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

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Nita Richardson of

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Speaker 2: ADP Research noting the positivity in the US jobs market

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Speaker 2: as saying, quote the strength of these headline numbers mass

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Speaker 2: sector level weakness. Nita joins us now for more, Nither,

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Speaker 2: It's good to see you. Let's go back to Friday's data.

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Speaker 2: And before we get to Friday eight thirty am and

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Speaker 2: the payrolls report, I want to talk about new metch

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Speaker 2: that came out a little bit later. How concerns should

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Speaker 2: the Federal Reserve be about that hotter than expected inflation

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Speaker 2: read in that search in a.

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Speaker 1: Word, very I mean to see a percentage point increase

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Speaker 1: in expectations for the year ahead inflation outlook is concerning.

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Speaker 1: It shows how quickly consumers can change their views of inflation.

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Speaker 1: And remember, expectations are a key input that we don't

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Speaker 1: talk about on inflation and triggering it higher. So I

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Speaker 1: would be very concerned about keeping inflation expectations anchored anchored,

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Speaker 1: not at the four point three percent, which is what

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Speaker 1: the Michigan survey said, but at the two percent target.

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Speaker 1: That's where around where consumers anchored their inflation before the

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Speaker 1: pandemic for two years leading into the pandemic. Now to

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Speaker 1: see it rise higher, after their well deserved battle to

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Speaker 1: reduce inflation, to see it edge higher is a concern.

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Speaker 3: At the same time, I got a number of notes

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Speaker 3: to saying ignore, please disregard. This is a completely political

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Speaker 3: instrument at this point that basically just measures how much

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Speaker 3: Democrats are displeased with the Trumpet presidency. A Republican seemed

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Speaker 3: to be just fout. Other people pointed out that there

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Speaker 3: was a slight deterioration among Republicans who were polled in

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Speaker 3: the University of Michigan sent to a survey. Do you

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Speaker 3: think it is valid to discount the University of Michigan

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Speaker 3: because of the small sample size and the political leanings

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Speaker 3: that it tends to represent.

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Speaker 1: What I think it's valid is to look at another source,

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Speaker 1: and we're going to get an expectations data from the

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Speaker 1: New York Fed that could coroborate this existing So I

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Speaker 1: don't throw away any data points at this point. I

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Speaker 1: think they're all well worth considering, but not in isolation.

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Speaker 1: So if you have the New York Fed coroborating the

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Speaker 1: UMISH survey, then there's some teeth to what we're seeing

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Speaker 1: in that survey.

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Speaker 3: It's going back to the labor market. You said that

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Speaker 3: even though there is a lot of strength, especially with

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Speaker 3: the revisions that we saw that were lower than people

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Speaker 3: expected in terms of removing jobs from last year's tyley,

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Speaker 3: do you see something happening specifically in real time that's

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Speaker 3: making you more concerned about the health of the labor market.

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Speaker 1: Absolutely, and I've said this before, lopsided hiring market right now.

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Speaker 1: You know there's a lot of strength. So let's step

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Speaker 1: back a little bit to the three month averages, both

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Speaker 1: for the ADP numbers and for the BLS numbers. You're

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Speaker 1: seeing private sector hiring over the last three months average

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Speaker 1: around two hundred thousand. That is a strong labor market,

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Speaker 1: but it's all basically focused on consumer facing industries, whether

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Speaker 1: you're looking at leisure and hospitality, so short term restaurants, hotels, vacations,

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Speaker 1: or longer term healthcare needs and healthcare industry seeing those gains.

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Speaker 1: What you're not seeing gains is in manufacturing in the

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Speaker 1: good sector, in construction. That's a concern, especially if you're

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Speaker 1: looking at possibly more tariffs in the future. So where

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Speaker 1: are we going to get the hiring in the good sector.

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Speaker 1: That's what we're watching.

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Speaker 4: A cause from a cause for concern for the Trump administration.

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Speaker 4: We spoke to Kevin Hassett on Friday. He said the

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Speaker 4: benchmark from last year, it was the biggest downward revision

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Speaker 4: since two thousand and nine. Was the Biden jobs growth

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Speaker 4: not as good. Is Trump inheriting a worse labor market

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Speaker 4: than many were predicting.

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Speaker 1: Yes, so we January is a special month because all

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Speaker 1: of these numbers get rebnchmarked to something called the Quarterly

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Speaker 1: Census of Employment in Wages And not to bore your

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Speaker 1: listeners with the details of that, but it causes revisions

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Speaker 1: and this time, as you know and Mary it it

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Speaker 1: did revise down that bench from mark hiring rate from

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Speaker 1: last year, but not as much as the BLS had

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Speaker 1: told us that it would. It is a softer labor

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Speaker 1: market than the first print, but overall it's still very solid,

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Speaker 1: especially in the fourth quarter. So my contention is still

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Speaker 1: that the labor market is solid. You saw the unemployment

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Speaker 1: rate edge down last month. However, there is pockets of

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Speaker 1: weakness that could overwhelm the pockets of strength if the

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Speaker 1: consumer proves to be less resilient than it was last year.

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Speaker 4: When it comes to BLS, everyone is concerned that these

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Speaker 4: numbers are just not accurate. How do you make up

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Speaker 4: for that? What else do you look at? I know

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Speaker 4: obviously you look at ADP, but how else do you

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Speaker 4: get a better picture of where we are right now

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Speaker 4: in the economy.

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Speaker 1: First of all, I think jobs are important. Jobs creation

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Speaker 1: are important. Where the jobs are coming from is so

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Speaker 1: important as well. So one data point one month is

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Speaker 1: not going to tell you the whole story. You have

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Speaker 1: to look at the trend. And you can look at

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Speaker 1: the trend in the BLS or the ADP numbers in

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Speaker 1: the private sector as that the goods sector is weak.

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Speaker 1: That is a consistent trend. You don't have to be

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Speaker 1: a true believer of a government data to understand that trend. Also,

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Speaker 1: I look at wages, and you saw an increase in

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Speaker 1: average hourly earnings in January. We still see that stickiness

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Speaker 1: in wages in the ADP number looking at real paychecks

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Speaker 1: administrative data. That is a concern for inflation because if

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Speaker 1: wages are sticky, maybe that's good for the consumer, but

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Speaker 1: only if inflation continues to go down. And wages are

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Speaker 1: one of the firm's highest in put prices. So if

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Speaker 1: you're looking at tariffs and higher labor costs, that puts

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Speaker 1: especially small firms kind of behind the will going into

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Speaker 1: the slabor market.

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Speaker 2: Double dice of Chaman pound this week in front of

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Speaker 2: the Senate tomorrow and then the House on Wednesday. If

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Speaker 2: there's some sentences listening this morning, some congressmen, I imagine

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Speaker 2: there are, what would your device be? What should they

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Speaker 2: ask like to this week.

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Speaker 1: Him in Powell? I think they should ask how Powell

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Speaker 1: is thinking about the labor market in terms of verticals,

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Speaker 1: not just overall, not just the solid hiring that he's seeing,

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Speaker 1: but also how different parts of the economy are working.

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Speaker 1: How is manufacturing producers versus small firms and large firms.

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Speaker 1: We need to get into the nitty gritty because that's

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Speaker 1: where policy action is going to take place. The headline

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Speaker 1: looks good, it's underneath the surface where all the questions are.

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Speaker 5: I'm reluctant to build this up too much.

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Speaker 2: As is often the case, we build it up big,

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Speaker 2: dridden on Capitol Hill. What happens, nothing bag on Capitol

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Speaker 2: Hill across two days. By the time we get to

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Speaker 2: day two, I'm exhausted. I don't want to watch the

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Speaker 2: thing anymore.

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Speaker 5: Have you watched it ever? The full thing? Yes? How sansinicret,

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Speaker 5: Yes you have? Yes, Wow, I'm impressed.

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Speaker 3: There is one question that I actually I am very

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Speaker 3: curious about how much they're modeling and immigration into some

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Speaker 3: of their inflation forecasts. How much of a variable some

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Speaker 3: of their parameters are depending on how much immigration is

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Speaker 3: limited or with deportations, because to me, a lot of

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Speaker 3: people talk about that as being the bigger potential economic

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Speaker 3: impact than even tariffs NATA.

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Speaker 5: It's going to see it as always.

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Speaker 2: Tyber Marcus Wolf research, writing and posing a schedule of

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Speaker 2: reciprocal teriffs would be much more operationally complex than the

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Speaker 2: across the board tariffs Trump imposed on China last week

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Speaker 2: and threatening against Mexico and Canada. Typin joins US now

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Speaker 2: for more So, Tobin, we should probably start there just

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Speaker 2: what is a reciprocal tariff? Do you take average way

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Speaker 2: to tariff fork one place and basically just level it.

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Speaker 2: Do you go product by product? What which sense the

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Speaker 2: approach will be from this administration.

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Speaker 6: So it's a little bit ambiguous whether or not the

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Speaker 6: reciprocity is supposed to apply to the weighted average tariff

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Speaker 6: for the entire country or the teriffs that they apply

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Speaker 6: on US imports and any particular product category. For what

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Speaker 6: it's worth, the main legislative proposal on this topic from

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Speaker 6: House Republicans that's been around for a few years, initially

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Speaker 6: co sponsored by Sean daf us Now in Trump's cabinet,

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Speaker 6: would take the lot of approach.

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Speaker 7: It would go product by product.

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Speaker 6: So if that's the case, I think this is going

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Speaker 6: to be something that requires some real elbow grease from

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Speaker 6: usdr in commerce rather than being something that you can

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Speaker 6: just implement with the stroke of a pen and have

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Speaker 6: take effect right away. And so my guess would be

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Speaker 6: what we see this week as an announcement directives to

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Speaker 6: the agencies to work this out with a subsequently delayed detectivety.

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Speaker 4: Well tobyin didn't the President already do that with his

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Speaker 4: memorandum to look at reciprocity when it comes to trading

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Speaker 4: partners by April first? What's the difference between that and

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Speaker 4: when he plans to an now this week.

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Speaker 6: Well, studying and telling them to actually implement it are

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Speaker 6: somewhat different.

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Speaker 7: You know, there's an indication of interest.

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Speaker 6: You're absolutely right, and he's day one memo on America

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Speaker 6: First trade policy, but that memo didn't actually tell the

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Speaker 6: agencies to go ahead and start implementing any of the

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Speaker 6: policies that we're looking at, whether it be on that

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Speaker 6: or currency.

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Speaker 7: Manipulation or anything else.

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Speaker 6: So, you know, at his word, based on how he's

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Speaker 6: talked about it, this could be a directive to actually.

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Speaker 7: Say we are doing this.

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Speaker 6: This is now the policy of the United States, and

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Speaker 6: you know USDR and converse need to come back with

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Speaker 6: the actual implementation details, you know, a month, two months

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Speaker 6: down the line.

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Speaker 4: If he's looking for reciprocity, is this a negotiating tool

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Speaker 4: potentially giving a grace period for some of these countries

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Speaker 4: to come back and say, let's do a deal.

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Speaker 6: So yeah, I mean, if it applies globally or even

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Speaker 6: if not, it certainly is a negotiating tool implicitly because

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Speaker 6: there's an obvious way to lower the reciprocal teriffrate that

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Speaker 6: you would face if you just lower the rates that

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Speaker 6: you're charging.

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Speaker 7: On the US.

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Speaker 6: Whether or not that would mean a grace period is

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Speaker 6: less obvious, you know. I think these tariffs, unlike, for example,

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Speaker 6: the twenty five percent across the board on Canada and Mexico,

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Speaker 6: are not necessarily going to be so drastic that I

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Speaker 6: think the administration is going to be all that wary

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Speaker 6: about having a temporary period where they're in effect, so,

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Speaker 6: you know, having this threat out there, having it actually

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Speaker 6: be implemented once they're ready to do that implementation, and

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Speaker 6: then offering countries to prospect of relief if they subsequently

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Speaker 6: bring the raids down.

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Speaker 7: I think it's pretty possible, Tobin.

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Speaker 3: When you zoom out, there's a real question of why

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Speaker 3: these tariffs are being threatened in the first place. Michael

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Speaker 3: zisis over a. Morgan Stanley, in a note over the weekend,

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Speaker 3: said this that right now, tariffs remain a tool of

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Speaker 3: US public policy. Simply put, tariffs are a bargaining CHIP

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Speaker 3: not a policy goal.

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Speaker 8: Do agree.

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Speaker 6: I think there are different kinds of tariff threats and

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Speaker 6: tariff policy goals being contemplated in this administration, and Secretary

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Speaker 6: Bestn't you know, sort of distinguished between these different categories

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Speaker 6: of tariffs and his confirmation hearing a few weeks ago,

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Speaker 6: you know, there was one category that very much is

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Speaker 6: negotiating CHIP.

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Speaker 7: I think that's certainly what we saw in the Canada

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Speaker 7: and Mexico case.

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Speaker 6: But they've also talked about tariffs as a revenue source,

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Speaker 6: as addressed for unfair trade practices, as sort of a

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Speaker 6: structural force you put in place to try and address

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Speaker 6: the trade deficit and protect certain industries in the US.

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Speaker 6: So you know, at some level, any of these things

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Speaker 6: could be bargained off based on some set of both

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Speaker 6: trade and non trade concessions, But I don't think that's

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Speaker 6: the goal first and foremost in every single case.

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Speaker 3: Do you have a sense, Tobin, that the Trump's administration

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Speaker 3: is trying to get tariffs and some of the more

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Speaker 3: restrictive growth policies out of the way before going to

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Speaker 3: tax cuts and some of the more pro growth policies.

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Speaker 6: I don't think there's sequencing that in that way intentionally,

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Speaker 6: although it certainly is working out that way. I think

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Speaker 6: the sequencing that we're seeing is largely based on what

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Speaker 6: the president has the authority to do quickly versus what

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Speaker 6: he needs Congressional cooperation on, which then inevitably moves slower.

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Speaker 6: If you could do tax cuts right away, if he

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Speaker 6: could have done an executive order implementing tax cuts the

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Speaker 6: same way that he has on immigration or tariffs, I

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Speaker 6: think we would have seen that already. But the reality

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Speaker 6: is Congress moves a lot slower in the executive branch,

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Speaker 6: and so we're seeing him move quickly in the areas

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Speaker 6: where he has the authority.

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Speaker 2: Tobin, we'd love your thoughts on European taxes. We keep

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Speaker 2: hearing from the administration that they're unhappy about how American

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Speaker 2: products are taxed across the continent in the European Union.

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Speaker 5: We had from Kevin.

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Speaker 2: Hasset as well, the director of the National Economic Council,

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Speaker 2: on Friday, when he spoke to us about the same thing,

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Speaker 2: American products getting tax more than we tax, say, European

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Speaker 2: products here within the United States. Tobin, how'd you address

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Speaker 2: an issue like that? How are they going to do this?

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Speaker 7: Yeah?

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Speaker 6: I think the EU has been, in my mind, the

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Speaker 6: most significant target for possible bilateral t earrafs other than China.

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Speaker 6: I mean, we've seen those threats obviously in the Canada

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Speaker 6: and Mexico case as well, although I've always been inclined

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Speaker 6: to look at those again a little bit more as

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Speaker 6: negotiating tactics.

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Speaker 7: But I think the EU along.

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Speaker 6: With China are the two kind of major trading blocks

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Speaker 6: where I think there are sort of significant, serious grievances

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Speaker 6: about bilateral trade practices.

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Speaker 7: And the way the trade will relationship looks.

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Speaker 6: And I could absolutely see higher tariffs on a variety

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Speaker 6: of product categories, with auto as being one of the

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Speaker 6: most obvious.

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Speaker 4: Otto is definitely being obvious because that gap is so large,

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Speaker 4: but Toba. When it comes to taxes, for this to

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Speaker 4: be successful for the Trump administration, do they need to

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Speaker 4: get that corporate tax rate down for companies that are

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Speaker 4: willing to produce more in the United States.

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Speaker 6: I think that getting the corporate rate down to fifteen percent,

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Speaker 6: specifically for domestic production, as President Trump has talked about

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Speaker 6: a lot, I think that's quite likely to happen. I

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Speaker 6: think that's a relatively affordable policy to fit into this

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Speaker 6: tax bill, much more so than some of the things

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Speaker 6: he's been reiterating his support for recently, like the tax

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Speaker 6: exclusions for overtime and so security.

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Speaker 7: So I think they probably will manage to get that done.

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Speaker 6: I don't know that it's that critical for competitiveness, just

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Speaker 6: because the base of that's probably going to be fairly narrow,

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Speaker 6: and the US has a variety of other advantages as

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Speaker 6: a sort of target for investment beyond just our tax rates.

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Speaker 7: But certainly that is on the menu.

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Speaker 5: Hi, Tabin, I appreciate you time.

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Speaker 2: Thank you, sir, smile as always, type and malcus that

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Speaker 2: of wolf rasearch. Let's stick with tarists, President Trump saying

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Speaker 2: he'll impose twenty five percent levies on steel and aluminum

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Speaker 2: imports from all countries. Francisco Blanche of Bank of America writing,

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Speaker 2: the rationale for the use of tariffs has expanded from

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Speaker 2: a response to an unfair subsidy or advantage to the

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Speaker 2: pursuit of political objectives. Trade war is now the continuation

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Speaker 2: of politics by other means.

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Speaker 5: Francisco joins us now for more.

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Speaker 2: Francisco, that's quite a statement, and a lot of people

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Speaker 2: might agree with you as well. The situation. I'll put

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Speaker 2: it this way, feels fluid. I'm being diplomatic. What does

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Speaker 2: it mean for some parts of the commodity market versus

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Speaker 2: say others.

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Speaker 9: Well, John, thanks for having me again in the program.

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Speaker 9: I'll tell you it's very confusing. We've seen a big

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Speaker 9: impact on the prices of regional commodity differentials. We saw

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Speaker 9: it last week prices of Canadian gas versus US gas,

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Speaker 9: and crude oil versus US crude oil. We are seeing

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Speaker 9: it today with the prices of regional aluminum and steel

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Speaker 9: premium and in the US. And but also we are

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Speaker 9: seeing the effects on the term structure commority markets because

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Speaker 9: as these starts get applied, you don't know exactly when

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Speaker 9: they're going to be applied, so people are trying to

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Speaker 9: rush the commodity in. So you're getting that that if

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Speaker 9: you like that mini spike up the front, hoping that

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Speaker 9: maybe you can swiez a more product in before.

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Speaker 8: The type hits.

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Speaker 9: So it's impacting really regional differancials. Is impact in the

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Speaker 9: term structure of the price spot verse forward and and

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Speaker 9: and of course some of these measures are being announced

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Speaker 9: in the morning and taken back in the evening, so

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Speaker 9: we are we are a little concerned that that that

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Speaker 9: might end up being some negative economic effect because of

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Speaker 9: all this uncertainty. But certainly, as I pointed out, I mean,

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Speaker 9: this is really an negotiation tactic, and that's a thing

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Speaker 9: well the market beliefs, but also as you point out,

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Speaker 9: some of the startus they get put on and they

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Speaker 9: just stick around for a while.

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Speaker 4: They stick around for a while, which means what potentially

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Speaker 4: could happen to trade flows? Are you already seeing trade

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Speaker 4: flows around the world start to shift.

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Speaker 8: Well, the reacity of the matter is in the last

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Speaker 8: three where we had in.

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Speaker 9: Twenty eighteen nineteen, we ended up seeing some damage to

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Speaker 9: global pms right, and ultimately, of course we ended up

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Speaker 9: with COVID in twenty twenty, so everything became very distortive.

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Speaker 8: But we had a.

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Speaker 9: Pretty strong cyclical backdrop in seventeen eighteen when when all

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Speaker 9: these started, all the starts started with trade war started,

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Speaker 9: So we are a little concerned about the negative effects.

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Speaker 9: I remember, at the end of the day, a tariff

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Speaker 9: is a tax, and we put a tax that tax, mister,

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Speaker 9: the split between the importer and the clients of the importer,

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Speaker 9: and maybe some of it gets gets washed out in

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Speaker 9: the fax but I mean to give you an example.

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Speaker 9: If you're a US industrial that's buying aluminum, well, you're

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Speaker 9: gonna you're gonna have to find a way to pass

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Speaker 9: that through and most likely that's can to impact your

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Speaker 9: margins as an industry producer in America, you know, buy

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Speaker 9: some raw materials, but also produces advanced manufacturing. And and

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Speaker 9: now the question is how how deep does the supply

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Speaker 9: chain go? Do you have the tires just on the

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Speaker 9: aluminum or also on the aluminum product. And remember last week,

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Speaker 9: some of the most vocal voices against tariffs came from

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Speaker 9: the US refining industry. I said, we buy all this

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Speaker 9: cheap Canadian cool oil, cheap natural gas from Canada, and

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Speaker 9: we turned into amazing products like gasoline and diesels. Are

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Speaker 9: you know, top of the line and and and that's

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Speaker 9: one of the reasons the US refining sector is so competitive.

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Speaker 9: The tyrants would have really heard that, right, So, so

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Speaker 9: actually careful. You never know where things are going to

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Speaker 9: are going to come from.

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Speaker 8: And it's really one of the challenges that we are seeing

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Speaker 8: across the board.

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Speaker 4: I'm glad you brought up twenty eighteen because that's when

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Speaker 4: the US hit nearly seven billion dollars of European steel

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Speaker 4: on aluminum exports with duties. This was under Trump's first administration,

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Speaker 4: and then of course we had this retaliation from Europe

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Speaker 4: on things like Harley Davison motorcycles. What kind of retaliation

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Speaker 4: can we expect this time around.

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Speaker 9: Well, I think I think one of the one of

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Speaker 9: the big challenges that that Europe hass is.

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Speaker 8: Obviously Europe, to.

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Speaker 9: Your point, has has a trade circles with the US,

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Speaker 9: but there's also a large services deficit on many areas, right,

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Speaker 9: So we just sort of talk about tech potentially being

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Speaker 9: involved as as a retaliatory psycho some retaliation. But I think,

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Speaker 9: I think importantly the European industry is not in great shape.

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Speaker 9: You're looking at very high domestic energy prices as a

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Speaker 9: result of the Russia Ukraine War cutting off supplies of energy,

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Speaker 9: pipeline energy, pipeline gas into Europe. You're seeing also weak

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Speaker 9: demand for European products in China, which of course has

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Speaker 9: a domestic demand problem that's fed on into the European industry.

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Speaker 9: So I'm not sure Europe is in a great position

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Speaker 9: from the industrial standpoint to cope with rising ties from

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Speaker 9: the US. So it's a frail moment for Europe. Growth

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Speaker 9: is very you know, scratching one percent. Germany has been

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Speaker 9: in pretty much recession for three years running and now

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Speaker 9: we're seeing natural gas prices spiking again in the past

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Speaker 9: few days, right, So it's a tough combination.

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Speaker 8: I think Europe is a tough spot.

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Speaker 9: But of course the rush of the Ukraine war ends,

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Speaker 9: I think things will ease, right, So that's that's perhaps

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Speaker 9: the big hope is that we're going to see the

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Speaker 9: end of the rush of the ukroin war.

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Speaker 3: Francisco, that's a moddel of uncertainty.

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Speaker 5: What's your highest conviction. I've been a muddle of.

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Speaker 3: Uncertainty at a time where one of these tariffs that

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Speaker 3: they go through could be inflationary or deflationary if it

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Speaker 3: really surprises growth.

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Speaker 8: Well.

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Speaker 9: So for US, one clear one per winning area has

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Speaker 9: been the precious metals complex.

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Speaker 8: So we've been very polished on gold and silver.

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Speaker 9: We have three thousand dollar target for gold, which you

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Speaker 9: know we're today we scratched twenty nine hundred. Silver we

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Speaker 9: believe goes thirty five for US and owns, and so

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Speaker 9: we see that as a winning area within the commodity space.

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Speaker 9: Continued diversification from central banks, so also investor portfolios oil

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Speaker 9: a lot more range FOWND.

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Speaker 8: You know, difficult to call here between this.

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Speaker 9: Barash of tarists, but also sanctions right sanctions on Russian

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Speaker 9: energy on the way out by circular Yellen, and then

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Speaker 9: there is a discussion around Iran.

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Speaker 8: We'll have us to be run so to us.

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Speaker 9: The cyclical commodity complex is really on the edge with

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Speaker 9: BMIs around fifty, and so the clear trends are, like

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Speaker 9: I said, in the precious metals and perhaps in some

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Speaker 9: of the some of the softs and the meats. The

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Speaker 9: grains market also complicated to call here, with forecasts shifting

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Speaker 9: quickly and suddenly adding two upside pressures on a market

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Speaker 9: that was on an hour trend for a while.

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Speaker 5: Francisco, can we finish on energy?

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Speaker 2: I think we're used to historically, people like me at

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Speaker 2: least being along the whole complex. At the same time,

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Speaker 2: within energy, you're starting to notice dispersion, reasons to be

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Speaker 2: bullished some parts and parish others.

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Speaker 9: Right now we do, and and certainly I think we've

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Speaker 9: been we've been more very crul oil this year. It

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Speaker 9: hasn't played out that way. I think the types of

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Speaker 9: Russia were sorry. The sanctions in Russa were quite unexpected.

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Speaker 9: They distorted some of the volumes and therefore created tightness

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Speaker 9: in the market that probably reduced these surplus that we

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Speaker 9: were projecting.

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Speaker 8: So now we're more neutral.

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Speaker 9: We think oil is going to be averaging brents and

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Speaker 9: were averaging seventy five and seventy one two for wt I,

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Speaker 9: so we see a more and more rangeball market. But

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Speaker 9: but yeah, the energy complex is vulnerable to cyclely called

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Speaker 9: demand conditions, and it's also frankly vulnerable to Opik restarting

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Speaker 9: or bringing production back in April, right, so we'll see

442
00:21:41,880 --> 00:21:44,200
Speaker 9: if Opek does that. But at the same time, you

443
00:21:44,280 --> 00:21:47,000
Speaker 9: got other factors like I mentioned on Russia sanctions, and

444
00:21:47,040 --> 00:21:49,480
Speaker 9: potentially you run maximum pressure, which is in shelf for

445
00:21:49,560 --> 00:21:50,760
Speaker 9: now but could come back.

446
00:21:50,840 --> 00:21:53,800
Speaker 8: Right. So energy is a lot more complex.

447
00:21:54,040 --> 00:21:56,560
Speaker 9: There is plenty of spare capacity, so people are not

448
00:21:56,600 --> 00:21:58,600
Speaker 9: truly worried, but at the same time there's a lot

449
00:21:58,640 --> 00:22:01,560
Speaker 9: inventories and that keeps the market in a range in

450
00:22:01,560 --> 00:22:05,600
Speaker 9: that kind of seventy eighty or range environment with a

451
00:22:05,680 --> 00:22:10,040
Speaker 9: curve in baquidation. So that's the backdroping energy. Naturally, gas

452
00:22:10,080 --> 00:22:13,520
Speaker 9: more complicated, we see strong demand for power driving gas

453
00:22:13,560 --> 00:22:16,320
Speaker 9: in the US, in Europe elsewhere, and we have a

454
00:22:16,320 --> 00:22:17,240
Speaker 9: type market for power.

455
00:22:17,440 --> 00:22:20,720
Speaker 8: So it's electrons versus molecules here.

456
00:22:20,840 --> 00:22:23,600
Speaker 2: A lot of competing forces, that's for sure. Francisco, appreciate

457
00:22:23,600 --> 00:22:26,160
Speaker 2: your time, sir. Thank you, Francisco Blanche to have Bank

458
00:22:26,200 --> 00:22:38,320
Speaker 2: for America. Aaron brand of Pincot right in the following.

459
00:22:38,440 --> 00:22:41,880
Speaker 2: Recent macro data and earnings reports indicate a US economy

460
00:22:42,080 --> 00:22:45,840
Speaker 2: that continues to outpace other developed markets. We maintain an

461
00:22:45,840 --> 00:22:50,520
Speaker 2: equity overweight concentrated in the United States. Aeron Jo understand

462
00:22:50,520 --> 00:22:52,679
Speaker 2: for more. Aaron, welcome to the program. Let's start with that,

463
00:22:52,840 --> 00:22:54,600
Speaker 2: and let's start more broadly as well, with just some

464
00:22:54,640 --> 00:22:56,880
Speaker 2: of the consensus positions coming into twenty five.

465
00:22:57,080 --> 00:22:57,960
Speaker 5: We've uphanded a.

466
00:22:57,960 --> 00:23:01,240
Speaker 2: Series of them, US versus Euro for the dollar bills,

467
00:23:01,240 --> 00:23:03,160
Speaker 2: for the bond bears, There's been plenty to think about.

468
00:23:03,400 --> 00:23:06,040
Speaker 2: Do you think that just position squeezing or something else,

469
00:23:06,080 --> 00:23:06,800
Speaker 2: something more.

470
00:23:08,119 --> 00:23:08,440
Speaker 5: I do?

471
00:23:08,520 --> 00:23:10,800
Speaker 10: I mean I think that, you know, coming into this year,

472
00:23:11,080 --> 00:23:15,840
Speaker 10: the markers were broadly speaking, pretty long dollar, short bonds,

473
00:23:15,880 --> 00:23:19,439
Speaker 10: and long equities, but long probably US equities over the

474
00:23:19,440 --> 00:23:22,000
Speaker 10: rest of the world, and really none of those trades

475
00:23:22,040 --> 00:23:25,760
Speaker 10: have panned out Europe has outperformed the US bonds have

476
00:23:25,880 --> 00:23:29,600
Speaker 10: basically gone nowhere, and similarly with the dollar, I think

477
00:23:29,640 --> 00:23:32,480
Speaker 10: a lot of that is just a little bit of

478
00:23:32,560 --> 00:23:35,720
Speaker 10: position squeezes going into what was you know, fairly crowded

479
00:23:35,720 --> 00:23:38,040
Speaker 10: positioning in the beginning of the year. But when you

480
00:23:38,080 --> 00:23:42,439
Speaker 10: step back, you know, I see very little reason for

481
00:23:42,480 --> 00:23:45,440
Speaker 10: the rest of the world to outperform the US, particularly

482
00:23:45,920 --> 00:23:49,560
Speaker 10: under the Trump administration's policies that they're pursuing. But also

483
00:23:49,600 --> 00:23:52,480
Speaker 10: if you just look at growth dynamics and inflation dynamics

484
00:23:52,520 --> 00:23:56,480
Speaker 10: across the world, the US is clearly continuing to outpace

485
00:23:56,520 --> 00:23:59,600
Speaker 10: and outperform the rest of the world, which you know,

486
00:23:59,640 --> 00:24:03,280
Speaker 10: really would give way to the US equity market outperforming

487
00:24:03,359 --> 00:24:05,600
Speaker 10: the rest of the world as well. And you know,

488
00:24:05,640 --> 00:24:09,080
Speaker 10: while certainly the fedes pause relative to other central banks,

489
00:24:09,680 --> 00:24:12,800
Speaker 10: what you're seeing now is probably more fiscal out of

490
00:24:12,840 --> 00:24:15,719
Speaker 10: the US well, ultimately is what is going to drive

491
00:24:15,920 --> 00:24:19,240
Speaker 10: the economy more so than central bank rate cuts at

492
00:24:19,240 --> 00:24:21,880
Speaker 10: this point, you know, at this point of where we are,

493
00:24:22,040 --> 00:24:24,919
Speaker 10: so I think that the US is still you know,

494
00:24:25,040 --> 00:24:29,040
Speaker 10: front and center the main outperformer within US equity markets,

495
00:24:29,320 --> 00:24:32,719
Speaker 10: and I think that US domestics particularly are what's going

496
00:24:32,760 --> 00:24:33,920
Speaker 10: to outperform this year.

497
00:24:34,080 --> 00:24:36,399
Speaker 2: So miss lavmatake care over a JP Morgan and Europe

498
00:24:36,560 --> 00:24:38,720
Speaker 2: and made a similar point that for this trade to

499
00:24:38,760 --> 00:24:40,639
Speaker 2: work the way it has been working over the past

500
00:24:40,680 --> 00:24:43,840
Speaker 2: few weeks, you need to close growth differentials, and there's

501
00:24:43,840 --> 00:24:46,159
Speaker 2: no sign of that happening just yet, which takes us

502
00:24:46,200 --> 00:24:48,240
Speaker 2: back to the US and your call. So let's sit

503
00:24:48,280 --> 00:24:51,160
Speaker 2: on the US equity market and think about what's working banks,

504
00:24:51,440 --> 00:24:54,520
Speaker 2: what's not certain parts of tech, what do you think

505
00:24:54,600 --> 00:24:57,280
Speaker 2: will work in the year ahead, and why so.

506
00:24:57,280 --> 00:25:00,280
Speaker 10: I think saying as domestic as possible is going to work.

507
00:25:00,320 --> 00:25:02,480
Speaker 10: So financials I think are going to continue to be

508
00:25:02,520 --> 00:25:06,720
Speaker 10: an olperformer this year. Also, you know, the power utility names,

509
00:25:06,760 --> 00:25:09,600
Speaker 10: particularly those that are leveraged to the AI trade, I

510
00:25:09,600 --> 00:25:12,160
Speaker 10: think those names still work, clearly. They took a little

511
00:25:12,160 --> 00:25:13,800
Speaker 10: bit of a breather in the beginning of the year

512
00:25:14,000 --> 00:25:17,240
Speaker 10: in late last year, but I think that that position

513
00:25:17,320 --> 00:25:20,199
Speaker 10: is actually really attractive to re enter right now. I

514
00:25:20,240 --> 00:25:23,879
Speaker 10: also think that some US cyclicals consumer cyclicals will work,

515
00:25:24,119 --> 00:25:26,840
Speaker 10: but I you know, really stay away from any cyclicals

516
00:25:26,840 --> 00:25:31,359
Speaker 10: that have international exposure. Energy sector I also think is

517
00:25:31,359 --> 00:25:32,720
Speaker 10: going to do quite well this year.

518
00:25:32,760 --> 00:25:33,960
Speaker 6: What won't work.

519
00:25:34,280 --> 00:25:39,600
Speaker 10: Industrials continue to forestall any type of CAPEX investment. They've

520
00:25:39,600 --> 00:25:41,800
Speaker 10: now pushed it out another two quarters to the end

521
00:25:41,880 --> 00:25:46,840
Speaker 10: of this year. Business capex is underperforming relative to or

522
00:25:46,920 --> 00:25:50,919
Speaker 10: business sentiment rather than underperforming relative to consumer sentiment. And

523
00:25:50,960 --> 00:25:54,800
Speaker 10: so I think that, you know what, anything with international

524
00:25:54,840 --> 00:25:57,679
Speaker 10: exposure that is going to be front and center with

525
00:25:57,720 --> 00:26:00,880
Speaker 10: respect to tariffs is likely going to underperform. And some

526
00:26:00,920 --> 00:26:06,440
Speaker 10: of the more deep cyclical materials mining industrial sectors are

527
00:26:06,640 --> 00:26:09,640
Speaker 10: likely in that bucket, whereas the ones that are more

528
00:26:09,720 --> 00:26:12,480
Speaker 10: leveraged to the consumer are likely the ones that are

529
00:26:12,840 --> 00:26:14,120
Speaker 10: going to outperform this year.

530
00:26:14,240 --> 00:26:17,119
Speaker 3: Aaron, there's a tension here. If the risk is actually

531
00:26:17,160 --> 00:26:21,560
Speaker 3: an outperformance in the US economy to people's relative expectations

532
00:26:21,640 --> 00:26:26,040
Speaker 3: right now, then doesn't that challenge the idea of rates

533
00:26:26,160 --> 00:26:29,080
Speaker 3: remaining where they are going significantly lower on the long end,

534
00:26:29,160 --> 00:26:32,280
Speaker 3: which is almost necessary for some of the more domestically

535
00:26:32,280 --> 00:26:34,280
Speaker 3: focused smaller companies to do better.

536
00:26:36,200 --> 00:26:38,560
Speaker 10: Well. I wouldn't go so far down the line as

537
00:26:38,600 --> 00:26:40,879
Speaker 10: investing in small caps. I'm not making a call that

538
00:26:40,920 --> 00:26:43,520
Speaker 10: small cops are going to outperform relative to large caps.

539
00:26:43,560 --> 00:26:46,920
Speaker 10: I still think large to mid caps are really where

540
00:26:46,960 --> 00:26:52,200
Speaker 10: you want to invest. That said, rates are still restrictive. Absolutely,

541
00:26:52,280 --> 00:26:55,480
Speaker 10: they've come down you know, meaningfully since the third quarter

542
00:26:55,520 --> 00:26:59,320
Speaker 10: of last year, but they're still in restrictive territory. We

543
00:26:59,400 --> 00:27:01,920
Speaker 10: think that the FED is likely not done with its

544
00:27:02,000 --> 00:27:05,320
Speaker 10: rate cutting path in this cycle, so there still are

545
00:27:05,440 --> 00:27:08,280
Speaker 10: more rate cuts to come, but they've probably been pushed

546
00:27:08,320 --> 00:27:11,000
Speaker 10: out into the back half of the year and into

547
00:27:11,040 --> 00:27:13,800
Speaker 10: twenty twenty six, and we're likely to see the FED

548
00:27:14,080 --> 00:27:15,840
Speaker 10: you know, take a little bit of a breather here

549
00:27:15,880 --> 00:27:19,400
Speaker 10: and wait to see the impact of first the rate tariffs,

550
00:27:19,560 --> 00:27:22,399
Speaker 10: the rate cuts that are already transpired, and second the

551
00:27:22,440 --> 00:27:25,119
Speaker 10: impact of tariffs and some of the other executive orders

552
00:27:25,119 --> 00:27:27,960
Speaker 10: that you've mentioned. So I think that the FED right

553
00:27:28,000 --> 00:27:30,000
Speaker 10: now is in a wait and see mode, but they're

554
00:27:30,040 --> 00:27:31,960
Speaker 10: not at the end of the rate cutting cycle. There's

555
00:27:32,000 --> 00:27:35,200
Speaker 10: still more to come. That said, in order for those

556
00:27:35,240 --> 00:27:38,840
Speaker 10: small caps to really meaningfully outperform, I think you're right.

557
00:27:38,920 --> 00:27:41,159
Speaker 10: I think we do need to see rates you know,

558
00:27:41,240 --> 00:27:44,920
Speaker 10: significantly lower from here. We're likely not going to get that,

559
00:27:45,160 --> 00:27:46,880
Speaker 10: you know, at least in the first half of this year,

560
00:27:47,080 --> 00:27:49,560
Speaker 10: which means that the large and the midcaps will likely

561
00:27:49,600 --> 00:27:50,720
Speaker 10: continue to outperform.

562
00:27:50,800 --> 00:27:52,760
Speaker 3: At the same time, the large and the mid caps

563
00:27:53,200 --> 00:27:56,080
Speaker 3: tend to be most pressured by a strong dollar. I'm

564
00:27:56,119 --> 00:27:58,320
Speaker 3: just thinking about all of these sort of America First

565
00:27:58,320 --> 00:28:01,439
Speaker 3: stories and how they trickle out different NASA classes and

566
00:28:01,560 --> 00:28:04,920
Speaker 3: how it really rebounds back to corporate fundamentals. How much

567
00:28:04,960 --> 00:28:08,080
Speaker 3: is that a headwind that's been priced in versus something

568
00:28:08,160 --> 00:28:10,800
Speaker 3: that still is going to be felt through as we

569
00:28:10,800 --> 00:28:11,480
Speaker 3: get earnings.

570
00:28:13,160 --> 00:28:15,480
Speaker 10: Well, with respect to FX, you're already seeing, you know,

571
00:28:15,600 --> 00:28:18,359
Speaker 10: fairly significant impacts on the FX side some of the

572
00:28:18,400 --> 00:28:21,040
Speaker 10: consumer staples names, and we still have a number of

573
00:28:21,080 --> 00:28:24,720
Speaker 10: consumers left staples names left to report, but they're seeing

574
00:28:24,760 --> 00:28:27,960
Speaker 10: headway winds anywhere from three to ten percent in terms

575
00:28:27,960 --> 00:28:30,600
Speaker 10: of the FX hit. You know, that's a sector that

576
00:28:30,640 --> 00:28:33,200
Speaker 10: we're a little bit more cautious on right now because

577
00:28:33,240 --> 00:28:36,240
Speaker 10: of it. And you know, if you see the impact

578
00:28:36,240 --> 00:28:39,160
Speaker 10: of tariffs also, you know, having a double you know

579
00:28:39,640 --> 00:28:42,160
Speaker 10: whammy in terms of the hits that's also going to

580
00:28:42,400 --> 00:28:44,880
Speaker 10: you know, hurt. I think that sector, which is why

581
00:28:44,960 --> 00:28:48,200
Speaker 10: I think, you know, any sectors with significant international exposure

582
00:28:48,600 --> 00:28:51,280
Speaker 10: are ones that you likely want to stay away from,

583
00:28:51,360 --> 00:28:54,440
Speaker 10: or companies with significant international exposure or ones that you

584
00:28:54,480 --> 00:28:57,800
Speaker 10: want to stay away from. There CONSUS consumer as a

585
00:28:57,840 --> 00:29:00,840
Speaker 10: standalone is very strong right now now, and of anything,

586
00:29:00,880 --> 00:29:03,120
Speaker 10: what we're hearing out of some of the consumer companies

587
00:29:03,160 --> 00:29:06,280
Speaker 10: coming out of the fourth quarter is that they saw

588
00:29:06,360 --> 00:29:09,160
Speaker 10: strengthening into the fourth quarter and at the end of

589
00:29:09,200 --> 00:29:13,480
Speaker 10: the year, you know, at sort of recent cyclical highs

590
00:29:13,520 --> 00:29:17,160
Speaker 10: in terms of the consumer dynamics and behavior that they're seeing. So,

591
00:29:17,680 --> 00:29:22,320
Speaker 10: you know, I think ultimately fundamentals trump what you're seeing

592
00:29:22,400 --> 00:29:26,640
Speaker 10: in some of the noise in Washington, and ultimately investors

593
00:29:26,680 --> 00:29:28,800
Speaker 10: are going to go back to fundamentals and go back

594
00:29:28,800 --> 00:29:31,400
Speaker 10: to what's working. And I think that you've seen, you know,

595
00:29:31,480 --> 00:29:34,280
Speaker 10: several themes emerge in the last you know, three months

596
00:29:34,400 --> 00:29:37,880
Speaker 10: or so that are likely going to continue into the

597
00:29:37,920 --> 00:29:39,120
Speaker 10: rest of twenty twenty five.

598
00:29:39,600 --> 00:29:41,760
Speaker 2: Eron I appreciate it. Aaron Brown there of PIMCO, A

599
00:29:41,760 --> 00:29:44,160
Speaker 2: bit of a clinics there on Trump one O one.

600
00:29:45,080 --> 00:29:48,640
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601
00:29:48,640 --> 00:29:51,960
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602
00:29:52,040 --> 00:29:54,960
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603
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604
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605
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