WEBVTT - Bloomberg Surveillance TV: April 4, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:36.600 Bloomberg Terminal and the Bloomberg Business App. I want to 0:00:36.640 --> 0:00:39.720 bring in Muhammad Aloud of Queen's College, Cambridge. Mhammad joins us. Now, Muammed, 0:00:39.720 --> 0:00:41.400 you've had a few minutes to go over these numbers, 0:00:41.600 --> 0:00:43.320 your initial reaction, and then we can get to the much, 0:00:43.400 --> 0:00:45.440 much bigger picture going forward from here. 0:00:46.720 --> 0:00:50.480 So well, I agree generally that this is not as 0:00:50.560 --> 0:00:53.920 relevant as it normally is as an employment report. I 0:00:54.000 --> 0:00:58.240 do focus on zero point three percent monthly earnings growth. 0:00:59.360 --> 0:01:05.080 When people rush to predict lots of FED cuts, they 0:01:05.120 --> 0:01:08.000 forget the difference between what is necessary and what is 0:01:08.080 --> 0:01:13.240 necessary and sufficient weakness pronounced weakness in the economy is 0:01:13.400 --> 0:01:16.680 necessary for the sorts of cuts that are being priced in, 0:01:17.319 --> 0:01:20.920 but they're not sufficient. The FED needs some sort of 0:01:21.000 --> 0:01:27.240 air cover on inflation. And most forecasts of inflation, as 0:01:27.319 --> 0:01:29.600 Jeff said, are now going to the three to three 0:01:29.640 --> 0:01:33.080 and a half percent at the PCE core level, So 0:01:33.240 --> 0:01:37.080 this is quite a move. The point three monthly earning 0:01:38.240 --> 0:01:41.919 growth that we saw in today's report is not consistent 0:01:42.200 --> 0:01:47.440 with air cover on inflation. So this is a report 0:01:47.560 --> 0:01:52.160 that suggested the Fed wait and see. And my hope 0:01:52.320 --> 0:01:55.080 is that Jeff Powell this later this morning will do 0:01:55.120 --> 0:01:59.440 two things. He will walk back the notion that the 0:01:59.600 --> 0:02:03.800 terriff impact on inflation will be transitory and let's eliminate 0:02:03.840 --> 0:02:06.960 that word again from its vocabulary. And the second thing 0:02:07.120 --> 0:02:09.840 I hope he walks back is the ease with which 0:02:09.840 --> 0:02:15.320 he dismissed the soft data, because, as Stephanie said, expect 0:02:15.560 --> 0:02:18.200 the hard data to weaken in the months ahead. 0:02:18.560 --> 0:02:21.560 Mohammed, are we dismissing the strength of this labor market 0:02:21.639 --> 0:02:25.480 report at our own peril? The idea that corporate America 0:02:25.520 --> 0:02:29.280 has thrived despite what the US government has occasionally done, 0:02:29.440 --> 0:02:31.880 and that there is quite a bit of robustness and 0:02:31.919 --> 0:02:35.240 people who are employed and able to absorb a greater 0:02:35.400 --> 0:02:38.760 amount of price increases that might get passed along to them. 0:02:40.400 --> 0:02:42.640 I think, Lisa, what this reminds you is that the 0:02:42.680 --> 0:02:46.880 structure of the economy is fine. And this is important 0:02:46.960 --> 0:02:51.560 because while there is general agreement on a very bumpy 0:02:51.600 --> 0:02:56.320 few months, the significant disagreement on where this would lead to. 0:02:56.919 --> 0:03:00.359 Now those who think that the pain is worth the 0:03:00.440 --> 0:03:03.600 gain that's coming forward. It's just a matter of time, 0:03:03.639 --> 0:03:06.400 and the structure of the economy is strong enough to 0:03:06.639 --> 0:03:09.800 take us through it is very bumpy journey, and there 0:03:09.800 --> 0:03:13.400 are others that were we that the structure of the 0:03:13.520 --> 0:03:16.040 economy is not as strong as we think it is. 0:03:16.520 --> 0:03:20.040 This number here gives you some confidence that the economy 0:03:20.120 --> 0:03:25.280 is fine if we can just avoid repeated self inflicted wounds. 0:03:25.520 --> 0:03:27.280 If you are just joining us, welcome to the program. 0:03:27.360 --> 0:03:29.799 Moments ago, a big upside surprise on a payrolls report 0:03:29.880 --> 0:03:32.919 to twenty eight the estimate one forty. And we look 0:03:32.960 --> 0:03:36.040 at the charts in the immediate aftermath of that job's number, 0:03:36.200 --> 0:03:39.080 This market hardly blinked. You're just stilled down fifteen basis 0:03:39.080 --> 0:03:41.240 points at the front end of the curve three fifty two, 0:03:41.560 --> 0:03:43.600 and in the equity market at the moment, equally, futures 0:03:43.600 --> 0:03:46.480 are lowered by two point eight percent. Mohammad was looking 0:03:46.480 --> 0:03:48.840 forward to chairman power at eleven twenty five and Stephanie 0:03:48.920 --> 0:03:51.560 Rothy talked about that word transitory, the t word, just 0:03:51.640 --> 0:03:52.440 like I can today. 0:03:53.000 --> 0:03:54.520 I would imagine he won't use it again. 0:03:54.600 --> 0:03:57.080 I guess, of course, we'll see, but I think we'll 0:03:57.080 --> 0:03:58.600 have to be a little bit more cautious about this. 0:03:58.640 --> 0:04:00.840 And I think it's also important to think out the 0:04:00.920 --> 0:04:03.400 fact that transitory one does doesn't mean the same for 0:04:04.400 --> 0:04:05.880 every person, which is the problem. 0:04:06.160 --> 0:04:08.560 And the extent of the tariffs are so big that. 0:04:08.560 --> 0:04:10.600 It might take a really long time for this inflation 0:04:10.720 --> 0:04:12.400 shock to work its way through the economy. 0:04:12.440 --> 0:04:14.520 So they get hiding word, as you know, speaks to 0:04:14.560 --> 0:04:17.840 the same mistake we all remember, which was waiting too long. 0:04:18.760 --> 0:04:21.240 That's the problem with the tea word at the moment, 0:04:21.480 --> 0:04:24.840 waiting too long to do something about inflation this time around. 0:04:24.839 --> 0:04:27.680 I wander conditioned by their previous experience, do they wait 0:04:27.720 --> 0:04:30.560 too long to do something about growth and downside risk 0:04:30.600 --> 0:04:32.640 to growth, because that's the major risk for this market. 0:04:32.960 --> 0:04:35.200 Yeah, I think that's potentially the case, and they're going 0:04:35.279 --> 0:04:36.720 to have to wait and see. And by the way, 0:04:36.760 --> 0:04:39.480 they're going to be watching inflation expectations they've anchored, especially 0:04:39.480 --> 0:04:42.120 the last time in twenty eighteen, they said inflation expectations 0:04:42.160 --> 0:04:44.720 were the main anchor to determine whether they can look 0:04:44.760 --> 0:04:47.200 through it or whether they have to act more hawkishly 0:04:47.240 --> 0:04:50.360 as a result. And if inflation expectations start to pick up, 0:04:50.920 --> 0:04:52.560 they're going to be in a tough situation for a 0:04:52.560 --> 0:04:54.520 little while. They're gonna have to wait until things get 0:04:54.600 --> 0:04:57.320 really bad before they can act. And by the way, 0:04:57.400 --> 0:05:01.440 inflation expectations long term ones are largely driven by your 0:05:01.440 --> 0:05:04.359 most recent experience with inflation. Well, in twenty eighteen, we 0:05:04.440 --> 0:05:06.840 had no inflation in the past prior years. 0:05:07.080 --> 0:05:09.280 This time it's very different, and inflation. 0:05:09.000 --> 0:05:11.200 Expectations are likely to pick up a lot more given 0:05:11.720 --> 0:05:13.840 experience with inflation and the fact that these terrafs are 0:05:13.880 --> 0:05:14.160 just so. 0:05:14.279 --> 0:05:16.600 Large, which raises a question, Jeff and I would love 0:05:16.600 --> 0:05:19.880 your thoughts on this. How the bond market responds to 0:05:19.960 --> 0:05:22.919 either a duvish message from Fedschair j Powell or. 0:05:22.920 --> 0:05:24.120 A hawkish message. 0:05:24.320 --> 0:05:27.240 If he does put transitory back in the bottle, does 0:05:27.279 --> 0:05:29.600 that give you more confidence frankly to go into long 0:05:29.680 --> 0:05:32.560 term bonds because eventually they might have to cut rates 0:05:32.560 --> 0:05:33.400 a whole lot more. 0:05:34.880 --> 0:05:37.080 Yeah, you know, it's really interesting if you look at 0:05:37.080 --> 0:05:40.760 the last two days in what has transpired in terms 0:05:40.800 --> 0:05:43.760 of the bond market. So yesterday you saw a big 0:05:43.880 --> 0:05:48.599 rally in rates, but it was mostly led by the 0:05:48.839 --> 0:05:51.040 intermediate and short end. If you look at the thirty 0:05:51.120 --> 0:05:54.719 year portion of the curve, it lagged for a brief 0:05:54.800 --> 0:05:55.599 moment in time. 0:05:55.480 --> 0:05:59.640 It barely budged at all. Contrast that to today, and 0:05:59.680 --> 0:06:02.320 today what you're seeing is a very different picture from 0:06:02.360 --> 0:06:05.520 the bond market, and probably the most striking is that 0:06:05.560 --> 0:06:09.800 you're seeing not only longer term inflation expectations fall, but 0:06:09.839 --> 0:06:13.359 even some of the shorter term inflation measures. And so 0:06:13.760 --> 0:06:14.520 the steventy was. 0:06:14.480 --> 0:06:15.120 Just talking about it. 0:06:15.320 --> 0:06:17.800 It'll be challenging for the Fed because it depends on 0:06:18.760 --> 0:06:22.360 how you're measuring inflation expectations. So everybody's seeing the Michigan survey. 0:06:22.720 --> 0:06:25.880 The survey measures will likely be going higher in an 0:06:26.040 --> 0:06:31.000 environment where people are seeing higher prices due to terrace. 0:06:31.520 --> 0:06:33.760 You know, potentially that gets a little bit offset by 0:06:33.760 --> 0:06:38.280 what we're seeing in oil, but the impact in terms 0:06:38.360 --> 0:06:42.000 of survey responses maybe to higher inflations. Meanwhile, in the 0:06:42.040 --> 0:06:46.440 bond market, they're really looking at the financial conditions tightening 0:06:46.480 --> 0:06:50.839 that's going on, seeing the implications for consumption. Seventy percent 0:06:50.920 --> 0:06:54.320 of the economy is driven by that side, and that's 0:06:54.440 --> 0:06:58.479 quite negative and starting to price in today much more 0:06:58.480 --> 0:07:01.160 of a deflationary environment. So you're seeing the back end 0:07:01.200 --> 0:07:04.359 of the curve fall, you're seeing break Eban's fall, and 0:07:04.400 --> 0:07:07.640 you're even seeing short end inflation measures, which have really 0:07:07.640 --> 0:07:11.440 been this story about stagflation. When you measure the stagflation, 0:07:11.600 --> 0:07:15.320 it's short measures. Inflation in the near term is expected 0:07:15.360 --> 0:07:17.560 to go up. Now some of that stuff is starting 0:07:17.600 --> 0:07:20.200 to get rolled over. So it's possible here the bond 0:07:20.280 --> 0:07:24.200 market may try to lead the Fed to this message 0:07:24.240 --> 0:07:27.600 of transitory by basically cutting the interest rates, both in 0:07:27.640 --> 0:07:37.120 real and nominal terms. 0:07:38.280 --> 0:07:41.320 I can tell you this market moves not leading the 0:07:41.360 --> 0:07:44.040 President to change in his mind, just posting on through 0:07:44.080 --> 0:07:47.280 social right now saying that my policies will never change. 0:07:47.320 --> 0:07:50.040 If you're looking for someone to blink this morning, it's 0:07:50.040 --> 0:07:51.240 not the President at the moment. 0:07:51.440 --> 0:07:53.760 He says, to the many investors coming into the United 0:07:53.760 --> 0:07:56.680 States and investing massive amounts of money, my policies will 0:07:56.680 --> 0:07:57.280 never change. 0:07:57.320 --> 0:07:58.600 This is a great time to get. 0:07:58.520 --> 0:08:03.200 Rich richer an ever before, which raises this question of 0:08:03.280 --> 0:08:06.720 how much the bond market and the stock market matter 0:08:06.840 --> 0:08:09.240 to him at a time where there is real concern 0:08:09.280 --> 0:08:11.120 on Wall Street that isn't being reflected. 0:08:11.160 --> 0:08:13.880 In his commentary, Jeff mentioned crude crude is down by 0:08:13.920 --> 0:08:16.240 seven and a half percent on w Cipron is down 0:08:16.280 --> 0:08:19.840 by close to seven four percentage points, Muhammad, Quite clearly, 0:08:20.400 --> 0:08:23.840 this is a shock to the cycle. Quite clearly, we're 0:08:23.880 --> 0:08:26.720 repricing growth lower. From your perspective, how much of a 0:08:26.760 --> 0:08:29.280 shock to the system is it and how long does 0:08:29.320 --> 0:08:33.320 it take to internalize major regime changes like the one 0:08:33.360 --> 0:08:35.120 we might see. 0:08:36.000 --> 0:08:40.800 So John, we are repricing growth outlook in a significant manner. 0:08:41.920 --> 0:08:44.240 Interestingly, the beta for the rest of the. 0:08:44.160 --> 0:08:47.960 World is catching up. It started out being a US phenomenon. 0:08:48.040 --> 0:08:52.760 Now it's spreading. People are realizing that if the US 0:08:53.080 --> 0:08:56.439 growth rate falls by x, it may form then by 0:08:56.480 --> 0:08:58.560 more than x outside the US, and I think that 0:08:58.720 --> 0:09:02.679 is correct. Debta is greater than one outside the US. 0:09:02.760 --> 0:09:06.880 So it's a major, major revisiting of the growth outlook. 0:09:07.080 --> 0:09:12.120 How long it depends on what other countries decide. Right now, 0:09:12.600 --> 0:09:17.200 the president's message will encourage other countries to retaliate. 0:09:17.960 --> 0:09:22.720 You see, there's a choice out there between retaliate, the escalate, 0:09:23.160 --> 0:09:26.760 or just wait. And we all want. 0:09:26.559 --> 0:09:29.880 The escalation, but the escalation requires both sides to play 0:09:29.880 --> 0:09:32.000 along and for there to be an amount of trust 0:09:32.640 --> 0:09:34.600 that this is not a multi round where you're going 0:09:34.679 --> 0:09:38.439 to have to renegotiate every time. If you de escalate, 0:09:38.600 --> 0:09:42.320 now it will hold. That isn't there right now, So 0:09:42.440 --> 0:09:45.439 I suspect you will see more countries move towards what 0:09:45.559 --> 0:09:49.559 China did, which is a response that involves both tariffs 0:09:49.559 --> 0:09:52.000 and non tariffs. And where that comes in for the 0:09:52.040 --> 0:09:54.160 bond market is we're not going to start talking not 0:09:54.280 --> 0:09:57.600 just about interest rate risk, but credit risk in the 0:09:57.600 --> 0:10:01.000 bond market. Credit risk has been on until very recently, 0:10:01.080 --> 0:10:04.720 really well protected, but now we're starting to see it 0:10:04.760 --> 0:10:09.720 come under pressure, and credit investors no longer have the 0:10:09.800 --> 0:10:12.840 shield of all in the yield because. 0:10:13.080 --> 0:10:16.120 Both components now are in play. 0:10:16.559 --> 0:10:18.679 So the next thing to look in the bond market, 0:10:18.760 --> 0:10:21.240 John is going to be not just a government bonds, 0:10:21.720 --> 0:10:26.040 but look at credit and in particular high yield, because 0:10:26.040 --> 0:10:28.720 that is significantly vulnerable right now. 0:10:28.880 --> 0:10:32.080 Yeah, we saw yesterday the biggest spread widening going back 0:10:32.120 --> 0:10:34.000 to the heart of the pandemic in some of those 0:10:34.080 --> 0:10:37.440 riskier instruments. We caught up with you earlier this week, Muhammad, 0:10:37.480 --> 0:10:39.440 and you said that it's about a fifty to fifty 0:10:39.559 --> 0:10:42.160 chance in your estimation that we either have some sort 0:10:42.200 --> 0:10:46.400 of Reagan and Thatcher esque reordering of the global trade system, 0:10:46.640 --> 0:10:48.880 or you go back to the seventies, you go back 0:10:48.880 --> 0:10:51.480 to Carter on steroids. Do you still think it's fifty 0:10:51.520 --> 0:10:51.960 to fifty? 0:10:53.120 --> 0:10:54.240 I do. What has changed? 0:10:54.280 --> 0:10:57.199 If you remember I said my own perception is fifty 0:10:57.200 --> 0:10:59.680 to fifty. The market is at eighty twenty. The market 0:10:59.840 --> 0:11:05.040 is absolutely convinced this is a wagon Thatcher moment. I 0:11:05.080 --> 0:11:08.400 think that eighty has come down in the last couple 0:11:08.400 --> 0:11:11.920 of days and for good reasons. So yes, I'm still 0:11:11.960 --> 0:11:15.319 out of fifty to fifty because there is the upside 0:11:15.440 --> 0:11:19.640 of significant innovations in tech that are there that are 0:11:19.840 --> 0:11:23.679 multi year beneficial to productivity. 0:11:23.760 --> 0:11:25.360 So yes, I'm still fifty to fifty. 0:11:25.360 --> 0:11:28.040 The market is replicing now closer to fifty to fifty, 0:11:28.200 --> 0:11:30.120 which is I think that that's the correct thing for 0:11:30.160 --> 0:11:30.880 the markets to do. 0:11:31.080 --> 0:11:32.360 We can answer that, I think there's a lot of 0:11:32.360 --> 0:11:34.400 faith at a moment. Based on the conversations we've had 0:11:34.440 --> 0:11:37.000 so far this morning, Lisa, that many people still don't 0:11:37.000 --> 0:11:38.640 believe these tariffs even go on, and if they do, 0:11:38.679 --> 0:11:41.240 it won't last long. We've got these two key dates now. 0:11:41.280 --> 0:11:44.440 April fifth is tomorrow, so that's the baseline ten percent tariff. 0:11:44.440 --> 0:11:46.720 April ninth is when you hear the twenty on the EU, 0:11:47.080 --> 0:11:49.520 twenty four on Japan, thirty four on China, and the 0:11:49.520 --> 0:11:52.160 big numbers on everybody else. Everybody thinks that we can 0:11:52.200 --> 0:11:54.720 negotiate something in between. I think they're scared of the 0:11:54.760 --> 0:11:56.720 moment that we won't. But if you go through all 0:11:56.760 --> 0:11:59.000 the research on Wall Street right now, the base case 0:11:59.160 --> 0:12:01.840 is this won't happen, and I wonder where that fight 0:12:01.920 --> 0:12:02.600 comes from. 0:12:02.960 --> 0:12:05.520 At a certain point, there was this belief heading into 0:12:05.520 --> 0:12:08.959 this year that the Fed put was there and that 0:12:09.040 --> 0:12:13.760 the Trump put was there. To imagine that an administration 0:12:13.880 --> 0:12:17.280 would allow an economy to tank or a market to 0:12:17.360 --> 0:12:19.720 tank seems infeasible, and I think that's what a lot 0:12:19.760 --> 0:12:22.240 of people are looking at. If you put on top 0:12:22.320 --> 0:12:25.040 of that this question of where is the off ramp 0:12:25.040 --> 0:12:27.960 for the tit for tat retaliation? How do we start 0:12:27.960 --> 0:12:31.360 to estimate the damage from that, it becomes a fool's 0:12:31.480 --> 0:12:33.440 errand try to model out. And I think a lot 0:12:33.440 --> 0:12:35.439 of people are just saying, look, we're just going to 0:12:35.480 --> 0:12:36.600 assume that's not going to happen. 0:12:36.679 --> 0:12:38.600 Jeff, where does that fith come from in the market 0:12:38.679 --> 0:12:40.800 right now? That is so bad it just won't happen. 0:12:42.520 --> 0:12:44.520 I think as you're pointing out that fail or as 0:12:44.600 --> 0:12:46.960 Muhammad was pointing out, I think that faith is being 0:12:47.320 --> 0:12:49.959 is being challenged day by day, and I think that's 0:12:49.960 --> 0:12:54.400 why you're seeing the market reactions. Yeah, so you know, 0:12:55.000 --> 0:12:59.600 I think the only path forward is to observe what 0:12:59.640 --> 0:13:03.600 this administration and the policies that it chooses to implement are. 0:13:03.679 --> 0:13:08.560 It's very possible to forecast, but the eighty twenty to 0:13:08.600 --> 0:13:12.000 fifty to fifty I think is right, and you see it, 0:13:12.080 --> 0:13:14.880 you know, in these in these market reactions. 0:13:14.440 --> 0:13:15.560 Sephany, how do you model this? 0:13:16.240 --> 0:13:18.319 So we've definitely tried to model this a number of 0:13:18.320 --> 0:13:22.559 different ways base cases, We've taken the we've done the 0:13:22.559 --> 0:13:24.760 fools that are an approach, and tried to model from 0:13:24.760 --> 0:13:26.959 a global perspective, what happens if we play all of 0:13:27.000 --> 0:13:29.400 the tariffs, what happens if everybody else retaliates in kind, 0:13:29.440 --> 0:13:31.160 and then you get some offsetting factors. 0:13:31.480 --> 0:13:34.000 That looks the numbers are kind of comically bad. 0:13:34.640 --> 0:13:37.000 You're looking at something like a two to three percentage 0:13:37.000 --> 0:13:39.800 point headwind on GDP if this all really plays out again. 0:13:39.880 --> 0:13:41.439 We don't think it will play out to that extent. 0:13:41.520 --> 0:13:43.520 We think it will be pretty severe, which is why 0:13:43.559 --> 0:13:45.840 we took a growth growth estimates down for this year 0:13:45.880 --> 0:13:46.600 two point five. 0:13:46.480 --> 0:13:47.959 Percent and recession jobs. 0:13:47.840 --> 0:13:50.720 Up to forty percent, because this is these policies are 0:13:50.720 --> 0:13:52.520 bad and it's hard for the administration to walk away 0:13:52.559 --> 0:13:55.240 away from it unless something forces them to do so, 0:13:55.679 --> 0:13:56.760 and we're not there yet. 0:13:57.000 --> 0:13:59.680 Stephanie Raltha will three such a special thanks alongside Jeff 0:13:59.720 --> 0:14:02.040 Rosen of Blank Rog Muhammad, I just wanted to give 0:14:02.080 --> 0:14:03.959 you the final word before we go. What you'll be 0:14:04.000 --> 0:14:06.120 looking for going into the weekend and as we reset 0:14:06.480 --> 0:14:08.560 coming into next week. What's the number one thing at 0:14:08.559 --> 0:14:09.319 the top of your list. 0:14:10.640 --> 0:14:12.400 Number one is listening to the administration. 0:14:12.520 --> 0:14:15.560 I think there is a belief that you may have 0:14:15.679 --> 0:14:19.160 to break some things to remake the global order, but 0:14:19.320 --> 0:14:23.680 remaking the global order is the objective. And you have 0:14:23.800 --> 0:14:27.920 the very specific example of X where you had to 0:14:27.960 --> 0:14:30.840 break things to remake it at the back of people's mind. 0:14:31.200 --> 0:14:34.280 But also listen to business, and I've been on the 0:14:34.360 --> 0:14:37.080 phone NonStop with business leaders. 0:14:37.400 --> 0:14:39.080 And they are not waiting John. 0:14:39.880 --> 0:14:43.680 They see hit on the cost side, They're worried about 0:14:43.680 --> 0:14:47.360 demand destruction on the revenue side, and they're starting to 0:14:47.400 --> 0:14:52.080 make difficult decisions about the balance between profit margin, compression, 0:14:53.320 --> 0:14:56.080 higher prices and cutting costs. 0:14:56.680 --> 0:14:59.400 And these discussions, believe me, are really active. 0:14:59.520 --> 0:15:02.400 Business is not gonna wake because they're going to try 0:15:02.440 --> 0:15:07.320 to rebuild resilience because whatever people disagree on, I think 0:15:07.360 --> 0:15:10.920 most of us agree on this being a very uncertain environment. 0:15:11.440 --> 0:15:14.400 Mohammed, I appreciate your time, sir as always, Mohammed, are 0:15:14.440 --> 0:15:26.440 in there of Queen's College, Cambridge with this around the table, 0:15:26.440 --> 0:15:29.480 micro Jesus of Morgan standing Michael komorning, good morning. This 0:15:29.560 --> 0:15:31.360 is tough for a lot of people. It's so bad 0:15:31.400 --> 0:15:34.000 it just won't happen. Is that your position on things? 0:15:35.040 --> 0:15:38.800 Well, I think there's probably plenty of room for negotiation. 0:15:38.880 --> 0:15:41.120 We just don't know what the parameters are, right, So 0:15:41.440 --> 0:15:46.720 when we'd expect that lower terrariffs, potentially asset purchases, potentially 0:15:46.760 --> 0:15:49.480 more military spending in some of these situations might help, 0:15:49.560 --> 0:15:52.120 but really we're in this discovery process right now of 0:15:52.160 --> 0:15:54.960 what the sufficient conditions are. Unfortunately, and they don't think 0:15:55.000 --> 0:15:57.880 this will clarify anything for anyone. They're probably different conditions 0:15:57.920 --> 0:16:01.440 for different countries. So we shouldn't go into this, at 0:16:01.520 --> 0:16:04.200 least from my perspective, thinking that any of these negotiations 0:16:04.240 --> 0:16:06.200 will go quickly or any of this terraff relief will 0:16:06.240 --> 0:16:09.040 come about quickly, and so we do need to price 0:16:09.080 --> 0:16:12.040 in at least most of the negative consequences of these choices. 0:16:12.400 --> 0:16:15.160 What is the significance of the formula that this Trump 0:16:15.200 --> 0:16:18.800 administration use to come up with the teriff rights on 0:16:18.840 --> 0:16:19.520 each country? 0:16:19.760 --> 0:16:22.000 Yeah, I mean, I only know what they've told us, 0:16:22.080 --> 0:16:25.040 which is effectively that it's supposed to be a representation 0:16:25.240 --> 0:16:28.240 of the trade deficit and that in a theoretical world 0:16:28.280 --> 0:16:31.360 where if tariffs are equalized, that there would be no 0:16:31.480 --> 0:16:34.880 good trade deficit. That said, you know, I don't know 0:16:34.920 --> 0:16:36.840 if the information we're supposed to take from that is 0:16:36.880 --> 0:16:39.840 that their end goal is to just get good trade 0:16:39.880 --> 0:16:43.280 deficits down to zero, or if just that they apply 0:16:43.320 --> 0:16:46.000 the methodology and they're willing to talk about it again. 0:16:46.080 --> 0:16:48.600 I think we're in that discovery process over the next week. 0:16:48.800 --> 0:16:51.240 But either way, it doesn't seem like we're going to 0:16:51.280 --> 0:16:52.920 get relief quickly from any of this. 0:16:53.440 --> 0:16:56.160 I was speaking with an investment manager yesterday and I said, 0:16:56.200 --> 0:16:59.280 you know, what is your methodology of taking all of 0:16:59.280 --> 0:17:01.360 the data that we're getting it and ranking it, etc. 0:17:01.680 --> 0:17:05.680 And they said, I run a lot. I run frequently. 0:17:06.320 --> 0:17:08.840 What are on earth that you're telling your clients? Yeah. 0:17:08.880 --> 0:17:12.600 I think what we said coming into the year is 0:17:12.640 --> 0:17:15.040 that we did think that higher tariffs were going to 0:17:15.080 --> 0:17:18.280 be a fixture of the US policy posture. We thought 0:17:18.280 --> 0:17:20.480 it was going to be mostly aligned with China and 0:17:20.520 --> 0:17:22.560 kind of rest of world would be a lighter touch. 0:17:22.920 --> 0:17:26.440 That's still generally true, but the China tariffs happened faster 0:17:26.560 --> 0:17:28.520 than we thought. We did think they'd get to sixty percent, 0:17:28.560 --> 0:17:30.480 but we thought that was kind of an early twenty 0:17:30.480 --> 0:17:33.720 twenty six event, and rest of world would sort of 0:17:33.720 --> 0:17:35.520 be product by product in a lighter touch. 0:17:35.840 --> 0:17:37.360 So the new thing we have to bake. 0:17:37.160 --> 0:17:40.120 In here is rest of world tariffs are higher. There's 0:17:40.160 --> 0:17:42.680 at least that ten percent minimum, and then there's higher 0:17:42.760 --> 0:17:44.600 levels on top of that, maybe some of that and 0:17:44.600 --> 0:17:47.320 it gets negotiated back. But that means there is a 0:17:47.359 --> 0:17:50.280 weaker growth outlook than we would have anticipated. So now 0:17:50.280 --> 0:17:53.720 we have to price in weaker growth, higher recession probability, 0:17:54.160 --> 0:17:56.760 and unfortunately, we think most risk markets just aren't priced 0:17:56.800 --> 0:17:57.520 for that reality. 0:17:57.640 --> 0:17:57.880 Yet. 0:17:57.920 --> 0:18:00.200 Some of the stuff becomes positive catalysts once you've price 0:18:00.280 --> 0:18:01.600 that in, but we're not quite there yet. 0:18:01.640 --> 0:18:03.760 Do you entertain the theory that this was about getting 0:18:03.760 --> 0:18:06.119 the band stuff out the way, getting rights down, getting 0:18:06.119 --> 0:18:08.760 bond yachts below four percent down towards three before they 0:18:08.800 --> 0:18:10.000 come out with a massive tax plan. 0:18:10.040 --> 0:18:11.040 Do you entertain any of that? 0:18:12.160 --> 0:18:12.359 You know? 0:18:12.400 --> 0:18:13.720 I tend to look at this more as it was 0:18:13.720 --> 0:18:17.800 a sequencing of what was available to them politically and 0:18:17.840 --> 0:18:21.960 sort of legislatively going into this. Right So, because you 0:18:21.960 --> 0:18:24.240 could sort of make a theory that, hey, why don't 0:18:24.240 --> 0:18:26.359 we just do the tax cuts first and create space 0:18:26.400 --> 0:18:29.240 to operate and incur some of the pain around tariffs 0:18:29.280 --> 0:18:31.520 and the effort of kind of this grand remaking it, 0:18:31.600 --> 0:18:34.720 that's what people hopedful, right, But I think practically speaking, 0:18:34.760 --> 0:18:37.280 the ability to actually extend tax cuts and or do 0:18:37.359 --> 0:18:39.359 more wasn't going to be on offer early because you 0:18:39.400 --> 0:18:43.520 had to work through the budget reconciliation process really slim majority, 0:18:43.640 --> 0:18:46.880 So you work with the things that are executive controlled, 0:18:46.880 --> 0:18:50.679 which is terroriffts, because that's that's open to you, and 0:18:50.800 --> 0:18:53.400 the legislative stuff was just always going to take longer. 0:18:53.480 --> 0:18:54.960 So I don't know there's a lot of rhyme or 0:18:55.000 --> 0:18:57.520 reason to it other than the administration's doing what they 0:18:57.520 --> 0:19:00.520 can do with the tools they have available in service 0:19:00.560 --> 0:19:02.600 of their medium term goals, and this just happens to 0:19:02.600 --> 0:19:03.680 be the sequencing of it. 0:19:03.800 --> 0:19:05.320 The challenge at the moment for a lot of us 0:19:05.400 --> 0:19:07.040 is to kind of put markets to one side and 0:19:07.040 --> 0:19:09.560 think about where we'll be twelve months out. Yeah, in 0:19:09.600 --> 0:19:11.520 twelve months time, when you've got your hands around the 0:19:11.560 --> 0:19:14.879 more complete policy platform, not just trying but taxes as well, 0:19:15.000 --> 0:19:16.199 what's the mix going to look like? 0:19:16.760 --> 0:19:19.119 Well, listen, there's two ways to think about this, as like, 0:19:19.240 --> 0:19:21.399 are you better off twelve months from now than you 0:19:21.400 --> 0:19:23.960 would have been if these choices haven't been made. That's 0:19:24.000 --> 0:19:26.880 an open question, And now I think answering that question 0:19:26.960 --> 0:19:30.680 isn't necessarily relevant in the sense of the real question 0:19:30.840 --> 0:19:34.280 is can we price in the kind of negative effects 0:19:34.400 --> 0:19:37.159 of making these policy attempts? And once you've done that, 0:19:37.200 --> 0:19:39.359 can the policy choices you make to kind of ease 0:19:39.400 --> 0:19:41.639 that get it better. So if we were to kind 0:19:41.680 --> 0:19:45.480 of fully price in higher recession probabilities, weaker growth outlook, 0:19:45.840 --> 0:19:48.240 and then some of these negotiations on tariffs workout, and 0:19:48.280 --> 0:19:51.000 then maybe we get a bigger tax cut, then we 0:19:51.040 --> 0:19:52.760 anticipate because right now we think it's going to be 0:19:52.840 --> 0:19:54.600 mostly an extension of the TCJA. 0:19:55.040 --> 0:19:55.840 Those things can. 0:19:55.800 --> 0:19:59.600 Be positives on top of pricing in negative outcomes. So 0:19:59.600 --> 0:20:01.280 I think we to go through the praising and the 0:20:01.280 --> 0:20:02.320