WEBVTT - Bloomberg Surveillance TV: April 25, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.080 Terminal and the Bloomberg Business App. We begin with our 0:00:37.080 --> 0:00:39.959 top story met US outlook dranking futures lower with more 0:00:39.960 --> 0:00:42.360 big tech earnings on der Chris Harvey of Wails Fargo 0:00:42.640 --> 0:00:45.559 with the most bullish year end SMP five hundred target 0:00:45.600 --> 0:00:48.239 on the street. Right in this we expect near term 0:00:48.280 --> 0:00:51.240 chopping US related to outlooks and rising rates. Our s 0:00:51.280 --> 0:00:55.160 and P five hundred target is fifty five thirty five, 0:00:55.480 --> 0:00:58.320 but we're more focused on the return profile. Stay in 0:00:58.360 --> 0:01:00.840 the game, but you need some portfolio headges. Chris is 0:01:00.880 --> 0:01:02.480 with us now for more. Chris, good morning, to see you. 0:01:02.520 --> 0:01:03.720 Good morning, fifty. 0:01:03.400 --> 0:01:07.039 Five thirty five, up from forty six twenty five. 0:01:07.120 --> 0:01:09.560 That's a big change. Can we start there? What changed? 0:01:09.680 --> 0:01:11.600 That is a big change. So we knew we were 0:01:11.600 --> 0:01:13.880 going to move numbers higher. We just didn't know how 0:01:13.959 --> 0:01:16.920 much higher because I didn't know. You know, we looked 0:01:16.920 --> 0:01:18.160 at things last year and. 0:01:18.120 --> 0:01:18.720 We were up. 0:01:18.800 --> 0:01:21.280 We were expecting mark be up ten percent, maybe fifteen, 0:01:21.400 --> 0:01:23.800 and we couldn't figure out. You know, that was pretty 0:01:23.800 --> 0:01:25.759 good at the time, but we missed the market by 0:01:25.800 --> 0:01:28.360 ten percent. What we figured out is the market's just 0:01:28.400 --> 0:01:31.440 being a lot more aggressive on how it's discounting. It's 0:01:31.480 --> 0:01:34.319 discounting a lot, a lot further into to the future, 0:01:34.680 --> 0:01:36.000 and it's using a much more. 0:01:35.840 --> 0:01:38.000 Aggressive forward multiple. 0:01:38.200 --> 0:01:41.319 And so when we took that into consideration, we realized, hey, 0:01:41.360 --> 0:01:44.080 we can get to two seventy on twenty twenty five. 0:01:44.200 --> 0:01:47.120 We can use a twenty twenty one multiple and that 0:01:47.120 --> 0:01:49.800 gets us over fifty five hundred and so that's really 0:01:49.800 --> 0:01:51.760 how we got there. And what we think is going 0:01:51.800 --> 0:01:53.480 to happen is not the economy is going to be 0:01:53.520 --> 0:01:56.200 really strong. It's a mix shift. The winners are going 0:01:56.240 --> 0:01:59.400 to keep winning. The more profitable companies are going to 0:01:59.400 --> 0:02:00.840 make up a bigger percentage of the S and P 0:02:00.920 --> 0:02:02.440 five hundred and that's how you're going. 0:02:02.360 --> 0:02:04.120 To get there. So within this is a big coll 0:02:04.200 --> 0:02:05.840 bet on megacap. 0:02:05.360 --> 0:02:09.320 Tech, megacap tech, but really more profitable companies. Most of 0:02:09.360 --> 0:02:12.079 a lot of the megacap tech are those, but it's 0:02:12.120 --> 0:02:16.080 not every single megacap tech is a profitable company. But yes, 0:02:16.120 --> 0:02:17.120 along those lines, is. 0:02:17.080 --> 0:02:18.880 There anything in the earnings that you've seen or the 0:02:18.919 --> 0:02:21.720 spending by said companies that makes you concerned? 0:02:22.320 --> 0:02:25.160 Now, what makes me concerned is we really haven't learned 0:02:25.200 --> 0:02:28.800 anything new at this point in time. Consumer still value oriented, 0:02:29.080 --> 0:02:32.280 still selective, high ends doing better than low end. Kind 0:02:32.280 --> 0:02:35.600 of knew that people like to travel services over goods 0:02:35.639 --> 0:02:38.160 and things. We knew that as well. Economy is a 0:02:38.160 --> 0:02:41.040 little bit stronger than expected. Not new news. What we're 0:02:41.080 --> 0:02:42.960 waiting for and what we're looking for and what we 0:02:43.040 --> 0:02:46.600 think is this AI spend. It's not a discretionary spend 0:02:46.760 --> 0:02:48.680 and we'll see that going forward. Maybe that's part of 0:02:48.680 --> 0:02:51.560 what we saw last night. And what we think is 0:02:51.639 --> 0:02:53.640 again you're going to have a separation. You've already had 0:02:53.680 --> 0:02:56.480 that separation between the winners and losers. That separation is 0:02:56.480 --> 0:02:57.840 just going to get bigger and bigger and bigger. 0:02:57.840 --> 0:02:59.960 The separation has been in earnings returns, but it's all 0:03:00.240 --> 0:03:03.639 bit in earnings, just BLUs straight out. We saw Southwest, 0:03:03.639 --> 0:03:07.200 for example, coming out earlier this morning under performing wider loss. 0:03:07.240 --> 0:03:09.680 You say people like to travel, there are signs that 0:03:09.680 --> 0:03:12.000 that's actually being challenged on the margins. We just got 0:03:12.200 --> 0:03:16.120 results from American Air similar type of disappointment. How much 0:03:16.400 --> 0:03:19.440 does this make you shift some of the companies that 0:03:19.520 --> 0:03:22.040 you like? Is this basically a bit that the cash 0:03:22.120 --> 0:03:25.320 winners and the AI darlangs can keep going, but the 0:03:25.360 --> 0:03:27.040 broadening out isn't going to happen. 0:03:27.240 --> 0:03:29.040 Yes, So, Lisa, there's a lot there. 0:03:29.240 --> 0:03:29.360 Right. 0:03:29.360 --> 0:03:31.400 If we look at Delta, Delta is a lot different 0:03:31.440 --> 0:03:34.120 than Southwest, and Delta had a lot more positive things. 0:03:34.120 --> 0:03:37.839 It's a high end consumer. It's also more business oriented. Right, 0:03:38.200 --> 0:03:41.120 what do we like? What's going to change? Well, the 0:03:41.160 --> 0:03:43.840 bigger question is we see two trades in the marketplace. 0:03:43.920 --> 0:03:46.480 It's the momentum trade as the rein inflation trade. And 0:03:46.520 --> 0:03:49.040 I think that momentum trade will continue because again the 0:03:49.080 --> 0:03:51.520 winners will keep winning. As far as our positioning, what 0:03:51.560 --> 0:03:53.040 we want to do and what we've been doing for 0:03:53.080 --> 0:03:55.120 the last year and a half is we want to 0:03:55.160 --> 0:03:58.880 barbel communications with something more defensive. Now, what we want 0:03:58.920 --> 0:04:02.760 to do is barbell community with health care or utilities. 0:04:02.800 --> 0:04:05.760 We want some ballots, We want some protection in that portfolio, 0:04:05.800 --> 0:04:07.800 but we do want to participate to the upside. 0:04:07.880 --> 0:04:10.240 If the FED doesn't cut this year or only cuts once, 0:04:10.920 --> 0:04:12.240 how do you change your target again? 0:04:12.480 --> 0:04:15.320 Don't change it at all? Really, yeah, because the reason 0:04:15.400 --> 0:04:17.200 is if you go back to twenty one when the 0:04:17.200 --> 0:04:20.360 FED was way too aggressive, and then you roll into 0:04:20.440 --> 0:04:22.560 twenty two, you ran into a bus. 0:04:22.279 --> 0:04:23.440 Saw why was that? 0:04:23.680 --> 0:04:26.279 Well you were too accommodative twenty one and then you 0:04:26.360 --> 0:04:29.000 turned everything on its head in twenty two. Well, you're 0:04:29.000 --> 0:04:31.000 not going to see that going forward. You're going to 0:04:31.040 --> 0:04:33.159 see a FED that's going to cut. It's going to 0:04:33.160 --> 0:04:36.080 be a multi year cut, multi year easing cycle, and 0:04:36.120 --> 0:04:38.599 that continuity is going to help. What else is backing 0:04:38.600 --> 0:04:41.560 that up? This secular AI trade is not going anywhere. 0:04:41.560 --> 0:04:45.440 It's actually broadening out to power to electrification, and then 0:04:45.480 --> 0:04:47.599 the M and A story keeps getting better and better 0:04:47.640 --> 0:04:51.280 and better. So whether it's one cut, two cuts, three cuts, 0:04:51.320 --> 0:04:54.080 we don't care because it's the start of a bigger cycle. 0:04:54.320 --> 0:04:56.440 I know it's no one's really base case, but what 0:04:56.480 --> 0:04:58.880 if there was a hike. How would that change your outlook? 0:04:58.960 --> 0:05:03.400 Yeah, that would be good. And what we tell people 0:05:03.440 --> 0:05:07.560 is today, if today's the risk of increased US exceptionalism. 0:05:07.480 --> 0:05:09.120 Well I don't know about that. 0:05:09.200 --> 0:05:12.120 But what I do tell people is, if today's your 0:05:12.120 --> 0:05:14.200 first day on the job, you would not be coming 0:05:14.240 --> 0:05:16.560 to the conclusion the FED needs to cut right. The 0:05:17.240 --> 0:05:20.640 economies stronger than expected. We're in a ball market with 0:05:20.720 --> 0:05:23.599 equities credit spuarres or less than ninety basis points. The 0:05:23.640 --> 0:05:27.719 consumer's fine. And while the FED says things are tight, 0:05:28.680 --> 0:05:31.000 I see parts where it's tight. But when it's really tight, 0:05:31.160 --> 0:05:32.760 people don't have to tell you. You feel it, you 0:05:32.839 --> 0:05:37.600 know it. I'm surprised that the FED is telegraphing easing 0:05:37.600 --> 0:05:39.960 as much as it has and why they pivoted in 0:05:40.000 --> 0:05:42.560 December so hard. That's to me is very surprising. 0:05:42.720 --> 0:05:45.040 My favorite line of yours over the last few years 0:05:45.480 --> 0:05:47.839 race yourself. I think you might know you might have 0:05:47.880 --> 0:05:49.680 guessed coming out of the pandemic. I remember in the 0:05:49.800 --> 0:05:51.720 twenty twenty you said it's going to be spring break 0:05:51.720 --> 0:05:54.400 for adults. Did you expect it to last this long? 0:05:54.640 --> 0:05:55.080 I did not. 0:05:55.839 --> 0:06:01.479 I love Yeah, it's toward the word in the cyclew 0:06:01.680 --> 0:06:03.920 to tell how long a spring break heav out. It 0:06:04.000 --> 0:06:06.599 is a long spring break that's been bad though good. 0:06:06.960 --> 0:06:09.080 I'm going to work out what to do with discretionary 0:06:09.120 --> 0:06:11.120 based on that, and that was ultimately cool coming out 0:06:11.120 --> 0:06:14.560 of the pandemic. It was spring bright for adults. Discretionary, discretionary, go, 0:06:14.720 --> 0:06:15.000 go go. 0:06:15.440 --> 0:06:16.120 What is it now? 0:06:17.080 --> 0:06:19.520 I think it's more producers over consumers. 0:06:19.800 --> 0:06:19.960 Right. 0:06:20.200 --> 0:06:24.840 The consumer again is they've spent what they needed to spend. 0:06:24.880 --> 0:06:27.680 They've done their revenge spending. Right, They're being a lot 0:06:27.720 --> 0:06:29.719 more selective. They're saying, I'm not going to spend a 0:06:29.760 --> 0:06:32.560 lot for that. If I can jump on a plane 0:06:32.560 --> 0:06:35.119 and go and travel, I will do that. But goods 0:06:35.120 --> 0:06:37.719 and day to day things, I've got enough stuff, right, 0:06:38.000 --> 0:06:42.320 And so now that AI trade, right, that's the secular trade. 0:06:42.680 --> 0:06:47.080 The discretionary spending is not AI. It's a non discretionary spend. 0:06:47.720 --> 0:06:49.200 And it's beginning to build out. 0:06:49.240 --> 0:06:49.400 Right. 0:06:49.440 --> 0:06:54.719 You have the secondary and tertiary trades, the data centers, 0:06:55.240 --> 0:06:59.400 the power issues surrounding that, the electrification, and so I 0:06:59.440 --> 0:07:03.799 think if you're looking for a narrative, consumers probably produces 0:07:03.800 --> 0:07:07.279 over consumer. But really it's that AI trade. It's that 0:07:07.360 --> 0:07:10.720 momentum trade. It's still a garb growthy market in our opinion. 0:07:11.080 --> 0:07:12.840 You mentioned M and A and I have to go 0:07:12.880 --> 0:07:14.800 there because it's something we've been talking about a lot. 0:07:15.400 --> 0:07:18.080 How much M and A can happen given some of 0:07:18.120 --> 0:07:20.160 the recent FTC action. 0:07:20.600 --> 0:07:22.880 Well, that's a great question and one of the things 0:07:22.880 --> 0:07:24.880 we keep saying one of the things that we think 0:07:25.080 --> 0:07:28.160 will happen. Right, People ask us how do you handicap elections? 0:07:28.400 --> 0:07:30.880 What do you do? And the thing that we look 0:07:30.920 --> 0:07:34.840 at is who's going to control the Senate? Who controls 0:07:34.840 --> 0:07:37.240 the Senate is very important. If the GOP takes control 0:07:37.240 --> 0:07:40.040 of the Senate, that's much better for equity markets. And 0:07:40.080 --> 0:07:41.720 I think this time around it's going to be much 0:07:41.720 --> 0:07:44.760 better for M and A because the regulatory environment is 0:07:45.000 --> 0:07:47.360 very difficult for M and A and M and A activity. 0:07:47.640 --> 0:07:49.880 And so if you see that change in the Senate, 0:07:50.400 --> 0:07:53.520 I think that helps accelerate longer term M and A 0:07:53.600 --> 0:07:54.480 in the M and A cycle. 0:07:54.800 --> 0:07:57.720 So, aside from a rate hike by the Federal Reserve, 0:07:58.080 --> 0:08:01.320 what could crack your confidence in this hype of return 0:08:01.640 --> 0:08:03.720 as we pass through which data matters most? 0:08:04.080 --> 0:08:06.040 How long do you have time? 0:08:06.200 --> 0:08:06.800 We've got time? 0:08:07.120 --> 0:08:10.000 So, right, now it's rates. I'm really worried about rates 0:08:10.040 --> 0:08:13.680 because rate equity and rates, there is this momentum component 0:08:13.680 --> 0:08:16.160 where I buy strength, I sell weakness. So you can 0:08:16.320 --> 0:08:19.840 see rates gap up pretty quickly. Right we're above I 0:08:19.840 --> 0:08:22.320 think we're four sixty four to sixty and change. You 0:08:22.320 --> 0:08:25.840 could see four four and three quarters five percent very 0:08:25.920 --> 0:08:29.320 very quickly. The other thing is expectations. Are we seeing 0:08:29.360 --> 0:08:32.960 people just managing expectations or are they telling us something different? 0:08:33.280 --> 0:08:35.319 And then the last thing in the equity market, it's 0:08:35.320 --> 0:08:38.760 the same thing. Right, I buy strength, I sell weakness. Well, 0:08:38.880 --> 0:08:42.080 a downturn of three four five percent can turn into 0:08:42.160 --> 0:08:44.640 a seventy eight, nine, ten percent. I'll sell them very 0:08:44.720 --> 0:08:46.480 very quickly. So those are some of the things that 0:08:46.480 --> 0:08:47.560 we're worried about right now. 0:08:47.720 --> 0:08:49.360 Chris, this was great. It's going to catch up. It's 0:08:49.360 --> 0:08:49.800 been so long. 0:08:49.920 --> 0:09:01.160 Yeah, it's been to Thank you Chris Safide of Welsh Sanga. 0:09:03.440 --> 0:09:07.080 Especially this economic data with Plurina Yurriucci of t Rowe Price. 0:09:07.120 --> 0:09:07.640 She joins us. 0:09:07.640 --> 0:09:10.440 Now, Plerina, this is an interesting mix of data with 0:09:10.480 --> 0:09:13.400 the emphasis on interesting. You've got a big downsize surprise 0:09:13.440 --> 0:09:17.160 on GDP. You've got a COPYC price Index quarter on quarter, 0:09:17.240 --> 0:09:19.720 coming in a bit hotter than expected, job has claims 0:09:19.840 --> 0:09:21.920 a little bit lower than expected. Why would you place 0:09:21.960 --> 0:09:23.360 the emphasis this morning? 0:09:24.760 --> 0:09:29.319 So I think it's very important to unpack the components 0:09:29.320 --> 0:09:33.320 of GDP and what led to this slowing in growth 0:09:33.360 --> 0:09:35.800 in Q one. So overall, I would say this is 0:09:35.840 --> 0:09:38.400 not a worrying report for the FED. It's a report 0:09:38.440 --> 0:09:42.480 that says the economy continues to expand at a solid pace. 0:09:43.440 --> 0:09:46.720 Look at consumption growth at about two and a half percent. 0:09:46.800 --> 0:09:49.559 This is a healthy consumer that is backed up by 0:09:49.559 --> 0:09:53.720 the claims data where unemployment claims are low and job 0:09:53.800 --> 0:09:56.679 growth remains strong when you look at the payroll data. 0:09:57.120 --> 0:09:59.360 So overall, it's a report that says to the FED, 0:09:59.400 --> 0:10:02.760 the economy is not reaccelerating, it's slowing from the pace 0:10:02.800 --> 0:10:05.680 of growth in the second half of last year. That 0:10:05.880 --> 0:10:09.640 is telling the fact that those interest rate increases maybe 0:10:09.679 --> 0:10:13.800 having some affection slowing demand, particularly for goods, but it's 0:10:13.840 --> 0:10:16.720 not alarming by any means. And then what I like 0:10:16.840 --> 0:10:20.120 to do with this GDP report is to sort of 0:10:20.160 --> 0:10:23.120 look at the final domestic sales and final sales to 0:10:23.240 --> 0:10:29.040 domestic private actors in the economy. And that's again that's 0:10:29.040 --> 0:10:30.680 showing two and a half to three and a half 0:10:30.760 --> 0:10:33.880 percent growth in Q one, it's not telling us the 0:10:33.960 --> 0:10:37.000 economy is that week after all. And I think a 0:10:37.160 --> 0:10:41.960 big drag here is also coming from net inventory contribution, 0:10:42.040 --> 0:10:43.720 which Michael already alluded to. 0:10:44.120 --> 0:10:46.560 So we want to talk about the sustainability of this 0:10:46.679 --> 0:10:48.920 economic growth that we're seeing, because so many people are 0:10:48.920 --> 0:10:52.320 planning gone to the story of US exceptionalism away from 0:10:52.320 --> 0:10:54.600 the top line number, which is a clear and obvious 0:10:54.679 --> 0:10:59.520 downside surprise, the sources of growth in the first Quarterlurinic blurinic, 0:10:59.559 --> 0:11:02.640 we talk that. Do you see that continuing through twenty 0:11:02.679 --> 0:11:04.040 twenty four. 0:11:04.520 --> 0:11:05.400 Yeah, So there are. 0:11:05.280 --> 0:11:09.400 A couple of interesting things here. Let's start with business investment. 0:11:09.600 --> 0:11:12.520 This has been driven by structures investment in the past 0:11:12.600 --> 0:11:17.280 and intellectual property investment as the housing market was really 0:11:17.320 --> 0:11:21.599 retrenching throughout twenty two and twenty three and res investment collapsed. 0:11:21.960 --> 0:11:25.120 Now we're seeing a rebound in res investment, and I 0:11:25.160 --> 0:11:27.440 think this is going to be sustained this year because 0:11:27.880 --> 0:11:31.439 there is really a dearth of housing in the housing market. 0:11:31.559 --> 0:11:35.880 We don't have inventory, and home builders will start building 0:11:35.920 --> 0:11:37.920 again and we're seeing that in Q one. So I 0:11:37.960 --> 0:11:42.079 think this will remain supportive of growth. Also, the point 0:11:42.080 --> 0:11:44.280 that we've made in the past together in this show 0:11:44.440 --> 0:11:47.280 is that I think the consumer, the US consumer will 0:11:47.400 --> 0:11:50.320 continue to keep its wallet open so long as we 0:11:50.400 --> 0:11:55.120 don't have layoffs, and layoff data are not screaming weak 0:11:55.200 --> 0:11:58.760 scigence now, and so long as we continue to add jobs. 0:11:58.920 --> 0:12:02.240 And then, Michael McKey, we already discuss this problem of 0:12:02.440 --> 0:12:07.000 historical residual seasonality with Q on GDP growth, which means 0:12:07.000 --> 0:12:10.800 that oftentimes Q one also Q two tends to be 0:12:10.840 --> 0:12:13.120 weaker than the second half of the year, So we 0:12:13.200 --> 0:12:16.760 need to be concious of this as well. Now, the question, 0:12:16.840 --> 0:12:18.920 the bigger question that I think you're also trying to 0:12:18.960 --> 0:12:23.000 allude to, is where is potential growth for the economy. 0:12:23.080 --> 0:12:26.920 How fast can we grow beyond potential this year? And 0:12:26.960 --> 0:12:29.240 this is the big question mark this year because we 0:12:29.240 --> 0:12:31.400 don't know the effect of this shock to the labor 0:12:31.440 --> 0:12:35.079 supply from migrant workers that we received last year. 0:12:35.559 --> 0:12:38.440 Blorina. The market seems to emphasize, as John is pointing out, 0:12:38.440 --> 0:12:40.680 the inflation figures as well as the job as claims 0:12:40.679 --> 0:12:42.960 coming in lighter than expected. Is this what the FED 0:12:42.960 --> 0:12:46.480 would focus on as well? They focus more on inflationary 0:12:46.520 --> 0:12:49.160 pressures than they would say on slowing growth. 0:12:50.920 --> 0:12:53.160 What the Fed has told us is that they're not 0:12:53.400 --> 0:12:57.640 concerned about the strong growth numbers and the strong employment numbers, 0:12:57.679 --> 0:13:01.000 and their focus remains inflation. So in that sense, it 0:13:01.080 --> 0:13:03.960 makes sense. I think they'll look at the GDP numbers 0:13:03.960 --> 0:13:06.480 through this lens too. But at the same time, there 0:13:06.559 --> 0:13:09.960 is no new information really in the PC deflator for 0:13:10.120 --> 0:13:13.959 Q one because we've already received January and February data 0:13:14.000 --> 0:13:18.320 for PC. We knew that that meat expectations. We largely 0:13:18.440 --> 0:13:21.959 have the components of March PC because of the CPI 0:13:22.080 --> 0:13:25.559 reports and the PPI reports that we've received in recent weeks, 0:13:25.720 --> 0:13:28.480 and so I'm surprised that the market should focus so 0:13:28.559 --> 0:13:31.640 much on the QE GDP deflator because there's no new 0:13:31.679 --> 0:13:33.679 information there. As far as I'm concerned. 0:13:33.840 --> 0:13:35.640 If Loreina great to catch up with you, I just 0:13:35.640 --> 0:13:37.120 want to get a final question that if we can, 0:13:37.160 --> 0:13:39.720 looking ahead to the Federal Reserve next week, what is 0:13:39.760 --> 0:13:42.079 going to be the big topic of focus for you 0:13:42.360 --> 0:13:44.959 and then FMC meeting. Do you expect any big changes 0:13:45.200 --> 0:13:47.400 to the statement at all? 0:13:47.800 --> 0:13:49.400 So I would say that they want to be a 0:13:49.440 --> 0:13:52.760 little bit cautious about how sanguine they are on the 0:13:52.880 --> 0:13:55.280 number of case that they will be able to deliver 0:13:55.400 --> 0:13:59.240 this year, given the strength of economic data, the labor market, 0:13:59.280 --> 0:14:02.680 and the upsides prizes to inflation. So I do think 0:14:02.720 --> 0:14:06.000 they will emphasize that they have a dubbish bias, but 0:14:06.200 --> 0:14:09.120 it's uncertain whether they'll be able to deliver on that 0:14:09.559 --> 0:14:13.480 March sep and the dot plot, so I'm watching for 0:14:13.600 --> 0:14:16.720 signs that they want to back off from three cuts 0:14:16.760 --> 0:14:17.280 this year. 0:14:17.679 --> 0:14:29.800 Got it, Loreina, Thank you, Michaelhersha and at twenty TV 0:14:29.920 --> 0:14:33.080 Research joins to surround the table. Michael Comornitier. Let's get 0:14:33.080 --> 0:14:34.640 into this. So I heard it from Yellen, We're going 0:14:34.720 --> 0:14:36.360 to hear it from blinked. When do we start to 0:14:36.400 --> 0:14:37.520 see the policy? 0:14:38.560 --> 0:14:41.320 Well, I think a sanctions push is something that the 0:14:41.400 --> 0:14:43.760 US is not going to take lately, especially on a 0:14:43.800 --> 0:14:46.120 major Chinese bank, and I think, frankly, the Chinese are 0:14:46.160 --> 0:14:49.000 taking this pretty Chinese banks are taking this pretty seriously 0:14:49.040 --> 0:14:52.040 as well, So I would guess that this move is 0:14:52.080 --> 0:14:54.080 not imminent, but you have to take the thread seriously. 0:14:54.360 --> 0:14:56.960 Is the warning enough for the Chinese banks to change course? 0:14:57.600 --> 0:14:59.960 I think for the large banks Beijing will let them 0:15:00.280 --> 0:15:03.160 manage their own sanctions risk. I think it's more likely 0:15:03.200 --> 0:15:05.080 that we would see something that would be one of 0:15:05.120 --> 0:15:07.760 the smaller banks. Now that could be still a large 0:15:07.760 --> 0:15:10.360 bank in absolute terms, but what we've seen with Iran, 0:15:10.440 --> 0:15:13.000 with North Korea is it's typically the sanctions risk is 0:15:13.040 --> 0:15:15.760 really embedded in the smaller Chinese financial institutions. 0:15:15.840 --> 0:15:18.160 There's a plethora of issues Tony blinkn is going to 0:15:18.160 --> 0:15:20.840 want to bring up today, whether it's China bring you 0:15:20.880 --> 0:15:26.200 more Iranian crude, whether it's China supporting Russia. If not outright, 0:15:26.360 --> 0:15:28.840 but through these things like helping them with the materials 0:15:28.880 --> 0:15:32.280 they need TikTok South China. See what is the main 0:15:32.360 --> 0:15:34.760 request they need to ask over capacity? 0:15:34.960 --> 0:15:36.640 What do you go in there and say you need 0:15:36.680 --> 0:15:37.880 to sort this immediately. 0:15:39.440 --> 0:15:41.320 I think it is a long list. As you said, 0:15:41.400 --> 0:15:43.880 I don't think that Blincoln is going to carry the water, 0:15:44.000 --> 0:15:44.520 so to speak. 0:15:44.560 --> 0:15:45.000 On trade. 0:15:45.040 --> 0:15:48.160 I think that's really discussion left to trade officials. I mean, 0:15:48.200 --> 0:15:50.600 clearly he's going to make that point. But I think 0:15:50.720 --> 0:15:55.000 higher on Blinken's agenda will be China support for Russia, Iran, 0:15:55.160 --> 0:15:57.800 and then nexus to the Israel and Goaza conflict, and 0:15:57.840 --> 0:16:00.800 then South China. See, you have you a flashpoint that 0:16:00.800 --> 0:16:03.520 people sometimes sleep on, but is really serious with the 0:16:03.560 --> 0:16:06.400 tensions between China and the Philippines, that could bring the 0:16:06.520 --> 0:16:10.880 US in potentially quite easily, in the sense that the 0:16:10.960 --> 0:16:13.400 US is a treaty ally with the Philippines. So if 0:16:13.400 --> 0:16:16.960 we see an accidental collision, some kind of miscalculation between 0:16:17.040 --> 0:16:19.680 China and the Philippines, that issue moves right to the 0:16:19.720 --> 0:16:20.280 front burner. 0:16:20.720 --> 0:16:22.560 How much do you think that the conversation is going 0:16:22.600 --> 0:16:25.640 to sound something like this, Tony Blankin to the ambassador 0:16:25.760 --> 0:16:28.360 or even Jijinpang, we're so much better than the other guy, 0:16:28.400 --> 0:16:29.640 will be so work with us. 0:16:31.040 --> 0:16:34.120 I don't think that will be an explicit part of 0:16:34.160 --> 0:16:37.640 the conversation, but the election certainly is on something that 0:16:37.720 --> 0:16:40.000 is on the minds of the Chinese. I think they 0:16:40.040 --> 0:16:42.920 don't want to see China become any more of the 0:16:42.960 --> 0:16:45.480 center of the US election than they already are with 0:16:45.520 --> 0:16:48.160 an issue like TikTok, So it's an incentive for Beijing 0:16:48.560 --> 0:16:51.640 not to let these issues flare up too much. At 0:16:51.640 --> 0:16:56.480 the same time, it somewhat limits President Biden's negotiating leverage 0:16:56.520 --> 0:16:58.320 because the Chinese don't know who is going to be 0:16:58.320 --> 0:17:00.480 president a year from now, so the election is going 0:17:00.520 --> 0:17:04.280 to be something that's in the certainly on everyone's mind, 0:17:04.320 --> 0:17:06.359 but not explicitly raised. In this conversation. 0:17:06.520 --> 0:17:08.560 You said that trade is not going to be really 0:17:08.560 --> 0:17:10.480 the main issue. They're going to be talking about support 0:17:10.560 --> 0:17:12.840 to Russia and trade with Russia and some of the 0:17:12.920 --> 0:17:17.040 other sort of global interference with geopolitics on the part 0:17:17.040 --> 0:17:19.120 of TEDDA, how do you divorce the idea of trade 0:17:19.359 --> 0:17:21.840 from some of those issues at a time work economics 0:17:21.960 --> 0:17:24.639 increasingly is really determining the geopolitics. 0:17:25.200 --> 0:17:28.960 They can't be divorced, and especially if you think about 0:17:29.000 --> 0:17:32.480 the excess capacity issue, it's one that's really tied to 0:17:32.520 --> 0:17:36.560 the strategic competition over clean energy. If you look at 0:17:36.760 --> 0:17:40.560 the export controls, which are a trade issue, right, limiting 0:17:40.680 --> 0:17:43.320 export of semi connectors to China a direct link back 0:17:43.359 --> 0:17:46.359 to national security. So it is definitely going to be 0:17:46.400 --> 0:17:48.359 part of the conversation. The Chinese, i think, are going 0:17:48.359 --> 0:17:51.200 to push back quite forcefully on US tech restrictions. 0:17:51.240 --> 0:17:51.720 They see this. 0:17:52.119 --> 0:17:55.560 They've been characterizing this as an obstacle to China's development. 0:17:55.640 --> 0:17:57.800 So it's getting closer to being sort of a core 0:17:58.359 --> 0:18:01.600 redline issue for China's so it absolutely is going to 0:18:01.600 --> 0:18:02.679 be part of the conversation. 0:18:02.800 --> 0:18:04.480 They can't be divorced, but Japan is going to be 0:18:04.480 --> 0:18:05.320 watching very carefully. 0:18:05.359 --> 0:18:07.440 Can we just build on this conversation that Lisa starts in, 0:18:07.760 --> 0:18:10.480 how do you think countries like the United States will 0:18:10.520 --> 0:18:13.639 maintain national security cooperation with countries like Japan at a 0:18:13.640 --> 0:18:17.200 time where maybe economics cooperation is tested, And I will 0:18:17.280 --> 0:18:19.280 use that word tested. I can think of Nippon steel 0:18:19.480 --> 0:18:21.720 looking at what's happening at the FX market. How do 0:18:21.800 --> 0:18:24.680 you maintain cooperation in one when cooperation in the other 0:18:25.040 --> 0:18:26.560 is a little bit French yud Right now? 0:18:27.000 --> 0:18:31.160 I think for US Japan this relationship is really very solid. 0:18:31.240 --> 0:18:35.040 I think there's a mutual interest there and enough time, 0:18:35.520 --> 0:18:38.679 you know, spent on the relationship to be able to 0:18:38.680 --> 0:18:43.639 see through issues like Nupon steel. The exchange rate, you know, 0:18:43.800 --> 0:18:46.240 is an issue. I think it's the same issue on 0:18:46.280 --> 0:18:48.760 the Chinese side, right dollar yen has got the same 0:18:48.800 --> 0:18:52.000 issues as dollar yen, and there you have the prospect 0:18:52.080 --> 0:18:54.960 of these geopolitics seeping in there as well. So it's 0:18:54.960 --> 0:18:57.760 a complicated balancing act also on the Chinese side as 0:18:57.800 --> 0:18:59.720 we think about these exchange rate development. 0:18:59.400 --> 0:19:01.840 What did you make of what happened last week in Washington, 0:19:01.880 --> 0:19:02.080 d C. 0:19:02.240 --> 0:19:04.520 What was your impression of the mating that Japan and 0:19:04.560 --> 0:19:09.160 South Korea had with the Treasury secretary. 0:19:09.160 --> 0:19:12.200 Clearly it's showing, you know, interest on both sides and 0:19:12.320 --> 0:19:16.679 managing these exchange rate movements. You know, it's it's a 0:19:16.760 --> 0:19:18.920 complicated task. I think, as you're saying, one of the 0:19:19.000 --> 0:19:19.640