WEBVTT - Bloomberg Surveillance TV: June 25, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 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 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.000 Terminal and the Bloomberg Business app. This Turns a Crude. 0:00:37.040 --> 0:00:39.920 President Trump surprising traders by posting on True Social that 0:00:40.040 --> 0:00:43.640 China can continue purchasing oil from Iran, Brent crude coming 0:00:43.720 --> 0:00:46.800 off the biggest two data client since twenty twenty two, 0:00:47.000 --> 0:00:49.800 and Rediscent of Energy Aspects joined us now for more 0:00:49.840 --> 0:00:51.599 and Rita, I want to get to this, this line 0:00:51.640 --> 0:00:53.680 that's coming for the president. Can you help me answer this? 0:00:53.960 --> 0:01:00.120 When did China stop buying a Runnian crude? 0:01:00.480 --> 0:01:02.760 I think that's a question you might have to ask him. 0:01:02.800 --> 0:01:05.560 But basically there's been a lot of confusion since that 0:01:05.640 --> 0:01:09.600 statement that, to your point, China hasn't stopped buying Iranian crewed. 0:01:09.680 --> 0:01:12.360 China still buying one point five to one point seven 0:01:12.360 --> 0:01:15.800 million barrel speer of Iranian crude. There was maximum pressure 0:01:15.840 --> 0:01:18.920 under the first Trump administration, which did get exports down 0:01:18.959 --> 0:01:21.920 to four hundred thousand, but then since the Biden administration 0:01:22.400 --> 0:01:24.240 took office, it's been kind of creeping up. And then 0:01:24.280 --> 0:01:26.959 election and high all prices were an issue, so the 0:01:27.000 --> 0:01:30.440 administration turned a blind eye. So yesterday when the kind 0:01:30.480 --> 0:01:33.280 of tweet came out, everybody was like, Okay, does this 0:01:33.360 --> 0:01:34.760 mean sanctions are being lifted? 0:01:35.720 --> 0:01:35.880 You know? 0:01:35.959 --> 0:01:38.360 Anyway, the point being, since then the White House has 0:01:38.400 --> 0:01:42.080 clarified this is not a change in sanctions policy. However, 0:01:42.720 --> 0:01:44.760 we would also say this does mean that there's not 0:01:44.840 --> 0:01:47.920 going to be a tightening in sanctions either. I status 0:01:47.920 --> 0:01:50.520 score prevails, China continues to buy about one point five 0:01:50.520 --> 0:01:53.120 to one point seven million barrel spade of Iranian all. 0:01:53.160 --> 0:01:54.640 Just built on some of those numbers, Zen rat, what 0:01:54.720 --> 0:01:57.520 is that of a share of total Iranian production? The 0:01:57.520 --> 0:02:04.840 amount of barrels that are on the market right now already. 0:02:03.120 --> 0:02:05.880 So Iranian production is about three and a half eh 0:02:05.960 --> 0:02:08.600 million barrels putting oscillates a bit between three point five 0:02:08.639 --> 0:02:12.239 three point seven. All their exports, whatever they are exporting, 0:02:12.240 --> 0:02:15.440 goes to China and the rest of it is consumed domestically. 0:02:15.520 --> 0:02:17.240 Which is the reason why this is such a big 0:02:17.760 --> 0:02:19.959 potential buyer and why this is such a big deal 0:02:20.000 --> 0:02:22.200 for the oil markets in terms of who else would 0:02:22.200 --> 0:02:24.960 supply that and what this would mean for the price. 0:02:25.200 --> 0:02:28.279 Does this suggest that this is part of the ongoing negotiation, 0:02:28.560 --> 0:02:31.400 that the goal is to keep oil prices low and 0:02:31.440 --> 0:02:33.920 the bet against that is frankly a fool's earned. 0:02:37.120 --> 0:02:40.320 I would say that's exactly how the market's interpreting it. 0:02:40.400 --> 0:02:42.280 You know, when we are talking to our clients, the 0:02:42.520 --> 0:02:45.320 general impression is that, look, we know President Trump wants 0:02:45.400 --> 0:02:47.440 low oil prices. He's gonna get it in one way 0:02:47.520 --> 0:02:49.920 or the other. Right, So if that means that, especially 0:02:50.040 --> 0:02:52.320 because we were in the high seventies not that long ago, 0:02:52.600 --> 0:02:54.640 that means that we are not gonna see tightening up sanctions, 0:02:54.639 --> 0:02:57.120 and I think traders are very much focused on that. 0:02:57.639 --> 0:02:59.920 The fact that he wants low oil prices, especially ahead 0:02:59.919 --> 0:03:03.280 of the bill, and he has been saying that consistently right, 0:03:03.280 --> 0:03:05.359 that he doesn't want prices to go up. Inflation is 0:03:05.400 --> 0:03:09.120 a big concern. So that's where I think the market 0:03:09.160 --> 0:03:11.400 kind of reality. That's why the market reacted the way 0:03:11.400 --> 0:03:13.360 it did in terms of selling it so hard. But 0:03:13.400 --> 0:03:15.760 at least since then it's been clarification that sanctions are 0:03:15.760 --> 0:03:18.200 still in place. This is China avoiding sanctions in the 0:03:18.280 --> 0:03:20.800 US not doing anything about it. But yes, it does 0:03:20.919 --> 0:03:22.680 mean that there's more oil in the market than otherwise 0:03:22.680 --> 0:03:23.000 would be. 0:03:23.120 --> 0:03:23.520 But from a. 0:03:23.440 --> 0:03:26.359 Trading perspective or MADA doesn't this act as a cautionary 0:03:26.400 --> 0:03:29.160 tale to anyone who tries to expect oil prices to 0:03:29.240 --> 0:03:31.720 rally in any kind of material way, that there is 0:03:31.919 --> 0:03:35.120 a Trump put an essence on that, that there is 0:03:35.160 --> 0:03:39.960 a willingness to navigate the geopolitical situation in a way 0:03:40.200 --> 0:03:42.760 that brings down oil prices one way or another. So 0:03:42.800 --> 0:03:44.840 why would you bet one hundred dollars crued or ninety 0:03:44.880 --> 0:03:46.920 dollars accrued, which is the worst case scenario that so 0:03:46.920 --> 0:03:48.520 many people are talking about. 0:03:51.160 --> 0:03:53.280 Yeah, no, I completely agree, and I've been surprised that 0:03:53.320 --> 0:03:55.280 people have been calling for that. You know, we've never 0:03:55.480 --> 0:03:57.560 I mean, I've been with you guys saying that non 0:03:57.600 --> 0:03:59.480 seventy and eighty is not going to be sustainable given 0:03:59.520 --> 0:04:02.040 where the ballot are and you know, people are looking 0:04:02.120 --> 0:04:04.840 towards those bills that we are also predicting from Q 0:04:04.920 --> 0:04:07.720 four onwards. I think the challenge, of course, is that 0:04:07.800 --> 0:04:10.520 this is not a market you can short either, because 0:04:10.520 --> 0:04:14.520 these risks and the geopolitical risks are real. Fundamentally, though 0:04:14.840 --> 0:04:17.840 the writer right now remains very very tight. Stocks are 0:04:17.920 --> 0:04:20.160 very tight. Cushing just look at that, it's super low. 0:04:20.839 --> 0:04:23.720 So this is this is also equally hard to short. 0:04:23.760 --> 0:04:26.560 But on a macro level, your point is very valid 0:04:26.600 --> 0:04:29.719 that Trump and his policies will somehow make sure that 0:04:29.760 --> 0:04:33.080 prices don't run away too quickly. It does mean that 0:04:33.240 --> 0:04:35.359 generally there's a bias towards the lower side. 0:04:35.400 --> 0:04:37.159 I'm rat can we just finish up asking you what 0:04:37.200 --> 0:04:39.400 the demands side looks like at the moment. I think 0:04:39.400 --> 0:04:41.560 economists are really scratching their heads at the moment about 0:04:41.760 --> 0:04:44.440 when the economy is, particularly here in the United States, 0:04:44.440 --> 0:04:46.919 we're trying to gauge where we are speaking to company executives. 0:04:46.920 --> 0:04:49.520 What's your take just looking through the prism of crude oil. 0:04:52.720 --> 0:04:55.279 Yeah, I mean it's not great, but it's not dire either, 0:04:55.320 --> 0:04:57.320 And I think we're kind of in between our demand 0:04:57.400 --> 0:04:59.680 numbers between seven to eight hundred thousand boules per day 0:04:59.680 --> 0:05:03.719 growth year on year. Again, the US is actually doing okay, 0:05:03.760 --> 0:05:06.880 Europe is doing very well, China not so much. And 0:05:06.920 --> 0:05:09.279 I think that's kind of the spectrum. We don't think 0:05:09.320 --> 0:05:12.320 this is a recessionary environment in the sense of what 0:05:12.320 --> 0:05:14.960 people were expecting when tariff fears were at its peak. 0:05:15.279 --> 0:05:17.800 But it's also not an environment where global growth is 0:05:17.880 --> 0:05:19.160 humming along very nicely. 0:05:19.400 --> 0:05:21.560 I'm ready to say advantagy aspects. I'm ready to thank 0:05:21.560 --> 0:05:33.640 you joining us. Now have to discuss John Leeber of 0:05:33.720 --> 0:05:36.239 the Erasia Group. John, welcome to the program, sir. Before 0:05:36.279 --> 0:05:38.520 we get sort of needy with what's handling over in Europe, 0:05:38.520 --> 0:05:40.400 I think we want to talk about the president's agenda 0:05:40.600 --> 0:05:43.400 and the key deadline still to come July fourth, the 0:05:43.440 --> 0:05:46.560 south impost deadline for the tax bill. July ninth, this 0:05:46.680 --> 0:05:49.640 south impost deadline for a trade deal with the whole 0:05:49.640 --> 0:05:51.520 host of countries. John, where do you think will be 0:05:51.640 --> 0:05:53.640 by the time we get to the middle of July. 0:05:55.360 --> 0:05:58.240 You know, this tax deal is coming together and they're 0:05:58.279 --> 0:06:00.440 basically done with it. There's a couple of kind of 0:06:00.600 --> 0:06:02.880 dotted eyes and cross te's they've got to think about 0:06:02.920 --> 0:06:03.880 right now, and of. 0:06:03.839 --> 0:06:06.760 Course there's the House of Representatives, who. 0:06:06.560 --> 0:06:08.479 Isn't going to like the deal that's coming out of 0:06:08.480 --> 0:06:10.760 the Senate necessarily, but I think it's going to have 0:06:10.760 --> 0:06:13.320 a really hard time voting against this thing. You're going 0:06:13.360 --> 0:06:16.039 to have unanimity among the conservatives in the Senate to 0:06:16.080 --> 0:06:19.160 pass a bill with deep cuts to Medicaid, the most 0:06:19.640 --> 0:06:23.080 impactful cuts that they've done on an entitlement program in decades. 0:06:23.920 --> 0:06:25.720 And I think that some of the moderate members are 0:06:25.720 --> 0:06:27.679 probably where you're going to have a harder time getting 0:06:27.680 --> 0:06:30.359 the votes because of the issue with the salt cap, 0:06:30.880 --> 0:06:32.840 which is how the Senate's moved back down to ten 0:06:32.880 --> 0:06:35.640 thousand dollars. The House had passed it at forty thousand dollars. 0:06:35.880 --> 0:06:38.000 That's going to be an issue you have to work out. 0:06:38.120 --> 0:06:40.800 But it you know, Brett, President Trump now out there 0:06:40.839 --> 0:06:42.880 true thing that nobody should go home for the fourth 0:06:42.920 --> 0:06:45.680 of July holiday until this has passed. If it doesn't 0:06:45.720 --> 0:06:48.560 pass next week, it's going to pass shortly thereafter. On 0:06:48.600 --> 0:06:51.400 the tariffs, you know that ninety day pause is up 0:06:51.440 --> 0:06:54.400 on July ninth, and a lot of countries, you know, 0:06:54.440 --> 0:06:56.840 there's a lot of countries are still negotiating their deals. 0:06:56.920 --> 0:06:59.479 So I think it's notable that despite the really early 0:06:59.520 --> 0:07:04.599 momentum around Japan, India, the UK of course announced something. 0:07:04.760 --> 0:07:06.239 You haven't finalized anything. 0:07:06.320 --> 0:07:08.920 So they're going to have to extend this ninety day deadline, 0:07:09.200 --> 0:07:11.200 and they're probably going to do it for most of 0:07:11.240 --> 0:07:12.160 the biggest countries. 0:07:12.480 --> 0:07:14.440 But I also think they're going to send a message. 0:07:14.080 --> 0:07:17.920 Here by increasing tariffs on some countries, maybe not back 0:07:17.920 --> 0:07:21.200 to Liberation Day levels. Trump still has total discretion here 0:07:21.400 --> 0:07:23.400 as to what level he's going to get to. But 0:07:23.680 --> 0:07:25.800 some of these tariffs are going up, and only Trump 0:07:25.880 --> 0:07:28.240 knows which ones that is. The White House staff doesn't know, 0:07:28.480 --> 0:07:30.600 and I think they probably haven't made that determination and 0:07:30.680 --> 0:07:31.880 won't for at least a week or two. 0:07:32.000 --> 0:07:35.040 And John, this president doesn't stop, by the looks of things, 0:07:35.160 --> 0:07:37.920 He never sleeps. After the next few weeks, what's left 0:07:37.920 --> 0:07:39.680 of his agenda? What does he focus on? 0:07:40.680 --> 0:07:42.800 I think that it's going to be crisis response, right, So, 0:07:42.800 --> 0:07:44.400 I mean this is going to look a lot like 0:07:44.840 --> 0:07:46.880 the first Trump term where they did the tax You 0:07:46.880 --> 0:07:48.840 know that they tried and fail on healthcare in the 0:07:48.840 --> 0:07:51.000 first half of the year, and then the second half 0:07:51.040 --> 0:07:53.440 of his first year was all tax reform. And then 0:07:53.480 --> 0:07:55.240 in year two it was kind of just you know, 0:07:55.360 --> 0:07:58.440 Trump tweeting about all kinds of subjects that was whatever 0:07:58.520 --> 0:08:00.600 was on his mind and responding to what was going 0:08:00.600 --> 0:08:02.480 on in the world, and then of course picking a 0:08:02.520 --> 0:08:05.480 trade battle with China. He's already picked the trade battles. 0:08:05.480 --> 0:08:08.040 He's going to be done with his tax agenda. You know, 0:08:08.040 --> 0:08:10.120 there's going to be foreign policy crises that come up 0:08:10.160 --> 0:08:12.040 from time to time, like we just saw in Iran 0:08:12.120 --> 0:08:12.760 this week. 0:08:12.760 --> 0:08:14.920 But he's not actively pushing much. 0:08:15.280 --> 0:08:17.600 And on the deregulation front, you know, I hear a 0:08:17.640 --> 0:08:21.000 lot of people talking about the tailwind coming from deregulation 0:08:21.320 --> 0:08:24.880 in the latter half of Trump's term coming up. But 0:08:25.160 --> 0:08:28.120 that stuff takes time, and they're going to stop enforcement 0:08:28.200 --> 0:08:32.400 across a number of for example, financial regulations basically, but 0:08:32.480 --> 0:08:35.440 deregulation itself is a whole process, and if they want 0:08:35.440 --> 0:08:37.120 it to stick up in the court, they have to 0:08:37.160 --> 0:08:37.760 do it right. 0:08:37.880 --> 0:08:38.840 And doing it right. 0:08:38.760 --> 0:08:41.160 Means going slow, and it means you won't see the 0:08:41.200 --> 0:08:45.600 results from the deregulation, if there is any, until possibly 0:08:45.600 --> 0:08:48.079 the end of Trump's term or even after, when all 0:08:48.080 --> 0:08:50.840 of that, of course, could be reversed potentially by a Democrat. 0:08:50.520 --> 0:08:51.760 John, There's a lot to unpack there. 0:08:51.840 --> 0:08:54.240 I want to talk about crisis response in particular to 0:08:54.720 --> 0:08:58.160 foreign policy. It seems like people are taking the recent 0:08:58.160 --> 0:09:00.520 developments in the Middle East as providing something of a 0:09:00.600 --> 0:09:05.239 roadmap for how President Trump will respond to future international crises. 0:09:05.520 --> 0:09:06.560 What's your take on that. 0:09:06.760 --> 0:09:09.800 What did we learn from the way the President handled 0:09:09.880 --> 0:09:12.720 Iran and the attacks by Israel. 0:09:13.080 --> 0:09:13.320 Yeah. 0:09:13.400 --> 0:09:15.040 I think what we learned, and this has been a 0:09:15.080 --> 0:09:18.680 pattern throughout Trump's time, is that foreign policy's pretty easy 0:09:18.720 --> 0:09:21.520 for him when there's a power imbalance. When there's a 0:09:21.559 --> 0:09:24.480 power imbalance and the US can respond with overwhelming force 0:09:24.640 --> 0:09:27.240 and has no risk really of being struck back at 0:09:27.679 --> 0:09:30.320 Trump will strike. He did it in Iran twice now 0:09:30.400 --> 0:09:33.880 with the assassination of Sulimaney and now this unprecedented level 0:09:33.880 --> 0:09:36.480 of bombing. But if you look, for example, at Russia, 0:09:36.760 --> 0:09:39.520 where there's less of a power imbalance, they have nuclear 0:09:39.600 --> 0:09:43.319 arms already, there's nothing really Trump can do to intervene 0:09:43.400 --> 0:09:45.320 in that conflict. So I think this is going to 0:09:45.320 --> 0:09:47.719 be something that other countries are paying attention to. I'm 0:09:47.720 --> 0:09:50.440 sure China is paying attention to what happened in Iran 0:09:50.520 --> 0:09:53.880 this week. China's diplomacy and their ambitions have a much 0:09:53.920 --> 0:09:58.200 longer timeframe, and they're much less of an active threat 0:09:58.280 --> 0:10:01.480 to their neighbors than Iran Wi, So that situation is 0:10:01.480 --> 0:10:03.960 obviously very different, of course, But I do think that 0:10:04.960 --> 0:10:06.880 I think that Trump is willing to act. He's not 0:10:06.920 --> 0:10:09.199 going to commit American troops on the ground that I 0:10:09.280 --> 0:10:10.959 think that's a red line for him, but he is 0:10:11.000 --> 0:10:14.599 willing to throw American firepower at countries that are irritating 0:10:14.679 --> 0:10:17.559 him if he thinks he's going to win without consequences. 0:10:17.679 --> 0:10:18.840 This is kind of a curveball. 0:10:19.200 --> 0:10:21.720 But you talk about we learned something about President Trump's 0:10:21.760 --> 0:10:25.640 response based on the mayoral primary election in New York. 0:10:26.040 --> 0:10:29.280 What have we learned about the Democratic response to President 0:10:29.320 --> 0:10:32.480 Trump's policies, if anything, Has that sort of served as 0:10:32.480 --> 0:10:33.440 something of a roadmap? 0:10:34.160 --> 0:10:35.240 Yeah, I don't think so. 0:10:35.320 --> 0:10:35.400 No. 0:10:35.520 --> 0:10:38.000 I mean, New York City, you know, great, most important 0:10:38.040 --> 0:10:40.760 city in the country, but it is not representative of 0:10:40.800 --> 0:10:43.120 the rest of America. And I don't think that a 0:10:43.280 --> 0:10:45.920 socialist mayor in New York City is going to be 0:10:45.960 --> 0:10:48.840 a look that the rest of the Democratic Party necessarily 0:10:48.960 --> 0:10:52.200 wants to embrace for the midterm elections. I expect the 0:10:52.200 --> 0:10:54.960 party's going to try to run from him. However, there 0:10:55.040 --> 0:10:57.760 is going to be a backlash against President Trump that 0:10:57.880 --> 0:11:00.480 is going to have very is going to have the 0:11:00.720 --> 0:11:03.319 left wing in its flavor, and that is going to 0:11:03.360 --> 0:11:04.880 be a national story. And you're going to have this 0:11:04.960 --> 0:11:07.920 battle inside the Democratic Party for who's most likely to 0:11:07.960 --> 0:11:11.880 win in general elections. You know, the social is emerging 0:11:11.880 --> 0:11:15.120 from the primary is not going to win in Missouri, 0:11:15.160 --> 0:11:17.000 but they can win in New York City. That's not 0:11:17.040 --> 0:11:18.600 really a roadmap for the rest of the party. 0:11:18.760 --> 0:11:20.880 Hey, John, I appreciate your thoughts as always, John Labor 0:11:21.360 --> 0:11:32.960 of the range of Great John, I guess now is 0:11:33.000 --> 0:11:33.640 Sheila Shelda? 0:11:33.679 --> 0:11:34.160 Good to see you. 0:11:34.280 --> 0:11:34.719 It's you. 0:11:34.800 --> 0:11:37.080 The defense spending very much in focus given this headline 0:11:37.240 --> 0:11:39.760 as well coming out of the NATO summit, companies like 0:11:39.840 --> 0:11:42.920 Ryan mattau German Defense operator that stock is already up 0:11:43.120 --> 0:11:46.400 one hundred and seventy seven percent so far this year. 0:11:46.440 --> 0:11:48.959 How much of this story is already well priced? 0:11:49.360 --> 0:11:51.760 Well, we focus on the US names, as you know, 0:11:51.840 --> 0:11:54.200 John's coach and in terms of what we're seeing as 0:11:54.320 --> 0:11:56.400 we're at the Paris are Show last week, it's historically 0:11:56.440 --> 0:11:58.920 a commercial aerospace show. But a lot of focus on 0:11:58.960 --> 0:12:03.120 defense exposure. European defense companies are trading at fifty times Zebadah. 0:12:03.160 --> 0:12:05.720 These multiples are ridiculous, and we're seeing a lot of 0:12:05.760 --> 0:12:09.920 focus from US investors into European names, but also undiscovered names. 0:12:09.920 --> 0:12:12.360 Whether it's a name like Aero Environment that reported last night, 0:12:13.040 --> 0:12:15.360 albeit in our coverage it's an Israeli named thirty percent 0:12:15.440 --> 0:12:19.000 Israel exposure, twenty percent US exposure, twenty five percent Europe. 0:12:19.520 --> 0:12:22.920 So who has hidden European exposure that could benefit from 0:12:23.080 --> 0:12:26.000 some of the NATO spending, which is going to pour 0:12:26.400 --> 0:12:28.640 hundreds of billions into additional defense spend. 0:12:28.679 --> 0:12:31.680 Do we have a sense of which region of defense 0:12:31.720 --> 0:12:35.280 contractors Europe will be working with disproportionately. Will it be 0:12:35.400 --> 0:12:40.199 mostly European defense manufacturers, Will it be the United States? 0:12:40.320 --> 0:12:41.199 Will it be elsewhere? 0:12:41.200 --> 0:12:41.760 Does it matter? 0:12:41.880 --> 0:12:44.160 Is this being used as a diplomatic tool or is 0:12:44.200 --> 0:12:46.080 this just where they can get them in order to 0:12:46.080 --> 0:12:47.079 get their forces up. 0:12:47.440 --> 0:12:50.560 Historically it's been two thirds of European spending has been 0:12:50.600 --> 0:12:52.679 flowed back to the US. But companies like ran Mattall 0:12:52.720 --> 0:12:55.719 are really emerging investing in their local capacity. In the 0:12:55.760 --> 0:12:59.040 last month, we've met with all five defense contractors, and 0:12:59.120 --> 0:12:59.920 the common theme is. 0:13:00.080 --> 0:13:00.880 Local for local. 0:13:01.240 --> 0:13:03.760 Yes, we have a facility in Spain, we have a 0:13:03.800 --> 0:13:07.400 facility in Poland. So we think about fifty percent of 0:13:07.440 --> 0:13:09.600 the NATO spend will come back to the US. And 0:13:09.640 --> 0:13:12.040 I actually think over the next five years it'll be 0:13:12.040 --> 0:13:16.480 focused on missiles, munitions, replenishing what got lost in Ukraine. 0:13:16.600 --> 0:13:18.520 And over the long term, I think what we'll lose 0:13:18.559 --> 0:13:21.120 out on is the fighter aircraft, you know, the local 0:13:21.160 --> 0:13:26.600 teams France SAB will have local manufacturing of larger equipment 0:13:27.040 --> 0:13:31.320 in Europe, and US will still supply missiles air defense, 0:13:31.360 --> 0:13:33.480 which is where the US really excels at. 0:13:33.600 --> 0:13:35.959 Yeah, to build on that, there was this feeling and 0:13:36.000 --> 0:13:37.719 John you mentioned it it was like watching top Gun 0:13:37.920 --> 0:13:40.600 in action over the past couple of weeks in terms 0:13:40.600 --> 0:13:42.640 of the B two bombers and what they actually engage 0:13:42.679 --> 0:13:44.960 with and how much is that, you know, different countries 0:13:44.960 --> 0:13:47.240 around the world saying I want that versus just the 0:13:47.320 --> 0:13:49.120 very nuts and bolt of you know, I need another 0:13:49.160 --> 0:13:51.320 missile here, I need another thing there. I mean, is 0:13:51.320 --> 0:13:54.840 that kind of the sort of more humdrum aspect of 0:13:54.880 --> 0:13:57.280 what we're actually talking about here from the European. 0:13:56.880 --> 0:13:59.200 Buildout yeah, I think we have to give the North 0:13:59.240 --> 0:14:01.480 or B two bomber minute here because I just I 0:14:01.520 --> 0:14:05.200 think it's so amazing and it just happened this weekend 0:14:05.280 --> 0:14:08.280 and everybody brushed it off on Monday morning. The last 0:14:08.280 --> 0:14:10.920 time it was used was against Yemen in twenty twenty four, 0:14:10.960 --> 0:14:12.520 but aside from that, it was used in Libya in 0:14:12.520 --> 0:14:15.240 twenty seventeen and twenty eleven before that, so we don't 0:14:15.320 --> 0:14:17.360 use these that often. I went to the facility in 0:14:17.400 --> 0:14:20.600 Palmdale where Northurope sustains them. I mean, the coding itself 0:14:21.200 --> 0:14:24.480 costs hundreds of millions to recode every time, so it's 0:14:24.520 --> 0:14:26.720 pretty cool aircraft. We only have twenty of them. We 0:14:26.880 --> 0:14:30.160 use seven over the weekend, so I think it also 0:14:30.240 --> 0:14:33.640 helps accelerate the Trump agenda, whether it's the next generation 0:14:33.720 --> 0:14:37.360 fighter with NGAD which they awarded to Boeing, and pulling 0:14:37.400 --> 0:14:39.800 forward things like the B twenty one, which is also 0:14:39.880 --> 0:14:40.800 a North of aircraft. 0:14:40.840 --> 0:14:42.880 What about what we have seen sat place in Ukraine 0:14:43.440 --> 0:14:46.000 in the war between Ukraine and Russia and their ability 0:14:46.400 --> 0:14:49.240 to cause serious damage to air defense of the Russians 0:14:49.360 --> 0:14:51.960 were just drones. That seems to be a major development 0:14:52.200 --> 0:14:54.160 over the last couple of years, the character of war 0:14:54.200 --> 0:14:57.000 has changed, and I wonder if the type of investments, 0:14:57.000 --> 0:14:59.520 the kind of things that people invest in in defense 0:14:59.840 --> 0:15:00.640 is changing too. 0:15:01.280 --> 0:15:04.000 I think a little bit of both. The Reconciliation Bill, 0:15:04.000 --> 0:15:06.520 which is about one hundred and fifty billion, has nine 0:15:06.560 --> 0:15:10.560 billion dedicated to drones and other autonomous vehicles. So the 0:15:10.600 --> 0:15:14.160 Trump agenda really focuses on accelerating technology and what the 0:15:14.200 --> 0:15:17.160 next war will look like, whether it's against China, but 0:15:17.200 --> 0:15:19.720 it also pushes forward their agenda. One of the things 0:15:19.760 --> 0:15:23.320 I do really appreciate is how the bill really pulls 0:15:23.360 --> 0:15:27.280 forward programs that are already accelerating, whether it's like tech 0:15:27.320 --> 0:15:29.840 strons Flora program, if we have it, if it's in 0:15:29.840 --> 0:15:32.440 the air, why are we waiting for certain milestones to 0:15:32.480 --> 0:15:32.960 be reached? 0:15:33.200 --> 0:15:36.320 Shida, important conversation, good to see. As a ways, Thank you, 0:15:36.560 --> 0:15:49.040 Silda Holy that of Jeffries on defense, spending a lot 0:15:49.080 --> 0:15:51.200 of spending on defense in Europe and again in the 0:15:51.320 --> 0:15:53.480 United States. What does it mean for fixed income and 0:15:53.520 --> 0:15:56.240 this spawn market? Matt home back at Morgan Stanley joins 0:15:56.320 --> 0:15:58.160 us now for more. Matt, Welcome to the program. Sir 0:15:58.320 --> 0:16:00.480 was going through the midiear outlook from yourself, the team. 0:16:00.680 --> 0:16:02.880 Let's talk about the bond market, caill and the dollar. 0:16:02.920 --> 0:16:03.120 Call. 0:16:03.160 --> 0:16:05.440 With that in mind, what's the new base case for 0:16:05.480 --> 0:16:05.840 you and the. 0:16:05.840 --> 0:16:09.000 Team, John, thanks for having me on the show. 0:16:09.520 --> 0:16:14.320 Yeah, we see both of these assets going down. 0:16:15.240 --> 0:16:17.840 The dollar we see going down in price. 0:16:17.920 --> 0:16:22.560 We have the dollar depreciating about ten percent over the 0:16:22.640 --> 0:16:26.040 next twelve to eighteen months. And then for treasury yields, 0:16:26.040 --> 0:16:29.520 we have treasure yields also falling. We have the tenure 0:16:29.600 --> 0:16:32.680 yield ending this year at four percent, and we have 0:16:32.760 --> 0:16:35.600 it ending closer to three percent by the end of 0:16:35.600 --> 0:16:39.800 twenty twenty six. Now, both of these forecasts, of course, 0:16:39.840 --> 0:16:40.600 are related. 0:16:41.520 --> 0:16:44.320 They are driven primarily by. 0:16:44.120 --> 0:16:48.040 A federal reserve, which ends up cutting policy rates much 0:16:48.080 --> 0:16:52.880 more aggressively than what markets are currently pricing in. We're 0:16:52.920 --> 0:16:56.200 more confident, i would say, on the magnitude and the 0:16:56.280 --> 0:16:59.840 direction of those rate cuts as opposed to the exact 0:17:00.680 --> 0:17:04.560 of those cuts. As I'm sure you read in the note, 0:17:04.960 --> 0:17:06.919 we don't have the FED cutting this year, but we 0:17:06.960 --> 0:17:09.399 have the FED cutting a lot next year. That's an 0:17:09.400 --> 0:17:12.600 interesting feature of the outlook, but is one that's subject 0:17:12.600 --> 0:17:13.359 to change, of course. 0:17:13.560 --> 0:17:15.680 Matt, what are the economic conditions that lead to those 0:17:15.720 --> 0:17:17.520 deep cuts in twenty six. 0:17:18.760 --> 0:17:19.080 Yeah. 0:17:19.119 --> 0:17:24.080 So, ultimately, the first is that we get past the 0:17:24.200 --> 0:17:29.840 hump on tariffs. Right, tariffs create a temporary inflationary impact. 0:17:30.200 --> 0:17:34.119 Our economists have that impact concentrated in the third quarter 0:17:34.200 --> 0:17:36.080 of this year, and then by the time we get 0:17:36.080 --> 0:17:39.040 to the fourth quarter, those tariff effects are starting to 0:17:39.080 --> 0:17:42.720 fade away and you begin to see the weakness and 0:17:42.760 --> 0:17:46.840 the labor market really come through. That's ultimately what catalyzes 0:17:47.119 --> 0:17:50.080 that discussion on the Fed to begin lowering rates, which 0:17:50.400 --> 0:17:53.840 our economics team has happening in the first quarter of 0:17:53.880 --> 0:17:54.360 next year. 0:17:54.640 --> 0:17:56.720 Why aren't you worried, Matt, that when the Fed does 0:17:56.760 --> 0:17:59.399 lower rates, it won't cause the long end yield to 0:17:59.560 --> 0:18:01.880 rise kin to what we saw last year. 0:18:03.280 --> 0:18:06.479 Yeah, well, I think what happened last year Lisa is 0:18:06.920 --> 0:18:09.439 the Fed did cut rates, and interest rates did go 0:18:09.560 --> 0:18:12.840 down temporarily. But then we went into the US election 0:18:13.119 --> 0:18:17.960 and the market, being forward looking, began to speculate on 0:18:18.080 --> 0:18:21.280 what was to come after the election, and of course 0:18:21.280 --> 0:18:24.760 at that time, investors were thinking about much larger deficits, 0:18:25.040 --> 0:18:28.720 more government bonds supply, kind of a better economic outlook 0:18:28.880 --> 0:18:32.280 than we think exists at the moment. So it was 0:18:32.320 --> 0:18:36.680 a different time, and we're not expecting that to happen again, 0:18:37.160 --> 0:18:39.160 at least for another three and a half years, Matt. 0:18:39.320 --> 0:18:42.440 Given the discussions heading into July fourth and then July ninth, 0:18:42.560 --> 0:18:44.720 it does seem like the deficits going to deepen in 0:18:44.760 --> 0:18:47.280 the United States. Why is that not a threat to 0:18:47.320 --> 0:18:50.040 your call to go into duration to buy those ten 0:18:50.119 --> 0:18:53.000 year bonds that maybe other people are steering clear of. 0:18:54.320 --> 0:18:58.040 Well, the expectations for the deficit have actually changed quite 0:18:58.040 --> 0:19:02.119