1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,000 Speaker 2: Terminal and the Bloomberg Business app. This Turns a Crude. 10 00:00:37,040 --> 00:00:39,920 Speaker 2: President Trump surprising traders by posting on True Social that 11 00:00:40,040 --> 00:00:43,640 Speaker 2: China can continue purchasing oil from Iran, Brent crude coming 12 00:00:43,720 --> 00:00:46,800 Speaker 2: off the biggest two data client since twenty twenty two, 13 00:00:47,000 --> 00:00:49,800 Speaker 2: and Rediscent of Energy Aspects joined us now for more 14 00:00:49,840 --> 00:00:51,599 Speaker 2: and Rita, I want to get to this, this line 15 00:00:51,640 --> 00:00:53,680 Speaker 2: that's coming for the president. Can you help me answer this? 16 00:00:53,960 --> 00:01:00,120 Speaker 2: When did China stop buying a Runnian crude? 17 00:01:00,480 --> 00:01:02,760 Speaker 1: I think that's a question you might have to ask him. 18 00:01:02,800 --> 00:01:05,560 Speaker 1: But basically there's been a lot of confusion since that 19 00:01:05,640 --> 00:01:09,600 Speaker 1: statement that, to your point, China hasn't stopped buying Iranian crewed. 20 00:01:09,680 --> 00:01:12,360 Speaker 1: China still buying one point five to one point seven 21 00:01:12,360 --> 00:01:15,800 Speaker 1: million barrel speer of Iranian crude. There was maximum pressure 22 00:01:15,840 --> 00:01:18,920 Speaker 1: under the first Trump administration, which did get exports down 23 00:01:18,959 --> 00:01:21,920 Speaker 1: to four hundred thousand, but then since the Biden administration 24 00:01:22,400 --> 00:01:24,240 Speaker 1: took office, it's been kind of creeping up. And then 25 00:01:24,280 --> 00:01:26,959 Speaker 1: election and high all prices were an issue, so the 26 00:01:27,000 --> 00:01:30,440 Speaker 1: administration turned a blind eye. So yesterday when the kind 27 00:01:30,480 --> 00:01:33,280 Speaker 1: of tweet came out, everybody was like, Okay, does this 28 00:01:33,360 --> 00:01:34,760 Speaker 1: mean sanctions are being lifted? 29 00:01:35,720 --> 00:01:35,880 Speaker 3: You know? 30 00:01:35,959 --> 00:01:38,360 Speaker 1: Anyway, the point being, since then the White House has 31 00:01:38,400 --> 00:01:42,080 Speaker 1: clarified this is not a change in sanctions policy. However, 32 00:01:42,720 --> 00:01:44,760 Speaker 1: we would also say this does mean that there's not 33 00:01:44,840 --> 00:01:47,920 Speaker 1: going to be a tightening in sanctions either. I status 34 00:01:47,920 --> 00:01:50,520 Speaker 1: score prevails, China continues to buy about one point five 35 00:01:50,520 --> 00:01:53,120 Speaker 1: to one point seven million barrel spade of Iranian all. 36 00:01:53,160 --> 00:01:54,640 Speaker 2: Just built on some of those numbers, Zen rat, what 37 00:01:54,720 --> 00:01:57,520 Speaker 2: is that of a share of total Iranian production? The 38 00:01:57,520 --> 00:02:04,840 Speaker 2: amount of barrels that are on the market right now already. 39 00:02:03,120 --> 00:02:05,880 Speaker 1: So Iranian production is about three and a half eh 40 00:02:05,960 --> 00:02:08,600 Speaker 1: million barrels putting oscillates a bit between three point five 41 00:02:08,639 --> 00:02:12,239 Speaker 1: three point seven. All their exports, whatever they are exporting, 42 00:02:12,240 --> 00:02:15,440 Speaker 1: goes to China and the rest of it is consumed domestically. 43 00:02:15,520 --> 00:02:17,240 Speaker 4: Which is the reason why this is such a big 44 00:02:17,760 --> 00:02:19,959 Speaker 4: potential buyer and why this is such a big deal 45 00:02:20,000 --> 00:02:22,200 Speaker 4: for the oil markets in terms of who else would 46 00:02:22,200 --> 00:02:24,960 Speaker 4: supply that and what this would mean for the price. 47 00:02:25,200 --> 00:02:28,279 Speaker 4: Does this suggest that this is part of the ongoing negotiation, 48 00:02:28,560 --> 00:02:31,400 Speaker 4: that the goal is to keep oil prices low and 49 00:02:31,440 --> 00:02:33,920 Speaker 4: the bet against that is frankly a fool's earned. 50 00:02:37,120 --> 00:02:40,320 Speaker 1: I would say that's exactly how the market's interpreting it. 51 00:02:40,400 --> 00:02:42,280 Speaker 1: You know, when we are talking to our clients, the 52 00:02:42,520 --> 00:02:45,320 Speaker 1: general impression is that, look, we know President Trump wants 53 00:02:45,400 --> 00:02:47,440 Speaker 1: low oil prices. He's gonna get it in one way 54 00:02:47,520 --> 00:02:49,920 Speaker 1: or the other. Right, So if that means that, especially 55 00:02:50,040 --> 00:02:52,320 Speaker 1: because we were in the high seventies not that long ago, 56 00:02:52,600 --> 00:02:54,640 Speaker 1: that means that we are not gonna see tightening up sanctions, 57 00:02:54,639 --> 00:02:57,120 Speaker 1: and I think traders are very much focused on that. 58 00:02:57,639 --> 00:02:59,920 Speaker 1: The fact that he wants low oil prices, especially ahead 59 00:02:59,919 --> 00:03:03,280 Speaker 1: of the bill, and he has been saying that consistently right, 60 00:03:03,280 --> 00:03:05,359 Speaker 1: that he doesn't want prices to go up. Inflation is 61 00:03:05,400 --> 00:03:09,120 Speaker 1: a big concern. So that's where I think the market 62 00:03:09,160 --> 00:03:11,400 Speaker 1: kind of reality. That's why the market reacted the way 63 00:03:11,400 --> 00:03:13,360 Speaker 1: it did in terms of selling it so hard. But 64 00:03:13,400 --> 00:03:15,760 Speaker 1: at least since then it's been clarification that sanctions are 65 00:03:15,760 --> 00:03:18,200 Speaker 1: still in place. This is China avoiding sanctions in the 66 00:03:18,280 --> 00:03:20,800 Speaker 1: US not doing anything about it. But yes, it does 67 00:03:20,919 --> 00:03:22,680 Speaker 1: mean that there's more oil in the market than otherwise 68 00:03:22,680 --> 00:03:23,000 Speaker 1: would be. 69 00:03:23,120 --> 00:03:23,520 Speaker 3: But from a. 70 00:03:23,440 --> 00:03:26,359 Speaker 4: Trading perspective or MADA doesn't this act as a cautionary 71 00:03:26,400 --> 00:03:29,160 Speaker 4: tale to anyone who tries to expect oil prices to 72 00:03:29,240 --> 00:03:31,720 Speaker 4: rally in any kind of material way, that there is 73 00:03:31,919 --> 00:03:35,120 Speaker 4: a Trump put an essence on that, that there is 74 00:03:35,160 --> 00:03:39,960 Speaker 4: a willingness to navigate the geopolitical situation in a way 75 00:03:40,200 --> 00:03:42,760 Speaker 4: that brings down oil prices one way or another. So 76 00:03:42,800 --> 00:03:44,840 Speaker 4: why would you bet one hundred dollars crued or ninety 77 00:03:44,880 --> 00:03:46,920 Speaker 4: dollars accrued, which is the worst case scenario that so 78 00:03:46,920 --> 00:03:48,520 Speaker 4: many people are talking about. 79 00:03:51,160 --> 00:03:53,280 Speaker 1: Yeah, no, I completely agree, and I've been surprised that 80 00:03:53,320 --> 00:03:55,280 Speaker 1: people have been calling for that. You know, we've never 81 00:03:55,480 --> 00:03:57,560 Speaker 1: I mean, I've been with you guys saying that non 82 00:03:57,600 --> 00:03:59,480 Speaker 1: seventy and eighty is not going to be sustainable given 83 00:03:59,520 --> 00:04:02,040 Speaker 1: where the ballot are and you know, people are looking 84 00:04:02,120 --> 00:04:04,840 Speaker 1: towards those bills that we are also predicting from Q 85 00:04:04,920 --> 00:04:07,720 Speaker 1: four onwards. I think the challenge, of course, is that 86 00:04:07,800 --> 00:04:10,520 Speaker 1: this is not a market you can short either, because 87 00:04:10,520 --> 00:04:14,520 Speaker 1: these risks and the geopolitical risks are real. Fundamentally, though 88 00:04:14,840 --> 00:04:17,840 Speaker 1: the writer right now remains very very tight. Stocks are 89 00:04:17,920 --> 00:04:20,160 Speaker 1: very tight. Cushing just look at that, it's super low. 90 00:04:20,839 --> 00:04:23,720 Speaker 1: So this is this is also equally hard to short. 91 00:04:23,760 --> 00:04:26,560 Speaker 1: But on a macro level, your point is very valid 92 00:04:26,600 --> 00:04:29,719 Speaker 1: that Trump and his policies will somehow make sure that 93 00:04:29,760 --> 00:04:33,080 Speaker 1: prices don't run away too quickly. It does mean that 94 00:04:33,240 --> 00:04:35,359 Speaker 1: generally there's a bias towards the lower side. 95 00:04:35,400 --> 00:04:37,159 Speaker 2: I'm rat can we just finish up asking you what 96 00:04:37,200 --> 00:04:39,400 Speaker 2: the demands side looks like at the moment. I think 97 00:04:39,400 --> 00:04:41,560 Speaker 2: economists are really scratching their heads at the moment about 98 00:04:41,760 --> 00:04:44,440 Speaker 2: when the economy is, particularly here in the United States, 99 00:04:44,440 --> 00:04:46,919 Speaker 2: we're trying to gauge where we are speaking to company executives. 100 00:04:46,920 --> 00:04:49,520 Speaker 2: What's your take just looking through the prism of crude oil. 101 00:04:52,720 --> 00:04:55,279 Speaker 1: Yeah, I mean it's not great, but it's not dire either, 102 00:04:55,320 --> 00:04:57,320 Speaker 1: And I think we're kind of in between our demand 103 00:04:57,400 --> 00:04:59,680 Speaker 1: numbers between seven to eight hundred thousand boules per day 104 00:04:59,680 --> 00:05:03,719 Speaker 1: growth year on year. Again, the US is actually doing okay, 105 00:05:03,760 --> 00:05:06,880 Speaker 1: Europe is doing very well, China not so much. And 106 00:05:06,920 --> 00:05:09,279 Speaker 1: I think that's kind of the spectrum. We don't think 107 00:05:09,320 --> 00:05:12,320 Speaker 1: this is a recessionary environment in the sense of what 108 00:05:12,320 --> 00:05:14,960 Speaker 1: people were expecting when tariff fears were at its peak. 109 00:05:15,279 --> 00:05:17,800 Speaker 1: But it's also not an environment where global growth is 110 00:05:17,880 --> 00:05:19,160 Speaker 1: humming along very nicely. 111 00:05:19,400 --> 00:05:21,560 Speaker 2: I'm ready to say advantagy aspects. I'm ready to thank 112 00:05:21,560 --> 00:05:33,640 Speaker 2: you joining us. Now have to discuss John Leeber of 113 00:05:33,720 --> 00:05:36,239 Speaker 2: the Erasia Group. John, welcome to the program, sir. Before 114 00:05:36,279 --> 00:05:38,520 Speaker 2: we get sort of needy with what's handling over in Europe, 115 00:05:38,520 --> 00:05:40,400 Speaker 2: I think we want to talk about the president's agenda 116 00:05:40,600 --> 00:05:43,400 Speaker 2: and the key deadline still to come July fourth, the 117 00:05:43,440 --> 00:05:46,560 Speaker 2: south impost deadline for the tax bill. July ninth, this 118 00:05:46,680 --> 00:05:49,640 Speaker 2: south impost deadline for a trade deal with the whole 119 00:05:49,640 --> 00:05:51,520 Speaker 2: host of countries. John, where do you think will be 120 00:05:51,640 --> 00:05:53,640 Speaker 2: by the time we get to the middle of July. 121 00:05:55,360 --> 00:05:58,240 Speaker 5: You know, this tax deal is coming together and they're 122 00:05:58,279 --> 00:06:00,440 Speaker 5: basically done with it. There's a couple of kind of 123 00:06:00,600 --> 00:06:02,880 Speaker 5: dotted eyes and cross te's they've got to think about 124 00:06:02,920 --> 00:06:03,880 Speaker 5: right now, and of. 125 00:06:03,839 --> 00:06:06,760 Speaker 6: Course there's the House of Representatives, who. 126 00:06:06,560 --> 00:06:08,479 Speaker 5: Isn't going to like the deal that's coming out of 127 00:06:08,480 --> 00:06:10,760 Speaker 5: the Senate necessarily, but I think it's going to have 128 00:06:10,760 --> 00:06:13,320 Speaker 5: a really hard time voting against this thing. You're going 129 00:06:13,360 --> 00:06:16,039 Speaker 5: to have unanimity among the conservatives in the Senate to 130 00:06:16,080 --> 00:06:19,160 Speaker 5: pass a bill with deep cuts to Medicaid, the most 131 00:06:19,640 --> 00:06:23,080 Speaker 5: impactful cuts that they've done on an entitlement program in decades. 132 00:06:23,920 --> 00:06:25,720 Speaker 5: And I think that some of the moderate members are 133 00:06:25,720 --> 00:06:27,679 Speaker 5: probably where you're going to have a harder time getting 134 00:06:27,680 --> 00:06:30,359 Speaker 5: the votes because of the issue with the salt cap, 135 00:06:30,880 --> 00:06:32,840 Speaker 5: which is how the Senate's moved back down to ten 136 00:06:32,880 --> 00:06:35,640 Speaker 5: thousand dollars. The House had passed it at forty thousand dollars. 137 00:06:35,880 --> 00:06:38,000 Speaker 5: That's going to be an issue you have to work out. 138 00:06:38,120 --> 00:06:40,800 Speaker 5: But it you know, Brett, President Trump now out there 139 00:06:40,839 --> 00:06:42,880 Speaker 5: true thing that nobody should go home for the fourth 140 00:06:42,920 --> 00:06:45,680 Speaker 5: of July holiday until this has passed. If it doesn't 141 00:06:45,720 --> 00:06:48,560 Speaker 5: pass next week, it's going to pass shortly thereafter. On 142 00:06:48,600 --> 00:06:51,400 Speaker 5: the tariffs, you know that ninety day pause is up 143 00:06:51,440 --> 00:06:54,400 Speaker 5: on July ninth, and a lot of countries, you know, 144 00:06:54,440 --> 00:06:56,840 Speaker 5: there's a lot of countries are still negotiating their deals. 145 00:06:56,920 --> 00:06:59,479 Speaker 5: So I think it's notable that despite the really early 146 00:06:59,520 --> 00:07:04,599 Speaker 5: momentum around Japan, India, the UK of course announced something. 147 00:07:04,760 --> 00:07:06,239 Speaker 6: You haven't finalized anything. 148 00:07:06,320 --> 00:07:08,920 Speaker 5: So they're going to have to extend this ninety day deadline, 149 00:07:09,200 --> 00:07:11,200 Speaker 5: and they're probably going to do it for most of 150 00:07:11,240 --> 00:07:12,160 Speaker 5: the biggest countries. 151 00:07:12,480 --> 00:07:14,440 Speaker 6: But I also think they're going to send a message. 152 00:07:14,080 --> 00:07:17,920 Speaker 5: Here by increasing tariffs on some countries, maybe not back 153 00:07:17,920 --> 00:07:21,200 Speaker 5: to Liberation Day levels. Trump still has total discretion here 154 00:07:21,400 --> 00:07:23,400 Speaker 5: as to what level he's going to get to. But 155 00:07:23,680 --> 00:07:25,800 Speaker 5: some of these tariffs are going up, and only Trump 156 00:07:25,880 --> 00:07:28,240 Speaker 5: knows which ones that is. The White House staff doesn't know, 157 00:07:28,480 --> 00:07:30,600 Speaker 5: and I think they probably haven't made that determination and 158 00:07:30,680 --> 00:07:31,880 Speaker 5: won't for at least a week or two. 159 00:07:32,000 --> 00:07:35,040 Speaker 2: And John, this president doesn't stop, by the looks of things, 160 00:07:35,160 --> 00:07:37,920 Speaker 2: He never sleeps. After the next few weeks, what's left 161 00:07:37,920 --> 00:07:39,680 Speaker 2: of his agenda? What does he focus on? 162 00:07:40,680 --> 00:07:42,800 Speaker 5: I think that it's going to be crisis response, right, So, 163 00:07:42,800 --> 00:07:44,400 Speaker 5: I mean this is going to look a lot like 164 00:07:44,840 --> 00:07:46,880 Speaker 5: the first Trump term where they did the tax You 165 00:07:46,880 --> 00:07:48,840 Speaker 5: know that they tried and fail on healthcare in the 166 00:07:48,840 --> 00:07:51,000 Speaker 5: first half of the year, and then the second half 167 00:07:51,040 --> 00:07:53,440 Speaker 5: of his first year was all tax reform. And then 168 00:07:53,480 --> 00:07:55,240 Speaker 5: in year two it was kind of just you know, 169 00:07:55,360 --> 00:07:58,440 Speaker 5: Trump tweeting about all kinds of subjects that was whatever 170 00:07:58,520 --> 00:08:00,600 Speaker 5: was on his mind and responding to what was going 171 00:08:00,600 --> 00:08:02,480 Speaker 5: on in the world, and then of course picking a 172 00:08:02,520 --> 00:08:05,480 Speaker 5: trade battle with China. He's already picked the trade battles. 173 00:08:05,480 --> 00:08:08,040 Speaker 5: He's going to be done with his tax agenda. You know, 174 00:08:08,040 --> 00:08:10,120 Speaker 5: there's going to be foreign policy crises that come up 175 00:08:10,160 --> 00:08:12,040 Speaker 5: from time to time, like we just saw in Iran 176 00:08:12,120 --> 00:08:12,760 Speaker 5: this week. 177 00:08:12,760 --> 00:08:14,920 Speaker 6: But he's not actively pushing much. 178 00:08:15,280 --> 00:08:17,600 Speaker 5: And on the deregulation front, you know, I hear a 179 00:08:17,640 --> 00:08:21,000 Speaker 5: lot of people talking about the tailwind coming from deregulation 180 00:08:21,320 --> 00:08:24,880 Speaker 5: in the latter half of Trump's term coming up. But 181 00:08:25,160 --> 00:08:28,120 Speaker 5: that stuff takes time, and they're going to stop enforcement 182 00:08:28,200 --> 00:08:32,400 Speaker 5: across a number of for example, financial regulations basically, but 183 00:08:32,480 --> 00:08:35,440 Speaker 5: deregulation itself is a whole process, and if they want 184 00:08:35,440 --> 00:08:37,120 Speaker 5: it to stick up in the court, they have to 185 00:08:37,160 --> 00:08:37,760 Speaker 5: do it right. 186 00:08:37,880 --> 00:08:38,840 Speaker 6: And doing it right. 187 00:08:38,760 --> 00:08:41,160 Speaker 5: Means going slow, and it means you won't see the 188 00:08:41,200 --> 00:08:45,600 Speaker 5: results from the deregulation, if there is any, until possibly 189 00:08:45,600 --> 00:08:48,079 Speaker 5: the end of Trump's term or even after, when all 190 00:08:48,080 --> 00:08:50,840 Speaker 5: of that, of course, could be reversed potentially by a Democrat. 191 00:08:50,520 --> 00:08:51,760 Speaker 6: John, There's a lot to unpack there. 192 00:08:51,840 --> 00:08:54,240 Speaker 4: I want to talk about crisis response in particular to 193 00:08:54,720 --> 00:08:58,160 Speaker 4: foreign policy. It seems like people are taking the recent 194 00:08:58,160 --> 00:09:00,520 Speaker 4: developments in the Middle East as providing something of a 195 00:09:00,600 --> 00:09:05,239 Speaker 4: roadmap for how President Trump will respond to future international crises. 196 00:09:05,520 --> 00:09:06,560 Speaker 6: What's your take on that. 197 00:09:06,760 --> 00:09:09,800 Speaker 4: What did we learn from the way the President handled 198 00:09:09,880 --> 00:09:12,720 Speaker 4: Iran and the attacks by Israel. 199 00:09:13,080 --> 00:09:13,320 Speaker 6: Yeah. 200 00:09:13,400 --> 00:09:15,040 Speaker 5: I think what we learned, and this has been a 201 00:09:15,080 --> 00:09:18,680 Speaker 5: pattern throughout Trump's time, is that foreign policy's pretty easy 202 00:09:18,720 --> 00:09:21,520 Speaker 5: for him when there's a power imbalance. When there's a 203 00:09:21,559 --> 00:09:24,480 Speaker 5: power imbalance and the US can respond with overwhelming force 204 00:09:24,640 --> 00:09:27,240 Speaker 5: and has no risk really of being struck back at 205 00:09:27,679 --> 00:09:30,320 Speaker 5: Trump will strike. He did it in Iran twice now 206 00:09:30,400 --> 00:09:33,880 Speaker 5: with the assassination of Sulimaney and now this unprecedented level 207 00:09:33,880 --> 00:09:36,480 Speaker 5: of bombing. But if you look, for example, at Russia, 208 00:09:36,760 --> 00:09:39,520 Speaker 5: where there's less of a power imbalance, they have nuclear 209 00:09:39,600 --> 00:09:43,319 Speaker 5: arms already, there's nothing really Trump can do to intervene 210 00:09:43,400 --> 00:09:45,320 Speaker 5: in that conflict. So I think this is going to 211 00:09:45,320 --> 00:09:47,719 Speaker 5: be something that other countries are paying attention to. I'm 212 00:09:47,720 --> 00:09:50,440 Speaker 5: sure China is paying attention to what happened in Iran 213 00:09:50,520 --> 00:09:53,880 Speaker 5: this week. China's diplomacy and their ambitions have a much 214 00:09:53,920 --> 00:09:58,200 Speaker 5: longer timeframe, and they're much less of an active threat 215 00:09:58,280 --> 00:10:01,480 Speaker 5: to their neighbors than Iran Wi, So that situation is 216 00:10:01,480 --> 00:10:03,960 Speaker 5: obviously very different, of course, But I do think that 217 00:10:04,960 --> 00:10:06,880 Speaker 5: I think that Trump is willing to act. He's not 218 00:10:06,920 --> 00:10:09,199 Speaker 5: going to commit American troops on the ground that I 219 00:10:09,280 --> 00:10:10,959 Speaker 5: think that's a red line for him, but he is 220 00:10:11,000 --> 00:10:14,599 Speaker 5: willing to throw American firepower at countries that are irritating 221 00:10:14,679 --> 00:10:17,559 Speaker 5: him if he thinks he's going to win without consequences. 222 00:10:17,679 --> 00:10:18,840 Speaker 2: This is kind of a curveball. 223 00:10:19,200 --> 00:10:21,720 Speaker 4: But you talk about we learned something about President Trump's 224 00:10:21,760 --> 00:10:25,640 Speaker 4: response based on the mayoral primary election in New York. 225 00:10:26,040 --> 00:10:29,280 Speaker 4: What have we learned about the Democratic response to President 226 00:10:29,320 --> 00:10:32,480 Speaker 4: Trump's policies, if anything, Has that sort of served as 227 00:10:32,480 --> 00:10:33,440 Speaker 4: something of a roadmap? 228 00:10:34,160 --> 00:10:35,240 Speaker 6: Yeah, I don't think so. 229 00:10:35,320 --> 00:10:35,400 Speaker 3: No. 230 00:10:35,520 --> 00:10:38,000 Speaker 5: I mean, New York City, you know, great, most important 231 00:10:38,040 --> 00:10:40,760 Speaker 5: city in the country, but it is not representative of 232 00:10:40,800 --> 00:10:43,120 Speaker 5: the rest of America. And I don't think that a 233 00:10:43,280 --> 00:10:45,920 Speaker 5: socialist mayor in New York City is going to be 234 00:10:45,960 --> 00:10:48,840 Speaker 5: a look that the rest of the Democratic Party necessarily 235 00:10:48,960 --> 00:10:52,200 Speaker 5: wants to embrace for the midterm elections. I expect the 236 00:10:52,200 --> 00:10:54,960 Speaker 5: party's going to try to run from him. However, there 237 00:10:55,040 --> 00:10:57,760 Speaker 5: is going to be a backlash against President Trump that 238 00:10:57,880 --> 00:11:00,480 Speaker 5: is going to have very is going to have the 239 00:11:00,720 --> 00:11:03,319 Speaker 5: left wing in its flavor, and that is going to 240 00:11:03,360 --> 00:11:04,880 Speaker 5: be a national story. And you're going to have this 241 00:11:04,960 --> 00:11:07,920 Speaker 5: battle inside the Democratic Party for who's most likely to 242 00:11:07,960 --> 00:11:11,880 Speaker 5: win in general elections. You know, the social is emerging 243 00:11:11,880 --> 00:11:15,120 Speaker 5: from the primary is not going to win in Missouri, 244 00:11:15,160 --> 00:11:17,000 Speaker 5: but they can win in New York City. That's not 245 00:11:17,040 --> 00:11:18,600 Speaker 5: really a roadmap for the rest of the party. 246 00:11:18,760 --> 00:11:20,880 Speaker 2: Hey, John, I appreciate your thoughts as always, John Labor 247 00:11:21,360 --> 00:11:32,960 Speaker 2: of the range of Great John, I guess now is 248 00:11:33,000 --> 00:11:33,640 Speaker 2: Sheila Shelda? 249 00:11:33,679 --> 00:11:34,160 Speaker 5: Good to see you. 250 00:11:34,280 --> 00:11:34,719 Speaker 7: It's you. 251 00:11:34,800 --> 00:11:37,080 Speaker 2: The defense spending very much in focus given this headline 252 00:11:37,240 --> 00:11:39,760 Speaker 2: as well coming out of the NATO summit, companies like 253 00:11:39,840 --> 00:11:42,920 Speaker 2: Ryan mattau German Defense operator that stock is already up 254 00:11:43,120 --> 00:11:46,400 Speaker 2: one hundred and seventy seven percent so far this year. 255 00:11:46,440 --> 00:11:48,959 Speaker 2: How much of this story is already well priced? 256 00:11:49,360 --> 00:11:51,760 Speaker 7: Well, we focus on the US names, as you know, 257 00:11:51,840 --> 00:11:54,200 Speaker 7: John's coach and in terms of what we're seeing as 258 00:11:54,320 --> 00:11:56,400 Speaker 7: we're at the Paris are Show last week, it's historically 259 00:11:56,440 --> 00:11:58,920 Speaker 7: a commercial aerospace show. But a lot of focus on 260 00:11:58,960 --> 00:12:03,120 Speaker 7: defense exposure. European defense companies are trading at fifty times Zebadah. 261 00:12:03,160 --> 00:12:05,720 Speaker 7: These multiples are ridiculous, and we're seeing a lot of 262 00:12:05,760 --> 00:12:09,920 Speaker 7: focus from US investors into European names, but also undiscovered names. 263 00:12:09,920 --> 00:12:12,360 Speaker 7: Whether it's a name like Aero Environment that reported last night, 264 00:12:13,040 --> 00:12:15,360 Speaker 7: albeit in our coverage it's an Israeli named thirty percent 265 00:12:15,440 --> 00:12:19,000 Speaker 7: Israel exposure, twenty percent US exposure, twenty five percent Europe. 266 00:12:19,520 --> 00:12:22,920 Speaker 7: So who has hidden European exposure that could benefit from 267 00:12:23,080 --> 00:12:26,000 Speaker 7: some of the NATO spending, which is going to pour 268 00:12:26,400 --> 00:12:28,640 Speaker 7: hundreds of billions into additional defense spend. 269 00:12:28,679 --> 00:12:31,680 Speaker 4: Do we have a sense of which region of defense 270 00:12:31,720 --> 00:12:35,280 Speaker 4: contractors Europe will be working with disproportionately. Will it be 271 00:12:35,400 --> 00:12:40,199 Speaker 4: mostly European defense manufacturers, Will it be the United States? 272 00:12:40,320 --> 00:12:41,199 Speaker 4: Will it be elsewhere? 273 00:12:41,200 --> 00:12:41,760 Speaker 6: Does it matter? 274 00:12:41,880 --> 00:12:44,160 Speaker 4: Is this being used as a diplomatic tool or is 275 00:12:44,200 --> 00:12:46,080 Speaker 4: this just where they can get them in order to 276 00:12:46,080 --> 00:12:47,079 Speaker 4: get their forces up. 277 00:12:47,440 --> 00:12:50,560 Speaker 7: Historically it's been two thirds of European spending has been 278 00:12:50,600 --> 00:12:52,679 Speaker 7: flowed back to the US. But companies like ran Mattall 279 00:12:52,720 --> 00:12:55,719 Speaker 7: are really emerging investing in their local capacity. In the 280 00:12:55,760 --> 00:12:59,040 Speaker 7: last month, we've met with all five defense contractors, and 281 00:12:59,120 --> 00:12:59,920 Speaker 7: the common theme is. 282 00:13:00,080 --> 00:13:00,880 Speaker 4: Local for local. 283 00:13:01,240 --> 00:13:03,760 Speaker 7: Yes, we have a facility in Spain, we have a 284 00:13:03,800 --> 00:13:07,400 Speaker 7: facility in Poland. So we think about fifty percent of 285 00:13:07,440 --> 00:13:09,600 Speaker 7: the NATO spend will come back to the US. And 286 00:13:09,640 --> 00:13:12,040 Speaker 7: I actually think over the next five years it'll be 287 00:13:12,040 --> 00:13:16,480 Speaker 7: focused on missiles, munitions, replenishing what got lost in Ukraine. 288 00:13:16,600 --> 00:13:18,520 Speaker 7: And over the long term, I think what we'll lose 289 00:13:18,559 --> 00:13:21,120 Speaker 7: out on is the fighter aircraft, you know, the local 290 00:13:21,160 --> 00:13:26,600 Speaker 7: teams France SAB will have local manufacturing of larger equipment 291 00:13:27,040 --> 00:13:31,320 Speaker 7: in Europe, and US will still supply missiles air defense, 292 00:13:31,360 --> 00:13:33,480 Speaker 7: which is where the US really excels at. 293 00:13:33,600 --> 00:13:35,959 Speaker 4: Yeah, to build on that, there was this feeling and 294 00:13:36,000 --> 00:13:37,719 Speaker 4: John you mentioned it it was like watching top Gun 295 00:13:37,920 --> 00:13:40,600 Speaker 4: in action over the past couple of weeks in terms 296 00:13:40,600 --> 00:13:42,640 Speaker 4: of the B two bombers and what they actually engage 297 00:13:42,679 --> 00:13:44,960 Speaker 4: with and how much is that, you know, different countries 298 00:13:44,960 --> 00:13:47,240 Speaker 4: around the world saying I want that versus just the 299 00:13:47,320 --> 00:13:49,120 Speaker 4: very nuts and bolt of you know, I need another 300 00:13:49,160 --> 00:13:51,320 Speaker 4: missile here, I need another thing there. I mean, is 301 00:13:51,320 --> 00:13:54,840 Speaker 4: that kind of the sort of more humdrum aspect of 302 00:13:54,880 --> 00:13:57,280 Speaker 4: what we're actually talking about here from the European. 303 00:13:56,880 --> 00:13:59,200 Speaker 7: Buildout yeah, I think we have to give the North 304 00:13:59,240 --> 00:14:01,480 Speaker 7: or B two bomber minute here because I just I 305 00:14:01,520 --> 00:14:05,200 Speaker 7: think it's so amazing and it just happened this weekend 306 00:14:05,280 --> 00:14:08,280 Speaker 7: and everybody brushed it off on Monday morning. The last 307 00:14:08,280 --> 00:14:10,920 Speaker 7: time it was used was against Yemen in twenty twenty four, 308 00:14:10,960 --> 00:14:12,520 Speaker 7: but aside from that, it was used in Libya in 309 00:14:12,520 --> 00:14:15,240 Speaker 7: twenty seventeen and twenty eleven before that, so we don't 310 00:14:15,320 --> 00:14:17,360 Speaker 7: use these that often. I went to the facility in 311 00:14:17,400 --> 00:14:20,600 Speaker 7: Palmdale where Northurope sustains them. I mean, the coding itself 312 00:14:21,200 --> 00:14:24,480 Speaker 7: costs hundreds of millions to recode every time, so it's 313 00:14:24,520 --> 00:14:26,720 Speaker 7: pretty cool aircraft. We only have twenty of them. We 314 00:14:26,880 --> 00:14:30,160 Speaker 7: use seven over the weekend, so I think it also 315 00:14:30,240 --> 00:14:33,640 Speaker 7: helps accelerate the Trump agenda, whether it's the next generation 316 00:14:33,720 --> 00:14:37,360 Speaker 7: fighter with NGAD which they awarded to Boeing, and pulling 317 00:14:37,400 --> 00:14:39,800 Speaker 7: forward things like the B twenty one, which is also 318 00:14:39,880 --> 00:14:40,800 Speaker 7: a North of aircraft. 319 00:14:40,840 --> 00:14:42,880 Speaker 2: What about what we have seen sat place in Ukraine 320 00:14:43,440 --> 00:14:46,000 Speaker 2: in the war between Ukraine and Russia and their ability 321 00:14:46,400 --> 00:14:49,240 Speaker 2: to cause serious damage to air defense of the Russians 322 00:14:49,360 --> 00:14:51,960 Speaker 2: were just drones. That seems to be a major development 323 00:14:52,200 --> 00:14:54,160 Speaker 2: over the last couple of years, the character of war 324 00:14:54,200 --> 00:14:57,000 Speaker 2: has changed, and I wonder if the type of investments, 325 00:14:57,000 --> 00:14:59,520 Speaker 2: the kind of things that people invest in in defense 326 00:14:59,840 --> 00:15:00,640 Speaker 2: is changing too. 327 00:15:01,280 --> 00:15:04,000 Speaker 7: I think a little bit of both. The Reconciliation Bill, 328 00:15:04,000 --> 00:15:06,520 Speaker 7: which is about one hundred and fifty billion, has nine 329 00:15:06,560 --> 00:15:10,560 Speaker 7: billion dedicated to drones and other autonomous vehicles. So the 330 00:15:10,600 --> 00:15:14,160 Speaker 7: Trump agenda really focuses on accelerating technology and what the 331 00:15:14,200 --> 00:15:17,160 Speaker 7: next war will look like, whether it's against China, but 332 00:15:17,200 --> 00:15:19,720 Speaker 7: it also pushes forward their agenda. One of the things 333 00:15:19,760 --> 00:15:23,320 Speaker 7: I do really appreciate is how the bill really pulls 334 00:15:23,360 --> 00:15:27,280 Speaker 7: forward programs that are already accelerating, whether it's like tech 335 00:15:27,320 --> 00:15:29,840 Speaker 7: strons Flora program, if we have it, if it's in 336 00:15:29,840 --> 00:15:32,440 Speaker 7: the air, why are we waiting for certain milestones to 337 00:15:32,480 --> 00:15:32,960 Speaker 7: be reached? 338 00:15:33,200 --> 00:15:36,320 Speaker 2: Shida, important conversation, good to see. As a ways, Thank you, 339 00:15:36,560 --> 00:15:49,040 Speaker 2: Silda Holy that of Jeffries on defense, spending a lot 340 00:15:49,080 --> 00:15:51,200 Speaker 2: of spending on defense in Europe and again in the 341 00:15:51,320 --> 00:15:53,480 Speaker 2: United States. What does it mean for fixed income and 342 00:15:53,520 --> 00:15:56,240 Speaker 2: this spawn market? Matt home back at Morgan Stanley joins 343 00:15:56,320 --> 00:15:58,160 Speaker 2: us now for more. Matt, Welcome to the program. Sir 344 00:15:58,320 --> 00:16:00,480 Speaker 2: was going through the midiear outlook from yourself, the team. 345 00:16:00,680 --> 00:16:02,880 Speaker 2: Let's talk about the bond market, caill and the dollar. 346 00:16:02,920 --> 00:16:03,120 Speaker 6: Call. 347 00:16:03,160 --> 00:16:05,440 Speaker 2: With that in mind, what's the new base case for 348 00:16:05,480 --> 00:16:05,840 Speaker 2: you and the. 349 00:16:05,840 --> 00:16:09,000 Speaker 6: Team, John, thanks for having me on the show. 350 00:16:09,520 --> 00:16:14,320 Speaker 3: Yeah, we see both of these assets going down. 351 00:16:15,240 --> 00:16:17,840 Speaker 6: The dollar we see going down in price. 352 00:16:17,920 --> 00:16:22,560 Speaker 3: We have the dollar depreciating about ten percent over the 353 00:16:22,640 --> 00:16:26,040 Speaker 3: next twelve to eighteen months. And then for treasury yields, 354 00:16:26,040 --> 00:16:29,520 Speaker 3: we have treasure yields also falling. We have the tenure 355 00:16:29,600 --> 00:16:32,680 Speaker 3: yield ending this year at four percent, and we have 356 00:16:32,760 --> 00:16:35,600 Speaker 3: it ending closer to three percent by the end of 357 00:16:35,600 --> 00:16:39,800 Speaker 3: twenty twenty six. Now, both of these forecasts, of course, 358 00:16:39,840 --> 00:16:40,600 Speaker 3: are related. 359 00:16:41,520 --> 00:16:44,320 Speaker 6: They are driven primarily by. 360 00:16:44,120 --> 00:16:48,040 Speaker 3: A federal reserve, which ends up cutting policy rates much 361 00:16:48,080 --> 00:16:52,880 Speaker 3: more aggressively than what markets are currently pricing in. We're 362 00:16:52,920 --> 00:16:56,200 Speaker 3: more confident, i would say, on the magnitude and the 363 00:16:56,280 --> 00:16:59,840 Speaker 3: direction of those rate cuts as opposed to the exact 364 00:17:00,680 --> 00:17:04,560 Speaker 3: of those cuts. As I'm sure you read in the note, 365 00:17:04,960 --> 00:17:06,919 Speaker 3: we don't have the FED cutting this year, but we 366 00:17:06,960 --> 00:17:09,399 Speaker 3: have the FED cutting a lot next year. That's an 367 00:17:09,400 --> 00:17:12,600 Speaker 3: interesting feature of the outlook, but is one that's subject 368 00:17:12,600 --> 00:17:13,359 Speaker 3: to change, of course. 369 00:17:13,560 --> 00:17:15,680 Speaker 2: Matt, what are the economic conditions that lead to those 370 00:17:15,720 --> 00:17:17,520 Speaker 2: deep cuts in twenty six. 371 00:17:18,760 --> 00:17:19,080 Speaker 6: Yeah. 372 00:17:19,119 --> 00:17:24,080 Speaker 3: So, ultimately, the first is that we get past the 373 00:17:24,200 --> 00:17:29,840 Speaker 3: hump on tariffs. Right, tariffs create a temporary inflationary impact. 374 00:17:30,200 --> 00:17:34,119 Speaker 3: Our economists have that impact concentrated in the third quarter 375 00:17:34,200 --> 00:17:36,080 Speaker 3: of this year, and then by the time we get 376 00:17:36,080 --> 00:17:39,040 Speaker 3: to the fourth quarter, those tariff effects are starting to 377 00:17:39,080 --> 00:17:42,720 Speaker 3: fade away and you begin to see the weakness and 378 00:17:42,760 --> 00:17:46,840 Speaker 3: the labor market really come through. That's ultimately what catalyzes 379 00:17:47,119 --> 00:17:50,080 Speaker 3: that discussion on the Fed to begin lowering rates, which 380 00:17:50,400 --> 00:17:53,840 Speaker 3: our economics team has happening in the first quarter of 381 00:17:53,880 --> 00:17:54,360 Speaker 3: next year. 382 00:17:54,640 --> 00:17:56,720 Speaker 4: Why aren't you worried, Matt, that when the Fed does 383 00:17:56,760 --> 00:17:59,399 Speaker 4: lower rates, it won't cause the long end yield to 384 00:17:59,560 --> 00:18:01,880 Speaker 4: rise kin to what we saw last year. 385 00:18:03,280 --> 00:18:06,479 Speaker 3: Yeah, well, I think what happened last year Lisa is 386 00:18:06,920 --> 00:18:09,439 Speaker 3: the Fed did cut rates, and interest rates did go 387 00:18:09,560 --> 00:18:12,840 Speaker 3: down temporarily. But then we went into the US election 388 00:18:13,119 --> 00:18:17,960 Speaker 3: and the market, being forward looking, began to speculate on 389 00:18:18,080 --> 00:18:21,280 Speaker 3: what was to come after the election, and of course 390 00:18:21,280 --> 00:18:24,760 Speaker 3: at that time, investors were thinking about much larger deficits, 391 00:18:25,040 --> 00:18:28,720 Speaker 3: more government bonds supply, kind of a better economic outlook 392 00:18:28,880 --> 00:18:32,280 Speaker 3: than we think exists at the moment. So it was 393 00:18:32,320 --> 00:18:36,680 Speaker 3: a different time, and we're not expecting that to happen again, 394 00:18:37,160 --> 00:18:39,160 Speaker 3: at least for another three and a half years, Matt. 395 00:18:39,320 --> 00:18:42,440 Speaker 4: Given the discussions heading into July fourth and then July ninth, 396 00:18:42,560 --> 00:18:44,720 Speaker 4: it does seem like the deficits going to deepen in 397 00:18:44,760 --> 00:18:47,280 Speaker 4: the United States. Why is that not a threat to 398 00:18:47,320 --> 00:18:50,040 Speaker 4: your call to go into duration to buy those ten 399 00:18:50,119 --> 00:18:53,000 Speaker 4: year bonds that maybe other people are steering clear of. 400 00:18:54,320 --> 00:18:58,040 Speaker 3: Well, the expectations for the deficit have actually changed quite 401 00:18:58,040 --> 00:19:02,119 Speaker 3: a lot, and the primary driver that change is, of course, tariffs. 402 00:19:02,280 --> 00:19:06,000 Speaker 3: Coming into this year, most investors didn't expect the Trump 403 00:19:06,040 --> 00:19:09,560 Speaker 3: administration to do as much with tariffs as they have done. 404 00:19:09,600 --> 00:19:12,560 Speaker 3: And so when we think about what kind of revenue 405 00:19:12,680 --> 00:19:15,720 Speaker 3: are these tariffs going to generate? And don't ask us, 406 00:19:15,720 --> 00:19:18,440 Speaker 3: you can ask the Congressional Budget Office what it thinks 407 00:19:18,440 --> 00:19:21,760 Speaker 3: about the revenues generated by the tariffs that are currently 408 00:19:21,760 --> 00:19:26,120 Speaker 3: in place today, And the CBO scored that tariff revenue 409 00:19:26,520 --> 00:19:28,800 Speaker 3: around two and a half trillion dollars over ten years. 410 00:19:29,000 --> 00:19:33,080 Speaker 3: Presumably some of that's front loaded, So we are seeing 411 00:19:33,119 --> 00:19:37,040 Speaker 3: a meaningful increase in revenue that was not expected coming 412 00:19:37,080 --> 00:19:40,720 Speaker 3: into the year. That's going to mean that deficit expectations 413 00:19:40,720 --> 00:19:44,359 Speaker 3: are actually lower than where they were right around the 414 00:19:44,400 --> 00:19:46,240 Speaker 3: time of the election last November. 415 00:19:46,480 --> 00:19:48,840 Speaker 2: Matt, have you got a window in that office? Going 416 00:19:48,920 --> 00:19:50,440 Speaker 2: to extend a window? Some daylight? 417 00:19:51,640 --> 00:19:54,879 Speaker 3: I do have some daylight. Good, but really my daylight 418 00:19:54,920 --> 00:19:56,679 Speaker 3: comes from the picture of my daughter behind me. 419 00:19:56,920 --> 00:20:00,000 Speaker 2: That's beautiful. Matt homeback of Malken Stanley. Matt, thank you. 420 00:20:00,760 --> 00:20:04,320 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 421 00:20:04,359 --> 00:20:07,439 Speaker 2: in markets, economics, a gio politics. 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