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Speaker 1: Bloomberg, Audio Studios, Podcasts, radio news.

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Speaker 2: Good morning, I'm Nathan Hager and I'm Karen Moscow. Here

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Speaker 2: are the stories we're following today, Karen.

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Speaker 3: Markets around the world are headed for a third day

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Speaker 3: of deep selling after President Donald Trump's tariff announcement on Wednesday,

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Speaker 3: but the President and his team appear undeterred by the

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Speaker 3: investor reaction. Trump says his trade policies are already paying

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Speaker 3: off because of the tariffs.

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Speaker 4: We have seven trillion dollars already committed to be invested

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Speaker 4: in the United States, building auto plants, building chip companies,

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Speaker 4: and all sorts of companies are coming into our country

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Speaker 4: in levels that we've never seen before.

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Speaker 3: President Trump spoke a board Air Force one last night,

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Speaker 3: as heard here on Bloomberg, and his economic team fanned

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Speaker 3: out across the Sunday political shows to defend tariffs. Treasury

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Speaker 3: Secretary Scott Besson said he's not worried about the selloff.

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Speaker 5: Record volume on Friday, and everything is working very smoothly,

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Speaker 5: so the American people they can be very.

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Speaker 6: Take great comfort in that.

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Speaker 3: Treasury Secretary Scott Bessen appeared on NBC's Beat the Press.

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Speaker 2: Well Nathan on ABC's This Week National Economic Council Director

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Speaker 2: Kevin Hasset acknowledge that tariffs could boost inflation in the

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Speaker 2: short term.

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Speaker 7: Well, there might be some increase in prices, but the

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Speaker 7: fact is that if there were going to be a

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Speaker 7: heavy burden on the US consumer, then this trade deficit

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Speaker 7: that for thirty years we've seen, really since China entered

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Speaker 7: the WTO would be something that would have gone down.

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Speaker 2: And on CBS has faced the nation. Commerce Secretary Howard

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Speaker 2: Lutnik said the so called reciprocal tariffs on some sixty

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Speaker 2: nations will arrive on schedule this Wednesday.

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Speaker 8: The United States of America is going to protect the

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Speaker 8: people who invest in America. This is the economy of

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Speaker 8: the world. We are the consumer of the world, and

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Speaker 8: companies need to build it here and we will protect

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Speaker 8: them from building it here.

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Speaker 2: And you can hear face the Nation this week and

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Speaker 2: meet the Press every Sunday on Bloomberg Radio.

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Speaker 3: And Karen As the White House continues that defiant tone

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Speaker 3: markets continue the sell off, and several experts are weighing in.

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Speaker 3: This morning, Bloomberg's John Tucker begins our global team coverage

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Speaker 3: in New York.

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Speaker 9: John, good morning, and good morning, Nathan Limmy Cantrell of

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Speaker 9: PIMCO says tariffs aren't going away. As she puts it.

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Speaker 9: They are high and they will be high for a while.

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Speaker 2: There's going to be stickiness to these tariffs, and even

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Speaker 2: if there are some negotiations and some concessions along the way,

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Speaker 2: I think the direction of travel here is very clear.

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Speaker 9: Mohammad l Arian, president of Queen's College, Cambridge, says uncertainty

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Speaker 9: dominates the markets. The hardest thing for the markets right

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Speaker 9: now is not only to try to evaluate what the

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Speaker 9: destination is, but how Bumpyle the joining edge fund billionaire

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Speaker 9: Stanley Drunken Miller and Bill Ackman are slamming the tariffs.

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Speaker 9: Ackman of Pershing Square, a vocal Trump supporter, says bluntly,

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Speaker 9: the new trade regime is a mistake. He added, this

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Speaker 9: is not what we voted for. Karen George's, an equity

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Speaker 9: fund manager at Echovi, says it may feel like COVID again,

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Speaker 9: but this sell off is man made. A strategist at

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Speaker 9: Morgan Stanley say investors should be prepared for the S

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Speaker 9: and P five hundred to drop a further seven to

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Speaker 9: eight percent. If the S and P five hundred falls

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Speaker 9: another five percent today, this will mark the worst stretch

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Speaker 9: since the market meltdown of nineteen eighty seven, and futures

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Speaker 9: do indicate last week's five trillion dollars wipeout isn't over,

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Speaker 9: you knoww York. I'm John Tucker, Bloomberg Radio.

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Speaker 2: All right, John, thank you. Checking some of the stocks

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Speaker 2: on the decline this morning. Shares A Tesla down about

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Speaker 2: seven percent, in Video off by four and a half percent,

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Speaker 2: and shares A Microsoft, Meta, Amazon, and Alphabet down roughly

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Speaker 2: four percent.

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Speaker 3: And Karen Betts are increasing on Wall Street that the

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Speaker 3: Federal Reserve will need to take action and cut rates.

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Speaker 3: Sploomberg's Lisa Matteo continues our team coverage.

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Speaker 6: Lisa Hi, Good morning, Nathan.

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Speaker 10: So, traders now expect policymakers to slash and just rates

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Speaker 10: another five times this year. According to overnight interest rate swaps,

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Speaker 10: markets pricing in one hundred and twenty five basis points

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Speaker 10: of easing by year end, which is equal to five

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Speaker 10: quarter point moves now. Bob Michael, global head of fixed

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Speaker 10: income at JP Morgan Asset Management, says the Fed can't

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Speaker 10: sit on the sidelines. He also added that they may

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Speaker 10: have to cut interest rates before the next meeting in May.

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Speaker 5: We already know that businesses in the lower rated end

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Speaker 5: of the quality spectrum have been struggling. When you look

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Speaker 5: at private credit and look at the percentage of amend

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Speaker 5: and extends, it's very high. What happens when their cost

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Speaker 5: of funding just ratcheted up another couple percent and they're

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Speaker 5: going to see top flying growth come down as well

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Speaker 5: as their input costs go up. I think this is

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Speaker 5: a serious moment now.

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Speaker 10: TD Securities also pulled forward its policy easing expectations. In

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Speaker 10: a note, strategist Oscar Munos wrote that the brokerage is

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Speaker 10: advancing its forecast for the rate cut to June from

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Speaker 10: July and now expects the committee will ease rates at

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Speaker 10: each meeting through May twenty six. But at all experts

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Speaker 10: feel the same way you have. In a post on

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Speaker 10: X Double Line Capital's Jeffrey Gunlock, he said he does

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Speaker 10: not see a single cut anytime soon unless the losses

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Speaker 10: and risk assets greatly increase. Lisa Miteo Bloomberg.

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Speaker 2: Radio, all right, Lisa, thank you. Both stocks are selling

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Speaker 2: off around the world. The hardest hit this morning is

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Speaker 2: in Asia, where stocks in Hong Kong plunged and stocks

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Speaker 2: in Japan fell into a bear market. Let's get the

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Speaker 2: very latest and check out with the Bloomberg steal thesis.

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Speaker 2: Who continues our global team coverage in Hong Kong and

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Speaker 2: Jill please give us an update on the carnage.

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Speaker 11: Good morning, Karen and Nathan. Yes, it's been an absolute

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Speaker 11: bloodbath in Asia this morning, throughout the entire day, really

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Speaker 11: the NIKA two two five stock average and Japan slid

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Speaker 11: into a market. As you mentioned that blue chip indecks

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Speaker 11: closing down seven point eight percent, experiencing its first bear

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Speaker 11: market since August. That's back when the Bank of Japan

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Speaker 11: unexpectedly hiked rates. We're also seeing quite a lot of

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Speaker 11: fallout in China. That's where closely watched gage Chinese shares

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Speaker 11: in Hong Kong A tumbled nearly fourteen percent. That was

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Speaker 11: also entering a bear market. We've seen some similar stories

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Speaker 11: in Taipei where TSMC really led losses. India has also experienced,

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Speaker 11: you know, some fallout today. I mean, really, what investors

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Speaker 11: here in Asia are experiencing. What they're trying to gauge

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Speaker 11: here is not just the impact from these tariffs, the

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Speaker 11: Donald Trump tariffs, but also what kind of reaction we're

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Speaker 11: really seeing in region it's really China. I think that's

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Speaker 11: really kind of you know, led this region here. Just

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Speaker 11: a couple of days ago, launched a bunch of retaliatory efforts,

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Speaker 11: including measures to introduce a thirty four percent tariff on

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Speaker 11: all American goods starting April tenth. That sort of led

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Speaker 11: to fears that this trade war is really just going

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Speaker 11: to escalate. Donald Trump has really sort of hit back

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Speaker 11: against that, you know, ended up sort of calling off

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Speaker 11: what he said was a deal to reach a sale

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Speaker 11: for TikTok. So you're really seeing a lot that's developing there.

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Speaker 11: We'll have to see whether this continues to spread out

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Speaker 11: through the rest of the week. We're still waiting to

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Speaker 11: see how other governments in Asia are ultimately going to

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Speaker 11: respond here, Hong Kong, Jill Esis, Bloomberg News.

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Speaker 3: Jill, thank you. Stacks in Europe are feeling the pain

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Speaker 3: as well. This morning, Bloomberg's U and Pods continues our

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Speaker 3: global team coverage from London.

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Speaker 6: You and good morning. What's the latest there, Nathan and Karen.

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Speaker 12: European investors will have had a heads up from trading

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Speaker 12: in Asia that today was not going to be a

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Speaker 12: good start to the week. Stop markets around the region

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Speaker 12: opened in the reds and the stampede from global equities

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Speaker 12: gather momentum. The stocks the ten hundred currently down five

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Speaker 12: point nine percent in the next now less than three

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Speaker 12: percentage points away from a bear market. Surveying the damage

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Speaker 12: around the region, the Dacks in Germany off six point

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Speaker 12: four percent, the CAC in France down six point three percent,

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Speaker 12: and the foots are here in London down four point

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Speaker 12: eight percent. All twenty industry groups trading lower. Defensive sectors

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Speaker 12: not proving a place to hide out this morning. Worst

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Speaker 12: hits as things stand, energy, industrial goods, and technology stocks.

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Speaker 12: If any trader who can take their eyes off their

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Speaker 12: plummeting investments this morning worth watching for. Headlines today coming

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Speaker 12: from Luxembourg. European Union trade ministers are meeting there to

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Speaker 12: discuss us their response to President Trump's tariffs, Spain's economy

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Speaker 12: minister telling Bloomberg today that the EU needs to be

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Speaker 12: open to all potential means of retaliation.

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Speaker 6: In London, I'm youw in pots.

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Speaker 2: Bloomberg Radio, all right you and thank you. But we're

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Speaker 2: also seeing some big moves in the commodities markets this morning,

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Speaker 2: and checking oil right now, and I'm exscurute oils down

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Speaker 2: three point eight percent. It's at fifty nine dollars sixty

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Speaker 2: cents a barrel. Goldman this morning cut its oil forecast

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Speaker 2: for the second time in less than a week, as

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Speaker 2: the escalating trade war raises recessionary risks. It's been a

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Speaker 2: very volatile morning for copper. At one point, the metal

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Speaker 2: was heading for its worst three day routes since the

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Speaker 2: Great Financial Crisis. It was down more than eight percent.

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Speaker 2: It has since trim those declines, and we're seeing more

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Speaker 2: stability in the gold market. Right now, gold or Comax

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Speaker 2: gold is up a third of up percent. It's at

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Speaker 2: three forty six dollars twenty cents an ounce. Time now

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Speaker 2: for a look at some of the other stories making

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Speaker 2: news in New York and around the world, and for

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Speaker 2: that we're joined by Bloomberg's Michael Barr Michael, Good Morning,

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Speaker 2: Good morning.

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Speaker 13: Care and rivers rose and flooding worsen across the South

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Speaker 13: and Midwest, threatening communities already water log and badly damaged

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Speaker 13: by days of heavy rain and storms that killed at

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Speaker 13: least eighteen people from Texas to Ohio. Utilities scrambled to

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Speaker 13: shut off power and gas, while cities deployed sandbags to

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Speaker 13: protect homes and businesses. Forecasters warned that flooding could persist

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Speaker 13: for days, especially in Kentucky, Tennessee, and Alabama. De Wi

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Speaker 13: West is the public information officer for Bowling Green, Kentucky.

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Speaker 14: This is yet another heartbreaking weather event for the city

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Speaker 14: of Bowling Green and Warren County. While we have had

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Speaker 14: no loss of life reported, loss of property is expected

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Speaker 14: to be substantial.

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Speaker 13: Some rivers that innundated towns rose to near record levels

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Speaker 13: and were expected to cress today. Israeli Prime Minister Benjamin

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Speaker 13: at Yahoo will visit the White House today to meet

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Speaker 13: with President Trump. They are expected to talk about Gaza,

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Speaker 13: tariffs and other issues. Bloomberg will bring you comments to

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Speaker 13: reporters with Trump and det and Yahoo starting at two

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Speaker 13: thirty pm Wall Street Time. Among the more than two

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Speaker 13: hundred people the Trump administration deported to an Il Salvador

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Speaker 13: prison last month is Kilmar Abrego Garcia of Maryland. Trump

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Speaker 13: officials admit he was deported due to an administrative error,

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Speaker 13: but have signaled they may not comply with a separate

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Speaker 13: judges order to return Garcia to the US by eleven

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Speaker 13: to fifty nine pm tonight. Arguing the judge does not

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Speaker 13: have jurisdiction, and the President says Garcia is a gang member,

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Speaker 13: just not with TDA.

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Speaker 4: They say, oh, we made a mistake because he's not

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Speaker 4: with them, He's with MS thirty.

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Speaker 6: Bring him back, Bring them back. Ms RT's a very

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Speaker 6: bad group.

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Speaker 13: Garcia's family says he is not with any gang. Health

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Speaker 13: Secretary Robert F. Kennedy Junior now throwing his support behind

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Speaker 13: the vaccine. It comes after he attended the funeral over

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Speaker 13: the weekend of a child who died from the measles.

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Speaker 13: The US has now seen more than six hundre it

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Speaker 13: confirmed measles cases across twenty one states. Global news twenty

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Speaker 13: four hours a day and whenever you want it with

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Speaker 13: the Bloomberg News. Now. I'm Michael Barr, and this is

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Speaker 13: Bloomberg Kron.

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Speaker 2: All right, Michael Barr, thank you all. Coming up, We're

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Speaker 2: gonna have more on the market sell off. We are

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Speaker 2: speaking with Morgan Stanley's Andrew Sheets. But first it's time

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Speaker 2: for the Bloomberg Sports Update with John Stashauer.

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Speaker 6: John, Good morning, Good morning, Karon.

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Speaker 15: They call kennetick it they capital of college basketball. Why

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Speaker 15: not eighteen national championships for the last thirty years. The

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Speaker 15: Yukon men won the NCAAs the last two seasons. The

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Speaker 15: women at one them since twenty sixteen, but they would

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Speaker 15: dominant this tournament, six wins by an average of thirty

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Speaker 15: three points, final four wins by thirty four and twenty

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Speaker 15: three points in Tampa. They did throned in South Carolina.

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Speaker 15: It's the twelfth title for their legendary coach, Gino Orima.

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Speaker 16: Stan Anthony and I went for a walk right, and

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Speaker 16: as I'm walking outside the hotel, at one point, I said,

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Speaker 16: you know, hey, dear God, you know like I don't

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Speaker 16: need one of these damn my players do man? Can

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Speaker 16: you can do it for them?

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Speaker 15: The men's title game tonight in San Antonio, Florida against Houston.

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Speaker 15: Who comes off that remarkable rally against Duke at Ubs

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Speaker 15: Arena Hockey history.

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Speaker 6: Oh that skin has any stares.

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Speaker 8: He stares Alex So that's kid Store Saint ninety five.

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Speaker 15: There's a goal scoring champion w JFK. Move over, Wayne Gretzky,

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Speaker 15: who was there to see actually the Capitol's only goal.

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Speaker 15: They lost to the Island. It was four to one

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Speaker 15: at the Garden. Welcome back Jalen Brunson missed fifteen games

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Speaker 15: at injurn ankle.

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Speaker 6: The next win nine and six.

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Speaker 15: With the captain back, they beat Phoenix one twelve ninety eight,

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Speaker 15: their fiftieth win. The Nets lost it Toronto. The Celtics

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Speaker 15: blew out Washington late last night big baseball news, it

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Speaker 15: was believed that Vladivier Guerrero Junior would be the next

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Speaker 15: winter's big free agent. He's staying with the Blue Jays

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Speaker 15: a fourteen year deal for half a billion. The Mets

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Speaker 15: finished the sweep of Toronto two one at Cityfield.

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Speaker 6: The Yankees in Pittsburgh rallied.

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Speaker 15: With two outs of Nineteenning scored three months to tie

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Speaker 15: the game, but the Pirates won five to four and eleven.

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Speaker 15: The Nationals won the Red Sox at doubleheader sweep of

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Speaker 15: the Cardinals first and tennans and then last night eighteen

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Speaker 15: to seven. The Socks had went five in.

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Speaker 1: A row coast to coast on Bloomberg Radio, nationwide on

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Speaker 1: Sirius XM, and around the world on Bloomberg dot Com

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Speaker 1: and the Bloomberg Business app. This is Bloomberg Daybreak.

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Speaker 6: Good morning, I'm Nathan Hager.

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Speaker 3: The global stock sell off that is greeted President Trump's

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Speaker 3: Tarff announcement is reviving Black Monday memories from any on

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Speaker 3: Wall Street, But the President is rejecting market concerns that

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Speaker 3: his trade barrage will send the US into a recession.

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Speaker 6: What's gonna happen with the market.

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Speaker 4: I can't tell you. What I can tell you our

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Speaker 4: country has gotten a lot stronger, and eventually it'll be

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Speaker 4: a country like no other. It'll be the most dominant

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Speaker 4: country economically in the world.

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Speaker 3: And that was the President speaking of Board Air Force

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Speaker 3: one last night. This morning, we were joined by Bloomberg

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Speaker 3: Markets reporter Valerie Titel as we watch the selloff extend

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Speaker 3: into a third trading session following the rose Guard announcement. Valerie,

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Speaker 3: the President says he might not be able to predict

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Speaker 3: what the market's doing, but the market seems to be

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Speaker 3: sending a pretty loud message to the President this morning.

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Speaker 17: Oh yeah, and I want to echo the flashbacks to

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Speaker 17: Black Monday. If this move in the S and P

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Speaker 17: five hundred futures holds into the clothes, we are looking

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Speaker 17: at the worst three days for the US equity market

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Speaker 17: since nineteen eighty seven, when it dropped twenty four point

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Speaker 17: six in a matter of two days, So keep an

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Speaker 17: eye on those kind of superlatives. That just really puts

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Speaker 17: it into perspective. Black Monday, GFC, COVID, that is what

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Speaker 17: people are comparing the last market drop to. And Nathan,

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Speaker 17: the one thing that's in stark contrast to what's going

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Speaker 17: on now versus those other instances in the past is

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Speaker 17: during those other instances you had the monetary easing floodgates open,

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Speaker 17: the fiscal easing floodgates open after Black Monday, during the

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Speaker 17: Great Financial Crisis, and during COVID. But what stands now

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Speaker 17: is a start contrast, so that we have a FED

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Speaker 17: who says that they are going to be patient and

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Speaker 17: wait for further clarity. Mike Wilson over at Morgan Stanley

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Speaker 17: noting that the S and P five hundred could drop

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Speaker 17: another seven to eight percent if the FED remains on

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Speaker 17: hold and these tariffs continue in the market.

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Speaker 3: But while we're seeing these selling continuing here on Wall Street,

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Speaker 3: it looks, at least at this point this morning, like

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Speaker 3: the sell off is even worse overseas.

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Speaker 6: Valerie, Yeah, that's right.

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Speaker 17: And the European open, Nathan, was quite shaky. We had

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Speaker 17: the dacks drop ten percent at the open that's its

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Speaker 17: third biggest gap lower in history. We're also seeing credit

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Speaker 17: spreads widen across a high yield and investment grade in Europe,

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Speaker 17: and that's leading to a very punishing session for European banks.

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Speaker 17: SX SEVNY is down six point seven percent and over

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Speaker 17: the last three days, Nathan, it's nearing a near twenty

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Speaker 17: percent slide in European banks in the last three sessions.

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Speaker 6: It's hard not to notice Valerie.

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Speaker 3: This more than thirteen percent close for the Hangsang in

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Speaker 3: Hong Kong. The Asian session has been absolutely brutal. As

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Speaker 3: China sounds like it's not willing to back down either.

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Speaker 17: Yeah, it was a bloodbath that HSI index, the Hangksang

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Speaker 17: in Hong Kong dropping thirteen percent, Nathan. That's its worst

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Speaker 17: one day drop since the Asian Financial Crisis of nineteen

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Speaker 17: ninety seven. The Broader Asia Index, the MSCI Asia Pacific

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Speaker 17: had its worst one day drop since October two thousand

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Speaker 17: and eight. We had the Nicky entering into bear market territory,

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Speaker 17: and the eight shares that trade in Hong Kong also

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Speaker 17: down more than twenty percent from peak. The one thing though,

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Speaker 17: that may be a solace for those em Asian nations

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Speaker 17: is the fact that we are not seeing a rip

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Speaker 17: roaring rally in the dollar, and that could be you know,

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Speaker 17: one aspect of perhaps positivity for these nations who in

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Speaker 17: normal times of economic instability they have to deal with

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Speaker 17: capital flight and their currencies depreciating strongly versus the dollar.

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Speaker 17: We at least are not seeing that as yet.

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Speaker 3: Bloomberg Marketers reporter Valerie Titel, thank you for this as

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Speaker 3: we continue to watch the global market sell off. Where

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Speaker 3: you're joined now by Andrew Sheets, chief cross assets strategist

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Speaker 3: at Morgan Stanley. Andrew, thank you so much for joining

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Speaker 3: us this morning. And Valerie mentioned the call from your

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Speaker 3: colleague at Morgan Stanley, Mike Wilson, the chief US equity strategist,

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Speaker 3: saying stocks could fall another seven to eight percent if

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Speaker 3: the tariff risk doesn't subside in the FED stays on hold.

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Speaker 6: Is that your call as well? Good morning, Yeah, good morning.

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Speaker 18: So I think, unfortunately you do have the confluence of

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Speaker 18: a number of quite negative factors where it is hard

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Speaker 18: to see enough offsets you had before the tariff announcement.

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Speaker 18: I think already a deteriorating earnings picture in the US

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Speaker 18: with negative revisions, You had deterioration and leading economic indicators

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Speaker 18: like consumer confidence, and then you also had signs of

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Speaker 18: inflation rising. You know, recalled that the last three prints

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Speaker 18: for core PC, the Fed's preferred measure, have increased for

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Speaker 18: three straight months. So we walked into this tarif announcement,

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Speaker 18: I think, with a quite challenging macro backdrop. And then

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Speaker 18: the tariffs that we got were much larger than expected.

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Speaker 18: They were, you know, I think, much more severe than

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Speaker 18: our forecast than many forecasters has penciled in. And so

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Speaker 18: that creates additional downside risk to growth, additional upside risk

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Speaker 18: to inflation, and also this challenging dynamic where it's not

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Speaker 18: clear that either valuations or a policy change is right

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Speaker 18: there for support. So I thought, your colleague, you know

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Speaker 18: what they just mentioned about. You know, previously under some

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Speaker 18: of this weakness, you had fiscal stimulus or you had easing.

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Speaker 18: We think that's going to be much more more difficult.

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Speaker 18: The FED is missing much more on their inflation mandate

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Speaker 18: than they're missing on the jobs part of their mandate. Right,

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Speaker 18: we had actually a pretty good payroll number on Friday,

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Speaker 18: whereas core PCE is two point eight percent in the

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Speaker 18: US we think that makes it quite difficult for the

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Speaker 18: FED to cut. We think that the FED will cut

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Speaker 18: far less than the market is expecting this year at

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Speaker 18: Morgan Stanley, and valuations still remain elevated. The S and

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Speaker 18: P is still at nineteen times. So I think you

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Speaker 18: put all that together, and while it's always difficult to

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Speaker 18: be too precise, that still means that there's potential for downside.

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Speaker 3: So then, Andrew, what do you make of the move

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Speaker 3: that we're seeing in the money markets. The money markets

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Speaker 3: pricing in fully five FED rate cuts this year and

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Speaker 3: even some calls now for an emergency cut before the

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Speaker 3: next meeting next month.

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Speaker 18: Yeah, we disagreed with that. We do think markets are

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Speaker 18: looking at the equity weakness. As you mentioned, this is historic.

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Speaker 18: It's one of the largest three day drawdowns that we've

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Speaker 18: seen in a very long period of time, and you know,

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Speaker 18: I think markets are understandably saying, well, a drawdown of

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Speaker 18: that measure would naturally invite a response, But our view

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Speaker 18: is that that will be much more difficult that inflations

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Speaker 18: in a more difficult place. And because it's I think

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Speaker 18: it's also not clear that FED rate cuts would necessarily

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Speaker 18: address the issue. The uncertainty from tariffs. The costs of

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Speaker 18: tariffs are not easily offset by say, you know, an

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Speaker 18: emergency twenty five or fifty basis point rate cut. The

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Speaker 18: issues go deeper. So you know, we think that the

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Speaker 18: Fed will will need to and ultimately stay more focused

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Speaker 18: on its mandate unless we see more seizure or tightness

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Speaker 18: in say credit issuance markets, which we just haven't seen yet.

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Speaker 3: Well, what do you make of the widening and credit

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Speaker 3: spreads that we've started to see now in Asia and

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Speaker 3: in Europe.

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Speaker 18: Yeah, So, I think what's fascinating is that I think

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Speaker 18: credit has a reputation, I like to think, a well

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Speaker 18: earned reputation of usually being an early indicator. But in

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Speaker 18: this cycle that has not been the case. Credit has

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Speaker 18: been quite slow to catch up to weakness that has

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Speaker 18: been in the equity market for some time. And I

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Speaker 18: think that speaks to a credit cycle that is entering

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Speaker 18: this downturn in a better place. You know, companies were

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Speaker 18: somewhat more cautious and less aggressive coming into this m

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Speaker 18: and A was low. Balance sheet leverage has been stable,

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Speaker 18: so I do think credit remains a follower here. I

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Speaker 18: don't think that we should necessarily see credit as a

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Speaker 18: leading indicator. I think it's following the broader uncertainty around

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Speaker 18: the growth and policy that's coming from the administration and

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Speaker 18: these questions around the Fed. But I think what we're

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Speaker 18: seeing from credit should be seen as a catching up.

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Speaker 18: You know, even after the moves this morning, we're really

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Speaker 18: kind of just back to average levels of spreads. We

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Speaker 18: think that's kind of very reasonable given the risks that

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Speaker 18: are surrounding the market.

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Speaker 3: We're speaking with andrews Sheets, chief cross assets strategist at

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Speaker 3: Morgan Stanley as we continue to monitor this global stock

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Speaker 3: sell off and flight, particularly this morning into treasuries, we're

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Speaker 3: seeing gains across the curve in the treasuries market.

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Speaker 6: Andrew, where do you reallocate?

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Speaker 3: How do you advise clients to make moves in this environment?

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Speaker 18: Well, so, we do think that move in interest rates

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Speaker 18: is correct that if the odds of a recession are rising,

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Speaker 18: and I think that, unfortunately, is what is happening, given

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Speaker 18: these risks to growth, and also the potential that the

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Speaker 18: Fed cannot react as quickly to those growth risks because

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Speaker 18: inflation is persistent, you know, we think the market will

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Speaker 18: will respond to that by lowering interest rates, especially you know,

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Speaker 18: kind of somewhat further further out the curve. So you know,

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Speaker 18: we do think yields will will fall here further in

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Speaker 18: the US and in the UK and in Germany.

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Speaker 15: And you know, I.

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Speaker 18: Think that's also something that if we look back to

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Speaker 18: say twenty eighteen, you know, in the fourth quarter of

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Speaker 18: twenty eighteen, you also had a large draw down. You know,

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Speaker 18: that was also somewhat related to tariff uncertainty, it was

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Speaker 18: related to the FED the administration not shift policy as

437
00:23:00,960 --> 00:23:03,840
Speaker 18: quickly as the market was hoping they would. You know,

438
00:23:04,000 --> 00:23:07,560
Speaker 18: real interest rates in the US, real interest rates on

439
00:23:07,640 --> 00:23:11,359
Speaker 18: ten year government bonds are still much higher, you know,

440
00:23:11,480 --> 00:23:14,879
Speaker 18: more attractive than they were during that episode at the

441
00:23:14,920 --> 00:23:18,320
Speaker 18: worst part of that episode. While you know, equity valuations

442
00:23:18,320 --> 00:23:21,159
Speaker 18: in the US today are still much more expensive than

443
00:23:21,200 --> 00:23:23,200
Speaker 18: at the worst part of that episode. So you know,

444
00:23:23,240 --> 00:23:26,359
Speaker 18: I still think that if if investors are worried about

445
00:23:26,400 --> 00:23:29,520
Speaker 18: growth picking up, then you know, we still think bonds

446
00:23:29,520 --> 00:23:32,160
Speaker 18: offer kind of reasonable value here, and we think that

447
00:23:32,160 --> 00:23:34,359
Speaker 18: that's the direction that reallocation will continue in.

448
00:23:34,680 --> 00:23:37,920
Speaker 3: If we do continue to see stocks and bond yields fall,

449
00:23:38,000 --> 00:23:39,960
Speaker 3: what does that mean for financial conditions?

450
00:23:40,000 --> 00:23:42,640
Speaker 6: What could it mean for the FED and then that regard.

451
00:23:43,280 --> 00:23:46,439
Speaker 18: So, you know, financial conditions are tightening obviously, you know,

452
00:23:46,480 --> 00:23:48,600
Speaker 18: you have some push and pull here with with with

453
00:23:48,680 --> 00:23:53,200
Speaker 18: equities going down, you know, but also rates coming down.

454
00:23:53,320 --> 00:23:55,600
Speaker 18: But I think that the challenge for the FED is

455
00:23:55,640 --> 00:23:59,520
Speaker 18: it's not clear that those financial conditions are excessively tight.

456
00:23:59,600 --> 00:24:02,280
Speaker 18: You know it, spreads today are kind of near the

457
00:24:02,320 --> 00:24:05,560
Speaker 18: long run average. That's that's fine. You know, the S

458
00:24:05,600 --> 00:24:09,119
Speaker 18: and P has still roughly nineteen times forward earnings that

459
00:24:09,119 --> 00:24:12,440
Speaker 18: that does not seem like an excessive level of equity

460
00:24:12,520 --> 00:24:16,359
Speaker 18: risk premium. That would suggest some sort of market breakage. So,

461
00:24:17,160 --> 00:24:19,600
Speaker 18: you know, and I think you still have credit markets

462
00:24:19,640 --> 00:24:22,560
Speaker 18: where you know, you have credit markets have been open,

463
00:24:22,640 --> 00:24:26,080
Speaker 18: it's been possible to issue. You know, the latest Senior

464
00:24:26,119 --> 00:24:30,199
Speaker 18: Loan Officer survey suggested that credit standards were loosening a

465
00:24:30,200 --> 00:24:32,960
Speaker 18: bit in the US rather than tightening. So I think

466
00:24:33,000 --> 00:24:36,720
Speaker 18: it's kind of hard to look at that full spread

467
00:24:37,080 --> 00:24:40,040
Speaker 18: of financial conditions and say that there's something here that

468
00:24:40,280 --> 00:24:46,679
Speaker 18: invites a really large shift. Again, we could get it,

469
00:24:46,720 --> 00:24:49,280
Speaker 18: but I don't think you've seen it yet, And especially

470
00:24:49,320 --> 00:24:52,000
Speaker 18: for a FED that is is also dealing with inflation

471
00:24:52,040 --> 00:24:55,280
Speaker 18: that's above its target, is dealing with inflation expectations that

472
00:24:55,320 --> 00:24:57,880
Speaker 18: have been going up significantly. You know, we think that

473
00:24:57,880 --> 00:25:00,320
Speaker 18: that is going to provide a level of caution that

474
00:25:00,400 --> 00:25:02,680
Speaker 18: prevents this This larger intervention.

475
00:25:02,400 --> 00:25:07,159
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