1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day 4 00:00:18,760 --> 00:00:22,320 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,680 Speaker 2: Terminal and the Bloomberg Business app. Fello Orlando, the chief 10 00:00:37,680 --> 00:00:40,400 Speaker 2: equity markets trying to just a federated global investment right 11 00:00:40,440 --> 00:00:42,680 Speaker 2: in the following. We expect the FED to cut interest 12 00:00:42,760 --> 00:00:45,000 Speaker 2: rates by a quarter point at both his September and 13 00:00:45,080 --> 00:00:48,120 Speaker 2: December meetings this year. We should boost stocks towards our 14 00:00:48,159 --> 00:00:51,320 Speaker 2: seven five hundred target next year for the S and 15 00:00:51,320 --> 00:00:52,160 Speaker 2: P five hundred. 16 00:00:52,360 --> 00:00:53,880 Speaker 3: Phil joins us now for more, Philke and. 17 00:00:53,920 --> 00:00:56,400 Speaker 4: Monic John, thank you very much for having me back. 18 00:00:56,480 --> 00:00:57,440 Speaker 3: Thank you for being here, sir. 19 00:00:57,480 --> 00:00:59,640 Speaker 2: Let's talk about the month ahead payrolls this week, in 20 00:00:59,720 --> 00:01:02,280 Speaker 2: flight next week and then the big feder Reserve meeting. 21 00:01:02,320 --> 00:01:03,920 Speaker 2: How do a thing's shapen up for you in a team. 22 00:01:04,560 --> 00:01:07,720 Speaker 4: So we've had this massive thirty five percent rally off 23 00:01:07,760 --> 00:01:11,800 Speaker 4: the Liberation Day bottom going into I guess the week 24 00:01:11,840 --> 00:01:15,720 Speaker 4: before Jackson Hole, and then the market traded off about 25 00:01:15,720 --> 00:01:18,640 Speaker 4: four percent or so because the market didn't really understand 26 00:01:19,000 --> 00:01:22,640 Speaker 4: or appreciate what sort of a tone would Powell take 27 00:01:22,640 --> 00:01:24,880 Speaker 4: at the meeting. Now, the rally we've seen over the 28 00:01:24,920 --> 00:01:26,800 Speaker 4: course of the last week or so has been that 29 00:01:26,880 --> 00:01:29,800 Speaker 4: Powell took the right tone that the Fed is thinking 30 00:01:29,840 --> 00:01:33,280 Speaker 4: about easing. But as we get back to the day 31 00:01:33,319 --> 00:01:36,800 Speaker 4: after Labor Day, everyone's back from vacation. Now the cold 32 00:01:36,800 --> 00:01:39,640 Speaker 4: dose of reality sets in. All Right, what's the next 33 00:01:39,640 --> 00:01:42,520 Speaker 4: set of inflation data going to look like? What is 34 00:01:42,800 --> 00:01:45,080 Speaker 4: the labor market data this week? And then you've got 35 00:01:45,120 --> 00:01:49,120 Speaker 4: all the noise surrounding the Fed and tariffs and does 36 00:01:49,200 --> 00:01:52,520 Speaker 4: meron does he get seated this week? So at this 37 00:01:52,640 --> 00:01:56,320 Speaker 4: point that dose of reality, we think, given the fact 38 00:01:56,360 --> 00:01:59,080 Speaker 4: that we've turned the calendar to September, there could be 39 00:01:59,120 --> 00:02:02,960 Speaker 4: some chop here looking out going into the September seventeenth met. 40 00:02:02,840 --> 00:02:05,400 Speaker 3: Well, let's touch on a potential source of tension. 41 00:02:05,720 --> 00:02:07,960 Speaker 2: Let's say the move we saw in the last month 42 00:02:08,040 --> 00:02:10,520 Speaker 2: to see cyclical was outperformed, to see the airlines up 43 00:02:10,520 --> 00:02:13,160 Speaker 2: double ditgit's the home builders up, double ditchits to see 44 00:02:13,160 --> 00:02:15,880 Speaker 2: the rustle to small caps of my seven percent at 45 00:02:15,880 --> 00:02:17,960 Speaker 2: a time where the chairman is increasingly word about a 46 00:02:17,960 --> 00:02:20,639 Speaker 2: cyclical downstad does that one stack out for you? 47 00:02:21,240 --> 00:02:24,840 Speaker 4: So we love small caps, just full disclosure here, and 48 00:02:24,880 --> 00:02:28,320 Speaker 4: the key reason for that is we believe lower interest rates. 49 00:02:28,520 --> 00:02:30,440 Speaker 4: Not only do we think we've got two quarter point 50 00:02:30,440 --> 00:02:33,080 Speaker 4: cuts this year, we think we've got another four quarter 51 00:02:33,120 --> 00:02:35,520 Speaker 4: point cuts over the course of next year. The funds 52 00:02:35,600 --> 00:02:38,000 Speaker 4: rate by the end of calendar twenty six, we think 53 00:02:38,040 --> 00:02:39,800 Speaker 4: the upper band is going to be a three percent. 54 00:02:40,000 --> 00:02:43,320 Speaker 4: If we're right, that suggests that you've got an excellent 55 00:02:43,360 --> 00:02:46,560 Speaker 4: backdrop for small cap stocks as well as those consumer 56 00:02:46,639 --> 00:02:50,119 Speaker 4: cyclical areas. So that's our longer term view. But there's 57 00:02:50,160 --> 00:02:52,080 Speaker 4: a lot of noise and nonsense that we're going to 58 00:02:52,120 --> 00:02:54,040 Speaker 4: have to parse through over the course of the next 59 00:02:54,080 --> 00:02:54,960 Speaker 4: several weeks. 60 00:02:55,240 --> 00:02:57,240 Speaker 1: Given the fact that this would be the deepest rate 61 00:02:57,280 --> 00:03:00,519 Speaker 1: cutting cycle outside of our session ever going back to 62 00:03:00,520 --> 00:03:02,079 Speaker 1: the nineteen eighties, I mean, this is something that a 63 00:03:02,080 --> 00:03:04,519 Speaker 1: lot of people have pointed to. So do you see 64 00:03:04,560 --> 00:03:08,680 Speaker 1: these cuts coming irrespective of whatever economic data that we get. 65 00:03:08,720 --> 00:03:11,280 Speaker 1: In other words, you can question the politics of the moment, 66 00:03:11,560 --> 00:03:13,280 Speaker 1: but what this market seems to be pricing in is 67 00:03:13,360 --> 00:03:15,600 Speaker 1: rate cuts for the sake of ray cuts that juice growth, 68 00:03:15,600 --> 00:03:20,120 Speaker 1: impossibly inflation regardless of the economic data. 69 00:03:20,280 --> 00:03:23,160 Speaker 4: Great point, Lisa. We're looking at that dual mandate, We're 70 00:03:23,200 --> 00:03:25,680 Speaker 4: looking at the data, and so while there is some 71 00:03:25,760 --> 00:03:28,320 Speaker 4: concern about inflation, we're focused on the labor market. 72 00:03:28,360 --> 00:03:28,600 Speaker 5: Here. 73 00:03:28,960 --> 00:03:31,000 Speaker 4: What's happened in the labor market over the last three 74 00:03:31,680 --> 00:03:35,280 Speaker 4: three months. The average non farm payrolls thirty five thousand. 75 00:03:35,520 --> 00:03:38,200 Speaker 4: The first four months of this year, that number was 76 00:03:38,280 --> 00:03:40,400 Speaker 4: up around one hundred and twenty five thousand. All of 77 00:03:40,520 --> 00:03:43,600 Speaker 4: last year that number was one hundred and sixty eight thousand. 78 00:03:43,640 --> 00:03:47,280 Speaker 4: So the labor market is materially slowing. This coming Friday, 79 00:03:47,280 --> 00:03:49,560 Speaker 4: we're going to get the August non farm pay report. 80 00:03:49,800 --> 00:03:53,800 Speaker 4: The August report historically is the wonkiest report of the year. 81 00:03:54,440 --> 00:03:56,360 Speaker 4: There's going to be a lot of noise. You know, 82 00:03:56,440 --> 00:04:01,120 Speaker 4: you've got summer vacations in and out, company's menufacturing facilities, 83 00:04:01,160 --> 00:04:06,120 Speaker 4: take downtime in terms of furloughing temporarily workers and whatever. 84 00:04:06,240 --> 00:04:09,080 Speaker 4: And then next week I think it's next Tuesday, we're 85 00:04:09,080 --> 00:04:13,400 Speaker 4: going to get the annual payroll revisions. Last year that 86 00:04:13,520 --> 00:04:16,520 Speaker 4: revision was down eight hundred thousand jobs. We think the 87 00:04:16,600 --> 00:04:18,800 Speaker 4: revision this year could be down another five or six 88 00:04:18,920 --> 00:04:22,480 Speaker 4: hundred thousand. So we'd be focused more on the labor 89 00:04:22,520 --> 00:04:25,520 Speaker 4: market and the deterioration there as opposed to what's going 90 00:04:25,520 --> 00:04:26,320 Speaker 4: on with inflation. 91 00:04:26,560 --> 00:04:29,719 Speaker 1: If inflation is higher though, and you do see that 92 00:04:29,760 --> 00:04:32,479 Speaker 1: sort of crimping in the labor market, the sort of 93 00:04:32,800 --> 00:04:35,760 Speaker 1: loosening or in the labor diver I should say, this 94 00:04:35,880 --> 00:04:38,800 Speaker 1: issue of people not being able to get jobs, Then 95 00:04:38,839 --> 00:04:41,400 Speaker 1: why would small caps rally, which are typically hinged to 96 00:04:41,480 --> 00:04:43,880 Speaker 1: growth when that's a stagflationary backdrop. 97 00:04:44,440 --> 00:04:47,919 Speaker 4: So we think that growth ultimately over the course of 98 00:04:47,960 --> 00:04:49,840 Speaker 4: next year is going to improve. Let me throw this 99 00:04:49,920 --> 00:04:53,479 Speaker 4: data point out our Macro Policy Committee at Federated Our 100 00:04:53,520 --> 00:04:56,640 Speaker 4: GDP forecast for next year is two point eight percent. 101 00:04:57,040 --> 00:05:00,320 Speaker 4: The blue chip consensus is one point four percent. Within 102 00:05:01,200 --> 00:05:03,880 Speaker 4: the blue chip consensus, the highest estimate on the street 103 00:05:03,920 --> 00:05:05,880 Speaker 4: is two percent. So why are we at two eight 104 00:05:06,240 --> 00:05:08,840 Speaker 4: One of the things we're focused on is the fact 105 00:05:08,880 --> 00:05:12,600 Speaker 4: that we are looking for a significant improvement in economic 106 00:05:12,640 --> 00:05:16,600 Speaker 4: activity coming in corporate cap X. One of the key 107 00:05:16,640 --> 00:05:19,080 Speaker 4: provisions in the One Big Beautiful build was one hundred 108 00:05:19,080 --> 00:05:21,880 Speaker 4: percent expensing. So you look at productivity growth in the 109 00:05:21,880 --> 00:05:23,800 Speaker 4: first quarter of this year and it was negative by 110 00:05:23,839 --> 00:05:27,560 Speaker 4: two percent. It's never negative. What we think was happening 111 00:05:27,640 --> 00:05:29,960 Speaker 4: is a lot of companies were holding back their cap 112 00:05:30,120 --> 00:05:32,320 Speaker 4: X plan, saying we're going to wait to see what's 113 00:05:32,360 --> 00:05:33,799 Speaker 4: in this piece of legislation. 114 00:05:34,120 --> 00:05:37,320 Speaker 1: Okay, but that was also continent on some clarity around tariffs. 115 00:05:37,360 --> 00:05:39,520 Speaker 1: Don't some of those plans get withdrawn now that there's 116 00:05:39,560 --> 00:05:41,680 Speaker 1: a real question mark around how much the tariff's go 117 00:05:41,680 --> 00:05:42,159 Speaker 1: into place. 118 00:05:42,360 --> 00:05:46,039 Speaker 4: Well, the tariff question is an open question at this point, 119 00:05:46,120 --> 00:05:49,800 Speaker 4: and so I think legislatively we've got that, but I 120 00:05:49,880 --> 00:05:53,720 Speaker 4: think this is ultimately going to be decided by the courts, 121 00:05:53,800 --> 00:05:56,719 Speaker 4: particularly the Supreme Court, in terms of the legality of 122 00:05:56,720 --> 00:05:57,200 Speaker 4: the terriffs. 123 00:05:57,279 --> 00:05:59,920 Speaker 2: Despite that, you're clearly looking for a reacceleration and growth 124 00:06:00,160 --> 00:06:02,400 Speaker 2: through the next year, and parkably the market's picking up 125 00:06:02,440 --> 00:06:04,160 Speaker 2: on that in the last month. Do you think what's 126 00:06:04,160 --> 00:06:05,720 Speaker 2: happening at the long end of the Yeld curve is 127 00:06:05,760 --> 00:06:08,760 Speaker 2: a reflection of a better growth profile in our future 128 00:06:09,000 --> 00:06:10,919 Speaker 2: or do you think it could become a constraint for 129 00:06:11,040 --> 00:06:12,000 Speaker 2: risk assets. 130 00:06:12,600 --> 00:06:14,920 Speaker 4: So the way we're looking at the yield curve is 131 00:06:15,279 --> 00:06:18,680 Speaker 4: you're probably going to see a further steepening lower interest 132 00:06:18,760 --> 00:06:20,680 Speaker 4: rates at the low end, higher interest rates at the 133 00:06:20,720 --> 00:06:22,560 Speaker 4: high end. But as we look out over the course 134 00:06:22,600 --> 00:06:24,640 Speaker 4: of the next eighteen months or so, we think the 135 00:06:25,160 --> 00:06:28,040 Speaker 4: benchmark ten year treasury you'ld could be working down towards 136 00:06:28,040 --> 00:06:31,120 Speaker 4: the four percent level, which is supportive when we think 137 00:06:31,120 --> 00:06:33,280 Speaker 4: of consumer cyclicals and smaller cap stock. 138 00:06:34,320 --> 00:06:37,680 Speaker 2: Stay with us more Bloomberg surveillance coming up after this. 139 00:06:46,960 --> 00:06:49,080 Speaker 2: Lets extend some of this with Leland Miller, the CEO 140 00:06:49,160 --> 00:06:51,880 Speaker 2: of China Baseburg. Leland joins us now for more Leland, 141 00:06:51,880 --> 00:06:54,640 Speaker 2: welcome to the program. Is China and President She from 142 00:06:54,640 --> 00:07:00,280 Speaker 2: an economic standpoint, operating from a position of strength, can. 143 00:07:00,240 --> 00:07:02,520 Speaker 5: Call it a position of strength, but it's getting stronger 144 00:07:02,600 --> 00:07:04,800 Speaker 5: considering that a lot of countries are backing away from 145 00:07:04,839 --> 00:07:07,479 Speaker 5: their close relationships to the United States. If you look 146 00:07:07,520 --> 00:07:09,560 Speaker 5: what's happening with India right now, India doesn't want to 147 00:07:09,600 --> 00:07:11,360 Speaker 5: be looking around the room and see China on the 148 00:07:11,440 --> 00:07:14,360 Speaker 5: left and Pakistan on the right and Belarus across the room. 149 00:07:14,360 --> 00:07:16,640 Speaker 5: I mean, it would rather be in a group of 150 00:07:18,680 --> 00:07:22,400 Speaker 5: countries in the United States and others and strengthening trade 151 00:07:22,440 --> 00:07:25,280 Speaker 5: relations there. But it will push back if it thinks 152 00:07:25,320 --> 00:07:27,320 Speaker 5: it's being pushed into a quarter. And so we're seeing 153 00:07:27,360 --> 00:07:31,240 Speaker 5: a situation where China is getting is becoming an attractive 154 00:07:31,280 --> 00:07:33,000 Speaker 5: option because it's not the United States. 155 00:07:33,080 --> 00:07:35,440 Speaker 1: Right now, it seems like Russia and China have a 156 00:07:35,520 --> 00:07:39,360 Speaker 1: very clear relationship. China is almost the owner or Russia 157 00:07:39,400 --> 00:07:41,800 Speaker 1: is the vassal state of China because it is so 158 00:07:41,880 --> 00:07:44,880 Speaker 1: dependent on its revenues. The relationship between India and China 159 00:07:44,960 --> 00:07:47,240 Speaker 1: is much more complicated. How do you see that evolving? 160 00:07:47,320 --> 00:07:50,920 Speaker 1: How close can that get given how incredibly contentious the 161 00:07:51,000 --> 00:07:52,600 Speaker 1: relationship has been for decades. 162 00:07:54,680 --> 00:07:58,160 Speaker 5: Yeah. Look, you know, India considers itself a non aligned country, 163 00:07:58,200 --> 00:08:00,280 Speaker 5: and a lot of countries do in Southeast Asia too 164 00:08:00,360 --> 00:08:02,200 Speaker 5: that that have that have you know, said they're not 165 00:08:02,200 --> 00:08:04,680 Speaker 5: going to be a US ally directly or a Chinese ally. 166 00:08:04,720 --> 00:08:06,480 Speaker 5: They're gonna they're going to manage relations with both. I mean, 167 00:08:06,480 --> 00:08:08,600 Speaker 5: you've got Indonesia, You've got Vietnam, You've got a lot 168 00:08:08,640 --> 00:08:12,480 Speaker 5: of other countries. But within that non alignment uh label, 169 00:08:12,840 --> 00:08:16,760 Speaker 5: there have been tightening relationships for years and years in 170 00:08:16,800 --> 00:08:19,360 Speaker 5: the United States. It's been geopolitical, it's been economic, it's 171 00:08:19,400 --> 00:08:22,840 Speaker 5: been trade. These things have been very advantageous to US 172 00:08:22,960 --> 00:08:26,840 Speaker 5: policy goals, trade and foreign policy and even military in 173 00:08:26,840 --> 00:08:30,080 Speaker 5: the Pacific region. And if if all of our policy 174 00:08:30,240 --> 00:08:33,319 Speaker 5: ends up backtracking to become one big question about so 175 00:08:33,640 --> 00:08:36,600 Speaker 5: fair trade, but it doesn't have any uh, you know, 176 00:08:37,559 --> 00:08:40,080 Speaker 5: look at the geopolitical side instead, it's on how are 177 00:08:40,080 --> 00:08:41,920 Speaker 5: these things balancing out? Then then we're going to be 178 00:08:41,960 --> 00:08:43,839 Speaker 5: We're going to wake up five years from now, We're 179 00:08:43,840 --> 00:08:47,280 Speaker 5: going to realize that we've just undid twenty years of diplomacy, 180 00:08:47,679 --> 00:08:50,680 Speaker 5: uh that have sort of pushed back against the China 181 00:08:50,720 --> 00:08:51,240 Speaker 5: led world. 182 00:08:51,360 --> 00:08:52,720 Speaker 3: It's a problem how. 183 00:08:52,679 --> 00:08:55,280 Speaker 1: Much you already seeing some of these new alliances in 184 00:08:55,320 --> 00:08:58,160 Speaker 1: the trade data. I mean we've seen, for example, Chinese 185 00:08:58,200 --> 00:09:01,600 Speaker 1: exports that have decres substantially to the United States, but 186 00:09:01,600 --> 00:09:04,280 Speaker 1: that have increased substantially to the rest of the world. 187 00:09:04,360 --> 00:09:06,280 Speaker 1: Do you see that along alliances or is it just 188 00:09:06,400 --> 00:09:09,840 Speaker 1: transshipments the idea of finding the weakest know that they 189 00:09:09,840 --> 00:09:11,640 Speaker 1: can get products in they can eventually get to the 190 00:09:11,760 --> 00:09:12,439 Speaker 1: United States. 191 00:09:13,559 --> 00:09:16,800 Speaker 5: Yeah, it's not alliance, but it's not all transhipment either. 192 00:09:16,880 --> 00:09:21,000 Speaker 5: It's essentially China shoving its exports down other countries throats, 193 00:09:21,000 --> 00:09:22,959 Speaker 5: and you know, the United States says, you know, you 194 00:09:22,960 --> 00:09:24,960 Speaker 5: can see it in our China Facebook data, you could 195 00:09:24,960 --> 00:09:27,679 Speaker 5: see it in other trade data. You know, the direct 196 00:09:27,720 --> 00:09:29,760 Speaker 5: shipments in China the United States has been going down, 197 00:09:29,760 --> 00:09:32,960 Speaker 5: but China has been just unloading its exports, in particular 198 00:09:33,000 --> 00:09:36,559 Speaker 5: into Southeast Asia because they can't they can't push back. 199 00:09:36,600 --> 00:09:39,120 Speaker 5: They can't push back geopolitically, you know, they can't compete 200 00:09:39,120 --> 00:09:41,120 Speaker 5: with Chinese lower prices that are sort of dumping their 201 00:09:41,120 --> 00:09:45,480 Speaker 5: overcapacity into into Southeast Asia. So it's not about tightening 202 00:09:45,520 --> 00:09:48,559 Speaker 5: economic block if anything, it's the opposite. But it means 203 00:09:48,559 --> 00:09:50,760 Speaker 5: that in a world in which China is trying to 204 00:09:50,800 --> 00:09:53,480 Speaker 5: find places to dump its exports, you know, it's picking 205 00:09:53,480 --> 00:09:55,640 Speaker 5: on its weaker neighbors, and it's being very successful. 206 00:09:55,720 --> 00:09:57,760 Speaker 3: Right now, then can we just DOOWND that point? China 207 00:09:57,800 --> 00:09:58,760 Speaker 3: is the capacity. 208 00:09:58,760 --> 00:10:01,080 Speaker 2: We had a guest on the program forty minutes ago, 209 00:10:01,400 --> 00:10:03,480 Speaker 2: making the income of that China was going to address that. 210 00:10:03,800 --> 00:10:05,920 Speaker 2: Do you see any sign of that whatsoever? 211 00:10:07,600 --> 00:10:10,320 Speaker 5: You know, it's one of these things that people. People 212 00:10:10,600 --> 00:10:13,440 Speaker 5: read the they you know, they read what the government's 213 00:10:13,480 --> 00:10:15,240 Speaker 5: plans are and I say, oh, well, the government must 214 00:10:15,240 --> 00:10:17,199 Speaker 5: be willing to address this there, you know, there, it's 215 00:10:17,400 --> 00:10:20,040 Speaker 5: it's you know, they're going to spur you know, have 216 00:10:20,080 --> 00:10:22,760 Speaker 5: more consumption, they're going to have more stimulus, they're going 217 00:10:22,840 --> 00:10:25,400 Speaker 5: to have you know, they're going to combat over capacity. Finally, 218 00:10:25,880 --> 00:10:28,400 Speaker 5: the model doesn't allow them for them for them to 219 00:10:28,400 --> 00:10:30,400 Speaker 5: do this very easily. So look, if it was a 220 00:10:30,440 --> 00:10:32,560 Speaker 5: priority and the short term, yes, I think that they're 221 00:10:32,600 --> 00:10:36,280 Speaker 5: doing little things is anti evolution campaign. They're they're trying 222 00:10:36,280 --> 00:10:38,640 Speaker 5: to weed out some of this price competition that comes 223 00:10:38,679 --> 00:10:41,839 Speaker 5: from you know, every provincial government in China subsidizing the 224 00:10:41,880 --> 00:10:45,160 Speaker 5: same stuff, leading to oversupply, leading to exported you know, 225 00:10:45,520 --> 00:10:48,800 Speaker 5: exported oversupply in this overcapacity problem. So yes, in the 226 00:10:48,840 --> 00:10:50,280 Speaker 5: short term they're going to deal with it on a 227 00:10:50,320 --> 00:10:52,960 Speaker 5: micro level. But the economic model that China has, which 228 00:10:53,000 --> 00:10:55,640 Speaker 5: is stimulus to the supply side and not to the 229 00:10:55,640 --> 00:10:58,440 Speaker 5: demand side, you know, it does not allow for them 230 00:10:58,480 --> 00:11:00,319 Speaker 5: to shift things away. They're going to have more over 231 00:11:00,360 --> 00:11:02,120 Speaker 5: capacity and there's going to have to find places to 232 00:11:02,120 --> 00:11:06,160 Speaker 5: bury it until someone forced or someone or some block 233 00:11:06,240 --> 00:11:07,679 Speaker 5: forces them to do otherwise. 234 00:11:07,840 --> 00:11:10,800 Speaker 2: Leilan, just why are they married to that particular model. 235 00:11:11,280 --> 00:11:13,240 Speaker 2: What would it take to make them change their mind. 236 00:11:14,520 --> 00:11:18,640 Speaker 5: Well, for I think it's what Sheijenping and Chinese communist 237 00:11:18,720 --> 00:11:20,400 Speaker 5: leaders have have fought for a long time. What they 238 00:11:20,480 --> 00:11:22,760 Speaker 5: want to do is they want to produce more. They 239 00:11:22,760 --> 00:11:25,040 Speaker 5: want to build up their industrial base, and that's fine, 240 00:11:25,040 --> 00:11:27,640 Speaker 5: and that's laudable from their perspective. But what it has 241 00:11:27,640 --> 00:11:31,120 Speaker 5: happened is it's all the all the stimulus. The entire 242 00:11:31,200 --> 00:11:37,280 Speaker 5: model is based on spurring more production and more exports, 243 00:11:37,400 --> 00:11:39,959 Speaker 5: and they've been very explicit about that in the last 244 00:11:40,040 --> 00:11:42,080 Speaker 5: couple of years in particular. So as long as you're 245 00:11:42,120 --> 00:11:44,320 Speaker 5: trying to produce more, produce more, produce more, but you 246 00:11:44,400 --> 00:11:47,400 Speaker 5: have very weak domestic demand and you're doing absolutely nothing 247 00:11:47,480 --> 00:11:50,840 Speaker 5: structurally in order to empower consumers or households or the 248 00:11:50,880 --> 00:11:54,360 Speaker 5: private sector to become more consumers back home. What you're 249 00:11:54,360 --> 00:11:58,040 Speaker 5: doing is you're having a model that's completely reliant on production. 250 00:11:58,240 --> 00:11:59,960 Speaker 5: And that's what the model is right now. It's why 251 00:12:00,160 --> 00:12:04,120 Speaker 5: China is very vulnerable but also not a very good 252 00:12:04,160 --> 00:12:06,160 Speaker 5: trade partner for for others who want them to do a. 253 00:12:06,080 --> 00:12:09,920 Speaker 2: Board ward stay with US mult Bloomberg Surveillance coming up 254 00:12:10,280 --> 00:12:22,000 Speaker 2: after this. Ken Hexter, the Bank for America Security senior 255 00:12:22,000 --> 00:12:24,839 Speaker 2: analyst of air frame and surface transportation joined just now 256 00:12:24,840 --> 00:12:26,880 Speaker 2: for more kenk morning, good morning. Let's extend some of 257 00:12:26,960 --> 00:12:29,120 Speaker 2: that conversation, and thanks for being here. Let's take the 258 00:12:29,200 --> 00:12:31,240 Speaker 2: deminimus exemption. Can you just walk us through it, give 259 00:12:31,280 --> 00:12:33,480 Speaker 2: us a feel for how much of the overall volume 260 00:12:33,480 --> 00:12:36,199 Speaker 2: between say, trade between the US and China that actually 261 00:12:36,200 --> 00:12:38,400 Speaker 2: accounted for through ranks alone. 262 00:12:38,600 --> 00:12:41,200 Speaker 6: Yeah, and happy post labor day and welcome back to 263 00:12:41,240 --> 00:12:44,000 Speaker 6: work everybody. So you know, it's a great question in 264 00:12:44,080 --> 00:12:46,720 Speaker 6: terms of you know, Brendan was mentioning the one point 265 00:12:46,760 --> 00:12:49,480 Speaker 6: four to one point five billion packages a year, about 266 00:12:49,480 --> 00:12:51,640 Speaker 6: four million a day, so you've got a lot of frequency. 267 00:12:51,720 --> 00:12:55,480 Speaker 6: UPS and FedEx export combined about two point eight million 268 00:12:55,520 --> 00:12:58,280 Speaker 6: packages per day, so they're representing and that's not all 269 00:12:58,360 --> 00:13:01,960 Speaker 6: dominimus but a huge portion of this diminusm movement on 270 00:13:02,000 --> 00:13:05,240 Speaker 6: a per day. But international is only about twenty five 271 00:13:05,280 --> 00:13:08,520 Speaker 6: percent of each of UPS and FedEx's revenues, and then 272 00:13:08,559 --> 00:13:11,840 Speaker 6: the export portion is only seventeen percent, so we're still 273 00:13:11,880 --> 00:13:14,720 Speaker 6: talking a small portion, as Branda mentioned, a smaller portion 274 00:13:14,800 --> 00:13:17,840 Speaker 6: of the number of volumes or the high volume but 275 00:13:17,920 --> 00:13:20,480 Speaker 6: low value of the package is moved. But this is 276 00:13:20,559 --> 00:13:23,040 Speaker 6: meaningful this is the highest profitable lane is the US 277 00:13:23,120 --> 00:13:26,559 Speaker 6: China lane. So we've already seen those volumes down about 278 00:13:26,600 --> 00:13:29,440 Speaker 6: seventy five percent year over year once this went into 279 00:13:29,440 --> 00:13:32,480 Speaker 6: effect in May. The new news here is on Friday 280 00:13:32,720 --> 00:13:34,600 Speaker 6: it expanded to the rest of the world. So that's 281 00:13:34,640 --> 00:13:37,880 Speaker 6: about twenty four percent of Dominimus is now encapsulated in 282 00:13:37,960 --> 00:13:42,400 Speaker 6: this new expanded part. How enforceable is this, So it's 283 00:13:42,520 --> 00:13:45,320 Speaker 6: enforced by the US right, so it's something that our 284 00:13:45,480 --> 00:13:49,679 Speaker 6: Customs and Border Protection Division is going to be watching. 285 00:13:49,720 --> 00:13:52,120 Speaker 6: And so now everybody has to comply. The difference of 286 00:13:52,120 --> 00:13:55,880 Speaker 6: what's going on before is ups and FedEx already required 287 00:13:56,559 --> 00:13:58,959 Speaker 6: the information on what's in the package, but now you've 288 00:13:58,960 --> 00:14:01,440 Speaker 6: got to get who made a packet, who made the goods, 289 00:14:02,160 --> 00:14:04,320 Speaker 6: and so the difference is the postal operators. He was 290 00:14:04,360 --> 00:14:08,240 Speaker 6: mentioning thirty different postal service operators suspended because they don't 291 00:14:08,240 --> 00:14:10,319 Speaker 6: have the technology. Before you could just check a box 292 00:14:10,320 --> 00:14:13,079 Speaker 6: that this was a small, low value package. Now you've 293 00:14:13,080 --> 00:14:16,000 Speaker 6: got to give so much more information. So that's guarded 294 00:14:16,040 --> 00:14:18,440 Speaker 6: by the custom a CBP and on imports. 295 00:14:18,480 --> 00:14:19,680 Speaker 1: Now, I was just wondering, you know, if you get 296 00:14:19,720 --> 00:14:21,800 Speaker 1: on a plane, let's say, and you get five hundred 297 00:14:21,840 --> 00:14:24,080 Speaker 1: dollars worth of goods from some country, how do they 298 00:14:24,080 --> 00:14:25,600 Speaker 1: come on the plane and get it? I just wonder 299 00:14:25,760 --> 00:14:28,600 Speaker 1: is this you know, I'm just thinking theoretically, South laughing 300 00:14:28,640 --> 00:14:28,840 Speaker 1: at me. 301 00:14:29,120 --> 00:14:30,800 Speaker 3: I mean, how do they enforce this? 302 00:14:30,920 --> 00:14:33,560 Speaker 1: Has it become difficult given all of the changes and 303 00:14:33,640 --> 00:14:35,640 Speaker 1: the teriff regimes and some of the legal challenges. 304 00:14:35,760 --> 00:14:38,160 Speaker 6: Yeah, what you're carrying on you that's still not going 305 00:14:38,200 --> 00:14:40,480 Speaker 6: to change as far as that eight hundred mint dollars limit. 306 00:14:40,560 --> 00:14:42,560 Speaker 2: Right now, this is looking at class This is the 307 00:14:42,600 --> 00:14:43,440 Speaker 2: mailing reasons. 308 00:14:43,480 --> 00:14:45,600 Speaker 6: This is mailing cross border, right, So this is going 309 00:14:45,640 --> 00:14:48,440 Speaker 6: what's going in packages, what's going on vessels, what's going 310 00:14:48,480 --> 00:14:51,520 Speaker 6: on different methods of transport, even rail cross border? So 311 00:14:51,520 --> 00:14:54,360 Speaker 6: they're managing what what packages are going cross border? 312 00:14:54,400 --> 00:14:56,120 Speaker 2: Of the companies that you follow at the moment, who's 313 00:14:56,160 --> 00:14:58,480 Speaker 2: executing really well? Have you been impressed by. 314 00:14:58,680 --> 00:15:01,760 Speaker 6: Well, I mean they're ex secuting in terms of FedEx 315 00:15:01,840 --> 00:15:04,840 Speaker 6: and ups already moved traffic, right, have the skill sets. 316 00:15:05,640 --> 00:15:08,080 Speaker 6: But this is a question about what's going to happen 317 00:15:08,160 --> 00:15:11,600 Speaker 6: with the increased rates to those packages. So for example 318 00:15:11,680 --> 00:15:14,600 Speaker 6: Temu and Shean, right, these were low value shippers that 319 00:15:14,720 --> 00:15:17,280 Speaker 6: had found a loophole and expanded that loophole. We went 320 00:15:17,320 --> 00:15:20,280 Speaker 6: from one hundred million packages twenty years ago to a 321 00:15:20,320 --> 00:15:22,120 Speaker 6: billion and a half, right, and that's already up to 322 00:15:22,400 --> 00:15:25,720 Speaker 6: nine hundred million packages at run rate by the time 323 00:15:25,760 --> 00:15:29,720 Speaker 6: this went into effect in May. So you're seeing this. 324 00:15:29,720 --> 00:15:32,320 Speaker 6: This is really taking those companies that learned how to 325 00:15:32,320 --> 00:15:35,680 Speaker 6: take advantage. And what you've seen is Shean's volumes are 326 00:15:35,720 --> 00:15:39,040 Speaker 6: down twenty three percent I'm sorry, down twelve percent, but 327 00:15:39,760 --> 00:15:43,200 Speaker 6: revenues are up twenty three percent because they've taken rates 328 00:15:43,280 --> 00:15:46,400 Speaker 6: up to adjust for the tariffs, or they've gone in 329 00:15:46,520 --> 00:15:48,920 Speaker 6: and as you were mentioning gone to different countries. 330 00:15:50,080 --> 00:15:50,720 Speaker 3: Stay with US. 331 00:15:51,040 --> 00:16:03,760 Speaker 2: Multile IMPEG surveyance coming up after this. Aaron McLaughlin, the 332 00:16:03,800 --> 00:16:05,880 Speaker 2: senior economist of the conference for It, joins us now 333 00:16:05,920 --> 00:16:08,480 Speaker 2: for more Aeron, Welcome to the program. I talk about 334 00:16:08,520 --> 00:16:11,200 Speaker 2: your data, the loss of confidence. Are you seeing that 335 00:16:11,320 --> 00:16:13,880 Speaker 2: more pronounced or if we send it bounce back as 336 00:16:13,880 --> 00:16:16,200 Speaker 2: we come into the post Labor Day period. 337 00:16:17,280 --> 00:16:19,960 Speaker 7: We have not seen a bounce back yet. It is 338 00:16:20,040 --> 00:16:24,960 Speaker 7: still you know, after our sort of dip after Liberation Day, 339 00:16:25,440 --> 00:16:28,000 Speaker 7: it elevated a little bit in May, and it's still 340 00:16:28,240 --> 00:16:32,680 Speaker 7: very similar. Those numbers looking at sort of a trend 341 00:16:32,760 --> 00:16:36,720 Speaker 7: or a possible emerging trend. It looks like younger consumers, 342 00:16:36,840 --> 00:16:41,520 Speaker 7: consumers under thirty five are feeling more negative than some 343 00:16:41,640 --> 00:16:45,320 Speaker 7: older consumers. And we think in part this might be 344 00:16:45,600 --> 00:16:48,000 Speaker 7: well in general because of cost a living. But one 345 00:16:48,040 --> 00:16:50,640 Speaker 7: thing that we're also closely looking at is the end 346 00:16:50,720 --> 00:16:55,080 Speaker 7: of deminimus in the additional cost for fast fashion and 347 00:16:55,200 --> 00:16:56,680 Speaker 7: other items whole. 348 00:16:56,440 --> 00:16:59,000 Speaker 1: Love a second, Aaron, are you saying that because people 349 00:16:59,000 --> 00:17:01,800 Speaker 1: can't get their she and packages and that that's typically 350 00:17:01,880 --> 00:17:03,920 Speaker 1: the younger individual, they're feeling worse. 351 00:17:04,680 --> 00:17:06,080 Speaker 3: Is that what you're sensing. 352 00:17:06,920 --> 00:17:09,399 Speaker 7: I am sensing that that could be the case. Yes, 353 00:17:09,600 --> 00:17:13,480 Speaker 7: So we've done some analysis these packages that are coming 354 00:17:13,520 --> 00:17:17,240 Speaker 7: that have come directly from China other places from around 355 00:17:17,280 --> 00:17:20,919 Speaker 7: the world that are have really boomed the last few years, 356 00:17:21,280 --> 00:17:24,800 Speaker 7: and in fact, eighty three percent of e commerce packages 357 00:17:24,880 --> 00:17:28,600 Speaker 7: come to Minimus and they came in virtually without any 358 00:17:28,720 --> 00:17:32,280 Speaker 7: ariffs on them because they came direct from China and elsewhere. 359 00:17:33,040 --> 00:17:37,120 Speaker 7: And we think that the additional arariffs could add up 360 00:17:37,160 --> 00:17:40,720 Speaker 7: to two tenths of a percentage point on inflation over 361 00:17:40,760 --> 00:17:43,639 Speaker 7: the next year, and you know, it could be a 362 00:17:43,720 --> 00:17:45,960 Speaker 7: downer for younger consumers. 363 00:17:45,800 --> 00:17:48,119 Speaker 1: Taking a step back. There are two prongs to the 364 00:17:48,160 --> 00:17:51,359 Speaker 1: consumer confidence side of things. On one hand, there's this 365 00:17:51,440 --> 00:17:54,480 Speaker 1: question about inflation, which has been a really dominant theme 366 00:17:54,640 --> 00:17:57,040 Speaker 1: over the past number of years. On the other hand, 367 00:17:57,080 --> 00:17:59,320 Speaker 1: it's employment, and that's kind of what we're looking for 368 00:17:59,440 --> 00:18:03,000 Speaker 1: to understand and what the breaking point will be. Are 369 00:18:03,000 --> 00:18:05,640 Speaker 1: they still confident that they will have jobs? They still 370 00:18:05,640 --> 00:18:07,960 Speaker 1: confident enough to keep spending even if they don't feel 371 00:18:08,040 --> 00:18:10,960 Speaker 1: very good about it, because they haven't always done what 372 00:18:11,000 --> 00:18:13,240 Speaker 1: they've said they've felt when it comes to inflation. 373 00:18:14,280 --> 00:18:18,320 Speaker 7: Right right now, it seems that consumers still feel that 374 00:18:18,400 --> 00:18:21,879 Speaker 7: the labor market is fairly healthy, although they're starting to 375 00:18:22,359 --> 00:18:24,760 Speaker 7: reveal in some of the answering of some of our 376 00:18:24,840 --> 00:18:28,639 Speaker 7: data that they sense that there's less jobs available out there, 377 00:18:29,080 --> 00:18:32,440 Speaker 7: which is kind of interesting. So personally they may feel 378 00:18:32,440 --> 00:18:35,960 Speaker 7: confident still continue to spend, but we do think this 379 00:18:36,080 --> 00:18:41,000 Speaker 7: spending will be on sort of not on discretionary goods 380 00:18:41,080 --> 00:18:43,600 Speaker 7: is where it will weaken. That non discretionary goods is 381 00:18:43,640 --> 00:18:46,800 Speaker 7: where consumers will continue to focus, and that when it 382 00:18:46,840 --> 00:18:51,399 Speaker 7: comes to big purchases like appliances and automobiles. As tariffs 383 00:18:51,440 --> 00:18:54,600 Speaker 7: increasingly have an impact on these we just may see 384 00:18:54,640 --> 00:18:57,119 Speaker 7: that confidence are road in the future months. 385 00:18:57,320 --> 00:19:00,159 Speaker 2: And let's talk about confidence, particularly about the labor marketing. 386 00:19:00,160 --> 00:19:02,800 Speaker 2: There's a lot of confusion right now about whether the 387 00:19:02,840 --> 00:19:06,040 Speaker 2: step down and payrolls for growth is leading towards an 388 00:19:06,040 --> 00:19:09,040 Speaker 2: increase in labor market slack or not. What do the 389 00:19:09,080 --> 00:19:11,880 Speaker 2: attitudes as consumers towards the labor markets sound like now 390 00:19:11,880 --> 00:19:14,200 Speaker 2: relative to where they work only six months ago. 391 00:19:15,880 --> 00:19:20,879 Speaker 7: Well, I think consumers recognize that the labor market is loosening. 392 00:19:21,320 --> 00:19:25,399 Speaker 7: But consumers often act based on their own situation, So 393 00:19:25,480 --> 00:19:28,200 Speaker 7: if they feel confident in their own situation. 394 00:19:28,040 --> 00:19:31,200 Speaker 3: They will continue to spend. Generally, they may. 395 00:19:31,080 --> 00:19:34,080 Speaker 7: Be a little bit more wary. But if they see, 396 00:19:34,160 --> 00:19:37,280 Speaker 7: even though the unemployment rate has remained steady, if they 397 00:19:37,520 --> 00:19:40,000 Speaker 7: sense that there's less jobs out there, i e. 398 00:19:40,119 --> 00:19:41,439 Speaker 3: If they lose their job, it. 399 00:19:41,440 --> 00:19:43,960 Speaker 7: Will be harder to get a new one. That will 400 00:19:43,960 --> 00:19:46,959 Speaker 7: certainly has a potential to impact their confidence. 401 00:19:47,880 --> 00:19:51,400 Speaker 2: This is the Bloomberg Survendments podcast, bringing you the best 402 00:19:51,440 --> 00:19:54,760 Speaker 2: in markets, economics, and geopolitics. You can watch the show 403 00:19:54,800 --> 00:19:57,760 Speaker 2: live on Bloomberg TV weekday mornings from six am to 404 00:19:57,880 --> 00:20:00,840 Speaker 2: nine am Eastern. Subscribe to the podcas cast on Apple 405 00:20:01,119 --> 00:20:03,960 Speaker 2: Spotify or anywhere else you listen, and as always, on 406 00:20:04,000 --> 00:20:06,440 Speaker 2: the Bloomberg terminal and the Bloomberg Business app.