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Speaker 2: Victoria Fernandez, Jordan Rochester, Michael McKee, Francis Donald, and Lincoln.
Speaker 2: We go into this inflation reports strong with Neil Dutta
Speaker 2: of Renaissance Macro. Neil, you're more cautious now on real GDP,
Speaker 2: on the growth of the nation, all the inflation numbers
Speaker 2: pretty much on the survey, but I really want to
Speaker 2: focus out on real personal spending decline way off survey
Speaker 2: in personal income with a nice lift as well. I've
Speaker 2: got retail inventories which I don't understand. We're going to
Speaker 2: skip that. I got a little bit of an equity lift.
Speaker 2: I went right to the ten year real yield came
Speaker 2: in a little bit, but it comes right back. Neil Dunta,
Speaker 2: am I right that this was a nothing burger?
Speaker 3: I mean, real personal consumption fell quite a bit to
Speaker 3: start the quarter. That's that's probably gonna put downward pressure
Speaker 3: on tracking estimates of first quarter GDP and will probably
Speaker 3: prompt some marketing to market of forecasts among among the consensus.
Speaker 3: So you know, I don't right, is it a nothing burger?
Speaker 3: I mean, I think the inflation numbers came in in
Speaker 3: line with expectations, but real GDP is probably getting worse.
Speaker 2: Not This is critical folks with real spending. I mean,
Speaker 2: what we see on the eco screen of the the Bloomberg,
Speaker 2: real personal spending came in light personal spending itself came
Speaker 2: in like a little bit of a constructive revision. But
Speaker 2: you know, Neil, Neil, it's unfair to ask this, but
Speaker 2: why it's onfair Friday? I mean, do you go, can
Speaker 2: you model out subtwo JDP looking at two quarters of
Speaker 2: data to the fourth of July.
Speaker 3: Yes, I think that's possible. I mean, look, most of
Speaker 3: the upside surprise in GDP growth last year was in
Speaker 3: two areas, consumption and government spending an investment. That's what
Speaker 3: drove most of the growth. So if you think those
Speaker 3: two areas are going to slow, it doesn't really take much.
Speaker 3: At the same time, you lay around the fact that
Speaker 3: residential construction is likely to get worse, not better. And
Speaker 3: you know, I mean export activity was a driver for
Speaker 3: growth last year. I mean, if this trade stuff keeps up,
Speaker 3: I mean there may be some risk to exports as well.
Speaker 3: So I don't think it's that much of a stretch.
Speaker 3: I mean you're talking about a zero point five percent
Speaker 3: monthly contraction and real consumer spending. I mean these tracking
Speaker 3: estimates might be at one percent for the quarter after today.
Speaker 4: Yeah, that's kind of where I wanted to go, Neil,
Speaker 4: because I am to this amateur economist here. That's the
Speaker 4: number that kind of jumps out. I mean, I'll just
Speaker 4: highlight it for the audience, real personal spending. The consensus
Speaker 4: was for decline of zero point one percent, came in
Speaker 4: a decline of zero point five percent, So missed there
Speaker 4: any Compare it to last period where it was revised
Speaker 4: higher to positive zero point five percent, So a big
Speaker 4: delta there. I do know that, you know, you economists
Speaker 4: tell me that the consumers seventy percent of the economy.
Speaker 4: So that really does get your attention? Does that? Is
Speaker 4: that a number that moves around a lot?
Speaker 3: Real? Well, I mean consumer spending tends to be you know,
Speaker 3: more more stable. I mean a lot of acyclical areas
Speaker 3: of consumption, right, I mean, so that you know, people
Speaker 3: have to go out and kind of spend, but ultimately,
Speaker 3: you know, generally speaking, consumption follows u income growth, and
Speaker 3: you know, I mean what what what you can basically
Speaker 3: say is that you know, in January, I mean there
Speaker 3: was a there was an increase in in precautionary saving maybe,
Speaker 3: I mean that that's basically what it's income. But again
Speaker 3: that goes to totally against what people are sort of
Speaker 3: worried about right now, which is inflation expectations. Right I mean,
Speaker 3: that's allegedly the reason why the FED is holding off
Speaker 3: everyone's planning to you mish. Now, guys, think about what
Speaker 3: inflation expectations should mean. It should mean number one, people
Speaker 3: are going to bid up their wages because we know
Speaker 3: that wage growth is set with short run inflation expectations
Speaker 3: in mind. I mean, I don't know, good luck to
Speaker 3: any worker that's going to try that right now. I
Speaker 3: mean you're in for a root awaken. Importantly, it's you
Speaker 3: try to spend more to beat the higher prices later,
Speaker 3: there's no evidence that that's happening. You're seeing precautionary saving,
Speaker 3: not precautionary spending. So this notion that inflation expectations arising,
Speaker 3: and this is why the Fed needs to hold off.
Speaker 2: Is all right, Neil, I want to get one more
Speaker 2: question in here. I think it's so important, Ian Lingoln's
Speaker 2: being patient to wait for Neil Dudda. Is there a
Speaker 2: wealth effect of the fancy people in the personal income,
Speaker 2: personal spending? Do you see the stock market? Do you
Speaker 2: see the way Paul Sweeney made money on Nvidia? Is
Speaker 2: that in those statistics this morning?
Speaker 3: Well, I mean there was a great article from the
Speaker 3: Welfare Journal about a week ago, I believe, about just
Speaker 3: talking about how consumption is being driven increasingly by the
Speaker 3: high end, and so you know, obviously it's affected by
Speaker 3: what's going on with asset prices. But what I know
Speaker 3: about asset prices is that you know, stocks are not
Speaker 3: making new highs. They haven't been number two. You know
Speaker 3: a lot of these sort of alternative assets like crypto
Speaker 3: have come under pressure. And more importantly for everyone else,
Speaker 3: home prices are moderating because inventories are jumping. So you know,
Speaker 3: to the extent that the wealth effect was an important
Speaker 3: driver of consumer spending, that's looking a little bit shaky
Speaker 3: now as well, Neil.
Speaker 2: Thank you so much, Neil. Data Adren Mac just brilliant
Speaker 2: there as we looked at PC and as Paul Sweeney
Speaker 2: you mentioned real consumer spending, real personal spending with a shock,
Speaker 2: a little bit negative maybe new GDP markdowns. So we'll
Speaker 2: get to the bond market in a moment. Here with
Speaker 2: Ian Linga our economic indicators, what we do each and
Speaker 2: every day, but particularly on these important key days. It's
Speaker 2: brought to you by IBKR. Will the year over year
Speaker 2: change in the US business inflation us PPI? Will it
Speaker 2: exceed three percent in February of twenty twenty five At
Speaker 2: IBKR Forecast Trader, the yes was recently at thirty nine percent.
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Speaker 2: Joining us now with BEMO Capital Markets, Ian lingas Ian,
Speaker 2: I'm looking at lower yields. Neil Dudd has given me
Speaker 2: lower GDP. Do we finally have in place the vaunted
Speaker 2: Lincoln vector where we get shockingly lower trends in yield?
Speaker 5: Well, I do think that we're overdue for a continued
Speaker 5: drift lower in rates. I wouldn't be very surprised to
Speaker 5: see the current move get ten year yields a lot
Speaker 5: closer to four percent.
Speaker 2: So that gets your.
Speaker 4: That gets your attention. So how do you think the
Speaker 4: Fed ian is going to look at some of this
Speaker 4: data today as they try to get a gauge on
Speaker 4: their balance between the labor market and prices.
Speaker 5: Well, I think the core PCE was in line with expectations.
Speaker 5: I think that to a large extent, the inflation profile
Speaker 5: is known. What's unknown is what's going on in Washington.
Speaker 5: How does that lead through to sentiment in the employment market?
Speaker 5: And that jobless claims figures from yesterday we're a bit troubling.
Speaker 5: We're at two forty two. It's the highest since early December.
Speaker 4: So again, that kind of suggests that it feels like
Speaker 4: the federal reserves, just like the rest of us, they're
Speaker 4: just kind of looking down to Washington, DC, trying to say,
Speaker 4: on top of all the newsflow coming out here, how
Speaker 4: long can they sit on the sidelines, do you think, Ian?
Speaker 5: Well, I think that the Fed can avoid cutting rates
Speaker 5: again at least through the first two quarters. I think
Speaker 5: it's very reasonable to assume that they skip the next
Speaker 5: few meetings. The first rate cut maybe comes in September,
Speaker 5: but there's a lot of uncertainty between now and then.
Speaker 5: The only way that things are going to shift dramatically
Speaker 5: is if we see a for the correction the equity
Speaker 5: market that titans financial conditions, or an increase in the
Speaker 5: unemployment rate, both of which are possible.
Speaker 2: We have to do an audible here. We're going to
Speaker 2: come back to interest rates of the ling and Ian.
Speaker 2: Canada just reported a whole series of economic datas and
Speaker 2: I'm sorry it's positive including I think I see here
Speaker 2: third quarter GDP revised from a gloomy one percent up
Speaker 2: to two point two percent. Is as well. You've got
Speaker 2: the Bank of Montreal combine working for you. How do
Speaker 2: you filter in the response of Ontario, Quebec, Alberta. How
Speaker 2: do you when you see their response to propose tariffs
Speaker 2: from sixteen hundred Pennsylvania Avenue, What does that do to America?
Speaker 2: What does that do to our GDP? And then on
Speaker 2: to your four percent four point zero percent ten year yield?
Speaker 5: Well, we do know that the Canadian economy is a
Speaker 5: lot more rate sensitive, and the Bank of Canada has
Speaker 5: been quite a bit more aggressive on the ray cutting side.
Speaker 5: So seeing the Canadian economy respond positively, isn't that surprising?
Speaker 5: What I worry about, and I think that most Canadian
Speaker 5: banks do, is what happens with this looming twenty five
Speaker 5: percent on the fourth of March. Does that really derail
Speaker 5: growth in Canada? The short answer would be it probably
Speaker 5: takes a We probably see a material hit which should
Speaker 5: translate through to lower rates, and the US probably gets
Speaker 5: a bit of downdraft as well. So I think that
Speaker 5: there's a lot of cross currents brewing in favor of
Speaker 5: lower yields in the near term.
Speaker 2: So what does Bank of Montreal say about Doug Ford
Speaker 2: of Ontario and what he's going to do in windsor
Speaker 2: Canada to put x tens of thousands of Americans out
Speaker 2: of work? How does Bank of Montreal see that sequence?
Speaker 2: If we get it.
Speaker 5: Well, I think that the short answer is we're all
Speaker 5: in the position where there are a lot of political uncertainties,
Speaker 5: and the back and forth between leaders, whether it's coming
Speaker 5: from Trump, whether it's coming out of China, whether it's
Speaker 5: coming from Canada or Mexico, will continue to fuel this uncertainty.
Speaker 4: So how do you think this, I guess. Coming back
Speaker 4: to the US here we had some the real personal
Speaker 4: spending came in materially weaker than expected.
Speaker 2: There.
Speaker 4: How does the FED look at that kind of data.
Speaker 5: Well, I think the first thing that FED would say
Speaker 5: is the consumer remains on str footing. Take a look
Speaker 5: at the longer term trends and there's no real reason
Speaker 5: to start worrying about the consumer. Yet it's one data point.
Speaker 5: I'm looking at that and I'm saying, Okay, this is
Speaker 5: not going in the right direction. If Q one ends
Speaker 5: up ad with a one percent annualized growth rate, that
Speaker 5: will matter to the FED because that is the type
Speaker 5: of economic slowing in an environment where we might see
Speaker 5: higher inflation in the medium term or near to medium term,
Speaker 5: and that's a recipe for stagflation, and that's got to
Speaker 5: be a concern for the fact.
Speaker 2: And your commute across the nation. Good morning to those
Speaker 2: of you in Canada waking ump as well from the
Speaker 2: Maritimes out to British Columbia, we say, good morning. It's
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Speaker 2: you so much for tuning in, Ian Linn with US
Speaker 2: Now Capital Markets.
Speaker 4: Ian, we're looking at a ten year US treasury written
Speaker 4: around four and a quarter percent right here, and I
Speaker 4: guess you could say it's still kind of within a
Speaker 4: range we've seen for a while here. But where do
Speaker 4: you think we end up the year on the US
Speaker 4: ten year treasury?
Speaker 5: Well, when the FED is on hold, like we expect
Speaker 5: them to be for the next couple of quarters, that
Speaker 5: tends to translate into a range of about one hundred
Speaker 5: and ten basis points for tins, and so I think
Speaker 5: that by the end of this year we'll be back
Speaker 5: towards the bottom of that range, which puts US at
Speaker 5: four percent ten year yields. I think the bigger drama
Speaker 5: is going to play out in a two year sector,
Speaker 5: and we see two year yields at three point fifty
Speaker 5: by the end of the year.
Speaker 2: I mean, this is where Michael Purvis was a tall back.
Speaker 2: And I think he's scheduled next week. Okay, he's fly
Speaker 2: fishing somewhere. Good for him right now. But you know,
Speaker 2: to the point the short term paper, the Sweeney yield,
Speaker 2: I mean, did he just say three fifty? Did? Is
Speaker 2: that what I heard? Lah?
Speaker 3: Four?
Speaker 2: Four points? The two year are yeah? Points are right
Speaker 2: now yep. Equity markets churning here up eighteen right now.
Speaker 2: The VIX comes in a little bit of better tape
Speaker 2: twenty point eight zero on the VIX.
Speaker 4: Palla and a lot of folks out there, both academics
Speaker 4: and practitioners say, this Federal Reserve historically is used kind
Speaker 4: of not bad data, but certainly historically dated data, backward
Speaker 4: looking data, and if you look at the real time stuff,
Speaker 4: you could make the call that inflation's already whipped, and
Speaker 4: you know, maybe they should be maybe even cutting rates here.
Speaker 4: How do you think about that.
Speaker 5: I'm very open to the idea that it's difficult for
Speaker 5: monetary policy makers to use hard data because there is
Speaker 5: the lag in data collection, there's the lag in reporting. However,
Speaker 5: I don't think that the idea that if we look
Speaker 5: at the real time data, for example, oil prices for
Speaker 5: some of the more obvious markets, that the FED should
Speaker 5: be basing their monetary policy decisions.
Speaker 2: Off of that.
Speaker 5: Instead, it is those forward looking indicators, look at break evens,
Speaker 5: look at the survey based measures, and that's what the
Speaker 5: FED is worried about. And I think that that's why
Speaker 5: the Fed's going to be reluctant to start cutting again.
Speaker 2: So on a yield basis, if we get a lined
Speaker 2: four point zero, just you know, you're sitting around and
Speaker 2: having a little bats. I mean, Ian, just cut to
Speaker 2: the chase. What does it mean for the housing market?
Speaker 2: Is it like boom recovery or is the ambiguity that
Speaker 2: wages are slow as Neil Datta talked about, where we
Speaker 2: don't get a housing recovery.
Speaker 5: I think that the housing market is going to struggle.
Speaker 5: Part of the reason is that the mortgage rate to
Speaker 5: treasury spread is still relatively wide for a variety of reasons.
Speaker 5: And as long as mortgages are high, then translating this
Speaker 5: through to a stronger housing market is going to be difficult,
Speaker 5: especially if we see an increase in the unemployment market
Speaker 5: or the unemployment rate. That's where I start to get
Speaker 5: really worried about housing.
Speaker 2: Great summary, Ian Lannon, thank you so much. With female
Speaker 2: capital market's working in fixed income there, we're going to
Speaker 2: come back to economics. Francis Donald with us here really
Speaker 2: off the shock as Paul mentioned of consumption of personal spending.
Speaker 4: My attention there everybody writing.
Speaker 2: This weekend, Paul I wonted do we start to see
Speaker 2: sub two percent statistics? Yeah, there's a lot going on here, folks.
Speaker 2: It's always important to talk to Francis Donald with RBC,
Speaker 2: the Royal Bank of Canada on inflation and growth. But
Speaker 2: based on conversation one, two three of this hour and
Speaker 2: following on to McKeon the Fed, Francis Donald, all of
Speaker 2: a sudden, maybe the conversation of the day. Are you
Speaker 2: going to write for Monday, Francis Donald of sub two
Speaker 2: percent real GDP.
Speaker 6: I don't think we're there yet, Tom, So our forecast
Speaker 6: for twenty twenty five was two percent, and that's a
Speaker 6: bit of an annoying forecast because two percent is sort
Speaker 6: of the break even point for a lot of equity models.
Speaker 6: So a lot of are hoping you're going to go
Speaker 6: sub two percent or above two percent, But one point
Speaker 6: nine isn't going to make or break the US economy.
Speaker 6: And you know what, Tom, I know there's a lot
Speaker 6: of January data that just landed, but the path of
Speaker 6: the US economy, there are so many potential outcomes based
Speaker 6: off of the sequence and size of Washington policy that
Speaker 6: even if you see downgrades from two percent to one
Speaker 6: point eight, that's probably not changing your outlook on what's ahead.
Speaker 6: It's just marginally changing your starting place. So I am
Speaker 6: more focused on headlines related to tariffs today, a little
Speaker 6: bit of the upside surprises we've been seeing in Europe
Speaker 6: and Canada. Maybe changing the starting place for the two.
Speaker 6: Wouldn't get too hung up on a GDP forecast, said
Speaker 6: from an economy.
Speaker 2: Rist, I listened to ed Yard Danny, who's been, of
Speaker 2: course talking of the roaring twenties here, and he was
Speaker 2: heated that yes, there's a lot of noise now and
Speaker 2: a lot of worry in that we're pulled back four
Speaker 2: percent off this grateful market. Francis Donald, what's your vision
Speaker 2: for the end of the year. Do we once again
Speaker 2: get a growth recovery as we have the last two years?
Speaker 6: Well, Tom, were big believer that there's two economies at
Speaker 6: play in the United States. There's the wealthy who are
Speaker 6: benefiting from non income gains that is stock markets, house prices,
Speaker 6: their net savers, or they're doing great with those high
Speaker 6: interest rates. That part of the economy is incredibly resilient
Speaker 6: and that part of the economy is absolutely experiencing the
Speaker 6: roaring twenties and are likely to continue to do so
Speaker 6: absent some sort of wealth shock. And then there's an
Speaker 6: entire segment of America, in fact, the other ninety percent,
Speaker 6: that are struggling under the weight of high interest rates,
Speaker 6: and you're going to see that start to creep into
Speaker 6: some of this data. They're still responsible for fifty percent
Speaker 6: of the economy. This is so critical to twenty twenty
Speaker 6: five because it's muddying our ability to read so much
Speaker 6: of the soft data versus the hard data. High income
Speaker 6: Americans are going to lift aggregate data probably through to
Speaker 6: your end unless they see a wealth shock, of course,
Speaker 6: and other pockets of the economy are going to look
Speaker 6: very much like they're in recession. So we are looking
Speaker 6: at things like consumer credit data. We've actually seeing credit
Speaker 6: card usage as a share of retail sales popping higher.
Speaker 6: That's higher rates coming into play. And if we don't
Speaker 6: get rate relief big segments of the United States, then
Speaker 6: big parts of the United States will see absolutely sub
Speaker 6: two percent growth. So for markets, the aggregate matters. For
Speaker 6: corporations who are thinking about their operating environment. When we
Speaker 6: talk to our clients. We're saying to them, who is
Speaker 6: your client group? Because I can't give you one headline
Speaker 6: number in the United States anymore to explain the entire
Speaker 6: path of the US economy. We just got to get deeper.
Speaker 2: So we got to get Francis Donald on twice. Yep,
Speaker 2: we can have it on now about the booming economy,
Speaker 2: and you and Alice can have around at eleven am
Speaker 2: about the gloom exact. That's the way we roll.
Speaker 4: So Francis, can we still kind of refer to the
Speaker 4: US economy as you know one of exceptionalism. Is that
Speaker 4: still a storyline.
Speaker 6: And you're still going to see US resilience in play,
Speaker 6: probably for several months at least, based on the path
Speaker 6: that we're seeing now. No, is that exceptionalism as high
Speaker 6: as maybe those who had expected it six months ago. No,
Speaker 6: there are some downside the prizes. One of them is
Speaker 6: that the Trump administration, a lot of the enthusiasm economically
Speaker 6: was that we'd see those corporate tax cuts in that deregulation.
Speaker 6: But I remember a few months ago talking to the
Speaker 6: two of you in New York that it's going to
Speaker 6: matter what the sequence of policies are and we're not
Speaker 6: getting a sequence that's really market friendly right now. We're
Speaker 6: hearing about tariffs and maybe fiscal pullback before we get
Speaker 6: some of that juicy reflationary type of content. So this
Speaker 6: is going to be really important heading into twenty twenty five.
Speaker 2: You got an entire combine. I remember the day Royal
Speaker 2: Bank Canada took out Minnesota, Piper Jeffrey. I believe it was.
Speaker 2: And you know you've done such a great job with
Speaker 2: a cross border view at RBC. Francis Donald, what is
Speaker 2: your summation of the power of Canada with a tariff response?
Speaker 2: Dare I say tariff retaliation to a quoted twenty five
Speaker 2: percent statistic? Can Canada get surgical about that to put
Speaker 2: Americans out of a job? To shift the president of
Speaker 2: the United States.
Speaker 6: Well, just a reminder, I'll give you a list, Tom,
Speaker 6: Canada provides sixty percent of oil imports to the United States,
Speaker 6: ninety percent of electricity imports, ninety nine percent of natural gas,
Speaker 6: eighty five percent of potash, ninety eight percent of canola,
Speaker 6: thirty four percent of your meat, and let's not forget
Speaker 6: critical minerals, which is nineteen percent of US imports, twenty
Speaker 6: seven percent of your uranium imports come from Canada. Canada
Speaker 6: helps to heat the United States, it helps to feed
Speaker 6: the United States, and this is not twenty eighteen anymore.
Speaker 6: The US is struggling under an electrical grid and have
Speaker 6: substantial energy needs that Canada can help to rectify. So
Speaker 6: I think the focus should be on how much can
Speaker 6: Canada support US exceptionalism going forward, and what is the
Speaker 6: upside of actual increased collaboration between the two countries. That's
Speaker 6: the story that I think will resonate because President Trump
Speaker 6: has huge ambition for what the US economy can be common.
Speaker 6: There is a lot of upside for the US as well.
Speaker 6: Canada upside equals US upside.
Speaker 4: We spent a lot of.
Speaker 6: Time thinking that Canada benefits from the United States. The
Speaker 6: reverse is also true, and we got to push that narrative,
Speaker 6: not just for Canadians but for Americans as well.
Speaker 4: She running for office, awesomes. That was wonderful, proud Canadian
Speaker 4: right there. So he Francis, I think I first became
Speaker 4: sensitive to this K shaped economy and what it really
Speaker 4: means and how pronounced it is maybe in the twenty
Speaker 4: sixteen election cycle, and now here we are, you know, gosh,
Speaker 4: almost ten years later, it still seems like it's still
Speaker 4: a thing. Is this a permanent part of the US
Speaker 4: economy going forward?
Speaker 7: Do you think?
Speaker 2: Oh?
Speaker 3: Yes?
Speaker 6: And actually in twenty sixteen and through to twenty twenty,
Speaker 6: we would talk about the K shape and the concept
Speaker 6: that there was actually like halves and have not so
Speaker 6: and that was a structural situation. The problem that we're
Speaker 6: encountering now, especially in the past two years, is that
Speaker 6: in the past, the haves and the have nots actually
Speaker 6: moved more or less the same throughout. So good times
Speaker 6: were good times for everybody. Bad times were the reverse.
Speaker 6: The reason there's so much focused from economists like myself
Speaker 6: and from RBC on the K shape is that not
Speaker 6: only do we have this huge inequality, but their economic
Speaker 6: situations are not moving together. They're moving separately. So in
Speaker 6: the past you could look at one group and know
Speaker 6: more or less how the other ones were moving. That's
Speaker 6: just not the case anymore. It's broken our models, and
Speaker 6: it changes how we have to talk to clients about
Speaker 6: who their end customers are.
Speaker 2: Francis got to leave it there, Thank you so much.
Speaker 2: Francis Donald with RBC.
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Speaker 2: Why don't you drag in here? Jordan Rochester? Who's you know?
Speaker 2: I mean? He's rewriting his rewrite from exactly usearch.
Speaker 4: You're at zoo, absolutely, Tom Jordan Rochester fit macro strategy
Speaker 4: for our friends over there at Zuo. Jordan, what's your
Speaker 4: feeling here about? You know, this flooding the zone approach
Speaker 4: from this White House and maybe some of the policy
Speaker 4: uncertainty that creates in the marketplace When you talk to
Speaker 4: your clients, how do you kind of suggest they deal
Speaker 4: with that?
Speaker 8: Well, from a politics perspective, it's getting things done, which
Speaker 8: is pretty painful for us in markets keeping a track
Speaker 8: of it all. Flooding the zone means you split and
Speaker 8: divide your opposition. They're not sure which agenda to oppose
Speaker 8: in that day's media round. But for us in markets,
Speaker 8: each one has a different investable theme. You've got tariffs
Speaker 8: hanging over Europe, Mexico, Canada, China like a Damocles sword,
Speaker 8: with the risk of near term dollar appreciation. But to
Speaker 8: be honest, this market is trying to call the bluff
Speaker 8: of this president and doubting whether these tarots will go
Speaker 8: ahead with the numbers he's put forward or at the
Speaker 8: pace that they've been announced. So this weekend could be
Speaker 8: a big one. The market still has quite a few
Speaker 8: people out there thinking it won't happen in the way
Speaker 8: that he said, such as the twenty five percent. Then
Speaker 8: you've got the DOGE labor cuts, and that's going to
Speaker 8: really weigh on NFP prints in the months ahead. If
Speaker 8: you were to listen to the pr campaign from Elon Musk,
Speaker 8: the actual numbers so far are quite small, a lot
Speaker 8: smaller than what he would be suggesting. But we are
Speaker 8: aware that in the next couple of months, if things
Speaker 8: accelerate from Doge, it could be tricky for the Fed.
Speaker 8: This market will still probably try to price him rate cuts,
Speaker 8: not rate hikes, even though we think the Fed's on
Speaker 8: hold for the rest of the year. And then you've
Speaker 8: got a deregulation agenda. Surely this is an administration that's
Speaker 8: good for business, but the tariff policy is kind of
Speaker 8: conflicting with so, and ask your question, he's studying the
Speaker 8: zone many different policies. Each one has a very big
Speaker 8: impact on markets. Some of them conflict with each other,
Speaker 8: and it kind of leaves us all scratching our heads.
Speaker 4: So I guess from the currency perspective, Jordan, do I
Speaker 4: just kind of buy the US dollar and just go
Speaker 4: sit on the sit in a corner there and wait.
Speaker 8: If it wasn't for tariffs, I'd be telling clients to
Speaker 8: sell the dollar, because there's a great sort of make
Speaker 8: Europe great again mega not megafeme in Europe. However, the
Speaker 8: tariffs are a big deal for everyone's terms of trade
Speaker 8: if they are to happen in the numbers that we
Speaker 8: expecting them to see. Imagine if Europe gets a ten
Speaker 8: percent tariff for example, across the board, reciprocal or not,
Speaker 8: that would mean a lot for Euro valuations. So what
Speaker 8: we're saving to clients right now is, yes, by the dollar,
Speaker 8: we think euro could go down to one or two
Speaker 8: even parity if the number of tariffs is higher than
Speaker 8: what we expect, and then actually that would be a
Speaker 8: great opportunity at some stage to take the other side
Speaker 8: is a down in euro and then up in the
Speaker 8: second half of this year, because I think the EU
Speaker 8: will get their act together and respond to this American
Speaker 8: threat by doing reform, more issuance of fiscal issuance, and
Speaker 8: we'll see a better investment outlook for Eurozone in the
Speaker 8: second quarter, you know.
Speaker 2: Jordan, I I look at the ability to try for
Speaker 2: all of our listeners and viewers to get a single
Speaker 2: point terminal view. Let's call it December of this year.
Speaker 2: Dare I say into twenty twenty six, you have the
Speaker 2: luxury of constant Rizzuto in Rochester at Missuo. Do you
Speaker 2: guys have a combined view that gets us in the
Speaker 2: next year or are all bets off.
Speaker 8: Well, it's hard to predict what the weather will be
Speaker 8: tomorrow time. Let them know what's going to happen next year.
Speaker 8: But I imagine what's going to probably happen is we
Speaker 8: have a lot of the events in politics in the
Speaker 8: first half of this year and the second half of
Speaker 8: this year more about the implications for the economy. What
Speaker 8: do I mean by that? We've got tariffs in the
Speaker 8: next one month or two. I think a reconciliation bill
Speaker 8: will probably pass through Congress in the second quarter. It
Speaker 8: might even be April. Joe Biden got his done in
Speaker 8: March twenty twenty one. So it's very possible that all
Speaker 8: the politics happens in the first half, the second half
Speaker 8: will be about the implication of it, and I think
Speaker 8: that we'll see European growth start to outperform us this market.
Speaker 8: Tom is trying to bring forward that theme. I just
Speaker 8: think we're not there yet. We need the tariffs to
Speaker 8: go through first before I can jump on it.
Speaker 4: Pound Sterling here, Jordan, what's the call here?
Speaker 8: I think Sterling lower. We're looking for something like one
Speaker 8: twenty two during the stage of the next few months,
Speaker 8: and that's on the back of the tariffs. I also
Speaker 8: think that there's a domestic weakness story that's creeping up.
Speaker 8: Last year, the best strategy I had was to tell
Speaker 8: clients to hold back from doing Dubvish calls on the
Speaker 8: Bank of England because we had very sticky inflation. The
Speaker 8: budget has changed things dramatically. There's been a tax height
Speaker 8: for employers and what we've seen is a collapse in
Speaker 8: the employment intentions of firms After that tax hike. It
Speaker 8: costs everybody across the United Kingdom one point seven percent
Speaker 8: more to employ staff per year from April onwards. So
Speaker 8: I think what we'll see is in the April numbers
Speaker 8: that we get in May quite a substantial weakness in
Speaker 8: the labor market feeding through to growth, and then by
Speaker 8: the June meeting the banking and cuts. That's something that's
Speaker 8: a bit of a non consensus view because everyone thinks
Speaker 8: the banking cuts every quarter. I think they accelerate it
Speaker 8: when they get to June's data round and that should
Speaker 8: push Stirling lower.
Speaker 2: Jordan right here. A final question is you away tariffs?
Speaker 2: And I get that. I have great respect for the idea,
Speaker 2: wait for the facts. Is there a tradable big figure
Speaker 2: move in any of the major currencies right now?
Speaker 8: I think there is, and it's on a Japanese bank,
Speaker 8: and I think Japan is the one. There's a structural
Speaker 8: change taking place in Japan that's decorrelated it from the
Speaker 8: rest of the cycle. Now dolly ed of course follows
Speaker 8: US interest rates just like everything else. But if you
Speaker 8: look at Japanese rates, structurally higher yields is the story, Tom,
Speaker 8: and I think that's a sharp ratio that's going to
Speaker 8: be pretty high.
Speaker 2: This is really critical. Then do you suggest that the
Speaker 2: reflation theories plural of Japan have succeeded.
Speaker 8: I think they're in their infancy, but they're going to succeed.
Speaker 8: If you look at the labor market, we are seeing
Speaker 8: some of the largest wage hikes Tom since the nineteen nineties.
Speaker 8: You've got part time workers getting six to seven percent.
Speaker 8: You've got the overall economy at five You've got full
Speaker 8: time salaried workers at three percent.
Speaker 2: These are all.
Speaker 8: Numbers above two. And we've got the upcoming shunt to negotiations.
Speaker 8: Tom will get somewhat wind as to what we're going
Speaker 8: to get out of those numbers. But I think the
Speaker 8: numbers going to be another strong five percent like it
Speaker 8: was last year or higher. You might have seen the
Speaker 8: Bloomberg story early in the week about steel workers asking
Speaker 8: for fourteen percent numbers we've just not heard of before
Speaker 8: in Japan. So if the chinto goes well, I think
Speaker 8: that we're going to see this wage story become self
Speaker 8: fulfilling and Japanese core inflation will be stronger than what
Speaker 8: the bank pack expects.
Speaker 2: I would respectfully suggest, folks, I haven't heard that conversation
Speaker 2: that we just had with Jordan Rochester good thirty thirty years.
Speaker 4: Yeah, I think you're right.
Speaker 2: I think I think you're right to go like that
Speaker 2: was Fabulous, Jordan Rochester and the Zoo.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
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Speaker 2: There is a wall. There's any number of walls in Washington,
Speaker 2: to say the least, there is a CIA Memorial Wall,
Speaker 2: of which there are one hundred and forty entries. There
Speaker 2: are a one hundred and six named, and there are
Speaker 2: thirty four names on the CIA Memorial Wall not named.
Speaker 2: Some do others talk. We now speak to one of
Speaker 2: the great doers of the American military, Mick mulroy. He
Speaker 2: is godfather to four of the kids of those people
Speaker 2: on the CIA Memorial Wall. Mick, I'm going to cut
Speaker 2: to the chase. We just saw the Chairman of the
Speaker 2: Joint Chiefs of Staff shown the door. Can our listeners,
Speaker 2: can our viewers know that our military is at work
Speaker 2: in an organized, productive manner on this Friday morning.
Speaker 7: So good to be with you all again, I'd say,
Speaker 7: of course, the president does get to choose who he's
Speaker 7: going to have as his key advisors to include the military.
Speaker 7: But I'd also say, and we'll disclosure. I know General
Speaker 7: Brown that he was an example of meritocracy at work.
Speaker 7: He was exceptional throughout his career. The facts speak for them.
Speaker 7: Elves fighter pilot, squadron commander, Wing Commander, Deputy at Central Command,
Speaker 7: in charge of all the Air Force in the Indo
Speaker 7: Pacific and then of course Chief of Staff for the
Speaker 7: Air Force appointed in the first Trump administration, so highly qualified.
Speaker 7: If there was issues with DEI, that's a policy issue.
Speaker 7: Just so everybody knows, the US military, even the highest
Speaker 7: ranking don't do policy. They essentially advise and they carry
Speaker 7: out orders by the civilian leadership of the Pentagon, including
Speaker 7: you know, obviously the Secretary of Defense at his staff.
Speaker 7: So if that was an issue, then then that could
Speaker 7: have been addressed without the need, of course to remove
Speaker 7: c Q.
Speaker 2: Brown early.
Speaker 7: He had many much time left on his post normally
Speaker 7: that is not something that changes.
Speaker 2: How to be quick here because Paul wants to get
Speaker 2: in here. MC moulroy as simple as I can. And
Speaker 2: the first term we had Kelly, we had McMaster. You
Speaker 2: said at the table with General Madis. We don't have
Speaker 2: those people now, do we. This is a new approach
Speaker 2: to Trump too, isn't it.
Speaker 7: Yes, I mean, certainly, I think the three you mentioned
Speaker 7: are three of the best leaders of our generation, at
Speaker 7: least from my perspective, especially Secretary of Matis. But this
Speaker 7: is obviously a different cabinet. It seems to be. You know,
Speaker 7: you can pick on experience and accomplishment, you can pick
Speaker 7: on loyalty to the president and political ideology, and I
Speaker 7: think I think the latter is really came through in
Speaker 7: this And that's again, a president gets to choose that,
Speaker 7: but every president gets to choose that. So it's kind
Speaker 7: of as an argument that you can make. But essentially
Speaker 7: so did President by right. So I would say he
Speaker 7: picked these individuals primarily for their loyalty to him and
Speaker 7: their political ideology, and that's his choice. But that is
Speaker 7: a difference, I think than the first cabinet, which was
Speaker 7: picked primarily for accomplishment and a long level of experience
Speaker 7: in the job that they were going into.
Speaker 4: Nick, President Zelensky Ukraine, coming to the White House today,
Speaker 4: can you give us the latest sense of how you
Speaker 4: think this situation in Ukraine could play out in the
Speaker 4: coming days, weeks and maybe even months.
Speaker 7: Sure, this was a big week. We had the French
Speaker 7: president and the uk Prime minister, and now we have
Speaker 7: President Zelenski coming today and maybe I think likely or
Speaker 7: he wouldn't be here signing this rare earth mineral agreement.
Speaker 7: So starting with that, it's essentially ended up being that
Speaker 7: American companies will get access whatever that means to fifty
Speaker 7: percent of the minerals in Ukraine, which is substantial. I mean,
Speaker 7: I've seen reports from reputable groups that it's trillions. Half
Speaker 7: of it or more than half of it's under the
Speaker 7: part of Ukraine that's currently occupied by Russia. So from
Speaker 7: the Ukrainian perspective, if the US wants access to that,
Speaker 7: they need to help Ukraine gain their territory back. What's
Speaker 7: not in here and what Ukraine really wanted, of course,
Speaker 7: were security guarantees. That is the biggest thing they need,
Speaker 7: and ultimately there probably won't be a ceasefire agreement unless
Speaker 7: there's some security guarantees because Russia has violated, specifically when
Speaker 7: it comes to Ukraine, the agreement not to attack them
Speaker 7: multiple times, starting in nineteen ninety four when they give
Speaker 7: up clear nuclear weapons. In twenty fourteen after they already
Speaker 7: you know, annexed CRIMEA. They agreed not to do it again,
Speaker 7: they did in twenty twenty two, So there should be
Speaker 7: zero trust on whether they will carry this out unless
Speaker 7: there's a security guarantee by NATO or European partners or
Speaker 7: the United States are all the above. If there's not,
Speaker 7: then it's hard to see how Ukraine would accept a
Speaker 7: ceasefire that would simply allow Russia to prepare to then
Speaker 7: attack them again. But we all should hope that's the case.
Speaker 7: We all should hope that, of course, President Trump and
Speaker 7: his administration are successful in getting us to a ceasefire
Speaker 7: that's lasting to stop this and this war that Russia started.
Speaker 4: Mick, is there any scenario that you can think of
Speaker 4: where President Putin and President Trump could come up with
Speaker 4: some type of peace record that does not include Ukraine
Speaker 4: at the negotiating table.
Speaker 7: No, because ultimately Ukraine has to decide and not to fight.
Speaker 7: I mean, they would be hard pressed to continue to fight,
Speaker 7: particularly by June when all of the ammunition we've already
Speaker 7: provided to start running out without the US support. But
Speaker 7: they can, especially if Europe really steps up, and they've
Speaker 7: already proven that they beat the odds, right, Most analysts,
Speaker 7: like myself we predicting three weeks and it would have
Speaker 7: been over an hour over three years, So don't count
Speaker 7: them out. But the US needs to continue to support.
Speaker 7: It's not just altruistic, it is in our own interests.
Speaker 7: They are depleting the Russian military so substantially that within
Speaker 7: the last two years they lost more soldiers than we
Speaker 7: lost during the entirety of a war in Iraq. It
Speaker 7: is really taxing on them and it's difficult for them
Speaker 7: to maintain this, but it will be difficult for Ukraine
Speaker 7: to keep up that level without the US full support.
Speaker 2: Nick, what is the signal to our allies of what
Speaker 2: we witnessed at the United Nations this week back to
Speaker 2: nineteen forty five, we went with Team Russia.
Speaker 7: So certainly scared the Bejesus out of them, quite frankly.
Speaker 7: And there's two parts of that, right. So they are
Speaker 7: very used to their allies being what it has been,
Speaker 7: you know for decades, which is the United States in NATO,
Speaker 7: the most significant military alliance in history. Where I can
Speaker 7: say that they have fallen short they be in our
Speaker 7: European allies. If they have essentially left a lot of
Speaker 7: their security over to the United States. They had the
Speaker 7: biggest brother on the block, so they were fine with
Speaker 7: spending their money on things other than their own national defense.
Speaker 7: They've woken up to that they are all increasing their
Speaker 7: expenditures on their own national security beyond what the NATO
Speaker 7: calls for, which is two percent, some going as three up,
Speaker 7: potentially even a five percent. That's a good thing for them,
Speaker 7: it's a good thing for NATO, and many presidents, to
Speaker 7: include President Trump, have been pushing rightfully for them to
Speaker 7: do that. So that's a good thing. But the problem
Speaker 7: is they might get to a point where they just
Speaker 7: don't trust the United States when it comes to our
Speaker 7: allegiance to NATO. I know Secretary Ribo have said that's
Speaker 7: not the case, so as national security fighter Waltz, I
Speaker 7: believe that's the case. But that has scared them so
Speaker 7: much that they are now concerned and potentially even starting
Speaker 7: an alternative to NATO.
Speaker 2: Mick, we got to leave it there. We can talk
Speaker 2: for hours with the Lobo Institute, McLaury with his service
Speaker 2: to the nation, with the Marines, and with the CIA.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
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Speaker 2: You look at the front pages of Lisa Matteo Report,
Speaker 2: you're not mentioned in Taylor and Travis, are you?
Speaker 9: No, we're not. Okay, definitely to stay it away from that.
Speaker 9: What we are talking about is, of course AI. We
Speaker 9: always talk about it, but people are finding new ways
Speaker 9: to use it. That includes cheating on job interviews. So
Speaker 9: the way they're doing it, they're using these generative AI
Speaker 9: tools like coding assistance, teleprompter apps that feed them live
Speaker 9: answers when they're doing video interviews. So Business Insider are saying,
Speaker 9: Amazon they want to put a stop to it because
Speaker 9: they're seeing more of it, so they change their guidelines
Speaker 9: and their job applications so you can be disqualified if
Speaker 9: you use any of these things. The question is, how
Speaker 9: do you know if someone's using it? Yeah, So Amazon
Speaker 9: actually put out some guidelines. So for example, those watching
Speaker 9: on YouTube, if I'm doing the job interview here, I'm
Speaker 9: usually looking and if you ask me a question, I'll
Speaker 9: be typing, you know, because you're typing in the question,
Speaker 9: you know, so what AI will response. So if you
Speaker 9: see someone typing, that's a red flag. And then if
Speaker 9: you see someone you know answering your question but they're
Speaker 9: kind of like looking like they're reading like this. If
Speaker 9: you're on YouTube, that's another red flag. So what they're
Speaker 9: doing is they're trying to like cut back on this
Speaker 9: because more and more people and it's not just Amazon
Speaker 9: is saying it. Other these are saying that people are
Speaker 9: doing this, They're cheating on these resumes.
Speaker 4: There's there's a certainly be a story on bloomber guest today.
Speaker 4: There's certain keywords that people are facing on. Then you know,
Speaker 4: you see it on somebody's resume. You can tell the
Speaker 4: resume was created by Yeah.
Speaker 2: I'm getting the buzz that for college applications is definite.
Speaker 2: They can tell a heartbeat college. I don't know other
Speaker 2: than good luck with that.
Speaker 9: Okay, this was interesting.
Speaker 2: Screaming from the screen. We could tell you this is interesting.
Speaker 9: The erosion that's eating away at those homes in Nantucket.
Speaker 9: So it gets like into a deeper look into it.
Speaker 9: Some of the pictures are amazing. If you look at
Speaker 9: this article, but they say emergency crews. They're scrambling. They
Speaker 9: basically use these steel beams. They put them under the homes,
Speaker 9: they jack them up, and they roll them back about
Speaker 9: a huge you know, a few hundred feet back. But
Speaker 9: it's happening more often since twenty twenty three. Houses on
Speaker 9: the street is called Cheap Pond Road. They've been condemned, demolish.
Speaker 9: Some are moving back and some are They just have
Speaker 9: to sell for pennies on the dollar, so they're losing out.
Speaker 9: But here's what the residents are saying. And Paul, this
Speaker 9: goes to you in the Jersey Shore because Nantucket doesn't
Speaker 9: have those jetties and those sand like replenishment projects like
Speaker 9: the Jersey Shore. I mean, I remember sitting on the
Speaker 9: beach and the Jersey Store and seeing those ships come
Speaker 9: in and I was.
Speaker 4: Like, what are they doing right right now as we speak.
Speaker 9: Yeah, and that's what they're doing. But they're saying Nantucket
Speaker 9: doesn't have that.
Speaker 2: They're out in the middle of nowhere where the erosion
Speaker 2: has been there for years. And I don't pretend to
Speaker 2: be an expert on it, but you know, I'm looking
Speaker 2: at it right here now on Chester Street in Nantucket.
Speaker 2: You know, Lee real Estate has it, and it's a
Speaker 2: nice little small bungalow on the street, distant from the water.
Speaker 2: It's like you could shoot a movie in front of it.
Speaker 2: Are you ready? Three point eight million dollars and it's
Speaker 2: I mean it's it's three bedroomish. Yeah, you know.
Speaker 9: Well the problem a lot of these people bought during
Speaker 9: the Yeah, their their values going down because they're going
Speaker 9: to be falling into the water. Positive three million. Crazy.
Speaker 4: If you're going to buy a home on Nantucket or
Speaker 4: kit caud my personal je, you have to also be
Speaker 4: able to have a fractional ownership in a plane. If
Speaker 4: you can't do that, then don't buy it, because if
Speaker 4: you're not flying up there easily, you can't drive. Yeah,
Speaker 4: it's a disaster.
Speaker 2: Okay, what else?
Speaker 9: Last one, this big mistake by City Group. It's actually
Speaker 9: coming to light now. The Financial Times has it. They
Speaker 9: credited client's account with eighty one trillion dollars. It was
Speaker 9: meant to send only two hundred.
Speaker 2: And eighty dollars.
Speaker 9: It has been last April never reported because it was
Speaker 9: like a near miss, but the Financial Times looked into
Speaker 9: it. It said it was missed by a payments employee, missed
Speaker 9: by a second official a third banker finally found it.
Speaker 9: The payment was reversed several hours later, so that is
Speaker 9: good news. No funds left the bank, but it just
Speaker 9: shows that you know they're going after that.
Speaker 4: As a former bank teller, it happens. If I had
Speaker 4: a three thousand dollars miss at the end of the day,
Speaker 4: I could find that in five minutes. If I had
Speaker 4: a twenty three dollars eighty seven dollars miss, could never
Speaker 4: find it, and they take it out of your paycheck.
Speaker 9: Eighty one trillion, I know the round numbers.
Speaker 2: They can find easy, and they took it out of
Speaker 2: the paycheck. My sister went through this exactly. Thank you
Speaker 2: the newspapers withou. Lisa Matail greatly appreciate that.
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