WEBVTT - Bloomberg Surveillance TV: May 12th, 2026 0:00:00.040 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amerie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.640 Terminal and the Bloomberg Business app. Just on the conversations 0:00:37.680 --> 0:00:41.080 around the meeting between President Trump and Jijingping. Look at 0:00:41.080 --> 0:00:43.440 the lineup of CEOs that will be attending that meeting 0:00:43.479 --> 0:00:46.560 with the president, or at least attending the visit alongside him. 0:00:46.760 --> 0:00:49.800 Look who's missing. Spot the guy who's not on the screen, 0:00:50.360 --> 0:00:52.080 Jensen of Nvidia. 0:00:52.240 --> 0:00:54.800 This comes after Jens Yu Wang said that he would 0:00:54.800 --> 0:00:58.360 be honored to accompany President Trump on this trip, and 0:00:58.440 --> 0:01:02.240 it comes with Chips much at the forefront of discussions 0:01:02.360 --> 0:01:05.560 with China. Is this a signal that maybe the President's 0:01:05.600 --> 0:01:08.560 trying to distance himself from Jensen Wong? How does this 0:01:08.600 --> 0:01:11.160 sort of leave some of the chip negotiations that have 0:01:11.200 --> 0:01:12.720 been incredibly far between this g enation. 0:01:12.840 --> 0:01:14.880 You know what, from my perspective, for whatever that's worth 0:01:14.920 --> 0:01:17.320 this morning, probably not much. But I think it probably 0:01:17.360 --> 0:01:19.960 doesn't video a favor some of those chips getting into 0:01:19.959 --> 0:01:22.759 the country through the back door. People questioning the relationship 0:01:22.760 --> 0:01:25.120 between him and the administration right now, I think it 0:01:25.160 --> 0:01:27.520 probably doesn't a favor. That is a bit of separation 0:01:28.000 --> 0:01:29.000 on this visit to China. 0:01:29.120 --> 0:01:31.840 Perhaps it also could be hinged in the idea that 0:01:32.000 --> 0:01:35.320 China has created some chips that are starting to work. 0:01:35.080 --> 0:01:36.160 For the deep seek model. 0:01:36.480 --> 0:01:38.360 How much is that going to be at the forefront 0:01:38.400 --> 0:01:39.720 also of these negotiations. 0:01:39.800 --> 0:01:42.120 Let's build on some of this conversation. Catherine Tompson at 0:01:42.120 --> 0:01:44.840 the Cano Institute, writing the volume of rejections and counter 0:01:44.840 --> 0:01:47.920 proposals between around and the US demonstrates just how far 0:01:48.000 --> 0:01:51.400 the administration is from winding down this war. Catherine joins 0:01:51.440 --> 0:01:53.840 us now for more. Catherine, Welcome to the program. The 0:01:53.880 --> 0:01:56.640 President's been very clear on his objectives. Are you clear 0:01:56.680 --> 0:01:58.840 on the strategy to achieve them? 0:01:59.400 --> 0:01:59.480 No? 0:02:00.000 --> 0:02:02.760 Absolutely not, right, especially because right if you look at 0:02:02.800 --> 0:02:06.800 the president's own national security and national defense strategy, this 0:02:06.920 --> 0:02:09.520 isn't you know, starting a war with Iran? And and 0:02:09.680 --> 0:02:12.760 sort of, Iran's nuclear ambitions are not core planks of 0:02:12.800 --> 0:02:16.880 the strategy. They are not core elements of America First priorities, 0:02:16.919 --> 0:02:20.639 and so, you know, I think unfortunately we've we've deviated 0:02:21.040 --> 0:02:23.320 quite a bit from from the strategy, from the plan, 0:02:24.200 --> 0:02:27.160 and I think we're now so far down the rungs 0:02:27.160 --> 0:02:30.680 of the escalation ladder that unfortunately, there aren't too many 0:02:30.720 --> 0:02:35.239 options left to to save the ceasefire, so to speak, 0:02:35.639 --> 0:02:37.840 keep it, you know, off of life support, as the 0:02:37.880 --> 0:02:39.640 President illustrated. 0:02:39.480 --> 0:02:40.960 And prevent the resumption of fighting. 0:02:41.160 --> 0:02:43.679 Catherine, there is an option to try to get trying 0:02:43.720 --> 0:02:47.440 to exert leverage over Iran. How much do you expect 0:02:47.440 --> 0:02:48.919 this to be on the table and what can the 0:02:49.040 --> 0:02:51.440 US offer as an exchange? 0:02:52.040 --> 0:02:54.400 You know, it's hard to predict exactly how much it's 0:02:54.440 --> 0:02:56.840 going to be on the table, but I think, you know, actually, 0:02:56.880 --> 0:02:59.760 you know, in terms of the military dynamic between you know, 0:02:59.800 --> 0:03:03.000 the US and China on Iran and then also on Taiwan, 0:03:03.040 --> 0:03:05.079 because I think, you know, these pieces kind of fit together. 0:03:05.720 --> 0:03:09.639 The recent Time magazine cover that included President Trump and 0:03:09.680 --> 0:03:13.240 President jib with the headline never interrupt your enemy when 0:03:13.280 --> 0:03:16.639 he's making a mistake. I think is illustrative of how 0:03:16.680 --> 0:03:20.400 this conversation could play out. I think, you know, for China, 0:03:20.520 --> 0:03:23.239 right like, this is the time to put big issues 0:03:23.280 --> 0:03:25.400 on the table, like Taiwan, because they know that the 0:03:25.520 --> 0:03:29.200 US is distracted and bogged down in the Middle East. 0:03:29.320 --> 0:03:31.960 Obviously you know, of course the oil the oil dynamic 0:03:32.000 --> 0:03:34.359 and the energy dynamic affects the Chinese, and so it's 0:03:34.360 --> 0:03:36.800 in their interests to you know, have that be part 0:03:36.800 --> 0:03:38.160 of the conversation, certainly. 0:03:38.680 --> 0:03:39.840 But if I was them, you know. 0:03:39.880 --> 0:03:41.440 Right now, one of the things that I would be 0:03:41.480 --> 0:03:45.560 focused on is getting sort of my security agenda on 0:03:45.640 --> 0:03:47.400 the table. And it looks like, based on what the 0:03:47.400 --> 0:03:50.320 President was hinting about, you know, in terms of the 0:03:50.360 --> 0:03:53.600 Taiwan dynamic and arms sales to Taiwan, that it's certainly 0:03:53.640 --> 0:03:55.720 something they're not shying away from putting on the table. 0:03:56.280 --> 0:03:59.400 And I think they understand that the US is significantly 0:03:59.440 --> 0:04:03.440 distracted in the Middle East, yet again not prioritizing the 0:04:03.480 --> 0:04:08.800 Indo Pacific as as our defense strategy says, and unfortunately, uh, 0:04:08.880 --> 0:04:10.960 you know, that dynamic for US puts US I think 0:04:11.000 --> 0:04:13.320 in a in a bit of a disadvantage at the 0:04:13.360 --> 0:04:14.760 table across from the Chinese. 0:04:14.800 --> 0:04:17.520 That's a there's a coterie of incredible CEOs who are 0:04:17.520 --> 0:04:19.760 heading over there. I'm just wondering what you think the 0:04:19.800 --> 0:04:22.240 delivererbals deliverables are going to be on some sort of 0:04:22.320 --> 0:04:26.159 economic truce or economic negotiation between China and the US, 0:04:26.160 --> 0:04:28.560 and how much that could still be at the forefront 0:04:28.560 --> 0:04:29.719 of these negotiations. 0:04:30.680 --> 0:04:32.680 I mean, it seems like that's the priority for the 0:04:32.680 --> 0:04:35.320 president and certainly, you know, his suite of guests that 0:04:35.360 --> 0:04:38.840 are attending would seem to indicate that as well. And right, 0:04:38.880 --> 0:04:40.599 I mean, and this is this is the concern, and 0:04:40.640 --> 0:04:42.520 this is why I'm watching the Taiwan piece of this 0:04:42.560 --> 0:04:46.119 so closely, because you know, for the Chinese, the piece 0:04:46.120 --> 0:04:49.839 on arm sales to Taiwan and potential further conversations about 0:04:50.040 --> 0:04:52.159 you know, the US role and in deterrence and the 0:04:52.200 --> 0:04:55.719 Taiwan strait becomes a forefront of the conversation for the Chinese. 0:04:55.720 --> 0:04:58.400 For US, it's the economic piece of the equation and 0:04:58.440 --> 0:05:00.440 getting some sort of walking away with some sort of 0:05:00.480 --> 0:05:04.240 economic deal. And how those those two pieces on the 0:05:04.320 --> 0:05:07.560 chessboard interact with each other I think will be incredibly 0:05:07.560 --> 0:05:09.600 important and will be, you know, one of the most 0:05:09.640 --> 0:05:13.719 pivotal dynamics to watch. And it's true you can't separate, 0:05:14.160 --> 0:05:17.400 you know, the military and the strategic dynamic from the economic. 0:05:17.760 --> 0:05:30.600 Stay with US mulplindex. Savanna's coming up after this. The 0:05:30.680 --> 0:05:33.320 big global event over the next twenty four forty hours 0:05:33.360 --> 0:05:35.440 is this one and the Savannas. This morning, a high 0:05:35.440 --> 0:05:37.240 stakes macink with President Sheet. 0:05:39.000 --> 0:05:41.720 I have a great relationship with the Presidency. We're doing 0:05:41.760 --> 0:05:43.680 a lot of business, but it's smart business. I think 0:05:43.680 --> 0:05:45.760 you can see that with the fact that in her 0:05:45.880 --> 0:05:48.880 moves they get a big percentage, forty percent. 0:05:48.520 --> 0:05:50.359 Of their oil from horm moves. 0:05:50.360 --> 0:05:54.479 There's been no ships coming in, no nasty ships coming 0:05:54.520 --> 0:05:56.000 in that we end. 0:05:55.960 --> 0:05:57.520 Up in skirmishes with. 0:05:57.800 --> 0:06:00.320 There's been. He'd like to see it get and I 0:06:00.440 --> 0:06:03.880 respect him a lot and hopefully he respects me. 0:06:04.440 --> 0:06:06.840 So here's the latest this morning. President Trump traveling to 0:06:06.960 --> 0:06:10.160 China today for a summit with this Chinese Caunterapageijing Ping. 0:06:10.320 --> 0:06:12.800 The meeting on Thursday said to be shaped by the 0:06:12.839 --> 0:06:16.560 ongoing war in Iran. Elizabeth Economy of the Hoover Institution writing, 0:06:16.600 --> 0:06:19.840 the only channel of communication is economic. That is both 0:06:19.880 --> 0:06:22.720 where there is the greatest conflict but also the most 0:06:22.760 --> 0:06:25.599 forward momentum. Elizabeth Johns is now for more. Listen, go 0:06:25.680 --> 0:06:26.000 to see you. 0:06:26.200 --> 0:06:27.080 Thanks great to be here. 0:06:27.120 --> 0:06:29.119 What are you expecting to come out of this meeting? 0:06:29.160 --> 0:06:29.880 Leans to this week? 0:06:30.200 --> 0:06:32.640 Look, I think there are basically three big buckets of 0:06:32.680 --> 0:06:35.279 issues that both sides want to address. The first, and 0:06:35.279 --> 0:06:38.240 I think most important, is that both sides really want 0:06:38.279 --> 0:06:40.800 to find some stabilization in the relationship. I think they're 0:06:40.839 --> 0:06:44.600 aligned around that. So developing a mechanism so that we're 0:06:44.640 --> 0:06:46.640 not doing a tit for tad on the tariffs and 0:06:46.680 --> 0:06:49.640 the export controls and investigations, I think is number one, 0:06:49.640 --> 0:06:51.039 and that's where I think you're going to get this 0:06:51.080 --> 0:06:53.640 board of Trade and maybe further down the line, a 0:06:53.640 --> 0:06:54.440 board of investment. 0:06:54.440 --> 0:06:55.920 I think that's really the most important. 0:06:56.120 --> 0:06:59.159 Second, of course, and crucial for President Trump for some 0:06:59.279 --> 0:07:02.440 big wins that he can take home, right, some purchases 0:07:02.440 --> 0:07:07.680 of soybeans and who knows energy, airplanes, of course, and 0:07:07.720 --> 0:07:10.120 we see some of the CEOs that are accompanying President 0:07:10.120 --> 0:07:11.760 Trump that are in these spaces. 0:07:12.080 --> 0:07:12.480 I think for. 0:07:12.720 --> 0:07:15.040 China, they'd like the US to just treat China as 0:07:15.200 --> 0:07:18.120 a normal country, right, not to have the highest level 0:07:18.200 --> 0:07:21.840 export controls, not to have the most investment restrictions, not 0:07:21.920 --> 0:07:24.400 to have the highest level of terrorists, but to really 0:07:24.480 --> 0:07:26.600 find a way to do sort of normal trade. 0:07:27.040 --> 0:07:28.680 And then third, I think is that. 0:07:28.440 --> 0:07:33.960 That bucket of broader security issues Iran, Russia, fentanyl. I 0:07:34.040 --> 0:07:36.360 think these are other issues, and certainly I should say 0:07:36.360 --> 0:07:38.400 the Chinese will raise Taiwan. I think these are the 0:07:38.440 --> 0:07:39.960 other issues that are going to be on the deck 0:07:40.000 --> 0:07:40.760 for the two leaders. 0:07:40.880 --> 0:07:42.679 Point too, aren't they a normal country? 0:07:43.800 --> 0:07:46.680 I don't think economically they're a normal country. No, And 0:07:46.720 --> 0:07:49.960 I think the sort of Chinese economic model is now 0:07:50.080 --> 0:07:52.360 presenting problems not only for the United States, but for 0:07:52.400 --> 0:07:54.520 the rest of the world. I think it's useful to 0:07:54.640 --> 0:07:58.720 note that fifty two countries last year put in place 0:07:58.840 --> 0:08:02.480 trade defense measures against China. So the way that China 0:08:02.520 --> 0:08:06.840 does business really poses challenges for not only advanced income 0:08:06.880 --> 0:08:08.920 but now middle income and emerging economies. 0:08:09.080 --> 0:08:11.000 There was a story, there've been a number of stories 0:08:11.080 --> 0:08:14.080 in a number of the biggest newspapers about how China 0:08:14.120 --> 0:08:16.080 has a lot more leverage than the United States and 0:08:16.120 --> 0:08:19.239 about how the economy is in a much better position 0:08:19.280 --> 0:08:21.760 to propose to pose a real competitive threat to the 0:08:21.880 --> 0:08:22.560 United States. 0:08:22.880 --> 0:08:24.120 Do you agree with that framing? 0:08:24.560 --> 0:08:26.840 Well, look, I think it's fair to say that China 0:08:26.920 --> 0:08:30.600 has an important chokehold on sort of goods that are 0:08:30.680 --> 0:08:34.240 essential to US economic and national security, like rare earth 0:08:34.280 --> 0:08:39.920 elements and critical minerals like active pharmaceutical ingredients. So certainly 0:08:40.240 --> 0:08:43.800 they've developed new leverage, new tools. But I think President 0:08:43.840 --> 0:08:47.680 Trump has the capacity to move past that in many respects, 0:08:47.679 --> 0:08:51.560 maybe to put on some virtual reality glasses and create 0:08:51.600 --> 0:08:54.319 his own world and negotiate from what he believes is 0:08:54.360 --> 0:08:57.120 a position of strength. United States doesn't go into this 0:08:57.240 --> 0:09:01.280 without any tools at its disposal. The tariffs have had 0:09:01.320 --> 0:09:04.480 some impact on China. It has export controls that just 0:09:04.600 --> 0:09:08.079 it's been continuing to move forward on export controls around 0:09:08.120 --> 0:09:11.880 chip making equipment. Just this past week it had, you know, 0:09:12.360 --> 0:09:16.079 a letter of intent, basically an informed letter, which basically 0:09:16.080 --> 0:09:18.040 signals to some US companies that they're going to have 0:09:18.120 --> 0:09:20.240 to put in some new export controls. 0:09:19.880 --> 0:09:20.920 Against Chinese companies. 0:09:20.960 --> 0:09:22.920 So I think there are tools that we have at 0:09:22.920 --> 0:09:25.920 our disposal, and the President will go in at least 0:09:26.160 --> 0:09:29.319 feeling stronger than many many other people may recognize. 0:09:29.440 --> 0:09:31.600 If that's the case, what's the signal that you take 0:09:31.600 --> 0:09:34.840 from Jenson Wang of Nvidia not accompanying President Trump on 0:09:34.840 --> 0:09:35.280 this trip. 0:09:35.880 --> 0:09:39.400 Well, look, I think Jensen's had a lot of attention, 0:09:39.720 --> 0:09:42.320 you know, paid to in Nvidia, and the President you know, 0:09:42.440 --> 0:09:45.560 made a move basically on his behalf and on AMD's 0:09:45.600 --> 0:09:49.000 behalf last year when he allowed the sale of the 0:09:49.160 --> 0:09:51.400 H two hundreds to go forward, which was something that 0:09:51.640 --> 0:09:53.920 he did against a lot of opposition both within his 0:09:53.960 --> 0:09:57.400 own administration and Congress and within the national security community. 0:09:58.240 --> 0:10:02.480 Those sales haven't materialized, so I think maybe what would 0:10:02.480 --> 0:10:05.240 be the point at this point of him going I 0:10:05.280 --> 0:10:07.720 think if you look at the companies that are accompanying 0:10:07.760 --> 0:10:10.520 the president in the tech space, many of them are 0:10:10.800 --> 0:10:13.520 a little bit of problem children. They have issues with 0:10:13.600 --> 0:10:17.319 the Chinese government right now. Either they're not getting licenses, 0:10:17.320 --> 0:10:21.120 they're under investigation, they're concerned about shrinking market share. So 0:10:21.200 --> 0:10:23.280 I think there will probably be an effort to get 0:10:23.320 --> 0:10:26.800 some of those very particular issues addressed in the summit. 0:10:26.840 --> 0:10:29.160 Can we finish on Taiwan, and maybe a bit of 0:10:29.160 --> 0:10:30.880 a reality check to the narrative that we hear a 0:10:30.920 --> 0:10:33.880 lot in these kind of conversations. There is an opening 0:10:33.880 --> 0:10:35.280 care for them to make a move on Taiwan. The 0:10:35.320 --> 0:10:38.120 President's distracted, he's broke down in the Middle East. Right now, 0:10:38.200 --> 0:10:39.959 what's your read and what's actually going to happen. 0:10:40.320 --> 0:10:42.040 So I don't think the Chinese are going to make 0:10:42.080 --> 0:10:45.280 a move, a military move on Taiwan because President she 0:10:45.480 --> 0:10:47.960 really wants to have a peaceful resolution. I think he's 0:10:48.160 --> 0:10:50.600 planning to wait until twenty twenty eight when there's an 0:10:50.600 --> 0:10:54.600 election in Taiwan where he believes that perhaps the opposition party, 0:10:54.640 --> 0:10:57.240 the KMT, may come to power, and the KMT is 0:10:57.280 --> 0:11:01.760 more favorably disposed toward Beijing. So I think there's a 0:11:01.840 --> 0:11:04.600 window here where I think we're not going to see 0:11:04.600 --> 0:11:07.600 any military action. That being said, we also don't want 0:11:07.640 --> 0:11:10.880 to see President Trump give any more space to Beijing 0:11:11.000 --> 0:11:14.080 on Taiwan. I think, you know, the administration certainly recognizes 0:11:14.120 --> 0:11:17.840 that Taiwan, you know, basically produces over ninety percent of 0:11:17.880 --> 0:11:20.960 the most advanced chips that we need both for commercial 0:11:21.000 --> 0:11:24.640 and military purposes, and it is essential to our national security. 0:11:24.640 --> 0:11:26.000 It's part of the first Island chain. 0:11:26.120 --> 0:11:28.680 So I think what we don't want is for Taiwan 0:11:28.720 --> 0:11:30.720 to be central in this meeting or to see any 0:11:30.760 --> 0:11:31.880 give on the US position. 0:11:32.000 --> 0:11:35.199 We hear repeatedly to under this president, the administration of 0:11:35.200 --> 0:11:37.440 the US is wanting to give up is global leadership role. 0:11:37.480 --> 0:11:38.319 Do you say it the same way. 0:11:39.000 --> 0:11:41.920 I think the US is redefining its global leadership role 0:11:42.000 --> 0:11:42.839 under President Trump. 0:11:42.840 --> 0:11:43.680 It's not giving up. 0:11:43.760 --> 0:11:47.360 I think there's a misperception that President Trump has retreated 0:11:47.360 --> 0:11:49.000 from of the global stage. 0:11:49.120 --> 0:11:49.800 You know, the sort of. 0:11:49.800 --> 0:11:51.800 Idea that we're going to have a sphere of influence, 0:11:51.880 --> 0:11:54.600 policy only be focused on the Western hemisphere. I mean, 0:11:54.640 --> 0:11:57.720 we are deeply embedded in the Indo Pacific, We're clearly 0:11:57.800 --> 0:12:01.240 still in the Middle East. See any evidence that we're 0:12:01.400 --> 0:12:04.840 pulling back from our global positioning In the security realm. 0:12:05.240 --> 0:12:07.680 I also think what we see is, yes, the President 0:12:07.679 --> 0:12:11.640 has withdrawn the United States from over five dozen international 0:12:11.640 --> 0:12:14.800 institutions and arrangements, but at the same time he's creating 0:12:14.920 --> 0:12:17.720 new ones. His administration is creating new arrangements like the 0:12:17.760 --> 0:12:21.560 Shield of Americas and forged around issues where the administration 0:12:21.679 --> 0:12:25.560 feels they're critical to US sort of security and economic interests, 0:12:25.600 --> 0:12:29.240 so around you know, critical minerals, around rare earth elements, 0:12:29.280 --> 0:12:33.319 doing bilateral deals, establishing a new multilateral trade arrangement, so 0:12:33.360 --> 0:12:36.720 it's not a complete withdrawal, but it's a refocusing around 0:12:36.720 --> 0:12:40.000 what this particular administration considers to be sort of the 0:12:40.160 --> 0:12:42.880 essential US economic and security interests. 0:12:43.360 --> 0:12:56.240 Stay with us. Mulplenberg Savannah's coming up after this. I'll 0:12:56.240 --> 0:12:58.960 give it the breakdown month over month and year over 0:12:59.040 --> 0:13:01.880 year sat ON coming month over month at zero point six, 0:13:02.200 --> 0:13:04.920 the estimate zero point six for core on a month 0:13:04.960 --> 0:13:07.000 over month reading that comes in at zero point four. 0:13:07.080 --> 0:13:09.320 The media estimate in our survey with zero point three. 0:13:09.480 --> 0:13:11.600 That takes the year of a year headline and core 0:13:11.760 --> 0:13:14.679 headline year over a year to three point eight percent. 0:13:14.880 --> 0:13:18.120 That's above the three point seven expected core CPI year 0:13:18.160 --> 0:13:20.040 of a year coming at a two point eight percent 0:13:20.120 --> 0:13:23.679 above the two point seven expected. Those numbers are hard 0:13:23.720 --> 0:13:26.120 reading for an incoming FED share who might otherwise have 0:13:26.160 --> 0:13:27.680 been looking for kind of interest rates. 0:13:27.720 --> 0:13:29.560 You can make an argument that three percent is okay, 0:13:29.600 --> 0:13:31.679 but not four percent. That is a problem child when 0:13:31.720 --> 0:13:34.480 it comes to inflation. When you look at the pace 0:13:34.480 --> 0:13:37.040 of increase in year of year core CPI, we're looking 0:13:37.080 --> 0:13:40.559 at the biggest increase into August of twenty twenty two. Again, 0:13:40.640 --> 0:13:42.640 we have to talk about not only the fact that 0:13:42.679 --> 0:13:44.880 inflation is increasing, but the pace of the increase and 0:13:44.960 --> 0:13:48.600 where it's coming from it is not necessarily those gasoline. 0:13:48.200 --> 0:13:50.040 Process That was not a good time. Michael cape And and 0:13:50.040 --> 0:13:52.120 Morgan Stanley joints around the table for more. Michael, good 0:13:52.160 --> 0:13:55.760 morning morning. What catches you right looking at this report, Well. 0:13:55.600 --> 0:14:00.440 There's some hints of second round effects of higher energy 0:14:00.440 --> 0:14:04.160 prices on core, So those airline numbers, the food at 0:14:04.160 --> 0:14:08.040 hone numbers, there's also kind of spillage into headline through 0:14:08.080 --> 0:14:10.440 food because a lot of food prices are related to 0:14:10.480 --> 0:14:14.200 transportation costs. So the concern here, the assumption here, I 0:14:14.200 --> 0:14:17.080 think from the Fed's point of view and ours, is 0:14:17.120 --> 0:14:19.720 that oil prices tend to give you headline effects but 0:14:19.840 --> 0:14:23.040 not core effects. And there's, at least at the moment, 0:14:23.080 --> 0:14:26.280 given the magnitude of the rise in energy prices, some 0:14:26.480 --> 0:14:28.920 hints of those second round effects and core. We need 0:14:28.920 --> 0:14:32.520 to see if those persist. So to me, that's what 0:14:32.680 --> 0:14:34.840 catches my eyes. The four tenth on core was not 0:14:34.880 --> 0:14:38.280 a surprise to us. That's where we were And as 0:14:38.320 --> 0:14:41.200 Michael mentioned, there is some catch up effect here on 0:14:41.320 --> 0:14:44.480 rents and owners equivalent rent from the government shutdown last fall. 0:14:44.560 --> 0:14:49.840 So this number is artificially higher because of that, but 0:14:50.080 --> 0:14:52.400 you still have kind of a what I'll call a trifecta. 0:14:52.440 --> 0:14:55.520 Hear you have energy prices pushing the headline. We think 0:14:55.560 --> 0:14:59.000 we have the last vestiges of tariff passed through on 0:14:59.360 --> 0:15:02.400 core infla core goods. You saw the apparel number today, 0:15:02.880 --> 0:15:05.880 and then we had that catch up effect on shelter 0:15:06.040 --> 0:15:10.440 inside of services. So three forces pushing inflation in this particular, 0:15:10.520 --> 0:15:12.000 CPI reading higher this month. 0:15:12.080 --> 0:15:14.040 If you are looking at the calendar right now, and 0:15:14.120 --> 0:15:16.400 I say to you the following, can you just circle 0:15:16.480 --> 0:15:18.760 way you see the peak for inflation this year. We're 0:15:18.760 --> 0:15:20.520 on the calendar with that full on a year on 0:15:20.600 --> 0:15:22.640 your rate mayor June mail June. 0:15:23.000 --> 0:15:25.600 We think we're at peak pressures now. 0:15:26.800 --> 0:15:28.920 If that's the case, then do you think that the 0:15:28.960 --> 0:15:31.640 FED should look through this with time? 0:15:31.960 --> 0:15:35.200 Yes, but there are a number of forces here. This 0:15:35.280 --> 0:15:38.760 is our fourth major supply shock in recent years, and 0:15:38.800 --> 0:15:41.200 we've got evidence here of what i'll call a mix. 0:15:41.440 --> 0:15:44.360 How do you decide if teariff price passed through is 0:15:44.480 --> 0:15:46.840 ending when you have some of these other second round 0:15:46.880 --> 0:15:50.840 effects from energy prices. So we think ultimately yes, they 0:15:50.880 --> 0:15:52.880 will be able to look through it. But I'll say 0:15:52.880 --> 0:15:55.280 look through it with a long lag, like I think 0:15:55.320 --> 0:15:57.560 we think the Feds on the sideline for the rest 0:15:57.920 --> 0:15:58.520 of this year. 0:15:59.000 --> 0:16:02.320 What does it say that companies are pretty easily able 0:16:02.360 --> 0:16:05.960 to pass along the price increases that they're experiencing to consumers. 0:16:06.000 --> 0:16:08.560 We've seen that in profit margins, we've seen that in earnings, 0:16:09.000 --> 0:16:12.000 and frankly, we're seeing that in how quickly some of 0:16:12.040 --> 0:16:15.520 these price increases are transmitted through things like airline tickets. 0:16:15.720 --> 0:16:18.720 Yeah, it's not a surprise that energy prices get passed 0:16:18.720 --> 0:16:21.840 through quickly. That has been the historical record in the US. 0:16:21.840 --> 0:16:24.400 So seeing airline fares up as much as they wear, 0:16:24.400 --> 0:16:27.040 we actually thought they'd be higher this month, I'd say 0:16:27.040 --> 0:16:31.280 that is pretty standard from a historical perspective. The tariff 0:16:31.320 --> 0:16:34.960 passed through has taken longer. It's taken almost a year. 0:16:35.560 --> 0:16:38.520 That said, when we look at some of the granular data, 0:16:39.440 --> 0:16:43.320 non labor costs reflect those higher tariffs, but firms were 0:16:43.360 --> 0:16:46.440 able to pass along a greater increase in prices and 0:16:46.520 --> 0:16:49.320 build in more margin. I think that speaks to price 0:16:49.360 --> 0:16:52.600 and power still strong underlying demand, but kind of an 0:16:52.680 --> 0:16:57.280 oligopolistic corporate framework. Right, We've got some very large kind 0:16:57.320 --> 0:17:00.960 of quasi monopoly type firms and industries. Typically they have 0:17:01.040 --> 0:17:02.360 better pricing power if you. 0:17:02.360 --> 0:17:04.440 Want just joining us, Welcome to the program Slight upside 0:17:04.480 --> 0:17:07.639 surprise on inflation day to that dropped about eight minutes ago. 0:17:07.760 --> 0:17:10.120 Equally features recovering just a touch, we're off the lines. 0:17:10.119 --> 0:17:13.200 We're still down by thirty one percent. Bondyards off the highs. 0:17:13.560 --> 0:17:16.000 Might be keys standing by with a little bit more detail, Mike, 0:17:16.040 --> 0:17:18.200 when you have a second and third look at the details, 0:17:18.200 --> 0:17:20.080 does it bring just a little bit more comfort or not? 0:17:20.840 --> 0:17:22.840 It doesn't really bring a lot of comfort. We do 0:17:22.920 --> 0:17:26.080 see some decline in things that had been tariffed, some 0:17:26.119 --> 0:17:29.520 of the things that had gone up in price because 0:17:29.560 --> 0:17:31.639 of tariffs. And we don't know whether it's because the 0:17:31.640 --> 0:17:34.120 tariffs were thrown out or whether we've just been past 0:17:34.240 --> 0:17:38.040 the peak here, but appliances are down by four tenths 0:17:38.040 --> 0:17:43.760 of eight percent, household furnishings down by half a percent. However, tomatoes, 0:17:43.840 --> 0:17:46.520 which is one of the things that was tariff by 0:17:46.560 --> 0:17:50.320 the President coming from Mexico for the winter, up fifteen percent. 0:17:51.000 --> 0:17:54.840 Coffee prices were up two percent, So we are seeing 0:17:54.880 --> 0:18:00.040 some impacts still from tariffs in the overall numbers. But 0:18:00.240 --> 0:18:03.560 right now the important thing probably and I'll throw this 0:18:03.600 --> 0:18:05.560 over to Michael as well, as we had a half 0:18:05.600 --> 0:18:08.920 percent rise in services, and that's the area where people 0:18:08.960 --> 0:18:10.639 have been looking for a little bit of a break. 0:18:10.960 --> 0:18:14.199 Give it all a pressure on goods prices and so 0:18:14.359 --> 0:18:17.360 services coming in a little stronger than anticipated. 0:18:17.480 --> 0:18:19.960 Michael Gangkin of Morgan Stanley still with us. Mike, is 0:18:20.000 --> 0:18:21.560 there some stickiness to all of this? 0:18:22.240 --> 0:18:25.480 There is, But I take some positive sign from what 0:18:25.520 --> 0:18:29.000 Mike just said. I think an order of operations here, 0:18:29.600 --> 0:18:32.280 the tariff passed through to goods prices should come first, 0:18:32.800 --> 0:18:35.760 So having some hints of that I think is positive. 0:18:35.760 --> 0:18:37.120 So if you want to if you want to look 0:18:37.160 --> 0:18:40.119 forward with some like a positive checklist, you need to 0:18:40.160 --> 0:18:43.360 see that happen. Core goods prices need to settle down 0:18:43.400 --> 0:18:46.919 in the next couple of months. Then the headline passed 0:18:46.920 --> 0:18:50.840 through from gasoline prices and energy should start to fade 0:18:50.880 --> 0:18:54.240 after that. The longer story here will be is Mike 0:18:54.320 --> 0:18:58.040 noted what happens with services, that's where the stickiness has been. 0:18:58.560 --> 0:19:01.920 Maybe that starts behaving and then twenty twenty seven looks better. 0:19:01.960 --> 0:19:05.360 There's a lot of ifs mites or butts in that statement, 0:19:06.200 --> 0:19:08.679 but they all have to hold up in order to 0:19:08.680 --> 0:19:10.520 get a more favorable inflation outlook. 0:19:10.720 --> 0:19:13.439 Given that we're seeing these kinds of numbers. Is there 0:19:13.520 --> 0:19:15.840 any universe where it makes sense for the Federal Reserve 0:19:15.920 --> 0:19:17.160 to still have an easy bias. 0:19:17.520 --> 0:19:20.640 Probably not. I think they told you in April they 0:19:21.200 --> 0:19:25.200 very easily could have changed that language. It wasn't discrepancy 0:19:25.200 --> 0:19:28.560 about doing it. It is more about timing. So I do 0:19:28.600 --> 0:19:32.240 think all of the inflation data and the solid activity 0:19:32.320 --> 0:19:37.080 data point to an adjustment in the language in June. 0:19:37.119 --> 0:19:39.080 I got some pushback to that a little bit earlier. 0:19:39.080 --> 0:19:41.439