right away, you know, could be a hint of
Speaker 9: things to come. But until there is a final decision,
Speaker 9: no company is going to have any certainty. But as
Speaker 9: you mentioned, these other options for Trump issuing tariffs. If
Speaker 9: even if he were to lose on this, I think
Speaker 9: we know that Trump, based on how he usually does things,
Speaker 9: is he would press ahead with some other way to
Speaker 9: get these deals done.
Speaker 3: And it sounds like he's got the options out there
Speaker 3: right in terms of other mechanisms he could pull.
Speaker 8: Sure there.
Speaker 9: Yeah, I mean these tariffs that we've seen here, they
Speaker 9: said in open court that they were basically a pressure tactic,
Speaker 9: giving Trump a way to pressure countries to come to
Speaker 9: the table.
Speaker 3: We actually talked with Bill George, executive fellow at Harvard
Speaker 3: Business School, former chairman and city of Metronic, and remember
Speaker 3: he thought CEOs, they're approaching this all wrong. He's basically saying,
Speaker 3: by delaying, you know, making either an m and a
Speaker 3: deal or strategy, if you're waiting for TERRFF clarity, he says,
Speaker 3: at the same time, you've got competitors they're seizing, you know,
Speaker 3: the opportunities, while everybody else, maybe American CEOs are kind
Speaker 3: of waiting for clarity on the tariff deals. So it's
Speaker 3: kind of interesting. What is the timetable here.
Speaker 9: To We don't we don't have one. I mean, we're
Speaker 9: of course preparing for a decision to come anytime, but
Speaker 9: they could take days, they could take weeks, okay to
Speaker 9: come up with the decision and then of course Supreme Court.
Speaker 2: So so don't I hope you have no vacations planned.
Speaker 3: It's just amazing because.
Speaker 2: You're going to be here.
Speaker 3: But this is it, right, This is kind of our
Speaker 3: world like, this is an uncertain aspect and we'll have
Speaker 3: to see how it plays out. Thank you so much.
Speaker 3: Get home safely. We know we're waiting for some big
Speaker 3: rain here in New York. Eric Laarson is Bloomberg News
Speaker 3: Legal reporter. Check out his work on The Bloomberg and
Speaker 3: at Bloomberg dot com.
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