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 Amrie Hordernt. Join us each day
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. This came from Emily
Speaker 2: Goodwin of The New York Post. You'll be told this
Speaker 2: was a great meeting. The relations between the two nations
Speaker 2: have improved. Take a listen to this. American staff took
Speaker 2: everything that the Chinese officials handed out, credentials, bernafones from
Speaker 2: White House staff, pins for delegations, collected them before we
Speaker 2: cut on Air Force one and threw them in a
Speaker 2: bin at the bottom of the stairs. Nothing from China
Speaker 2: was allowed on the plane. That's the real state of
Speaker 2: the relationship between China and the United States.
Speaker 3: There is a lot of speculation about exactly what was
Speaker 3: accomplished and potentially how ten some of these relations have
Speaker 3: remained despite some of the niceties, and that clearly is
Speaker 3: the uncertainty feeding out through a lot of the different importing.
Speaker 2: Joining us, Natzi discussed very lovely of the Pinniston Institute.
Speaker 2: She writes the following, the summit has succeeded in maintaining
Speaker 2: a tactical truce, but failed to achieve resolution in the
Speaker 2: major irritance in the relationship. Mary joined us. Now for more, Mary,
Speaker 2: welcome to the program. Let's just start with those major irritants,
Speaker 2: because there will be another summit, potentially in September.
Speaker 4: What are they, Well, Emriy just talked about chips.
Speaker 5: Clearly, the Chinese have barked at the US export controls.
Speaker 4: They have since moved on.
Speaker 5: They are now devoted to their own development of their
Speaker 5: own domestic chips. But if we look back at the
Speaker 5: last year, we can see that the main irritants were
Speaker 5: the most proximate erarands were President Trump's acceleration of the
Speaker 5: tariffs that had been placed on China and his first term,
Speaker 5: and then the Chinese invoking new export controls on critical
Speaker 5: minerals potentially very disruptive move for US industry and the
Speaker 5: US moved to rearm following the war in Iran, So
Speaker 5: where did we get with any of that? As far
Speaker 5: as we know. There may have been some trade discussed,
Speaker 5: particularly by Secretary Vessant in his Chinese counterpart, but between
Speaker 5: the two principles, I think we have seen that there
Speaker 5: was no discussion of export controls and very little accomplished
Speaker 5: on the trade front.
Speaker 4: So the irritants really are still there.
Speaker 3: Mary, I've heard conflicting reports about whether this was a
Speaker 3: good meeting or a bad meeting, So people say, at
Speaker 3: least nothing bad happened in terms of some sort of
Speaker 3: big blow up. On the flip side, there wasn't even
Speaker 3: an affirmation of some of the truces that we've seen
Speaker 3: when it comes to tariffs and rahere Earth's over the
Speaker 3: past couple of months.
Speaker 4: What's your take on this president?
Speaker 5: She's stressed stability, but he wasted absolutely no time in
Speaker 5: giving the American president the tun lashing over Taiwan, which
Speaker 5: means that what we saw in China earlier this year,
Speaker 5: a sense of confidence and growing power clearly was on display.
Speaker 5: The relationship we're always framed in exactly the terms that
Speaker 5: Beijing likes to use. The First is primacy. The US
Speaker 5: China relationship is the most important in the world? Is
Speaker 5: it the most important to the United States? What about
Speaker 5: our allies?
Speaker 4: Win win? President she always likes.
Speaker 5: To talk about the relationship in win win or mutually
Speaker 5: gainful terms. Yet the President Trump since twenty seventeen has
Speaker 5: been talking about China as someone who's ripped the United
Speaker 5: States off?
Speaker 4: So how is that going to be win win?
Speaker 5: And then lastly, the president she likes to describe the
Speaker 5: relationship as one of partners, not rival. What about the
Speaker 5: AI race? What about actions in the South China? See
Speaker 5: how have we suddenly become partners and these issues that
Speaker 5: have to do with conflicting goals are suddenly papered over?
Speaker 4: So I think rather than just.
Speaker 5: A visit that accomplished nothing, this actually set us back
Speaker 5: in terms of where we are with the.
Speaker 3: Chinese In the meantime, What actually happened with all the
Speaker 3: CEOs from the United States who went over there. Do
Speaker 3: you have a sense of whether they accomplished anything or
Speaker 3: involved in any of these meetings?
Speaker 4: We don't have any sense of that. I think.
Speaker 5: You know, Amory talked about how the chip sales, there's
Speaker 5: been crickets on that, so we really don't know why
Speaker 5: they stop to pick up Jensen Wang in Alaska. The
Speaker 5: other CEOs were there, I suppose to show their support
Speaker 5: for the US China commercial relationship, which remains important and
Speaker 5: is a good thing. But as far as addressing some
Speaker 5: of the problems these firms have experience in serving.
Speaker 4: The Chinese market, I think we've heard nothing.
Speaker 2: Mary, What do you suppose the future is of the
Speaker 2: political question around this relationship Domestically in the US. The
Speaker 2: President did such a powerful job many years ago of
Speaker 2: really highlighting how damaged people and communities were in this
Speaker 2: country from Chinese overcapacity and the hollowing out of manufacturing
Speaker 2: domestically in the US. That became a rare bipartisan issue
Speaker 2: in Washington, d C. Is that a political priority anymore
Speaker 2: going into the midterms later this year and ultimately for
Speaker 2: the next general.
Speaker 5: Well, I've always thought the harm was real, but the
Speaker 5: diagnosis was flawed.
Speaker 4: There.
Speaker 5: We know that just attacking China is not an answer
Speaker 5: to what the US needs to be doing to heal itself.
Speaker 4: So I think that now.
Speaker 5: The President has decided that we need stability in this relationship,
Speaker 5: that going in an alternative route will actually cause more
Speaker 5: harm than good. We need to turn at home and say, okay,
Speaker 5: then what are we doing at home to meet the
Speaker 5: challenges that are before us, the same challenges we had before.
Speaker 6: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. We begin this
Speaker 2: out with stock's pulling back from record highs as bond
Speaker 2: yields push higher. Alista Pindrov HSBC still bullish, writing, we
Speaker 2: revise our year end price target on the SMP to
Speaker 2: seventy six fifty on. We've heard this so many times,
Speaker 2: earnings strength, but we could see it breaching eight k
Speaker 2: Alistair joined us now for more Alistair.
Speaker 6: Good morning to see.
Speaker 2: Having us seen so many upgrades to price targets, can
Speaker 2: you just take a step back before we get into
Speaker 2: all of the details. How stellar impressive has this earning
Speaker 2: season been.
Speaker 1: It's been amazing.
Speaker 7: I mean, you know, to put it into context, we're
Speaker 7: getting you know, twenty seven percent earnings grow for the
Speaker 7: S and P five hundred this year. That's going to
Speaker 7: be its strongest really since post COVID. The number of
Speaker 7: companies that are beating has also, you know, basically been
Speaker 7: since post COVID. Hires and I think the really interesting
Speaker 7: aspect here. This is just not just a tech on
Speaker 7: MAG seven. The story strip out tech and Mag seven.
Speaker 7: You're still getting thirteen fourteen percent earnings growth from these companies,
Speaker 7: again very recilent, much higher than expectations. So it's the
Speaker 7: breadth of earnings which has been the most surprising to us.
Speaker 7: But again, you know what continues to drive the market
Speaker 7: higher here is the tech and the AI narrative.
Speaker 2: There's a phrase that I'm going to borrow from a
Speaker 2: colleague of yours at HSBC danger zone max changer zone. Yeah,
Speaker 2: talks about the danger Zigner were in the danger zone
Speaker 2: of the bond market.
Speaker 7: We are, We're in the danger zone. And this is
Speaker 7: the trade off now for markets which as soon as
Speaker 7: we get you know, the US ten year bond yord
Speaker 7: pushing above one and a half percent, the market's going
Speaker 7: to have to weigh, you know, the challenge between higher
Speaker 7: bond your squeezing valuations and the earnings numbers which have
Speaker 7: been so phenomenal. But it is a concern, and that
Speaker 7: is the downside risk here that if we don't get
Speaker 7: oil coming down, if we don't see clear signs of
Speaker 7: the de escalation in the Middle East, and you know,
Speaker 7: progress towards opening the street of her moves. If this
Speaker 7: continues through June July, you know, the downside starts becoming
Speaker 7: more apparent for the s and P five hundred here.
Speaker 3: So just taking your advice and looking right now at
Speaker 3: a ten year yield of four point five to three percent,
Speaker 3: and I'm.
Speaker 4: Ready to hit sell.
Speaker 1: Why shouldn't I? Right? I mean, if we're in the
Speaker 1: danger zone, why is that not the World war?
Speaker 7: Our view is that our base case is that there
Speaker 7: will be some normalization of the strait of her moves
Speaker 7: in the next month or so. Our view is that
Speaker 7: oil will start to creep back down towards the end
Speaker 7: of the year, and that's should start to put some
Speaker 7: of the pressure off bond yields. So, you know, the
Speaker 7: base case here is that the market is already pricing
Speaker 7: in a pretty panicky kind of scenario, and we don't
Speaker 7: think we're there just yet. I think that you know,
Speaker 7: what makes us more concerned is again, if this persists
Speaker 7: throughout the summer, and you know, from an economic perspective,
Speaker 7: a good way to frame it is that, you know,
Speaker 7: US consumers have received almost fifty billion dollars in tax
Speaker 7: refunds this year. You know more so than twenty twenty five.
Speaker 7: The cost of oil at one hundred dollars a barrel
Speaker 7: is fourteen billion dollars every month. So back of the
Speaker 7: envelope math is if we continue to get oil at
Speaker 7: one hundred until June July, that to me is when
Speaker 7: things start to turn a lot more negative. The impact
Speaker 7: on the US consumer, the impact on the US economy
Speaker 7: starts to turn more negative, and that's when we might
Speaker 7: see more serious Sarnings downgrades.
Speaker 3: One of the biggest debates right now seems to be
Speaker 3: putting Parl Quincy versus Sebastian Page. Parl Quincy try to
Speaker 3: diversify away from AI and different geographies but also different
Speaker 3: types of companies, so really doubling down saying ultimately he
Speaker 3: wants to get more into AI and more into the
Speaker 3: US specifically, where do you sit on the whole diversification issue.
Speaker 7: I mean, in a global context, we're overweight emerging markets
Speaker 7: and overweight the US. Will we kind of like a
Speaker 7: bit of both. In the emerging markets side that we're
Speaker 7: still playing you know, tech, where we're overweight Taiwan. We're
Speaker 7: also overweight materials in latter which benefit, by the way,
Speaker 7: from all of this AI cape spend from higher copper demand,
Speaker 7: higher aluminium demand, So you know, I'm actually leaning into
Speaker 7: AI almost everywhere. I think what we are really focused
Speaker 7: on though, in a global context is two things.
Speaker 6: One is AI.
Speaker 7: I think that's how you diversify, go into the banks
Speaker 7: which are clearly using AI, seeing productivity benefits from this.
Speaker 7: And the other theme as well is trying to avoid
Speaker 7: these stocks which are going to be disrupted by AI.
Speaker 7: So again, you know, some of these sectors like SaaS, etc.
Speaker 7: Where we think there's going to be an overhang. Whether
Speaker 7: it's true or not, I think it's hard to disprove
Speaker 7: in this current environment. But we want to avoid the
Speaker 7: areas which we think there's going to be fears around disruption.
Speaker 7: So in the kind of diversifications perspective, I'm fine diversifying
Speaker 7: out of the tech but when we go into the
Speaker 7: you know X tech names, I still want to be
Speaker 7: looking into the areas that get the biggest productivity gains
Speaker 7: from AI adoption.
Speaker 2: When I hear EM, I always smile because it doesn't
Speaker 2: mean what it used to mean. It's now two countries,
Speaker 2: three names making up a call of the index, the
Speaker 2: MSCI EM Index Taiwan Semiconductors fourteen percent. A little bit
Speaker 2: more than that, Sam Sung, it's about six percent of
Speaker 2: the index. Sk Highenex is a little more than four
Speaker 2: percent of the index. We're reducing things down to just
Speaker 2: a handful of names. I just got this note from
Speaker 2: CIBC Chris Harvey. I'm sure you know him. Chris said this.
Speaker 2: By our calculation is SPX SPX attribution. Tech and communications
Speaker 2: services have accounted for ninety percent of the returns of
Speaker 2: SPX since the end of jan until yesterday. On an
Speaker 2: individual basis, nine names accounted for roughly ninety percent of
Speaker 2: the return over that period until yesterday, but a video
Speaker 2: responsible for twenty to twenty five percent of the overall return.
Speaker 6: Do you think that's a problem. Is not necessarily a problem?
Speaker 7: I mean, you know, I do laugh about this conversation
Speaker 7: about concentration.
Speaker 1: It's a risk.
Speaker 7: I'm like, well, it's a risk in both way. It's
Speaker 7: downside and upside. If you think that this concentration, the
Speaker 7: names that are driving you know, the upside here are
Speaker 7: going to continue to outperform.
Speaker 1: That's great.
Speaker 7: And so you take the em story and it's kind
Speaker 7: of funny because you're saying that you know, EM is
Speaker 7: not what it used to be. I would disagree a
Speaker 7: little bit. What was EM in two thousand to twenty ten.
Speaker 7: It was a commodity cycle. Well, d ram and semiconductors
Speaker 7: are the commodity of the AI era smart So is
Speaker 7: it not just that we're in a different kind of
Speaker 7: commodity play here for emerging markets? And I'm totally bullish
Speaker 7: on that, And so I'm totally leaning into this if
Speaker 7: I think there's going to be more capex from the
Speaker 7: hyperscalers one hundred and fifty billion dollars in capex estimates
Speaker 7: just being added for twenty twenty seven and twenty twenty eight.
Speaker 7: Twenty percent of that goes to the Korean memory names.
Speaker 7: I'm leaning into this, so I don't have any issue,
Speaker 7: particularly when you know the Korean stocks and the Korean
Speaker 7: memory names trade on six times earnings. To me, it
Speaker 7: feels like a bit of no brainers to go into.
Speaker 2: That's prices go up of those commodities, those new commodities.
Speaker 2: How elastic is that demand for these particular goods.
Speaker 7: I mean, I mean it's there's almost it's completely priced inelastic.
Speaker 7: I mean you're seeing you know that the memory name
Speaker 7: is basically saying that entering into three to five year
Speaker 7: long term agreements with the hyperscalers because there's so much
Speaker 7: demand for it right now. And why that's so important
Speaker 7: is because it reduces the you know, price volatility, and
Speaker 7: it gives us much more earnings visibility than we've ever
Speaker 7: had before three to five years of you know, the
Speaker 7: big hyperscaler saying hey, we're going to take out all
Speaker 7: of your supply to me, that is is a very
Speaker 7: bullish narrative here.
Speaker 6: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this, let's talk about
Speaker 2: the K shaped economy. Turning to retoun investors a waiting
Speaker 2: earnings next week for another reading on consumer spending, the RAYN.
Speaker 2: Hutchinson of Bank of American writing, we expect t JX,
Speaker 2: Ross and Burnington to speak to a strong start to
Speaker 2: the year supported by elevated tax refunds and trade down
Speaker 2: driven by gas inflation. The Rain joins us now for
Speaker 2: more the Rank of morning Warnie, I'm going to see
Speaker 2: how squeezed the consumers right now?
Speaker 1: Got is squeeze? Does I think people fear? And remember
Speaker 1: we're getting first quarter earning, so it's a little bit
Speaker 1: of a backward looking data point, but consumers were receiving
Speaker 1: very high levels of tax refunds throughout the first quarter,
Speaker 1: so that served to more than offset any squeeze they
Speaker 1: felt from gasoline. I think what's really important and brace
Speaker 1: yourselves for a big week next week. The forward outlook is,
Speaker 1: you know, as these tailwinds wean, what happens because gas
Speaker 1: prices are still very high. What do you think the wallet?
Speaker 1: I think that the consumer takes a little bit of
Speaker 1: a decelerating trend. I think they trade down. I think
Speaker 1: they use their dollars a little more wisely, and they
Speaker 1: really search for value.
Speaker 2: TJX the last time they had it down, yere, I
Speaker 2: think you've got to go back to what seat hasan today?
Speaker 2: Something like that, they find a fantastic run.
Speaker 1: I didn't say TJX would be down.
Speaker 6: Now I'm going to site they can have another round.
Speaker 1: Yeah, no, I think absolutely not. And when you look
Speaker 1: at you know, we've gone back twenty years and looked
Speaker 1: at times when gas price is spiked and you look
Speaker 1: at clothing spending, it falls, jewelry spending, it falls off price.
Speaker 1: Retail behaves much more like a necessity and goes at
Speaker 1: its normal trajectory, and the reason is their customer may
Speaker 1: have to trade down, and then an upward upper income
Speaker 1: customer trades down into their stores looking for that value. Right,
Speaker 1: everybody's wallets are squeezed, they end up taking share.
Speaker 3: How much are we seeing a case shaped retail sector?
Speaker 3: And it doesn't have to do with necessarily the income
Speaker 3: strata of the clients as much as the success of
Speaker 3: management team to really put forward a story that either
Speaker 3: works or really doesn't.
Speaker 1: Yeah, I mean what we've seen in a time of
Speaker 1: a little bit of consumer duress over the past year
Speaker 1: or so is that if your brand is hot, you
Speaker 1: are really able to get that share of wallet you
Speaker 1: Coach the Coach brand is a great example of that. Right,
Speaker 1: They just put up a twenty nine percent growth rate
Speaker 1: in North America. I don't think any of us would
Speaker 1: have expected that a few years ago, but they made
Speaker 1: some great investments in marketing. They've really elevated their brand
Speaker 1: and they've been successful. You can contrast that with a
Speaker 1: lot of other players, both in the handbag and footwear space.
Speaker 1: They're not seeing the same success.
Speaker 3: Well, I'm going to talk about Nike and Lulu Lemon,
Speaker 3: for example, which have been underperforming, and we've talked about
Speaker 3: it a lot on the show. John's been talking about
Speaker 3: Nike and how they really lost some of their vigor,
Speaker 3: of the athletic heartbeat that they used to be driven
Speaker 3: by going forward.
Speaker 1: How much can we look.
Speaker 3: At earnings as giving a read on the consumer versus
Speaker 3: a read on strategy. Given the results that we've had
Speaker 3: so far, and given the consumer spending numbers that we've
Speaker 3: seen from some of the big cards.
Speaker 1: Yeah, the results have been so bifurcated. Right. You'll see retailer,
Speaker 1: even footwear retailers like on Holdings or Hoka, putting up
Speaker 1: growth and then you see Nike putting up decline. So
Speaker 1: it's really a big share shift. And I wouldn't say
Speaker 1: I wouldn't use Nike as a gauge for the consumer.
Speaker 1: Nike just didn't innovate like it needed to. And when
Speaker 1: you have competition nipping at your heels, you really need
Speaker 1: good product. They relied on some of their old stalwarts
Speaker 1: instead of really going out and doing what Nike usually does,
Speaker 1: which is lead the market with innovation.
Speaker 6: You don't want to be apologizing.
Speaker 2: I just feel like Nike as a brand has completely
Speaker 2: lost its attitude and We were talking to the commercial
Speaker 2: brand before we came on about the Boston Marathon and
Speaker 2: that commercial they had walking tolerated, right old school Nike
Speaker 2: sort of get at it, do it, get aggressive, and
Speaker 2: then they were apologizing for the walking tolerated. People were offended.
Speaker 2: They pulled the at and went with something else. That's
Speaker 2: kind of where Nike's at today. That is not what
Speaker 2: Nike used to be. What changed are that company?
Speaker 1: You know, look, they're much bigger and they now target
Speaker 1: not just runners but walkers, and I think they need
Speaker 1: to remember that. So what changed. They've had a few
Speaker 1: different management teams come in, and again I think they
Speaker 1: lost their focus a little bit on sport. They got
Speaker 1: into a lot more casual, a lifestyle product, and now
Speaker 1: they're actually completely refocused on performance product. It will take
Speaker 1: more time because that's a smaller part of the market,
Speaker 1: but I think it is the right strategy.
Speaker 2: For my branding perspective. Who's got it right right now?
Speaker 2: We mentioned American Egg have sort of unapologetic founded, some
Speaker 2: people did not apologize, sales went up.
Speaker 6: Who's got it right at the moment?
Speaker 1: You know, I think I think there are several brands.
Speaker 1: Ralph Lauren coach certainly having a bit of a moment.
Speaker 1: Birkenstock put up really strong growth earlier this week, so
Speaker 1: there are some brands that are doing quite well. The
Speaker 1: Gap brand is showing a resurgence that I certainly hadn't predicted,
Speaker 1: but it's been really fun to watch. So yeah, there
Speaker 1: are several of them with great marketing and good product
Speaker 1: and they're kind of coming back from where they used
Speaker 1: to be.
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