1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:31,160 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg I 5 00:00:31,240 --> 00:00:33,239 Speaker 1: were Jonathan Faroll right now, I would say that the 6 00:00:33,280 --> 00:00:37,680 Speaker 1: mood music around US China trade talks is starting to sour, 7 00:00:38,320 --> 00:00:41,080 Speaker 1: at least just a touch around the edges, because we 8 00:00:41,159 --> 00:00:44,199 Speaker 1: are getting a sense President Trump saying that tariffs are 9 00:00:44,200 --> 00:00:46,600 Speaker 1: going to stay in place until sure that Beijing is 10 00:00:46,640 --> 00:00:49,320 Speaker 1: going to comply with any trade deal. You have China 11 00:00:49,880 --> 00:00:54,040 Speaker 1: rumored to be really pushing back on certain aspects. Kind 12 00:00:54,080 --> 00:00:56,960 Speaker 1: of interesting given the fact that we were really expecting 13 00:00:57,000 --> 00:01:01,160 Speaker 1: something concrete within the next few weeks. John, Yeah, I 14 00:01:01,200 --> 00:01:02,960 Speaker 1: would totally agree with you. But I think from the 15 00:01:03,080 --> 00:01:06,240 Speaker 1: Chinese side, I think their basic assumption is that the 16 00:01:06,280 --> 00:01:08,560 Speaker 1: President wants to deal, and because he wants to deal 17 00:01:08,600 --> 00:01:10,520 Speaker 1: so much, maybe they can push back a little bit. 18 00:01:10,600 --> 00:01:12,080 Speaker 1: I think this was always going to come down to 19 00:01:12,080 --> 00:01:14,240 Speaker 1: the enforcement mechanism and the battle that they were having 20 00:01:14,280 --> 00:01:17,320 Speaker 1: over that makes no sense for the administration to completely 21 00:01:17,480 --> 00:01:20,880 Speaker 1: remove tariffs on Chinese exports until the Chinese have followed through. 22 00:01:21,280 --> 00:01:23,360 Speaker 1: As the President has mentioned recently, and he's right to 23 00:01:23,400 --> 00:01:25,959 Speaker 1: mention it, the the Chinese have promised in the past 24 00:01:26,400 --> 00:01:28,840 Speaker 1: to do many of these things, and the follow through 25 00:01:28,880 --> 00:01:32,440 Speaker 1: has been minimal. The risk this administration does not want 26 00:01:32,440 --> 00:01:35,040 Speaker 1: to take is to agree to something with the Chinese 27 00:01:35,080 --> 00:01:37,520 Speaker 1: to remove the tariffs and then to have very little 28 00:01:37,520 --> 00:01:40,600 Speaker 1: follow through. I think that the key issue for markets 29 00:01:40,760 --> 00:01:43,520 Speaker 1: is being able to passe through the rumors and the 30 00:01:43,600 --> 00:01:46,280 Speaker 1: discussions and the news articles and figure out are we 31 00:01:46,560 --> 00:01:49,560 Speaker 1: closer or further away from a deal. Henrietta Trees a 32 00:01:49,640 --> 00:01:53,320 Speaker 1: Vata Partners. She's a director of the Economic policy really 33 00:01:53,360 --> 00:01:56,840 Speaker 1: focusing on this among other things, joining us right now 34 00:01:56,960 --> 00:01:59,760 Speaker 1: by phone. So, Henrietta, how do you gauge how close 35 00:01:59,800 --> 00:02:03,120 Speaker 1: we are to a potential deal and whether the talks 36 00:02:03,120 --> 00:02:06,280 Speaker 1: are going well or not? Hey, good morning, Thanks for 37 00:02:06,280 --> 00:02:08,600 Speaker 1: having me Um Well. I think it's obviously tricky to 38 00:02:08,600 --> 00:02:11,800 Speaker 1: gauge from the news speculation. I was just reading some 39 00:02:11,960 --> 00:02:14,520 Speaker 1: DC focused news that says a possible meeting in mar 40 00:02:14,639 --> 00:02:17,880 Speaker 1: Lago is still potentially on for later this Month's meeting 41 00:02:17,960 --> 00:02:21,960 Speaker 1: next week. That seems wildly optimistic to me. Um, I 42 00:02:22,000 --> 00:02:25,320 Speaker 1: think the more reliable sources are talking about late April 43 00:02:25,480 --> 00:02:28,280 Speaker 1: late June even as the deadline. What's most instructive to 44 00:02:28,320 --> 00:02:30,920 Speaker 1: me is to understand what china strategy has been for 45 00:02:30,960 --> 00:02:33,600 Speaker 1: the last year and a half of the Trump administration 46 00:02:33,720 --> 00:02:37,360 Speaker 1: and overarching me, it's basically just delay. And if you 47 00:02:37,440 --> 00:02:40,360 Speaker 1: come at China understanding that they view the two thousand 48 00:02:40,440 --> 00:02:43,920 Speaker 1: eighteen elections as a referendum against President Trump, they saw 49 00:02:43,919 --> 00:02:46,200 Speaker 1: the first two government shutdowns in the first two months 50 00:02:46,200 --> 00:02:49,880 Speaker 1: of this year as a further weekending of the President's hand. 51 00:02:50,160 --> 00:02:52,360 Speaker 1: And see how much he struggled to pass the U 52 00:02:52,440 --> 00:02:56,120 Speaker 1: s m c A, his apparently signature achievement on NAFTA 53 00:02:56,240 --> 00:02:58,959 Speaker 1: through Congress, which hasn't even begun yet, and you get 54 00:02:58,960 --> 00:03:01,280 Speaker 1: the sense that not just China, but also Japan and 55 00:03:01,280 --> 00:03:04,360 Speaker 1: the European Union are basically stalling for time. Um So 56 00:03:04,440 --> 00:03:07,800 Speaker 1: when I speak with UH folks around the industry circles, 57 00:03:07,840 --> 00:03:10,440 Speaker 1: that's what they tell me as well. The interesting thing is, 58 00:03:10,480 --> 00:03:12,800 Speaker 1: as President Trump wanted to lay as well at this point, 59 00:03:12,840 --> 00:03:14,799 Speaker 1: given the fact that there is pushback within his own 60 00:03:14,840 --> 00:03:17,400 Speaker 1: party about exactly what a deal should look like and 61 00:03:17,440 --> 00:03:20,560 Speaker 1: the fact that markets really don't want the tariffs and 62 00:03:20,639 --> 00:03:24,240 Speaker 1: rally on any sign that there will not be such 63 00:03:24,240 --> 00:03:27,720 Speaker 1: a big levees put on Chinese goods. Well, I think 64 00:03:27,720 --> 00:03:30,480 Speaker 1: it's a combination of what investors want, which is get 65 00:03:30,480 --> 00:03:33,519 Speaker 1: these tariffs off now, versus what folks in DC want. 66 00:03:33,720 --> 00:03:37,440 Speaker 1: Speaking with both Republicans and Democrats, they're very comfortable with 67 00:03:37,480 --> 00:03:40,360 Speaker 1: the existing tariffs and frankly, they don't much care if 68 00:03:40,400 --> 00:03:45,520 Speaker 1: tariff rates rise to UM. It's a huge difference between 69 00:03:45,840 --> 00:03:49,120 Speaker 1: the political sphere and the actual state of the economy 70 00:03:49,120 --> 00:03:51,800 Speaker 1: on the ground. Um where folks in DC, including the 71 00:03:51,800 --> 00:03:55,119 Speaker 1: Republican Party, would rank the deals with China as at 72 00:03:55,200 --> 00:03:58,119 Speaker 1: best third on their list of trade problems, number one 73 00:03:58,480 --> 00:04:00,600 Speaker 1: being the U S m c A or two being 74 00:04:00,600 --> 00:04:03,200 Speaker 1: a threatened auto tariffs, and then three being China. So 75 00:04:03,480 --> 00:04:05,880 Speaker 1: Trump Rearley is getting it from both sides. Well, Actually, 76 00:04:05,880 --> 00:04:07,360 Speaker 1: I wanted to dig a little further with you. Would 77 00:04:07,400 --> 00:04:09,440 Speaker 1: a bit mistake for the Chinese to think that they 78 00:04:09,440 --> 00:04:12,200 Speaker 1: can wait this out, because there is actually some bipartisan 79 00:04:12,240 --> 00:04:17,480 Speaker 1: support for the approach this administration has taken. Um. I 80 00:04:17,520 --> 00:04:20,680 Speaker 1: think that for China to wait this out is assuming 81 00:04:20,720 --> 00:04:24,480 Speaker 1: that the President cannot put tariffs on closer to the election. 82 00:04:25,000 --> 00:04:29,400 Speaker 1: That is an assumption that is widespread in DC circles, 83 00:04:29,440 --> 00:04:32,440 Speaker 1: including amongst folks who have been slapped with these tariffs, 84 00:04:32,440 --> 00:04:34,520 Speaker 1: who are saying, hey, don't increase it or don't put 85 00:04:34,560 --> 00:04:36,480 Speaker 1: new tariffs on in the keys of the auto industry. 86 00:04:36,839 --> 00:04:38,960 Speaker 1: And that is an assumption that is a personal choice. 87 00:04:38,960 --> 00:04:41,760 Speaker 1: You have no basis in fact, for the president has 88 00:04:41,800 --> 00:04:44,560 Speaker 1: never turned down the opportunity to put tariffs on at 89 00:04:44,600 --> 00:04:48,640 Speaker 1: any point in his administration. And assuming that getting into 90 00:04:48,839 --> 00:04:51,680 Speaker 1: what march of he's going to get called feet because 91 00:04:51,720 --> 00:04:54,039 Speaker 1: the election is coming up, I don't I don't know 92 00:04:54,080 --> 00:04:58,280 Speaker 1: that that's a really safe assumption because the voting population 93 00:04:58,320 --> 00:05:00,760 Speaker 1: of the US doesn't seem to mind trade wars all 94 00:05:00,800 --> 00:05:03,480 Speaker 1: that muestion. Hold on a second. I want to push 95 00:05:03,480 --> 00:05:05,960 Speaker 1: back a little bit because when you do get signs 96 00:05:06,040 --> 00:05:08,680 Speaker 1: that tariffs are going to be slapped on goods from 97 00:05:08,680 --> 00:05:12,359 Speaker 1: either China or Europe, US equities fall and President Trump 98 00:05:12,400 --> 00:05:15,800 Speaker 1: has been highly reactive to US equity markets. Is that 99 00:05:15,839 --> 00:05:18,920 Speaker 1: not enough to sort of hang your hat on. I 100 00:05:19,400 --> 00:05:22,599 Speaker 1: don't think it's the same as talking about voters. Um, 101 00:05:22,680 --> 00:05:25,080 Speaker 1: I would I would encourage folks to focus on the 102 00:05:25,080 --> 00:05:28,200 Speaker 1: farming population. Here's an indectante that I thought was really interesting. 103 00:05:28,440 --> 00:05:31,840 Speaker 1: The Trump administration sort of mocked or even laughed at 104 00:05:31,920 --> 00:05:34,120 Speaker 1: foreign nations when they put tariffs on the U. S. 105 00:05:34,160 --> 00:05:36,840 Speaker 1: Agriculture sector in order to retaliate for the tariffs we 106 00:05:36,920 --> 00:05:39,520 Speaker 1: put on steel and aluminum. And the response in the 107 00:05:39,520 --> 00:05:42,120 Speaker 1: White House was basically, go ahead, on if you want 108 00:05:42,120 --> 00:05:44,000 Speaker 1: to put tariffs on the farmers, you do that. They're 109 00:05:44,040 --> 00:05:46,120 Speaker 1: never going to vote for a Democrat. They're always going 110 00:05:46,160 --> 00:05:49,000 Speaker 1: to vote with us. So you're hurting people who we 111 00:05:49,040 --> 00:05:51,599 Speaker 1: don't have any risk of losing. And that's different than 112 00:05:51,960 --> 00:05:55,160 Speaker 1: the average investor on the street. So the separating equity 113 00:05:55,240 --> 00:05:59,960 Speaker 1: holders from the average voter is a different political dynamic. 114 00:06:00,080 --> 00:06:02,200 Speaker 1: It's a really good point. Henriettes are in one well made. 115 00:06:02,440 --> 00:06:04,440 Speaker 1: Do you have a base case at the moment for 116 00:06:04,520 --> 00:06:07,400 Speaker 1: what happens next? Yeah? My base case is at the 117 00:06:07,520 --> 00:06:09,960 Speaker 1: existing tarists stay on for at least the first half 118 00:06:10,000 --> 00:06:12,520 Speaker 1: of two thousand nineteen. Um y'all talked about at the 119 00:06:12,520 --> 00:06:16,960 Speaker 1: beginning the need for enforcement and China actually delivering proof 120 00:06:17,040 --> 00:06:20,159 Speaker 1: that they were changing their stripes. So UM, now that 121 00:06:20,200 --> 00:06:23,120 Speaker 1: we're already in practically April, I feel pretty pretty comfortable 122 00:06:23,120 --> 00:06:24,440 Speaker 1: saying that the tariffs are going to be on for 123 00:06:24,480 --> 00:06:27,559 Speaker 1: a few more months as usc R Lifehiser and Trump 124 00:06:27,600 --> 00:06:30,360 Speaker 1: gauge whether or not China has actually made any progress 125 00:06:30,720 --> 00:06:34,360 Speaker 1: on force tech or I peace after market access beyond 126 00:06:34,560 --> 00:06:36,960 Speaker 1: any signing ceremony that may or may not occur at 127 00:06:36,960 --> 00:06:40,200 Speaker 1: Marlago or elsewhere in the next couple of months. UM. So, 128 00:06:40,240 --> 00:06:42,880 Speaker 1: I think the existing tariffs stay on. That's contrary to 129 00:06:42,960 --> 00:06:45,760 Speaker 1: the streets expectation, which was expecting him to come off 130 00:06:46,040 --> 00:06:50,080 Speaker 1: on March one, if not Jan one. UM. And that 131 00:06:50,240 --> 00:06:52,040 Speaker 1: on a go forward basis, we're gonna be here for 132 00:06:52,080 --> 00:06:54,680 Speaker 1: a while. There's gonna be one month, three months, six 133 00:06:54,720 --> 00:06:57,440 Speaker 1: month reviews as USCRE Lifehiser has laid out, and we're 134 00:06:57,440 --> 00:06:59,440 Speaker 1: going to be in this US China trade dynamic for 135 00:06:59,520 --> 00:07:02,200 Speaker 1: quite some time still. And Rietta, I'm wondering so far. 136 00:07:02,240 --> 00:07:03,880 Speaker 1: I know it's early days, but do we have a 137 00:07:03,960 --> 00:07:07,760 Speaker 1: sense of whether the US or China is suffering more 138 00:07:08,279 --> 00:07:11,000 Speaker 1: from the tariffs that have been implemented so far? Economically? 139 00:07:12,160 --> 00:07:14,960 Speaker 1: I think there's headwinds across the board. Um. One of 140 00:07:14,960 --> 00:07:17,360 Speaker 1: the things that I think the President has really had 141 00:07:17,440 --> 00:07:20,160 Speaker 1: on his side is that the business community who's impacted 142 00:07:20,160 --> 00:07:24,960 Speaker 1: by the tariffs are also extraordinarily uh supportive of President Trump. 143 00:07:25,240 --> 00:07:28,400 Speaker 1: I met with the National Association of Manufacturers, for instance, 144 00:07:28,440 --> 00:07:31,520 Speaker 1: which represents all the big manufacturers in the US, and 145 00:07:31,560 --> 00:07:34,360 Speaker 1: they have something like a ninety two approval rating for 146 00:07:34,400 --> 00:07:37,920 Speaker 1: President Trump. So while the US economy is being hit 147 00:07:38,000 --> 00:07:41,520 Speaker 1: by these tariffs as is China's, the amount of tariffs 148 00:07:41,520 --> 00:07:43,400 Speaker 1: we have on them is more than double the amount 149 00:07:43,400 --> 00:07:46,360 Speaker 1: of tariffs they have on us UM. But it really 150 00:07:46,520 --> 00:07:49,760 Speaker 1: is constructive to see, you know, on earnings calls or 151 00:07:50,040 --> 00:07:52,680 Speaker 1: in conversations with the Business Roundtable or the U S 152 00:07:52,720 --> 00:07:56,120 Speaker 1: Chamber of Commerce. They're not supportive of tariffs, they're not 153 00:07:56,160 --> 00:07:59,360 Speaker 1: supportive of necessarily the go alone trains trade strategy that 154 00:07:59,400 --> 00:08:02,120 Speaker 1: the President's employed, but they do like him better than 155 00:08:02,160 --> 00:08:05,440 Speaker 1: they like the alternative, and as a result, that's really 156 00:08:05,480 --> 00:08:09,800 Speaker 1: tempered any of the UM opposition or the public headlines 157 00:08:09,960 --> 00:08:13,760 Speaker 1: that would otherwise lambasted, say a Democratic president who was 158 00:08:13,800 --> 00:08:16,160 Speaker 1: doing the same thing. So I think that headway that 159 00:08:16,200 --> 00:08:19,200 Speaker 1: political support domestically from the business community, whether it's the 160 00:08:19,240 --> 00:08:23,400 Speaker 1: auto dealers who have support for the president UM or 161 00:08:23,520 --> 00:08:27,400 Speaker 1: the manufacturers who again are at support and really really 162 00:08:27,440 --> 00:08:30,320 Speaker 1: helps him. Just in a headline perspective, and that obviously 163 00:08:30,320 --> 00:08:33,440 Speaker 1: trickles down to the investment community and also the average voter. 164 00:08:33,600 --> 00:08:37,800 Speaker 1: What about in China, is President Jay gaining support based 165 00:08:37,800 --> 00:08:41,480 Speaker 1: on how he's handling this terror of situation in addition 166 00:08:41,520 --> 00:08:44,880 Speaker 1: to adding stimulus to the economy to get things going again. 167 00:08:45,720 --> 00:08:47,720 Speaker 1: I think in the beginning there was a lot of 168 00:08:48,000 --> 00:08:52,160 Speaker 1: um negative headlines about President She hoping that he or 169 00:08:52,360 --> 00:08:55,559 Speaker 1: rather looking back and sort of playing Monday night quarterback 170 00:08:55,600 --> 00:08:58,199 Speaker 1: and basically saying, you could have stopped this at the beginning, 171 00:08:58,480 --> 00:09:01,600 Speaker 1: and you dramatically underestimated how serious President Trump was about 172 00:09:01,600 --> 00:09:04,120 Speaker 1: putting these tariffs on. But now that we're here a 173 00:09:04,200 --> 00:09:07,719 Speaker 1: year later roughly, and the tariffs are fair game and 174 00:09:08,080 --> 00:09:11,000 Speaker 1: the U. S And China are in a pretty significant battle, 175 00:09:11,200 --> 00:09:14,280 Speaker 1: we've seen a tightening of support around President She. And 176 00:09:14,400 --> 00:09:17,440 Speaker 1: it's obviously difficult to tell at some points, but the 177 00:09:17,480 --> 00:09:21,040 Speaker 1: President She seems to be cracking down where he needs 178 00:09:21,080 --> 00:09:24,680 Speaker 1: to and corralling support from the business community domestically where 179 00:09:24,720 --> 00:09:27,560 Speaker 1: he needs to um and expanding the Communist Party, which 180 00:09:27,640 --> 00:09:32,840 Speaker 1: indicates significant um consolidation of power from his end. And 181 00:09:32,880 --> 00:09:35,720 Speaker 1: as you mentioned, he's passed numerous different tax cuts, which 182 00:09:35,720 --> 00:09:38,200 Speaker 1: they can do far more quickly than the USK. We 183 00:09:38,240 --> 00:09:40,400 Speaker 1: won't be passing any more tax cuts to offset the 184 00:09:40,480 --> 00:09:44,319 Speaker 1: tax the tariff wars. But China they've passed what to 185 00:09:44,480 --> 00:09:48,920 Speaker 1: individual tax cuts and making autos cheaper, et cetera. UM, 186 00:09:49,040 --> 00:09:51,319 Speaker 1: so they can they can act more quickly than we can. 187 00:09:51,440 --> 00:09:53,920 Speaker 1: Andrietta great to can't shop with you as always really 188 00:09:53,920 --> 00:09:57,480 Speaker 1: insightful stuff, Henrietta Trace, the director of Economic policy for 189 00:09:57,559 --> 00:10:13,360 Speaker 1: Vata Partners. There does seem to be a tipping point 190 00:10:13,559 --> 00:10:17,880 Speaker 1: where the FED is fully capitulating on rate hikes, possibly 191 00:10:17,920 --> 00:10:22,319 Speaker 1: for this cycle, with the next move likely being a cut. Uh. 192 00:10:22,400 --> 00:10:25,320 Speaker 1: And and this not affecting risk assets in the same 193 00:10:25,360 --> 00:10:27,960 Speaker 1: way that you would expect. We're not in goldilocks anymore. 194 00:10:28,000 --> 00:10:33,000 Speaker 1: This is not necessarily a blanket positive for risk markets. 195 00:10:33,080 --> 00:10:35,680 Speaker 1: Joining us to talk about that, I read Jersey Bloomberg, 196 00:10:35,720 --> 00:10:38,360 Speaker 1: chief US interest rate Strategists uh, and of course Gina 197 00:10:38,400 --> 00:10:42,520 Speaker 1: Smile of our Bloomberg Economics team on Bloomberg News. Uh. Gina, 198 00:10:42,679 --> 00:10:46,000 Speaker 1: let's start with you, what did we learn yesterday that 199 00:10:46,160 --> 00:10:49,280 Speaker 1: was the most salient point that is sending yields so 200 00:10:49,320 --> 00:10:51,760 Speaker 1: much lower at this point? You know, I think it's 201 00:10:51,760 --> 00:10:55,080 Speaker 1: a good question what specifically the yields are are reacting 202 00:10:55,120 --> 00:10:57,440 Speaker 1: to you. But I think the two key takeaways we learned, 203 00:10:57,440 --> 00:10:59,199 Speaker 1: I think it's hard to hard to just pick one. 204 00:10:59,600 --> 00:11:03,439 Speaker 1: The one is that the FED is very cautious around inflation. 205 00:11:03,480 --> 00:11:05,439 Speaker 1: They are actively worried that they are not going to 206 00:11:05,559 --> 00:11:08,160 Speaker 1: hit their two percent target on a sustained basis, and 207 00:11:08,200 --> 00:11:11,360 Speaker 1: that is resulting in real patients on rates. The second 208 00:11:11,360 --> 00:11:14,480 Speaker 1: one is that the balance sheet runoff. We got a 209 00:11:14,520 --> 00:11:16,559 Speaker 1: lot more detail on that that I think some people 210 00:11:16,600 --> 00:11:20,000 Speaker 1: were even expecting, including you know, when they start moving 211 00:11:20,080 --> 00:11:22,040 Speaker 1: mbs into treasuries, the fact that they're going to be 212 00:11:22,080 --> 00:11:23,679 Speaker 1: trying to be neutral to the market. A lot of 213 00:11:23,679 --> 00:11:26,079 Speaker 1: people are expecting that. That was an interesting detail coming 214 00:11:26,120 --> 00:11:29,360 Speaker 1: out yesterday. What was your with TNRA, Yeah, I agree. 215 00:11:29,400 --> 00:11:32,240 Speaker 1: I think that the market is taking the quantitative tightening. 216 00:11:32,240 --> 00:11:34,520 Speaker 1: I think it's not so much the fact that the 217 00:11:34,520 --> 00:11:36,319 Speaker 1: Fed's on hold. I mean, the market was already pricing 218 00:11:36,360 --> 00:11:37,560 Speaker 1: that the FED was going to be on hold and 219 00:11:37,600 --> 00:11:40,800 Speaker 1: even cutting in prior to the meeting. So I think 220 00:11:40,800 --> 00:11:43,079 Speaker 1: it's the end of quantitative tightening, and it's the fact 221 00:11:43,120 --> 00:11:44,800 Speaker 1: that they're going to be buying throughout the curve that 222 00:11:45,160 --> 00:11:48,200 Speaker 1: caused this. Uh, this bit of a rally and what 223 00:11:48,400 --> 00:11:51,720 Speaker 1: you know, it seems massive like this, this rally seemed massive. 224 00:11:51,760 --> 00:11:56,880 Speaker 1: It's been nine basis points relative sent to the executive 225 00:11:57,920 --> 00:12:01,520 Speaker 1: when when you look at it going back, you know, 226 00:12:01,600 --> 00:12:04,160 Speaker 1: we had twenty four days last year that were like this, 227 00:12:04,280 --> 00:12:06,600 Speaker 1: So it's not that unusual. It's just in the last 228 00:12:06,600 --> 00:12:08,680 Speaker 1: three months. In our conscious minds we got used to 229 00:12:08,720 --> 00:12:10,640 Speaker 1: you know, one and two basis point moves in the 230 00:12:10,640 --> 00:12:13,120 Speaker 1: ten year treasury, get seven and oh my god. It's well, 231 00:12:13,280 --> 00:12:16,680 Speaker 1: it's massive, it's not massive than usual. I want to 232 00:12:16,720 --> 00:12:19,240 Speaker 1: go into something that you were just saying, which is, uh, 233 00:12:19,280 --> 00:12:21,480 Speaker 1: the market had already been pricing in a cut. The 234 00:12:21,520 --> 00:12:24,960 Speaker 1: Fed didn't necessarily shift the dynamic that much. I want 235 00:12:24,960 --> 00:12:27,400 Speaker 1: to push back on that because actually, what you saw 236 00:12:27,880 --> 00:12:30,480 Speaker 1: is that the chances of a rate cut as priced 237 00:12:30,480 --> 00:12:34,080 Speaker 1: by the market increased substantially after the Fed's meeting, which 238 00:12:34,120 --> 00:12:37,079 Speaker 1: suggests to me that even though the Fed is taking 239 00:12:37,160 --> 00:12:40,680 Speaker 1: an incredibly patient approach, people do not think the Fed 240 00:12:40,920 --> 00:12:43,120 Speaker 1: is going to avoid the next downturn of prolong this 241 00:12:43,200 --> 00:12:44,679 Speaker 1: credit cycle. Well, I think one of the things that 242 00:12:44,720 --> 00:12:47,520 Speaker 1: happened is prior to the meeting, the market was pricing 243 00:12:47,600 --> 00:12:51,440 Speaker 1: for a small chance of some hikes in by and 244 00:12:51,480 --> 00:12:55,360 Speaker 1: then a small chance of several cuts. Right. So and 245 00:12:55,440 --> 00:12:57,000 Speaker 1: basically what we did now was we got rid of 246 00:12:57,000 --> 00:12:59,080 Speaker 1: all those hikes. So because we got rid of all 247 00:12:59,080 --> 00:13:01,839 Speaker 1: those hikes, where now only le pricing for unchanged or ease, 248 00:13:01,960 --> 00:13:04,640 Speaker 1: Whereas it's not, as you know, quite as a normal 249 00:13:04,679 --> 00:13:07,959 Speaker 1: distribution of You're going technical. You're basically saying you can't 250 00:13:07,960 --> 00:13:11,760 Speaker 1: really make these wide sweeping things. It's a technicality. Well yeah, yeah, 251 00:13:11,760 --> 00:13:14,200 Speaker 1: I mean if you only look at one number, you know, 252 00:13:14,440 --> 00:13:16,920 Speaker 1: that's what it is. But but ultimately there's a there's 253 00:13:16,960 --> 00:13:20,240 Speaker 1: a distribution of potential outcomes that that's being priced. So, Gina, 254 00:13:20,400 --> 00:13:24,200 Speaker 1: from your perspective, what was sort of the biggest factor 255 00:13:24,240 --> 00:13:27,200 Speaker 1: giving pause to the Fed? You said inflation? Uh, is 256 00:13:27,200 --> 00:13:29,280 Speaker 1: there something else that they were concerned about In the past, 257 00:13:29,280 --> 00:13:32,240 Speaker 1: They've talked about global headwinds, They've talked about trade concerns, 258 00:13:32,240 --> 00:13:35,880 Speaker 1: they've talked about, uh, you know, other issues, anything that 259 00:13:35,920 --> 00:13:38,520 Speaker 1: stands out. Yeah, I mean absolutely, they kind of were 260 00:13:38,520 --> 00:13:41,760 Speaker 1: pessimistic across all of those issues. I mean I was 261 00:13:41,800 --> 00:13:44,440 Speaker 1: in the lockup and I was I always highlight the 262 00:13:44,480 --> 00:13:46,440 Speaker 1: things that have changed from the previous statement. The whole 263 00:13:46,440 --> 00:13:49,600 Speaker 1: first paragraph was basically a highlight this time because they 264 00:13:49,640 --> 00:13:53,360 Speaker 1: downgraded everything. But the thing that was the real takeaway 265 00:13:53,440 --> 00:13:56,120 Speaker 1: is just how worried they are about inflation. You know, 266 00:13:56,160 --> 00:13:58,520 Speaker 1: they brought it up over and over again in this 267 00:13:58,640 --> 00:14:02,160 Speaker 1: press conference at the JPAL like this is a real concern, 268 00:14:02,200 --> 00:14:04,560 Speaker 1: and I think a concern that markets didn't appreciate as 269 00:14:04,640 --> 00:14:07,560 Speaker 1: fully prior to yesterday. I think that it seemed to 270 00:14:07,559 --> 00:14:10,280 Speaker 1: me like that was part of the reason people took 271 00:14:10,320 --> 00:14:12,440 Speaker 1: such a more devish view on the FED. So, Jana, 272 00:14:12,480 --> 00:14:15,120 Speaker 1: the data hasn't changed radically over the last three months. 273 00:14:15,400 --> 00:14:18,280 Speaker 1: Has the federals of reaction function shifted radically and what? 274 00:14:18,320 --> 00:14:21,280 Speaker 1: Why do you think it has? I think they used 275 00:14:21,280 --> 00:14:23,760 Speaker 1: to be true believers in the Phillips curve, even though 276 00:14:23,840 --> 00:14:25,600 Speaker 1: they for a long time have been saying that that 277 00:14:25,680 --> 00:14:30,440 Speaker 1: relationship is more tenuous, that's the relationship between unemployment and inflation, 278 00:14:30,520 --> 00:14:33,080 Speaker 1: and I think that they are no longer true believers 279 00:14:33,080 --> 00:14:35,280 Speaker 1: in that Philip's curve. They talked, they've been talking a 280 00:14:35,320 --> 00:14:37,440 Speaker 1: lot about the fact that as wages go up that 281 00:14:37,480 --> 00:14:41,280 Speaker 1: isn't necessarily passing through to prices, and they repeated that yesterday. 282 00:14:41,440 --> 00:14:44,080 Speaker 1: So I'm just wondering from your perspective. I know you 283 00:14:44,120 --> 00:14:47,320 Speaker 1: had been talking before this meeting, before this meeting that 284 00:14:47,360 --> 00:14:51,320 Speaker 1: the likelihood of a great hike was bigger than some 285 00:14:51,360 --> 00:14:55,040 Speaker 1: people were expecting. What do you think it would take 286 00:14:55,120 --> 00:14:58,880 Speaker 1: at this point to get the Fed to hike rates? Well, 287 00:14:58,920 --> 00:15:02,480 Speaker 1: in think you know it's it would take quite a lot. 288 00:15:02,760 --> 00:15:04,400 Speaker 1: It would take a turn in the data and a 289 00:15:04,480 --> 00:15:07,040 Speaker 1: turn now, right, which is very unlikely when you look 290 00:15:07,040 --> 00:15:08,680 Speaker 1: at the first quarter data. First quarter is going to 291 00:15:08,720 --> 00:15:10,600 Speaker 1: be very weak. If we see a turn in the 292 00:15:10,680 --> 00:15:12,400 Speaker 1: data in the second quarter, then maybe we start to 293 00:15:12,440 --> 00:15:15,560 Speaker 1: price hikes in twenty right, but not hikes now, and 294 00:15:15,800 --> 00:15:18,560 Speaker 1: that would still have to be very, very meaningful. So 295 00:15:18,920 --> 00:15:21,640 Speaker 1: when you think about the feds reaction function now, it 296 00:15:22,040 --> 00:15:23,560 Speaker 1: I don't think it's shifted a lot. I think it's 297 00:15:23,560 --> 00:15:26,800 Speaker 1: still that you need trending inflation to be trending higher 298 00:15:26,800 --> 00:15:29,720 Speaker 1: and be above their target for them to start hiking again. 299 00:15:29,760 --> 00:15:31,600 Speaker 1: And then on the on the other side, needs to 300 00:15:31,720 --> 00:15:34,920 Speaker 1: see significant downside volatility in order for them to cut 301 00:15:35,000 --> 00:15:37,160 Speaker 1: rates um And when I say volatility, I mean in 302 00:15:37,280 --> 00:15:38,760 Speaker 1: risk gas at market, So you need to see credit 303 00:15:38,800 --> 00:15:41,080 Speaker 1: spreads going wider, equities going down. Well, let's just stress 304 00:15:41,120 --> 00:15:43,200 Speaker 1: test that reaction function a little bit. If that's the case, 305 00:15:43,200 --> 00:15:45,480 Speaker 1: why did they hike in December? Well, I think they 306 00:15:45,560 --> 00:15:47,960 Speaker 1: hiked in December for two reasons. I think one one 307 00:15:48,040 --> 00:15:49,960 Speaker 1: the mistake that they made in December was that it 308 00:15:50,000 --> 00:15:52,280 Speaker 1: wasn't a dovish enough hike. They you know, they could 309 00:15:52,320 --> 00:15:54,880 Speaker 1: have hiked and said, hey, we're done for en like 310 00:15:55,080 --> 00:15:57,200 Speaker 1: had they made the statement they made today but they hiked, 311 00:15:57,480 --> 00:16:00,560 Speaker 1: that would have felt. But they hiked, I think in 312 00:16:00,680 --> 00:16:03,400 Speaker 1: part because the president forced them to, you know, they 313 00:16:03,440 --> 00:16:05,800 Speaker 1: had to exert their independence. They wanted to hike. They 314 00:16:06,240 --> 00:16:08,440 Speaker 1: had it in there. Come on, you really think so. 315 00:16:08,680 --> 00:16:10,480 Speaker 1: I think that there were really there were people in 316 00:16:10,520 --> 00:16:13,320 Speaker 1: the hallway before they went into the meeting and you know, 317 00:16:13,440 --> 00:16:17,400 Speaker 1: genis mon, come on, come on, come on. Yeah, I 318 00:16:17,400 --> 00:16:21,360 Speaker 1: don't think that's right. I mean, so I covered these 319 00:16:21,400 --> 00:16:23,320 Speaker 1: guys all the time, and I just I feel like 320 00:16:23,400 --> 00:16:26,160 Speaker 1: they really take this idea of independence very seriously. I 321 00:16:26,160 --> 00:16:28,440 Speaker 1: could see how you could take look at this diploma 322 00:16:28,560 --> 00:16:35,600 Speaker 1: of diplomacy. It's how you take the view that they 323 00:16:35,760 --> 00:16:37,640 Speaker 1: would be pushing to hike by wanting to prove that 324 00:16:37,680 --> 00:16:40,520 Speaker 1: they're independent. But I really think that the reason they 325 00:16:40,560 --> 00:16:42,360 Speaker 1: were pushing too hike is that they had signal to 326 00:16:42,480 --> 00:16:45,000 Speaker 1: hike so clearly for such a long time. They saw 327 00:16:45,040 --> 00:16:48,040 Speaker 1: financial conditions tightening, but they didn't know for sure that 328 00:16:47,840 --> 00:16:49,920 Speaker 1: that was going to be sustained, and so it wasn't 329 00:16:50,040 --> 00:16:52,160 Speaker 1: enough to push them off course early enough. And by 330 00:16:52,160 --> 00:16:53,760 Speaker 1: the time it was clear that it was going to 331 00:16:53,760 --> 00:16:55,160 Speaker 1: be sustained, it was too late in the day of 332 00:16:55,200 --> 00:16:58,040 Speaker 1: walk markets back. I think that's why they hiked in December. Well, 333 00:16:58,120 --> 00:17:00,240 Speaker 1: markets had already walked back, right, That's that's why this 334 00:17:00,680 --> 00:17:02,720 Speaker 1: That's why it was. I think one of the other 335 00:17:02,720 --> 00:17:04,760 Speaker 1: things we have to consider about what you know, the 336 00:17:04,760 --> 00:17:06,760 Speaker 1: FED being on hold for all of this year is 337 00:17:06,800 --> 00:17:09,480 Speaker 1: one of the policy mistakes that the Feds generally made 338 00:17:09,640 --> 00:17:15,240 Speaker 1: was um yield curves being exceptionally flat. For um UH, 339 00:17:15,280 --> 00:17:18,200 Speaker 1: the yield curve getting flat, which which basically is signally equilibrium, 340 00:17:18,240 --> 00:17:20,399 Speaker 1: that the market is at equilibrium, that the economy is 341 00:17:20,400 --> 00:17:23,080 Speaker 1: at equilibrium, that it's at a sustainable pace. And in 342 00:17:23,160 --> 00:17:25,879 Speaker 1: the past, what's often happened is the FED is hiked 343 00:17:25,960 --> 00:17:29,119 Speaker 1: after the curve was already flat, and that's inverted the 344 00:17:29,119 --> 00:17:31,520 Speaker 1: curve and that basically pushed against it. And that's why 345 00:17:31,600 --> 00:17:35,280 Speaker 1: the how the FED killed, um killed a lot of expansions. 346 00:17:35,520 --> 00:17:37,080 Speaker 1: So this time, you know, this is kind of an 347 00:17:37,080 --> 00:17:39,520 Speaker 1: experiment where the FEDS now saying, hey, if we are 348 00:17:39,560 --> 00:17:42,000 Speaker 1: on hold now because curves are very flat, because the 349 00:17:42,000 --> 00:17:45,480 Speaker 1: markets basically signaling we're at equilibrium, maybe we can we 350 00:17:45,520 --> 00:17:48,560 Speaker 1: can continue uh this expansion going forward if we don't 351 00:17:48,600 --> 00:17:50,400 Speaker 1: hike anymore. I regret to catch out with the want 352 00:17:50,400 --> 00:17:54,359 Speaker 1: to Jersey that alongside Gina Smilk, Bloomberg's very on and 353 00:17:54,359 --> 00:17:56,720 Speaker 1: one of our finest FED reporters, and of course I 354 00:17:56,800 --> 00:17:59,280 Speaker 1: re joining us from Bloomberg in Tanigence are chief US 355 00:17:59,400 --> 00:18:16,600 Speaker 1: interest right strategists. Is the US in a sweet spot 356 00:18:16,680 --> 00:18:22,119 Speaker 1: here of slow growth but growth and solidifying profitability at companies? 357 00:18:22,520 --> 00:18:26,119 Speaker 1: Or are we shifting towards the end and the rollover 358 00:18:26,240 --> 00:18:29,200 Speaker 1: of the credit cycle. Lindsay Peza step a chief economist 359 00:18:29,280 --> 00:18:31,760 Speaker 1: joining us now, Lindsay, can you win on that? I mean, basically, 360 00:18:32,040 --> 00:18:35,000 Speaker 1: are we looking at something material that has shifted in 361 00:18:35,080 --> 00:18:39,640 Speaker 1: the U. S economy to a more barish viewpoint? Good morning? Well, 362 00:18:39,680 --> 00:18:42,639 Speaker 1: I think the FED certainly thinks they've reached neutral, or 363 00:18:42,680 --> 00:18:45,480 Speaker 1: at least they're near the neutral level, which for the FED, 364 00:18:45,920 --> 00:18:49,320 Speaker 1: as we know, it's pretty good. Historically, the FED continues 365 00:18:49,359 --> 00:18:52,360 Speaker 1: to tighten until the evidence in the data is so 366 00:18:52,560 --> 00:18:55,680 Speaker 1: clear that the economy has weakened that at that point 367 00:18:55,760 --> 00:18:58,440 Speaker 1: the economy essentially has fallen off a cliff, and then 368 00:18:58,480 --> 00:19:02,000 Speaker 1: the Feed is willing to cut rates in the near terms. 369 00:19:02,040 --> 00:19:05,359 Speaker 1: So this time, at least, the pole led FED seems 370 00:19:05,359 --> 00:19:08,919 Speaker 1: to acknowledge some of that early weakness bubbling underneath the surface. 371 00:19:09,000 --> 00:19:11,119 Speaker 1: So it's very likely that we continue to see the 372 00:19:11,160 --> 00:19:15,280 Speaker 1: expansion for at least a short period longer, and at 373 00:19:15,400 --> 00:19:17,919 Speaker 1: that point, then as the evidence becomes more clear, the 374 00:19:17,920 --> 00:19:20,440 Speaker 1: FED will have to shift to a defensive stand So 375 00:19:20,840 --> 00:19:23,040 Speaker 1: to your to your question, I do think the economy 376 00:19:23,119 --> 00:19:26,240 Speaker 1: is shifting gears, but it's at the very early stages 377 00:19:26,720 --> 00:19:28,639 Speaker 1: of shifting gears, and we do have to give the 378 00:19:28,640 --> 00:19:33,200 Speaker 1: FED a lot of accolades for recognizing that early sign 379 00:19:34,040 --> 00:19:38,120 Speaker 1: beginning to slow the pace of expansion. Okay, so lindsay, 380 00:19:38,440 --> 00:19:41,320 Speaker 1: so it seems like you applaud what the FED did yesterday. 381 00:19:41,440 --> 00:19:45,199 Speaker 1: My question is our markets wrong here to not be 382 00:19:45,359 --> 00:19:48,280 Speaker 1: pricing in a prolonged credit cycle, because they are not. 383 00:19:48,359 --> 00:19:50,879 Speaker 1: You are seeing credit spread staying where they are widening, 384 00:19:51,400 --> 00:19:55,280 Speaker 1: and you're seeing equity markets down somewhat in the wake 385 00:19:55,480 --> 00:19:59,560 Speaker 1: of this decision. This is pessimism and frankly, should it 386 00:19:59,640 --> 00:20:01,959 Speaker 1: be up tomism that we're going to see a longer 387 00:20:02,000 --> 00:20:05,280 Speaker 1: recovery here. Well, I think the market is correct in 388 00:20:05,320 --> 00:20:08,520 Speaker 1: the fact that it's tempering their expectations for the continuation 389 00:20:08,600 --> 00:20:11,240 Speaker 1: of the expansion because at the same time the FETUS thing, 390 00:20:11,240 --> 00:20:14,600 Speaker 1: we're backing off and growth is still relatively steady. Remember, 391 00:20:14,600 --> 00:20:17,520 Speaker 1: that's pretty much in the rear view mirror going forward. 392 00:20:17,560 --> 00:20:21,520 Speaker 1: Although it wasn't a meaningful reduction, it was a reduction 393 00:20:21,600 --> 00:20:24,679 Speaker 1: in the feeds outlook for growth and inflation. And so 394 00:20:24,720 --> 00:20:27,600 Speaker 1: the FET essentially saying, look, we see the bias to 395 00:20:27,680 --> 00:20:30,879 Speaker 1: the economy to the downside, and we know that the 396 00:20:30,880 --> 00:20:33,879 Speaker 1: FET is typically a little behind in terms of forecasting 397 00:20:33,880 --> 00:20:37,240 Speaker 1: a more dismal outlook in terms of growth and price pressures. 398 00:20:37,240 --> 00:20:40,560 Speaker 1: But the fact that the directional momentum was acknowledged by 399 00:20:40,600 --> 00:20:43,280 Speaker 1: the committee to be to the downside, the market is 400 00:20:43,320 --> 00:20:46,480 Speaker 1: taking that to say, look, we're going to see slower growth, 401 00:20:46,920 --> 00:20:50,679 Speaker 1: slower inflation, and if we see the evolution of the 402 00:20:50,760 --> 00:20:55,000 Speaker 1: data deteriorate even faster than the FETUS forecasting, that means 403 00:20:55,080 --> 00:20:57,520 Speaker 1: we're going to see that raid cut, that first rate 404 00:20:57,600 --> 00:20:59,879 Speaker 1: cut sooner than later. So I don't think the market 405 00:20:59,920 --> 00:21:02,399 Speaker 1: is wrong. I think the market is simply ahead of 406 00:21:02,480 --> 00:21:05,080 Speaker 1: the Fed. So lindsay, at the moment the Fedow Reserve says, 407 00:21:05,080 --> 00:21:09,200 Speaker 1: it's objective is to extend the expansion, to extend the cycle. Linda, 408 00:21:09,200 --> 00:21:12,280 Speaker 1: do you think they can engineer a soft landing? Well, 409 00:21:12,320 --> 00:21:14,320 Speaker 1: I think they're certainly going to see a longer period 410 00:21:14,359 --> 00:21:16,639 Speaker 1: of growth than we would have otherwise seen. Had they 411 00:21:16,760 --> 00:21:19,760 Speaker 1: raised rates at March, at the March meeting yesterday, and 412 00:21:19,800 --> 00:21:22,679 Speaker 1: if they had further plans to raise rates at June 413 00:21:23,040 --> 00:21:25,320 Speaker 1: or elsewhere in the first half of the year, we 414 00:21:25,359 --> 00:21:28,520 Speaker 1: could have been talking about potentially negative growth in the 415 00:21:28,600 --> 00:21:31,719 Speaker 1: second half of the fact that they're willing to be 416 00:21:31,760 --> 00:21:34,399 Speaker 1: patient and remain on the sideline for the coming twelve 417 00:21:34,440 --> 00:21:37,080 Speaker 1: months means that we're likely able to push off that 418 00:21:37,160 --> 00:21:41,159 Speaker 1: recession to twenty So I think the Fed has at 419 00:21:41,240 --> 00:21:45,280 Speaker 1: least in their mind, navigated the best case soft landing 420 00:21:45,280 --> 00:21:48,760 Speaker 1: that we could have expected from policy leaders. What about inflation, 421 00:21:48,800 --> 00:21:50,960 Speaker 1: do you think that this will actually lead to higher 422 00:21:50,960 --> 00:21:52,560 Speaker 1: inflation rates or do you think that we're going to 423 00:21:52,720 --> 00:21:56,240 Speaker 1: end up in a sort of pseudo Japan level, regardless 424 00:21:56,240 --> 00:21:58,119 Speaker 1: of what the FED does. No. I think at this 425 00:21:58,200 --> 00:22:02,200 Speaker 1: point the bigger concern is the downside inflation of meaning 426 00:22:02,440 --> 00:22:07,120 Speaker 1: the potential disinflation or a slower rate of positive price pressures. 427 00:22:07,160 --> 00:22:09,520 Speaker 1: And I think the primary concern is looking at the 428 00:22:09,520 --> 00:22:12,840 Speaker 1: global economy right now. You're talking about a significant slow 429 00:22:12,880 --> 00:22:16,359 Speaker 1: down in our developed counterparts abroad. If you look at 430 00:22:16,400 --> 00:22:19,679 Speaker 1: European growth, minimal tens of a percentage point of GDP, 431 00:22:20,240 --> 00:22:24,040 Speaker 1: Italy the latest catalyst recession, Germany, the largest economy in 432 00:22:24,119 --> 00:22:27,159 Speaker 1: the block, really petering on the brink of her session. 433 00:22:27,240 --> 00:22:30,080 Speaker 1: So this is this is compounding some of the concerns 434 00:22:30,119 --> 00:22:32,320 Speaker 1: that we're already having in the developed world. I eat 435 00:22:32,400 --> 00:22:35,280 Speaker 1: China at the lowest growth rate that we've seen in decades. 436 00:22:35,320 --> 00:22:38,920 Speaker 1: So taken together, the global economy certainly is slowing, which 437 00:22:38,920 --> 00:22:43,119 Speaker 1: is translating into a weakened demand for global goods and services, 438 00:22:43,440 --> 00:22:46,879 Speaker 1: which of course affects overall demand for raw materials commodities. 439 00:22:46,920 --> 00:22:50,359 Speaker 1: And this is where we start to see that deflationary 440 00:22:50,400 --> 00:22:55,440 Speaker 1: pressure contagion UH come into the US economy. And this 441 00:22:55,520 --> 00:22:58,240 Speaker 1: is what the FET is concerned about, that that downward 442 00:22:58,280 --> 00:23:02,320 Speaker 1: pressure from weak condition and overseas Remember we're only focused 443 00:23:02,359 --> 00:23:04,840 Speaker 1: on the US economy. They are US policy makers, but 444 00:23:05,480 --> 00:23:08,000 Speaker 1: we are a global economy and we cannot ignore those 445 00:23:08,040 --> 00:23:11,240 Speaker 1: pressures coming into us from broad Lindsay, great to catch 446 00:23:11,320 --> 00:23:12,600 Speaker 1: up with you, to get your thoughts on the Federal 447 00:23:12,640 --> 00:23:15,119 Speaker 1: Reserve and the economic diates around this morning here in 448 00:23:15,119 --> 00:23:17,560 Speaker 1: the United States, Lindsay p x of that chief economist 449 00:23:17,760 --> 00:23:35,679 Speaker 1: for Stay. Our focus is on Brussels. Theresa May just 450 00:23:35,840 --> 00:23:39,560 Speaker 1: arriving to speak with European Council to argue for their 451 00:23:39,600 --> 00:23:43,880 Speaker 1: approval for a one off three months to lay to brexit. 452 00:23:43,960 --> 00:23:47,639 Speaker 1: The question is will this be a positive for the 453 00:23:47,680 --> 00:23:51,320 Speaker 1: United Kingdom. We do see sterling selling off versus the dollar, 454 00:23:51,520 --> 00:23:54,560 Speaker 1: even though the dollar has been weakening, and of course 455 00:23:55,080 --> 00:23:56,879 Speaker 1: for more on this. We are so lucky to have 456 00:23:56,920 --> 00:24:02,400 Speaker 1: Francine Laquix of Bloomberg Television joining she is in Brussels. Francine, 457 00:24:02,520 --> 00:24:05,040 Speaker 1: thank you so much for being here. What is the 458 00:24:05,119 --> 00:24:07,560 Speaker 1: mood music? Do you think that the European Council will 459 00:24:07,600 --> 00:24:11,000 Speaker 1: sign off on Prime Minister Theresa May's plan? High Lisa, Yes, 460 00:24:11,440 --> 00:24:14,320 Speaker 1: So where I am actually physically standing is in the 461 00:24:14,359 --> 00:24:18,240 Speaker 1: European Council building, where we're seeing basically the arrivals of 462 00:24:18,640 --> 00:24:20,640 Speaker 1: all the heads of states. I do think they will 463 00:24:20,640 --> 00:24:23,520 Speaker 1: probably give her something, but we need to understand exactly 464 00:24:23,560 --> 00:24:25,639 Speaker 1: what Theresa A has asked for and I think what 465 00:24:25,680 --> 00:24:27,520 Speaker 1: that you are reilling to give her. So if we 466 00:24:27,560 --> 00:24:30,640 Speaker 1: take it back a bit um Lisa, basically Theresa A, 467 00:24:30,640 --> 00:24:34,040 Speaker 1: as you said, once, an extension for June. We understand 468 00:24:34,040 --> 00:24:36,120 Speaker 1: from the EU side that they would give an extension, 469 00:24:36,600 --> 00:24:40,679 Speaker 1: possibly not to June thirty but maybe May, but it 470 00:24:40,680 --> 00:24:43,679 Speaker 1: would be attached to something and what they see it 471 00:24:43,720 --> 00:24:46,920 Speaker 1: as is actually a technical delay. So the EU and 472 00:24:46,960 --> 00:24:49,800 Speaker 1: the UK so far have you know, brought up with 473 00:24:49,840 --> 00:24:52,320 Speaker 1: this withdrawal agreem and they've negotiated that for the last 474 00:24:52,359 --> 00:24:55,720 Speaker 1: two years. The sticky point is Parliament in the UK. 475 00:24:55,960 --> 00:24:57,880 Speaker 1: So what we think that you will say is, yes, 476 00:24:57,880 --> 00:25:01,760 Speaker 1: I give you a technical ex mention, a technical delay, 477 00:25:02,000 --> 00:25:05,359 Speaker 1: only if Parliament, which has so far voted down the 478 00:25:05,400 --> 00:25:08,360 Speaker 1: withdrawal agreement twice, we'll say yes to it next week. 479 00:25:08,640 --> 00:25:10,919 Speaker 1: One question that I have is you've got UK opposition 480 00:25:11,000 --> 00:25:14,919 Speaker 1: Labor Party leader Jeremy Corbin also heading to Brussels, schedule 481 00:25:15,000 --> 00:25:17,120 Speaker 1: to get there leader today, and I'm just wondering how 482 00:25:17,160 --> 00:25:20,720 Speaker 1: this complicates Theresa's mad Theresa May's bid here because he 483 00:25:20,840 --> 00:25:25,359 Speaker 1: is proposing an alternative Brexit plan. Correct, yes, so what 484 00:25:25,440 --> 00:25:28,399 Speaker 1: he wants is basically for the UK to kind of 485 00:25:28,480 --> 00:25:31,040 Speaker 1: leave the European without really leaving the European. What he 486 00:25:31,119 --> 00:25:34,080 Speaker 1: wants is the UK to stay in the customs NN. 487 00:25:34,119 --> 00:25:35,720 Speaker 1: But if you think about it like this, so for 488 00:25:35,760 --> 00:25:38,320 Speaker 1: the last two years Theresa May and her government have 489 00:25:38,400 --> 00:25:41,879 Speaker 1: been negotiating with the EU. It's very clear now that 490 00:25:41,920 --> 00:25:44,840 Speaker 1: if you look at the UK, the real power is 491 00:25:44,840 --> 00:25:48,479 Speaker 1: not with government. The real power is with Parliament and 492 00:25:48,560 --> 00:25:51,160 Speaker 1: of course the Labor is part of the biggest majority 493 00:25:51,200 --> 00:25:55,480 Speaker 1: that is the opposition to Theresa May. So ideally Theresa 494 00:25:55,520 --> 00:25:58,120 Speaker 1: May would put her differences aside with Labor and try 495 00:25:58,200 --> 00:26:01,000 Speaker 1: and figure out a plan that gets Parliament to support. 496 00:26:01,119 --> 00:26:03,639 Speaker 1: What Jeremy Corbyn did here was sure you get a 497 00:26:03,680 --> 00:26:08,920 Speaker 1: little bit of you know, political debate going um, Mr Yunker, 498 00:26:09,000 --> 00:26:11,359 Speaker 1: we understand, like, listen to his positions, but actually he 499 00:26:11,400 --> 00:26:15,080 Speaker 1: doesn't really have the tools to negotiate anything. He needs 500 00:26:15,119 --> 00:26:17,240 Speaker 1: to go back home and that's why he needs to 501 00:26:17,240 --> 00:26:19,600 Speaker 1: find an agreement with the Tories if he's willing to 502 00:26:19,640 --> 00:26:22,160 Speaker 1: do so. For in scene, I'm wondering about the price 503 00:26:22,200 --> 00:26:25,199 Speaker 1: action that we're seeing in the Sterling market, because we 504 00:26:25,280 --> 00:26:28,720 Speaker 1: are seeing ongoing weakness, even though it does seem like 505 00:26:28,720 --> 00:26:31,480 Speaker 1: the European Council is poised to sign off on Prime 506 00:26:31,520 --> 00:26:34,399 Speaker 1: Minister May his plan for a three month to later brexit. 507 00:26:34,520 --> 00:26:37,320 Speaker 1: What how do you interpret the weakness that we're seeing here? Y? 508 00:26:37,440 --> 00:26:39,240 Speaker 1: So I do think there there has been in the 509 00:26:39,280 --> 00:26:40,960 Speaker 1: last maybe a couple of days or maybe week, a 510 00:26:40,960 --> 00:26:43,720 Speaker 1: little bit of confusion about too what Theresa May could 511 00:26:43,720 --> 00:26:46,159 Speaker 1: actually do. Right, So there has been this belief I 512 00:26:46,160 --> 00:26:48,600 Speaker 1: think in the markets that she will get an extension 513 00:26:48,640 --> 00:26:51,920 Speaker 1: which basically delays the whole thing by three months. I 514 00:26:51,960 --> 00:26:55,959 Speaker 1: think what we're now talking about is getting a technical 515 00:26:56,160 --> 00:27:01,000 Speaker 1: extension if the Parliament approves this deal. Now this is 516 00:27:01,119 --> 00:27:04,360 Speaker 1: very differently so because it still means that they don't 517 00:27:04,440 --> 00:27:07,439 Speaker 1: get anything if Parliament doesn't agree on it. And again 518 00:27:07,760 --> 00:27:11,520 Speaker 1: the withdrawal agreement actually hasn't changed, right, So this would 519 00:27:11,560 --> 00:27:14,520 Speaker 1: be a technical extensions just so that the UK gets 520 00:27:14,560 --> 00:27:16,680 Speaker 1: ready for their laws, because we don't have a blueprint 521 00:27:16,720 --> 00:27:19,760 Speaker 1: for this. So let's say that tomorrow Parliament said okay, 522 00:27:19,800 --> 00:27:21,960 Speaker 1: this is a deal. We were all wrong. We really 523 00:27:22,000 --> 00:27:24,760 Speaker 1: want to go and get behind Theresa May to push 524 00:27:24,760 --> 00:27:28,040 Speaker 1: this through. Then you still have to translate it into law. 525 00:27:28,080 --> 00:27:29,840 Speaker 1: So this is what it is. This is like a 526 00:27:29,920 --> 00:27:34,199 Speaker 1: technical extension, and so everything could go wrong still, right, 527 00:27:34,240 --> 00:27:36,520 Speaker 1: she could have to call elections, she could have to 528 00:27:36,560 --> 00:27:39,440 Speaker 1: call a referendum, and she could still crash out, or 529 00:27:39,480 --> 00:27:41,879 Speaker 1: the UK could still crash out. And I think a 530 00:27:41,960 --> 00:27:44,879 Speaker 1: pound traders are probably just still realizing that are we 531 00:27:45,040 --> 00:27:47,959 Speaker 1: closer to or further away from a herd Brexit than 532 00:27:47,960 --> 00:27:50,200 Speaker 1: then than we were, say a week or two ago. 533 00:27:50,400 --> 00:27:52,800 Speaker 1: I think we're closer to a hard Brexit if you 534 00:27:52,840 --> 00:27:55,800 Speaker 1: look at again a lot of the power at this moment, 535 00:27:55,840 --> 00:27:59,159 Speaker 1: which is I know, the frustration of the EU is 536 00:27:59,200 --> 00:28:02,439 Speaker 1: that they cannot figure out what the UK Parliament wants. 537 00:28:02,800 --> 00:28:05,680 Speaker 1: The only thing we know that the UK Parliament doesn't 538 00:28:05,680 --> 00:28:08,440 Speaker 1: want is a no deal brexit. Is a herd brexit. 539 00:28:08,480 --> 00:28:13,320 Speaker 1: They voted against that. But the current law frame and 540 00:28:13,359 --> 00:28:15,159 Speaker 1: I know this is complicated because it's like you know, 541 00:28:15,680 --> 00:28:18,240 Speaker 1: the legality of this is that if there's a no 542 00:28:18,440 --> 00:28:22,040 Speaker 1: if if there isn't a deal by March twenty nine, 543 00:28:22,240 --> 00:28:26,159 Speaker 1: which is eight days away, the UK crashes out. And 544 00:28:26,200 --> 00:28:29,000 Speaker 1: so as the clock takes I think you have to 545 00:28:29,000 --> 00:28:32,119 Speaker 1: assume that a no deal is not only still on 546 00:28:32,200 --> 00:28:34,600 Speaker 1: the table, sure on voluntarily, but it's still on the table. 547 00:28:35,000 --> 00:28:37,720 Speaker 1: But also we're getting closer to that almost every step 548 00:28:37,720 --> 00:28:40,480 Speaker 1: of the way. Francy. Just to finish up here, I'm 549 00:28:40,480 --> 00:28:44,120 Speaker 1: wondering whether your sense is that Prime Minister Theresa May 550 00:28:44,200 --> 00:28:48,160 Speaker 1: has more cloud more power heading into this European Council 551 00:28:48,240 --> 00:28:52,000 Speaker 1: meeting in Brussels today, given the fact that she has 552 00:28:52,080 --> 00:28:55,640 Speaker 1: survived again and again, despite the fact that basically opposition 553 00:28:55,840 --> 00:28:57,840 Speaker 1: and everybody in Parliament has taken a hammer to her 554 00:28:57,840 --> 00:28:59,480 Speaker 1: head and tried to smash her out of there, and 555 00:28:59,520 --> 00:29:02,720 Speaker 1: she is just remained. Is she more powerful well in 556 00:29:02,720 --> 00:29:05,360 Speaker 1: the EU side? And we have been trying to figure 557 00:29:05,360 --> 00:29:07,240 Speaker 1: out a great question. So I've been trying to figure 558 00:29:07,240 --> 00:29:10,120 Speaker 1: it out, right. I think when you speak to EU insiders, 559 00:29:10,320 --> 00:29:14,640 Speaker 1: the EU position has been strong, it hasn't changed. They've been, 560 00:29:14,920 --> 00:29:17,200 Speaker 1: you know, in solidarity with Ireland, who will be the 561 00:29:17,240 --> 00:29:20,880 Speaker 1: most affected by the backstop. And so for their part 562 00:29:20,920 --> 00:29:23,800 Speaker 1: that you says, well, we've negotiated this, there's there's nothing. 563 00:29:23,840 --> 00:29:26,760 Speaker 1: You know, they don't really care if if I'm honest, 564 00:29:26,840 --> 00:29:29,440 Speaker 1: who's on the other side. They negotiated. They have a 565 00:29:29,520 --> 00:29:33,040 Speaker 1: withdrawal agreements and that's the blueprint. So we need to 566 00:29:33,080 --> 00:29:36,000 Speaker 1: ask ourselves whether Tresa A is more powerful at home, 567 00:29:36,240 --> 00:29:39,520 Speaker 1: if she can actually focus the minds of the parliamentarians, 568 00:29:40,040 --> 00:29:41,600 Speaker 1: and that, I have to say, for the moment is 569 00:29:41,760 --> 00:29:46,480 Speaker 1: very very unclear. Yeah, as his most things surrounding Brexit, 570 00:29:46,520 --> 00:29:48,840 Speaker 1: Francine Laquis, thank you so much for being with us 571 00:29:49,120 --> 00:29:52,200 Speaker 1: and for spending time. Francine Laquis is Bloomberg television ancher 572 00:29:52,240 --> 00:29:56,520 Speaker 1: Bloombercks surveillance anchor as she is in Brussels with the 573 00:29:56,600 --> 00:30:02,040 Speaker 1: European Council meeting taking place. Thanks for listening to the 574 00:30:02,040 --> 00:30:08,560 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 575 00:30:08,920 --> 00:30:13,120 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 576 00:30:13,160 --> 00:30:17,440 Speaker 1: Tom Keene before the podcast. You can always catch us worldwide. 577 00:30:17,880 --> 00:30:18,960 Speaker 1: I'm Bloomberg Radio