Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Joining us now,
Speaker 2: Emily Ryblands of John Hancock. Emily, good morning. We have
Speaker 2: been whibsored from headline to headline, from data point to
Speaker 2: data point.
Speaker 1: Is this one any different?
Speaker 3: I mean, it's just remarkable. And one of the things
Speaker 3: that we've been watching closely.
Speaker 4: Is the moves in the US dollar.
Speaker 3: One of the things that we think is started to
Speaker 3: constrain equity markets so far this year, as you've seen
Speaker 3: the significant strengthening in the US dollar, you think about
Speaker 3: large cap equities which or just carrying the crown of leadership.
Speaker 3: Last year, forty percent of their revenues are derived from abroad.
Speaker 4: So that could be a significant.
Speaker 3: Issue for large cap stocks this year. So I think
Speaker 3: this morning you're seeing a bit of a modest pullback
Speaker 3: in the dollar and that's probably helping risk outs as
Speaker 3: a little bit.
Speaker 2: Mike Wilson Molkan Stanley said, right, strife beta and what
Speaker 2: you're seeing in foreign exchange strife's dispersion, are you starting
Speaker 2: to see that beneath the surface on the S and.
Speaker 3: P we're seeing a little bit of a broadening out
Speaker 3: in market leadership. Leadership is a tough word, I guess right.
Speaker 4: Now where we're seeing some pressure.
Speaker 3: On markets, But what we typically see in these environments
Speaker 3: where bond yields are backing up inflationary pressures or potential
Speaker 3: inflationary pressures.
Speaker 4: To your point our.
Speaker 3: Building is things like value stocks start to do a
Speaker 3: bit better.
Speaker 4: Small caps get hurt.
Speaker 3: Of course, they have the highest levels of indebtedent indebtedness
Speaker 3: which can be an issue when the cost of capital
Speaker 3: is elevated. But I think value equities, in particular areas
Speaker 3: like energy, utilities, infrastructure related assets, those are lower beta
Speaker 3: than more defensive business is they have dividends and they
Speaker 3: have some element of inflation protection here that we think
Speaker 3: might be a creative to investors into this year if
Speaker 3: we see maybe another twenty twenty two type playbook.
Speaker 5: This is a confusing moment. This is a confusing for
Speaker 5: all of us.
Speaker 4: It's hard to.
Speaker 5: Really understand where the load star is at a time
Speaker 5: where there's so many different narratives that go completely contrary
Speaker 5: to each other. I want to go back to six
Speaker 5: am this morning when we got nfib A small business
Speaker 5: optimism which came in at the highest rate going back
Speaker 5: to twenty and eighteen to one hundred and five, really
Speaker 5: superseding expectations. Do you want to be more levered to
Speaker 5: a growth story or more levered to a conservative portfolio,
Speaker 5: one that is more protective and levered to maybe downside risk.
Speaker 4: Right now, we.
Speaker 3: Would say a more conservative portfolio right now. What we're
Speaker 3: seeing right now is the biggest catchup in history between
Speaker 3: soft data and hard data. So the hard data had
Speaker 3: been coming in well, things like the labor market.
Speaker 4: Of course, we added two hundred and fifty thousand new
Speaker 4: jobs last month.
Speaker 3: But when we look at this, soft data had really
Speaker 3: been struggling, and then boom, you get the results of
Speaker 3: the election, and you have this massive amount of optimism
Speaker 3: and sentiment just pervading the markets. So we want to
Speaker 3: be mindful of here of watching this kind of mini
Speaker 3: bump in reacceleration and animal spirits and sort of in
Speaker 3: the way that business owners and people are feeling in general.
Speaker 3: Of course, there's a huge divergence between Republicans that are
Speaker 3: responding to those surveys and Democrats that are responding to
Speaker 3: those surveys, so we want to be mindful of that.
Speaker 3: We may be seeing a modest reacceleration.
Speaker 4: In the economy, but the challenges.
Speaker 3: And you guys have talked a lot about this on
Speaker 3: the show, is kind of the self limiting dynamic of
Speaker 3: this backup and treasure yields that we're seeing on this
Speaker 3: potential reacceleration and growth. Borrowing costs are high, mortgage rates
Speaker 3: are above seven percent, Mortgage applications are plunging, inventories are up.
Speaker 4: Housing is the economic.
Speaker 3: Cycle, and if we start to see the shelter component
Speaker 3: of CPI decelerating, that could speak volumes to the process
Speaker 3: asset dynamic.
Speaker 5: But this story has been one that's consistent over the
Speaker 5: past couple of years, and it's been a frozen housing
Speaker 5: market and that's only led to higher prices because everything
Speaker 5: else is doing okay and there hasn't been enough supply.
Speaker 5: How much conviction do you have in this call of
Speaker 5: a slowdown to go headlong into longer term treasuries at
Speaker 5: a time where other people are saying, you know, you
Speaker 5: might want to wait.
Speaker 4: A little bit.
Speaker 3: Well, it's not headlong, so we still haven't been overweight duration.
Speaker 3: We've just suggested that investors that are sitting at the
Speaker 3: short end of the curve leg into the intermediate part
Speaker 3: of the curve with a benchmark level of duration, and
Speaker 3: right now the way the yeal curve is slow, if
Speaker 3: we now have the potential for rolldown as well, with
Speaker 3: the short end of the curve actually being significantly lower
Speaker 3: than the long end of the curve. I think what's
Speaker 3: notable about the housing market is you're seeing inventories up
Speaker 3: about thirty percent year over year, and a lot of
Speaker 3: that's concentrated in the hot spots. Like remember when everybody
Speaker 3: left Manhattan during the pandemic, or the West Coast and
Speaker 3: they went to Austin, and they went to Nashville, by
Speaker 3: the way, Great Cities, they went to Colorado.
Speaker 4: So what's happening now.
Speaker 3: Is Manhattan based companies are saying you have a job
Speaker 3: in New York.
Speaker 4: Gu's where you have to go New York.
Speaker 3: So you're starting to see all that built up inventory
Speaker 3: come back online in some of those areas as people
Speaker 3: migrate back to the major city.
Speaker 6: Family do have a call on how high you think
Speaker 6: we could see the ten years. People are debating whether
Speaker 6: or not we actually will hit and consustain five percent.
Speaker 3: Yeah, so five percent, I think is about the area
Speaker 3: where you kind of see that self limiting mechanism creep in.
Speaker 3: We're watching bond yields of course overseas, which you're going
Speaker 3: to see sort of an element of tracking there. And
Speaker 3: if all these overseas markets also have a harder time
Speaker 3: adjusting higher rates, you could see some downward pressure on
Speaker 3: treasury yields from there. But let's just do do we
Speaker 3: want to do a little bond math. I know it's
Speaker 3: really early in the morning.
Speaker 4: Lisave, like, so think about say.
Speaker 3: Yields went back up to five and a half percent,
Speaker 3: You're still not seeing a negative return on the aggregate
Speaker 3: bond index.
Speaker 4: Because the yield is there.
Speaker 3: We're looking at yields that are above five percent on
Speaker 3: high quality bonds right now. You might have to get
Speaker 3: paid to wait on the duration front. If yields sort
Speaker 3: of chop around from here. But think about what equity
Speaker 3: markets might do in an environment where we're at a
Speaker 3: five and a half percent treasury. I don't think they
Speaker 3: would like it. So I think the fact that you're
Speaker 3: flat on bonds you might want to take that.
Speaker 2: I'm not sure what Lisa's started, but Kevin Gordon, the
Speaker 2: Schwab has ridden in and said it's Bob Arra bonds
Speaker 2: are ready back and ready awesome.
Speaker 4: I love it.
Speaker 2: I'm not sure that's catching on either.
Speaker 4: More of this.
Speaker 2: I got another message as well on the Bloomberg terminal.
Speaker 2: Turn her Bloomberg off and tell it to start her vacation. Now,
Speaker 2: what's this vacation?
Speaker 4: Hey, hey, I know you really want me to go
Speaker 4: on vacation. I'll happily lease. Thank you so much, it's
Speaker 4: been really real.
Speaker 2: Emily, appreciate your time's going to see you. Just turned
Speaker 2: to the rush of Ukraine Warresident elect Donald Trump continuing
Speaker 2: his push to increase defense spending. The German chancellor I'll
Speaker 2: have Sheltz, rejecting Trump's demands. That night, Allies increased defense
Speaker 2: spending to five from two percent of GDP joining US now.
Speaker 2: Armin Papager, CEO of RAEMATAU, a German defense and engineering group.
Speaker 2: I'm in good morning, it's going to see you in
Speaker 2: New York.
Speaker 1: Good morning.
Speaker 2: It's got to start with a very serious topic and
Speaker 2: from there the topics get even more serious. But let's
Speaker 2: start with you first of all, said personally, according to
Speaker 2: multiple US and Western officials, the Russian government plan to
Speaker 2: assassinate you. This has been in the news over a
Speaker 2: number of months. Now, can we start with that and
Speaker 2: taught you about how things are going personally? When were
Speaker 2: you told about that and by who?
Speaker 1: It's about one year ago and the information we've got
Speaker 1: from the US from FBI, and I'm very happy about
Speaker 1: that that they very early gave us that information. German
Speaker 1: government took that information and the protection level now is
Speaker 1: very high. I have the same protection level than the chancellor.
Speaker 2: Wow, you have the same security protections as the chancellor.
Speaker 2: I'll f Sholtz and you feel secure.
Speaker 1: I feel secure.
Speaker 2: So the reason why you wanted to stay in the
Speaker 2: job even though that threat was hanging over you.
Speaker 1: I love that job. We have to work. We have
Speaker 1: to to work for freedom and we have to work
Speaker 1: for democracy, and nobody can stop.
Speaker 2: Us, including Russia. Let's talk about the challenge that comes
Speaker 2: from Russia now and the push from the incoming president
Speaker 2: to push defense spending perhaps as high as five percent
Speaker 2: is GDP, and we know it's been a struggle for
Speaker 2: many NATAL members to get to two percent over the
Speaker 2: last number of years. Do you think that's doable to
Speaker 2: get to five percent of GDP?
Speaker 1: I think five percent. It's a big value. Five percent,
Speaker 1: and I believe that if we first of all get
Speaker 1: to three percent, it would be it would be great
Speaker 1: because over the last twenty five years, the Europeans did
Speaker 1: not invest in US money in security. I understand one
Speaker 1: hundred percent President Trump, He's right that Europe has to
Speaker 1: spend more into the Western security and we have to
Speaker 1: do it well.
Speaker 6: My reporting over the summer was actually they were looking
Speaker 6: at three percent, so potentially this falls down to anywhere
Speaker 6: from three to five. Germany, though, is only spending two percent.
Speaker 6: Do you think they can spend more on defense?
Speaker 1: I think they can, and they think they have to
Speaker 1: do because at the end of the day, Germany is
Speaker 1: the biggest economic in Europe and they have to help
Speaker 1: her to make Europe safe.
Speaker 6: We just heard from Mark Rutta last month talking about
Speaker 6: it's time for Europe to shift to a wartime mindset.
Speaker 6: For decades, Europe decided to curb their defense spending and
Speaker 6: really outsource their defense to United States. That failed, obviously
Speaker 6: when Russia invaded Ukraine. Do you think Europe is still
Speaker 6: unprepared for the war that's on their doorstep.
Speaker 1: We prepare ourselves and if you see what we do
Speaker 1: in rymetal is we invested over the last two years
Speaker 1: more than seven billion to build up the capacities and
Speaker 1: that's very important. And in between, I am able to
Speaker 1: produce one point one million's artillery rounds, which is more
Speaker 1: than the US is doing at the moment. So I
Speaker 1: think we prepare ourselves, but we have to do more.
Speaker 6: You also have production facilities inside Ukraine? Yes, how quickly
Speaker 6: will we be able to get ammunition production going inside.
Speaker 1: The country in twelve months time?
Speaker 6: In twelve months time, there is potential that in twelve
Speaker 6: months time, according to President elect, this war could be over.
Speaker 6: Do you first see a scenario where Puchin will agree
Speaker 6: to some sort of ceasefire in Ukraine?
Speaker 1: Nobody knows that, and as you know, President Trump said
Speaker 1: he's able to do it very fast. We will see
Speaker 1: if that really will happen. But even if that will happen,
Speaker 1: we need a lot more defense goods because at the moment,
Speaker 1: as you know, the stocks are empty, especially for ammunitions.
Speaker 1: But although the tanks, we have not enough tanks, we
Speaker 1: cannot protect ourselves.
Speaker 6: What about the incoming administration in terms of communication, you
Speaker 6: are really the massive player in Europe, almost the only
Speaker 6: game in town when it comes to the European defense
Speaker 6: industrial complex. Are you talking to the incoming Trump administration?
Speaker 1: We start to talk to that and I will talk
Speaker 1: very very early with a Trump administration because we have
Speaker 1: to do it. And the reason is that I also
Speaker 1: have a lot of investments here in US, and I
Speaker 1: invested some months ago more than one billion to buy
Speaker 1: a company here because I believe in the transatlantic relationship.
Speaker 6: Do you think that you can partner with this incoming administration?
Speaker 6: And how was the communication in partnership with the buy
Speaker 6: An administration.
Speaker 1: It was good. But at the end of the day,
Speaker 1: we as a company, we must be politically, let me say,
Speaker 1: a little bit independent, and we have to work with
Speaker 1: all governments and that's very important. And I believe that
Speaker 1: we really can work with the Trump administration because I
Speaker 1: believe that he is right and the pressure that he
Speaker 1: is creating at the moment is good for Europe.
Speaker 5: He's right with respect to spending more on defense, but
Speaker 5: is he right about the US retracting some of its
Speaker 5: spending on Ukraine and really leaving it to the European
Speaker 5: Union to finance the efforts there.
Speaker 1: I believe that we have we have to help Ukraine.
Speaker 1: If Ukraine will fall, we will have a big problem
Speaker 1: in Europe. If we have a big problem in Europe,
Speaker 1: because I believe that Putin will not stop with the
Speaker 1: Ukrainian on the Ukrainian border, So what about the Baltics,
Speaker 1: what about Georgia, what about Moldavia and all the other things?
Speaker 1: And I believe that it'd be look very, very helpful
Speaker 1: if the US and Europe is working together in this area,
Speaker 1: and at the moment Europe needs us because the resources
Speaker 1: are not good enough in Europe.
Speaker 4: Do you think there is.
Speaker 5: A political will in Europe to offset any decrease in
Speaker 5: financing from the United States At a time of political turmoil,
Speaker 5: where there's even upset in leadership in Germany and real
Speaker 5: questions around how much the public wants to keep financing this.
Speaker 1: I believe that the new government in Germany, and as
Speaker 1: you know, we have election in seven eight weeks, that
Speaker 1: the new government will create a very strong contact to
Speaker 1: the Trump administration, and I believe that they want to
Speaker 1: work out a good plan and to make a deal together.
Speaker 1: Europe and the US has to make a deal for security.
Speaker 5: You talked about how you're investing in the United States,
Speaker 5: and I'm wondering how important it is to get a
Speaker 5: foothold in the US to get around any potential tariffs
Speaker 5: or other types of issues that come down the pike.
Speaker 1: Very important, very important. I understand all the issues that
Speaker 1: the US has, and I said, Okay, we want to
Speaker 1: make money, and President Trump wants to make deals, and
Speaker 1: he's right about that, and we have to take care
Speaker 1: about that. That's the reason that we are investing also
Speaker 1: in the US.
Speaker 5: Are you also ratcheting back certain businesses in Europe that
Speaker 5: you think are going to be more exposed.
Speaker 1: We grow at the moment forty percent per year, so
Speaker 1: we can grow in Europe and we have to grow
Speaker 1: in the US.
Speaker 2: The President wants to make Dale's. Do you want to
Speaker 2: make Dale's? Do you think we need some consolidation in
Speaker 2: European defense.
Speaker 1: Yes, it's I think it's possible and I think it's
Speaker 1: important to do it. As always said, Europe needs also
Speaker 1: a bigger, bigger machine in defense, and what I believe
Speaker 1: is we need a company which makes forty billion per year.
Speaker 1: We are at the moment only on the level of
Speaker 1: ten billion, but we will grow over the next years
Speaker 1: to twenty billion, maybe more. And the backlock is a
Speaker 1: very good one. So I believe that consolidation is very important.
Speaker 2: You can grow organically to twenty s Yes, acquisitions, have
Speaker 2: you got any in mind?
Speaker 1: Yes, we have a lot of You have a lot
Speaker 1: in mind because, as you said, over the last two
Speaker 1: years we bought the lot Lock Performance here in the
Speaker 1: US and the Spanish company. We invested two point two
Speaker 1: billion in that, and we want to invest more and
Speaker 1: we have more firepower.
Speaker 2: Have you spoken to Bia.
Speaker 1: We always speak with PAE, But i'm.
Speaker 2: About a possible acquisition.
Speaker 1: No, we didn't speak about to merge or other things.
Speaker 2: Would you be open to that?
Speaker 1: At the moment, there is no discussion, but.
Speaker 2: Would you be open to it?
Speaker 1: Would that make sense? I'm always open if it makes sense.
Speaker 2: And does it make sense?
Speaker 1: I'm not sure, but we have to analyze that.
Speaker 6: I want to go back to how John really started
Speaker 6: this topic, the fact that your life was put at risk.
Speaker 6: You're basically on a Russian hit list, but it goes
Speaker 6: beyond that. Dmitry Peskov last year said your company is
Speaker 6: called a legitimate target. How is a company are you
Speaker 6: responding to Russia's hybrid warfare on the continent.
Speaker 1: First of all, we have a very very good cyber center.
Speaker 1: That's the most important thing. That cyber attexts will not
Speaker 1: come in. And the second point is we are not
Speaker 1: in war at the moment. I have not the air
Speaker 1: defense and missiles around my factories. But if there is
Speaker 1: a higher potential that something will grow up, then we
Speaker 1: have to do that. For sure. We will protect our
Speaker 1: factories and we have to do it right.
Speaker 6: And you feel like the German government is a partner
Speaker 6: with you in this.
Speaker 1: Absolutely, absolutely, we are absolutely fighting shoulder on shoulder.
Speaker 6: And when it comes to this assassinization attempt on your life,
Speaker 6: do you believe it came from Vladimir Putin himself?
Speaker 1: I don't know. I don't know, and I at the
Speaker 1: end of the day, the information, as I told you,
Speaker 1: came from secret services, and we have to take care
Speaker 1: about that, and the government in Germany takes care about it.
Speaker 1: Not only the German government, also government if I travel
Speaker 1: to other countries, although that governments take care about that.
Speaker 1: I'm very grateful about that.
Speaker 2: You've been very gracious with your time, sir, and we
Speaker 2: appreciate it this morning. Thank you very much, thank you,
Speaker 2: thank you. I'm in Pampaca, the Ramata cup, Sonia masking
Speaker 2: a ubs Chiant just Nata how Parsida's question Sonic and
Speaker 2: mornech Co. So how good news is that papia from Molitzagog.
Speaker 4: It is very good news.
Speaker 7: But to be clear, we do actually expect in the ubs,
Speaker 7: and we have been saying this for a while, we
Speaker 7: do expect inflation to be porarily a little sticky in
Speaker 7: Q one of this year and then to continue to disslerate.
Speaker 2: What is it about Q ones because we did this
Speaker 2: in Q one of last year. What is it about
Speaker 2: the first quarter?
Speaker 7: It's the seasonals and frankly, since COVID, really some of
Speaker 7: these seasonals have been just off and we see it
Speaker 7: in the labor data and we see it in the
Speaker 7: inflation data.
Speaker 5: So how much do you see an actual disinflation that's
Speaker 5: taking hold because the numbers have been very noisy. PPI
Speaker 5: tends to be something that people look through as not
Speaker 5: necessarily indicative of what's going to come out with CPI.
Speaker 5: What do other data really say when you take a
Speaker 5: look at them.
Speaker 4: You're exactly right.
Speaker 7: So the PPI is actually more relevant for the PCEE,
Speaker 7: which is in turn quite relevant for the Federal Reserve.
Speaker 7: Right the Federal Reserve has said many times that they
Speaker 7: really see the core trend and inflation as the core
Speaker 7: PCEE trend over time, but the CPI is very important.
Speaker 7: That's what the consumer piece at the register, so to speak.
Speaker 7: And for the CPI, we do see still an upside
Speaker 7: for the release this week tomorrow, and that is coming
Speaker 7: primarily from just like here, we saw an optic in
Speaker 7: energy goods prices. We see that also in the piece
Speaker 7: in the CPI tomorrow as well.
Speaker 5: What's fascinating to me is that people are trying to
Speaker 5: wrap their head around the ramifications of the strong dollar.
Speaker 5: And we've been talking about it with respect to corporate earnings,
Speaker 5: We've been talking about it with respect to demand for
Speaker 5: US assets. There's also a question of the disinflationary impact
Speaker 5: of that when exports and imports in particular have been
Speaker 5: increasing quite significantly. How much is that a piece of
Speaker 5: what we're seeing, particularly in data like PPI.
Speaker 7: Absolutely, But however, historically it's taken quite some time for
Speaker 7: the strong dollar to translate into prices in the United States,
Speaker 7: and so here we would only really see it so
Speaker 7: quickly if we saw truly good evidence of a ramp
Speaker 7: up in you know, in imports ahead of anticipated tariffs.
Speaker 7: We don't really see much conclusive data on the ground
Speaker 7: on that front to definitively say that this has had
Speaker 7: a name.
Speaker 6: What do you make of this basically competing narratives we
Speaker 6: see in the space when it comes to tariffs, broad
Speaker 6: based ones that may be a bit more gradual. How
Speaker 6: do you take all of that and put it into
Speaker 6: an outlook for twenty twenty five Extremely difficult.
Speaker 7: The main point I would say of the outlook is
Speaker 7: that what we're expecting is uncertainty, and the key area
Speaker 7: to watch for US is business investment and how much
Speaker 7: this uncertainty around tariffs that business businesses have already expressed
Speaker 7: in some of the survey data, is actually going to
Speaker 7: translate into their investment plans and into their hiring plans.
Speaker 6: So everyone is talking about Trump two point zero being
Speaker 6: solid for growth, But the fact is, if it's so uncertain,
Speaker 6: so unpredictable, do you just have paralysis?
Speaker 7: Well potentially yes, And that's exactly right. And I think
Speaker 7: the narrative has been shifting, and the narrative has been
Speaker 7: shifting in part because there is so much uncertainty regarding
Speaker 7: what the administration will actually do.
Speaker 5: So when we look forward, we have a core CPI
Speaker 5: tomorrow and then we're heading into the administration, we hear
Speaker 5: that we have inauguration day and beyond when we start
Speaker 5: to get a whole host of executive orders. What are
Speaker 5: you looking for in particular, what can really move the
Speaker 5: needle for your forecasts?
Speaker 7: Well, any certainty around what it happens around immigration and
Speaker 7: tariffs will be very important into our input for the
Speaker 7: labor market and for industrial production and business investment.
Speaker 2: Sonny Meski, if you bs or the back of p
Speaker 2: Api PPI coming in just a little bit softer than expected.
Speaker 2: That This is the Bloomberg Sevenants podcast, bringing you the
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