Speaker 1: Bloomberg, Audio Studios, Podcasts, radio news.
Speaker 2: Good morning, I'm Nathan Hager and I'm Karen Moscow. Here
Speaker 2: are the stories we're following today, Karen.
Speaker 3: Markets around the world are headed for a third day
Speaker 3: of deep selling after President Donald Trump's tariff announcement on Wednesday,
Speaker 3: but the President and his team appear undeterred by the
Speaker 3: investor reaction. Trump says his trade policies are already paying
Speaker 3: off because of the tariffs.
Speaker 4: We have seven trillion dollars already committed to be invested
Speaker 4: in the United States, building auto plants, building chip companies,
Speaker 4: and all sorts of companies are coming into our country
Speaker 4: in levels that we've never seen before.
Speaker 3: President Trump spoke a board Air Force one last night,
Speaker 3: as heard here on Bloomberg, and his economic team fanned
Speaker 3: out across the Sunday political shows to defend tariffs. Treasury
Speaker 3: Secretary Scott Besson said he's not worried about the selloff.
Speaker 5: Record volume on Friday, and everything is working very smoothly,
Speaker 5: so the American people they can be very.
Speaker 6: Take great comfort in that.
Speaker 3: Treasury Secretary Scott Bessen appeared on NBC's Beat the Press.
Speaker 2: Well Nathan on ABC's This Week National Economic Council Director
Speaker 2: Kevin Hasset acknowledge that tariffs could boost inflation in the
Speaker 2: short term.
Speaker 7: Well, there might be some increase in prices, but the
Speaker 7: fact is that if there were going to be a
Speaker 7: heavy burden on the US consumer, then this trade deficit
Speaker 7: that for thirty years we've seen, really since China entered
Speaker 7: the WTO would be something that would have gone down.
Speaker 2: And on CBS has faced the nation. Commerce Secretary Howard
Speaker 2: Lutnik said the so called reciprocal tariffs on some sixty
Speaker 2: nations will arrive on schedule this Wednesday.
Speaker 8: The United States of America is going to protect the
Speaker 8: people who invest in America. This is the economy of
Speaker 8: the world. We are the consumer of the world, and
Speaker 8: companies need to build it here and we will protect
Speaker 8: them from building it here.
Speaker 2: And you can hear face the Nation this week and
Speaker 2: meet the Press every Sunday on Bloomberg Radio.
Speaker 3: And Karen As the White House continues that defiant tone
Speaker 3: markets continue the sell off, and several experts are weighing in.
Speaker 3: This morning, Bloomberg's John Tucker begins our global team coverage
Speaker 3: in New York.
Speaker 9: John, good morning, and good morning, Nathan Limmy Cantrell of
Speaker 9: PIMCO says tariffs aren't going away. As she puts it.
Speaker 9: They are high and they will be high for a while.
Speaker 2: There's going to be stickiness to these tariffs, and even
Speaker 2: if there are some negotiations and some concessions along the way,
Speaker 2: I think the direction of travel here is very clear.
Speaker 9: Mohammad l Arian, president of Queen's College, Cambridge, says uncertainty
Speaker 9: dominates the markets. The hardest thing for the markets right
Speaker 9: now is not only to try to evaluate what the
Speaker 9: destination is, but how Bumpyle the joining edge fund billionaire
Speaker 9: Stanley Drunken Miller and Bill Ackman are slamming the tariffs.
Speaker 9: Ackman of Pershing Square, a vocal Trump supporter, says bluntly,
Speaker 9: the new trade regime is a mistake. He added, this
Speaker 9: is not what we voted for. Karen George's, an equity
Speaker 9: fund manager at Echovi, says it may feel like COVID again,
Speaker 9: but this sell off is man made. A strategist at
Speaker 9: Morgan Stanley say investors should be prepared for the S
Speaker 9: and P five hundred to drop a further seven to
Speaker 9: eight percent. If the S and P five hundred falls
Speaker 9: another five percent today, this will mark the worst stretch
Speaker 9: since the market meltdown of nineteen eighty seven, and futures
Speaker 9: do indicate last week's five trillion dollars wipeout isn't over,
Speaker 9: you knoww York. I'm John Tucker, Bloomberg Radio.
Speaker 2: All right, John, thank you. Checking some of the stocks
Speaker 2: on the decline this morning. Shares A Tesla down about
Speaker 2: seven percent, in Video off by four and a half percent,
Speaker 2: and shares A Microsoft, Meta, Amazon, and Alphabet down roughly
Speaker 2: four percent.
Speaker 3: And Karen Betts are increasing on Wall Street that the
Speaker 3: Federal Reserve will need to take action and cut rates.
Speaker 3: Sploomberg's Lisa Matteo continues our team coverage.
Speaker 6: Lisa Hi, Good morning, Nathan.
Speaker 10: So, traders now expect policymakers to slash and just rates
Speaker 10: another five times this year. According to overnight interest rate swaps,
Speaker 10: markets pricing in one hundred and twenty five basis points
Speaker 10: of easing by year end, which is equal to five
Speaker 10: quarter point moves now. Bob Michael, global head of fixed
Speaker 10: income at JP Morgan Asset Management, says the Fed can't
Speaker 10: sit on the sidelines. He also added that they may
Speaker 10: have to cut interest rates before the next meeting in May.
Speaker 5: We already know that businesses in the lower rated end
Speaker 5: of the quality spectrum have been struggling. When you look
Speaker 5: at private credit and look at the percentage of amend
Speaker 5: and extends, it's very high. What happens when their cost
Speaker 5: of funding just ratcheted up another couple percent and they're
Speaker 5: going to see top flying growth come down as well
Speaker 5: as their input costs go up. I think this is
Speaker 5: a serious moment now.
Speaker 10: TD Securities also pulled forward its policy easing expectations. In
Speaker 10: a note, strategist Oscar Munos wrote that the brokerage is
Speaker 10: advancing its forecast for the rate cut to June from
Speaker 10: July and now expects the committee will ease rates at
Speaker 10: each meeting through May twenty six. But at all experts
Speaker 10: feel the same way you have. In a post on
Speaker 10: X Double Line Capital's Jeffrey Gunlock, he said he does
Speaker 10: not see a single cut anytime soon unless the losses
Speaker 10: and risk assets greatly increase. Lisa Miteo Bloomberg.
Speaker 2: Radio, all right, Lisa, thank you. Both stocks are selling
Speaker 2: off around the world. The hardest hit this morning is
Speaker 2: in Asia, where stocks in Hong Kong plunged and stocks
Speaker 2: in Japan fell into a bear market. Let's get the
Speaker 2: very latest and check out with the Bloomberg steal thesis.
Speaker 2: Who continues our global team coverage in Hong Kong and
Speaker 2: Jill please give us an update on the carnage.
Speaker 11: Good morning, Karen and Nathan. Yes, it's been an absolute
Speaker 11: bloodbath in Asia this morning, throughout the entire day, really
Speaker 11: the NIKA two two five stock average and Japan slid
Speaker 11: into a market. As you mentioned that blue chip indecks
Speaker 11: closing down seven point eight percent, experiencing its first bear
Speaker 11: market since August. That's back when the Bank of Japan
Speaker 11: unexpectedly hiked rates. We're also seeing quite a lot of
Speaker 11: fallout in China. That's where closely watched gage Chinese shares
Speaker 11: in Hong Kong A tumbled nearly fourteen percent. That was
Speaker 11: also entering a bear market. We've seen some similar stories
Speaker 11: in Taipei where TSMC really led losses. India has also experienced,
Speaker 11: you know, some fallout today. I mean, really, what investors
Speaker 11: here in Asia are experiencing. What they're trying to gauge
Speaker 11: here is not just the impact from these tariffs, the
Speaker 11: Donald Trump tariffs, but also what kind of reaction we're
Speaker 11: really seeing in region it's really China. I think that's
Speaker 11: really kind of you know, led this region here. Just
Speaker 11: a couple of days ago, launched a bunch of retaliatory efforts,
Speaker 11: including measures to introduce a thirty four percent tariff on
Speaker 11: all American goods starting April tenth. That sort of led
Speaker 11: to fears that this trade war is really just going
Speaker 11: to escalate. Donald Trump has really sort of hit back
Speaker 11: against that, you know, ended up sort of calling off
Speaker 11: what he said was a deal to reach a sale
Speaker 11: for TikTok. So you're really seeing a lot that's developing there.
Speaker 11: We'll have to see whether this continues to spread out
Speaker 11: through the rest of the week. We're still waiting to
Speaker 11: see how other governments in Asia are ultimately going to
Speaker 11: respond here, Hong Kong, Jill Esis, Bloomberg News.
Speaker 3: Jill, thank you. Stacks in Europe are feeling the pain
Speaker 3: as well. This morning, Bloomberg's U and Pods continues our
Speaker 3: global team coverage from London.
Speaker 6: You and good morning. What's the latest there, Nathan and Karen.
Speaker 12: European investors will have had a heads up from trading
Speaker 12: in Asia that today was not going to be a
Speaker 12: good start to the week. Stop markets around the region
Speaker 12: opened in the reds and the stampede from global equities
Speaker 12: gather momentum. The stocks the ten hundred currently down five
Speaker 12: point nine percent in the next now less than three
Speaker 12: percentage points away from a bear market. Surveying the damage
Speaker 12: around the region, the Dacks in Germany off six point
Speaker 12: four percent, the CAC in France down six point three percent,
Speaker 12: and the foots are here in London down four point
Speaker 12: eight percent. All twenty industry groups trading lower. Defensive sectors
Speaker 12: not proving a place to hide out this morning. Worst
Speaker 12: hits as things stand, energy, industrial goods, and technology stocks.
Speaker 12: If any trader who can take their eyes off their
Speaker 12: plummeting investments this morning worth watching for. Headlines today coming
Speaker 12: from Luxembourg. European Union trade ministers are meeting there to
Speaker 12: discuss us their response to President Trump's tariffs, Spain's economy
Speaker 12: minister telling Bloomberg today that the EU needs to be
Speaker 12: open to all potential means of retaliation.
Speaker 6: In London, I'm youw in pots.
Speaker 2: Bloomberg Radio, all right you and thank you. But we're
Speaker 2: also seeing some big moves in the commodities markets this morning,
Speaker 2: and checking oil right now, and I'm exscurute oils down
Speaker 2: three point eight percent. It's at fifty nine dollars sixty
Speaker 2: cents a barrel. Goldman this morning cut its oil forecast
Speaker 2: for the second time in less than a week, as
Speaker 2: the escalating trade war raises recessionary risks. It's been a
Speaker 2: very volatile morning for copper. At one point, the metal
Speaker 2: was heading for its worst three day routes since the
Speaker 2: Great Financial Crisis. It was down more than eight percent.
Speaker 2: It has since trim those declines, and we're seeing more
Speaker 2: stability in the gold market. Right now, gold or Comax
Speaker 2: gold is up a third of up percent. It's at
Speaker 2: three forty six dollars twenty cents an ounce. Time now
Speaker 2: for a look at some of the other stories making
Speaker 2: news in New York and around the world, and for
Speaker 2: that we're joined by Bloomberg's Michael Barr Michael, Good Morning,
Speaker 2: Good morning.
Speaker 13: Care and rivers rose and flooding worsen across the South
Speaker 13: and Midwest, threatening communities already water log and badly damaged
Speaker 13: by days of heavy rain and storms that killed at
Speaker 13: least eighteen people from Texas to Ohio. Utilities scrambled to
Speaker 13: shut off power and gas, while cities deployed sandbags to
Speaker 13: protect homes and businesses. Forecasters warned that flooding could persist
Speaker 13: for days, especially in Kentucky, Tennessee, and Alabama. De Wi
Speaker 13: West is the public information officer for Bowling Green, Kentucky.
Speaker 14: This is yet another heartbreaking weather event for the city
Speaker 14: of Bowling Green and Warren County. While we have had
Speaker 14: no loss of life reported, loss of property is expected
Speaker 14: to be substantial.
Speaker 13: Some rivers that innundated towns rose to near record levels
Speaker 13: and were expected to cress today. Israeli Prime Minister Benjamin
Speaker 13: at Yahoo will visit the White House today to meet
Speaker 13: with President Trump. They are expected to talk about Gaza,
Speaker 13: tariffs and other issues. Bloomberg will bring you comments to
Speaker 13: reporters with Trump and det and Yahoo starting at two
Speaker 13: thirty pm Wall Street Time. Among the more than two
Speaker 13: hundred people the Trump administration deported to an Il Salvador
Speaker 13: prison last month is Kilmar Abrego Garcia of Maryland. Trump
Speaker 13: officials admit he was deported due to an administrative error,
Speaker 13: but have signaled they may not comply with a separate
Speaker 13: judges order to return Garcia to the US by eleven
Speaker 13: to fifty nine pm tonight. Arguing the judge does not
Speaker 13: have jurisdiction, and the President says Garcia is a gang member,
Speaker 13: just not with TDA.
Speaker 4: They say, oh, we made a mistake because he's not
Speaker 4: with them, He's with MS thirty.
Speaker 6: Bring him back, Bring them back. Ms RT's a very
Speaker 6: bad group.
Speaker 13: Garcia's family says he is not with any gang. Health
Speaker 13: Secretary Robert F. Kennedy Junior now throwing his support behind
Speaker 13: the vaccine. It comes after he attended the funeral over
Speaker 13: the weekend of a child who died from the measles.
Speaker 13: The US has now seen more than six hundre it
Speaker 13: confirmed measles cases across twenty one states. Global news twenty
Speaker 13: four hours a day and whenever you want it with
Speaker 13: the Bloomberg News. Now. I'm Michael Barr, and this is
Speaker 13: Bloomberg Kron.
Speaker 2: All right, Michael Barr, thank you all. Coming up, We're
Speaker 2: gonna have more on the market sell off. We are
Speaker 2: speaking with Morgan Stanley's Andrew Sheets. But first it's time
Speaker 2: for the Bloomberg Sports Update with John Stashauer.
Speaker 6: John, Good morning, Good morning, Karon.
Speaker 15: They call kennetick it they capital of college basketball. Why
Speaker 15: not eighteen national championships for the last thirty years. The
Speaker 15: Yukon men won the NCAAs the last two seasons. The
Speaker 15: women at one them since twenty sixteen, but they would
Speaker 15: dominant this tournament, six wins by an average of thirty
Speaker 15: three points, final four wins by thirty four and twenty
Speaker 15: three points in Tampa. They did throned in South Carolina.
Speaker 15: It's the twelfth title for their legendary coach, Gino Orima.
Speaker 16: Stan Anthony and I went for a walk right, and
Speaker 16: as I'm walking outside the hotel, at one point, I said,
Speaker 16: you know, hey, dear God, you know like I don't
Speaker 16: need one of these damn my players do man? Can
Speaker 16: you can do it for them?
Speaker 15: The men's title game tonight in San Antonio, Florida against Houston.
Speaker 15: Who comes off that remarkable rally against Duke at Ubs
Speaker 15: Arena Hockey history.
Speaker 6: Oh that skin has any stares.
Speaker 8: He stares Alex So that's kid Store Saint ninety five.
Speaker 15: There's a goal scoring champion w JFK. Move over, Wayne Gretzky,
Speaker 15: who was there to see actually the Capitol's only goal.
Speaker 15: They lost to the Island. It was four to one
Speaker 15: at the Garden. Welcome back Jalen Brunson missed fifteen games
Speaker 15: at injurn ankle.
Speaker 6: The next win nine and six.
Speaker 15: With the captain back, they beat Phoenix one twelve ninety eight,
Speaker 15: their fiftieth win. The Nets lost it Toronto. The Celtics
Speaker 15: blew out Washington late last night big baseball news, it
Speaker 15: was believed that Vladivier Guerrero Junior would be the next
Speaker 15: winter's big free agent. He's staying with the Blue Jays
Speaker 15: a fourteen year deal for half a billion. The Mets
Speaker 15: finished the sweep of Toronto two one at Cityfield.
Speaker 6: The Yankees in Pittsburgh rallied.
Speaker 15: With two outs of Nineteenning scored three months to tie
Speaker 15: the game, but the Pirates won five to four and eleven.
Speaker 15: The Nationals won the Red Sox at doubleheader sweep of
Speaker 15: the Cardinals first and tennans and then last night eighteen
Speaker 15: to seven. The Socks had went five in.
Speaker 1: A row coast to coast on Bloomberg Radio, nationwide on
Speaker 1: Sirius XM, and around the world on Bloomberg dot Com
Speaker 1: and the Bloomberg Business app. This is Bloomberg Daybreak.
Speaker 6: Good morning, I'm Nathan Hager.
Speaker 3: The global stock sell off that is greeted President Trump's
Speaker 3: Tarff announcement is reviving Black Monday memories from any on
Speaker 3: Wall Street, But the President is rejecting market concerns that
Speaker 3: his trade barrage will send the US into a recession.
Speaker 6: What's gonna happen with the market.
Speaker 4: I can't tell you. What I can tell you our
Speaker 4: country has gotten a lot stronger, and eventually it'll be
Speaker 4: a country like no other. It'll be the most dominant
Speaker 4: country economically in the world.
Speaker 3: And that was the President speaking of Board Air Force
Speaker 3: one last night. This morning, we were joined by Bloomberg
Speaker 3: Markets reporter Valerie Titel as we watch the selloff extend
Speaker 3: into a third trading session following the rose Guard announcement. Valerie,
Speaker 3: the President says he might not be able to predict
Speaker 3: what the market's doing, but the market seems to be
Speaker 3: sending a pretty loud message to the President this morning.
Speaker 17: Oh yeah, and I want to echo the flashbacks to
Speaker 17: Black Monday. If this move in the S and P
Speaker 17: five hundred futures holds into the clothes, we are looking
Speaker 17: at the worst three days for the US equity market
Speaker 17: since nineteen eighty seven, when it dropped twenty four point
Speaker 17: six in a matter of two days, So keep an
Speaker 17: eye on those kind of superlatives. That just really puts
Speaker 17: it into perspective. Black Monday, GFC, COVID, that is what
Speaker 17: people are comparing the last market drop to. And Nathan,
Speaker 17: the one thing that's in stark contrast to what's going
Speaker 17: on now versus those other instances in the past is
Speaker 17: during those other instances you had the monetary easing floodgates open,
Speaker 17: the fiscal easing floodgates open after Black Monday, during the
Speaker 17: Great Financial Crisis, and during COVID. But what stands now
Speaker 17: is a start contrast, so that we have a FED
Speaker 17: who says that they are going to be patient and
Speaker 17: wait for further clarity. Mike Wilson over at Morgan Stanley
Speaker 17: noting that the S and P five hundred could drop
Speaker 17: another seven to eight percent if the FED remains on
Speaker 17: hold and these tariffs continue in the market.
Speaker 3: But while we're seeing these selling continuing here on Wall Street,
Speaker 3: it looks, at least at this point this morning, like
Speaker 3: the sell off is even worse overseas.
Speaker 6: Valerie, Yeah, that's right.
Speaker 17: And the European open, Nathan, was quite shaky. We had
Speaker 17: the dacks drop ten percent at the open that's its
Speaker 17: third biggest gap lower in history. We're also seeing credit
Speaker 17: spreads widen across a high yield and investment grade in Europe,
Speaker 17: and that's leading to a very punishing session for European banks.
Speaker 17: SX SEVNY is down six point seven percent and over
Speaker 17: the last three days, Nathan, it's nearing a near twenty
Speaker 17: percent slide in European banks in the last three sessions.
Speaker 6: It's hard not to notice Valerie.
Speaker 3: This more than thirteen percent close for the Hangsang in
Speaker 3: Hong Kong. The Asian session has been absolutely brutal. As
Speaker 3: China sounds like it's not willing to back down either.
Speaker 17: Yeah, it was a bloodbath that HSI index, the Hangksang
Speaker 17: in Hong Kong dropping thirteen percent, Nathan. That's its worst
Speaker 17: one day drop since the Asian Financial Crisis of nineteen
Speaker 17: ninety seven. The Broader Asia Index, the MSCI Asia Pacific
Speaker 17: had its worst one day drop since October two thousand
Speaker 17: and eight. We had the Nicky entering into bear market territory,
Speaker 17: and the eight shares that trade in Hong Kong also
Speaker 17: down more than twenty percent from peak. The one thing though,
Speaker 17: that may be a solace for those em Asian nations
Speaker 17: is the fact that we are not seeing a rip
Speaker 17: roaring rally in the dollar, and that could be you know,
Speaker 17: one aspect of perhaps positivity for these nations who in
Speaker 17: normal times of economic instability they have to deal with
Speaker 17: capital flight and their currencies depreciating strongly versus the dollar.
Speaker 17: We at least are not seeing that as yet.
Speaker 3: Bloomberg Marketers reporter Valerie Titel, thank you for this as
Speaker 3: we continue to watch the global market sell off. Where
Speaker 3: you're joined now by Andrew Sheets, chief cross assets strategist
Speaker 3: at Morgan Stanley. Andrew, thank you so much for joining
Speaker 3: us this morning. And Valerie mentioned the call from your
Speaker 3: colleague at Morgan Stanley, Mike Wilson, the chief US equity strategist,
Speaker 3: saying stocks could fall another seven to eight percent if
Speaker 3: the tariff risk doesn't subside in the FED stays on hold.
Speaker 6: Is that your call as well? Good morning, Yeah, good morning.
Speaker 18: So I think, unfortunately you do have the confluence of
Speaker 18: a number of quite negative factors where it is hard
Speaker 18: to see enough offsets you had before the tariff announcement.
Speaker 18: I think already a deteriorating earnings picture in the US
Speaker 18: with negative revisions, You had deterioration and leading economic indicators
Speaker 18: like consumer confidence, and then you also had signs of
Speaker 18: inflation rising. You know, recalled that the last three prints
Speaker 18: for core PC, the Fed's preferred measure, have increased for
Speaker 18: three straight months. So we walked into this tarif announcement,
Speaker 18: I think, with a quite challenging macro backdrop. And then
Speaker 18: the tariffs that we got were much larger than expected.
Speaker 18: They were, you know, I think, much more severe than
Speaker 18: our forecast than many forecasters has penciled in. And so
Speaker 18: that creates additional downside risk to growth, additional upside risk
Speaker 18: to inflation, and also this challenging dynamic where it's not
Speaker 18: clear that either valuations or a policy change is right
Speaker 18: there for support. So I thought, your colleague, you know
Speaker 18: what they just mentioned about. You know, previously under some
Speaker 18: of this weakness, you had fiscal stimulus or you had easing.
Speaker 18: We think that's going to be much more more difficult.
Speaker 18: The FED is missing much more on their inflation mandate
Speaker 18: than they're missing on the jobs part of their mandate. Right,
Speaker 18: we had actually a pretty good payroll number on Friday,
Speaker 18: whereas core PCE is two point eight percent in the
Speaker 18: US we think that makes it quite difficult for the
Speaker 18: FED to cut. We think that the FED will cut
Speaker 18: far less than the market is expecting this year at
Speaker 18: Morgan Stanley, and valuations still remain elevated. The S and
Speaker 18: P is still at nineteen times. So I think you
Speaker 18: put all that together, and while it's always difficult to
Speaker 18: be too precise, that still means that there's potential for downside.
Speaker 3: So then, Andrew, what do you make of the move
Speaker 3: that we're seeing in the money markets. The money markets
Speaker 3: pricing in fully five FED rate cuts this year and
Speaker 3: even some calls now for an emergency cut before the
Speaker 3: next meeting next month.
Speaker 18: Yeah, we disagreed with that. We do think markets are
Speaker 18: looking at the equity weakness. As you mentioned, this is historic.
Speaker 18: It's one of the largest three day drawdowns that we've
Speaker 18: seen in a very long period of time, and you know,
Speaker 18: I think markets are understandably saying, well, a drawdown of
Speaker 18: that measure would naturally invite a response, But our view
Speaker 18: is that that will be much more difficult that inflations
Speaker 18: in a more difficult place. And because it's I think
Speaker 18: it's also not clear that FED rate cuts would necessarily
Speaker 18: address the issue. The uncertainty from tariffs. The costs of
Speaker 18: tariffs are not easily offset by say, you know, an
Speaker 18: emergency twenty five or fifty basis point rate cut. The
Speaker 18: issues go deeper. So you know, we think that the
Speaker 18: Fed will will need to and ultimately stay more focused
Speaker 18: on its mandate unless we see more seizure or tightness
Speaker 18: in say credit issuance markets, which we just haven't seen yet.
Speaker 3: Well, what do you make of the widening and credit
Speaker 3: spreads that we've started to see now in Asia and
Speaker 3: in Europe.
Speaker 18: Yeah, So, I think what's fascinating is that I think
Speaker 18: credit has a reputation, I like to think, a well
Speaker 18: earned reputation of usually being an early indicator. But in
Speaker 18: this cycle that has not been the case. Credit has
Speaker 18: been quite slow to catch up to weakness that has
Speaker 18: been in the equity market for some time. And I
Speaker 18: think that speaks to a credit cycle that is entering
Speaker 18: this downturn in a better place. You know, companies were
Speaker 18: somewhat more cautious and less aggressive coming into this m
Speaker 18: and A was low. Balance sheet leverage has been stable,
Speaker 18: so I do think credit remains a follower here. I
Speaker 18: don't think that we should necessarily see credit as a
Speaker 18: leading indicator. I think it's following the broader uncertainty around
Speaker 18: the growth and policy that's coming from the administration and
Speaker 18: these questions around the Fed. But I think what we're
Speaker 18: seeing from credit should be seen as a catching up.
Speaker 18: You know, even after the moves this morning, we're really
Speaker 18: kind of just back to average levels of spreads. We
Speaker 18: think that's kind of very reasonable given the risks that
Speaker 18: are surrounding the market.
Speaker 3: We're speaking with andrews Sheets, chief cross assets strategist at
Speaker 3: Morgan Stanley as we continue to monitor this global stock
Speaker 3: sell off and flight, particularly this morning into treasuries, we're
Speaker 3: seeing gains across the curve in the treasuries market.
Speaker 6: Andrew, where do you reallocate?
Speaker 3: How do you advise clients to make moves in this environment?
Speaker 18: Well, so, we do think that move in interest rates
Speaker 18: is correct that if the odds of a recession are rising,
Speaker 18: and I think that, unfortunately, is what is happening, given
Speaker 18: these risks to growth, and also the potential that the
Speaker 18: Fed cannot react as quickly to those growth risks because
Speaker 18: inflation is persistent, you know, we think the market will
Speaker 18: will respond to that by lowering interest rates, especially you know,
Speaker 18: kind of somewhat further further out the curve. So you know,
Speaker 18: we do think yields will will fall here further in
Speaker 18: the US and in the UK and in Germany.
Speaker 15: And you know, I.
Speaker 18: Think that's also something that if we look back to
Speaker 18: say twenty eighteen, you know, in the fourth quarter of
Speaker 18: twenty eighteen, you also had a large draw down. You know,
Speaker 18: that was also somewhat related to tariff uncertainty, it was
Speaker 18: related to the FED the administration not shift policy as
Speaker 18: quickly as the market was hoping they would. You know,
Speaker 18: real interest rates in the US, real interest rates on
Speaker 18: ten year government bonds are still much higher, you know,
Speaker 18: more attractive than they were during that episode at the
Speaker 18: worst part of that episode. While you know, equity valuations
Speaker 18: in the US today are still much more expensive than
Speaker 18: at the worst part of that episode. So you know,
Speaker 18: I still think that if if investors are worried about
Speaker 18: growth picking up, then you know, we still think bonds
Speaker 18: offer kind of reasonable value here, and we think that
Speaker 18: that's the direction that reallocation will continue in.
Speaker 3: If we do continue to see stocks and bond yields fall,
Speaker 3: what does that mean for financial conditions?
Speaker 6: What could it mean for the FED and then that regard.
Speaker 18: So, you know, financial conditions are tightening obviously, you know,
Speaker 18: you have some push and pull here with with with
Speaker 18: equities going down, you know, but also rates coming down.
Speaker 18: But I think that the challenge for the FED is
Speaker 18: it's not clear that those financial conditions are excessively tight.
Speaker 18: You know it, spreads today are kind of near the
Speaker 18: long run average. That's that's fine. You know, the S
Speaker 18: and P has still roughly nineteen times forward earnings that
Speaker 18: that does not seem like an excessive level of equity
Speaker 18: risk premium. That would suggest some sort of market breakage. So,
Speaker 18: you know, and I think you still have credit markets
Speaker 18: where you know, you have credit markets have been open,
Speaker 18: it's been possible to issue. You know, the latest Senior
Speaker 18: Loan Officer survey suggested that credit standards were loosening a
Speaker 18: bit in the US rather than tightening. So I think
Speaker 18: it's kind of hard to look at that full spread
Speaker 18: of financial conditions and say that there's something here that
Speaker 18: invites a really large shift. Again, we could get it,
Speaker 18: but I don't think you've seen it yet, And especially
Speaker 18: for a FED that is is also dealing with inflation
Speaker 18: that's above its target, is dealing with inflation expectations that
Speaker 18: have been going up significantly. You know, we think that
Speaker 18: that is going to provide a level of caution that
Speaker 18: prevents this This larger intervention.
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