Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You,
Speaker 1: along with my co host Lisa Brahma wits each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Well the SMP Banks Index this
Speaker 1: year it's up about Citizens Financial, I seventeen billion dollar
Speaker 1: bank based in Providence, Rhode Island or Boston, is up
Speaker 1: about percent this year. To give us an overview of
Speaker 1: what is going on in the corporate and commercial banking business,
Speaker 1: returned to Don McCree, dons vice chairman and head of
Speaker 1: commercial banking for Citizens Financial Group. He joined us live
Speaker 1: in our Bloomberg Interactive Broker Studio. So, Don, we've had
Speaker 1: just a tremendous melt up in financial markets this year.
Speaker 1: How are your corporate customers feeling right now? Do they
Speaker 1: feel like they need to be aggressive on the M
Speaker 1: and A front um It depends on the nature of
Speaker 1: the customer. I think our customers, i'd say, are are
Speaker 1: optimistic in general. Their businesses are performing quite well. Uh,
Speaker 1: they're getting good, good lift, as you said, on their
Speaker 1: stock prices. So all all else being equal, that's not
Speaker 1: a recipe for a lot of M and A. What
Speaker 1: we're seeing in our businesses is with our smaller clients,
Speaker 1: particularly the private clients, M and A is very robust
Speaker 1: as as clients try to get some scale or maybe
Speaker 1: get repositioned to compete in the broader world economy. One
Speaker 1: thing that I thought was really interesting about Citizens is
Speaker 1: that on your commercial sides, you grew commercial loans by
Speaker 1: about twenty one percent over the past few years. Meanwhile
Speaker 1: piers grew only by ten percent. Why how so if
Speaker 1: you go back in our history, we did our public
Speaker 1: offering just about five years ago, and we'll celebrate our
Speaker 1: public offering uh this fall. Um. We had were owned
Speaker 1: by the Royal Bank of Scotland for eight years post
Speaker 1: the financial crisis, and it was quite a withdrawaling type
Speaker 1: of of event for Citizens Banks, so we spent eight
Speaker 1: years basically static. When we did the I p O,
Speaker 1: we decided to accelerate certain of our businesses which hadn't
Speaker 1: grown in the prior eight years, and we also expanded
Speaker 1: regionally into the southeast and into the Midwest and into
Speaker 1: the New York area. So most of our growth has
Speaker 1: been not necessarily within our traditional client base. It's been
Speaker 1: with new clients, which we're adding at a rate of
Speaker 1: about three hundred a year right now, so particularly in
Speaker 1: the higher growth parts of the country. So in the
Speaker 1: M n A front, I know you guys bought Bowstring Advisors.
Speaker 1: I guess it's a second boutique M and A advisory firm.
Speaker 1: So how do you view M and A opportunities in
Speaker 1: kind of the middle market where I think you guys
Speaker 1: tend to do. You know, it's it's terrific and Bowstring
Speaker 1: has been our latest, our latest acquisition, and it's really
Speaker 1: hit the ground running. As I said, a lot of
Speaker 1: private companies are going through ownership changes and and uh
Speaker 1: basically generational transitions. So we think it's a ripe area
Speaker 1: for M and A in general. What we've tried to
Speaker 1: do is we've added capability, is add firms that have
Speaker 1: specialties in certain industries and specialties in the middle market.
Speaker 1: And you probably see us continue to do that. And
Speaker 1: if I look at my client base, I've got about
Speaker 1: three thousand private companies at the core of my client base,
Speaker 1: and what we've been trying to do the last several
Speaker 1: years is bring a set of high quality solutions and
Speaker 1: advisory capabilities to those clients as they as they kind
Speaker 1: of change their the nature of their businesses. Where where
Speaker 1: are we in the M and A cycle? Was last
Speaker 1: year the peak? I don't think so, based on what
Speaker 1: we're seeing in our pipelines. UM it's our pipelines are
Speaker 1: much stronger this year than they were last year. UM
Speaker 1: and we think that again, it might be different when
Speaker 1: you're talking about large company m and A and mid
Speaker 1: sized company m and A. We think we've got several
Speaker 1: years to run on the mid company size. Are there
Speaker 1: any sectors in particular that you guys are focusing on anything?
Speaker 1: There might be areas of activity. We're seeing a lot
Speaker 1: of activity and business services, which is what boasting is
Speaker 1: at its core. We're seeing a lot of activity actually
Speaker 1: right now in gaming where we have a very strong presence,
Speaker 1: and we're seeing increasing amount of activity in anything tech. UM. So,
Speaker 1: so those are the three that we're really focused on.
Speaker 1: I want to go back to the idea of growing
Speaker 1: your loans and your customer base, and I'm wondering You're
Speaker 1: doing so at a time of a lot of competition,
Speaker 1: both from other regional banks as well as the big banks.
Speaker 1: They're looking to expand their loan books. So how do
Speaker 1: you win customers without loosening your standards to a degree
Speaker 1: that makes you con So the way the way we
Speaker 1: talk about it is Number one, we need to be
Speaker 1: better every day than any one of our competitors is,
Speaker 1: so we have to be intense around our coverage efforts
Speaker 1: and really be bringing those solutions to our clients. Number Two,
Speaker 1: I think we occupy an interesting part of the business.
Speaker 1: You know, our core customer, whether it evaluation or transaction
Speaker 1: size is three hundred million to seven hundred and fifty million.
Speaker 1: That frankly doesn't get the attention of the big guys
Speaker 1: because the transaction sizes are too small, and we think
Speaker 1: we have better experts against that that portion of the
Speaker 1: market that some of our other competitions. So we just
Speaker 1: think we we've been on a real talent hiring war
Speaker 1: for the last four years, brought a lot of very
Speaker 1: experienced people in and we're just covering the market in
Speaker 1: a really intense way. I remember seeing just maybe the
Speaker 1: last weekek or two and Actually, I've seen over the
Speaker 1: less several months articles about JP Morgan Goldman's acts, you know,
Speaker 1: hiring bankers and opening you know, offices, banking offices and
Speaker 1: secondary third tertertiary markets or they wouldn't you know, do
Speaker 1: business before. Are you seeing that at yr level? We are,
Speaker 1: But you know, we've can peted against all those companies forever.
Speaker 1: They're in all of our marketplaces and whether they're they're
Speaker 1: physically or whether they're flying bankers in who are industry experts,
Speaker 1: we go. We go against everybody. The regional is, the
Speaker 1: big investment banks, the small community banks every single day.
Speaker 1: So we haven't seen a real change in the individual
Speaker 1: competitors in the marketplaces. There's competition everywhere, as you said,
Speaker 1: and it's just it's just a brutal market, all right,
Speaker 1: Don mcgree, And he's speaking as a third year veteran
Speaker 1: and somebody who used to run corporate banking at JP Morgan's,
Speaker 1: so he knows what he's talking about when you're talking
Speaker 1: about some of your competitors. Don McCree, thank you so
Speaker 1: much for being with us here. Are really great to
Speaker 1: get your perspective. Don mccree's vice chairman and head of
Speaker 1: Commercial Banking, its Citizens Financial Group, which is based in
Speaker 1: I don't know. I'm gonna shrug. I mean it says Providence,
Speaker 1: Rhode Island, but I hear perhaps it's more Boston. I
Speaker 1: gotta say, Paul Crude is a confusing story right now.
Speaker 1: I'm looking at CREWD traded on the Nimax, down about
Speaker 1: three quarters of one percentage point. I'm just trying to
Speaker 1: figure out, though, what's the bigger influence here, the idea
Speaker 1: of trade wars being back on the table, the U
Speaker 1: S and China failing to come to some sort of agreement,
Speaker 1: or are we concerned about the Iranian sanctions and the
Speaker 1: contaminated oil from Russia here to way in, Dr ellen Wald,
Speaker 1: president of Transversal Consulting, also a nonresident Senior Fellow at
Speaker 1: the Atlantic Councils of Global Energy Center, and a Bloomberg
Speaker 1: Opinion calumnist. Dr Wall, thank you so much for joining us.
Speaker 1: So what is the dominant factor here over the next
Speaker 1: few weeks that will drive oil prices? I think the
Speaker 1: dominant factor in futures trading last night was definitely the
Speaker 1: terroriffts issue with China and fears that this could cause
Speaker 1: a recession and that that will take demand oil demand.
Speaker 1: But now I think we're seeing traders and and also
Speaker 1: computer algorithms to their senses and realize that there's a
Speaker 1: whole lot more going on in the soil market than
Speaker 1: just fears of a recession. And like you mentioned, we've
Speaker 1: got these sanctions on Iran which everyone knows are going
Speaker 1: to take some amount of oil off the market, but
Speaker 1: we're just not quite sure yet exactly how much part
Speaker 1: of that has to do with Iran's importers. Because this
Speaker 1: isn't an oil embargo. The United States is not sending ships,
Speaker 1: despite the fact they did just send several aircraft carriers
Speaker 1: to the Middle East. They're not sending ships h to
Speaker 1: basically embargo that oil. It all depends on whether Iran's
Speaker 1: importers decided to stop importing that oil. And right now
Speaker 1: it looks like the big ones in question are going
Speaker 1: to be India and China. Those are the biggest importers
Speaker 1: of Iranian oil, and India seems to have halted its
Speaker 1: imports for the month of May. But a lot I
Speaker 1: think those depend on what happens with the Indian election.
Speaker 1: If Moody loses the election of COMS party is more powerful.
Speaker 1: You know, they could have an impact on whether or
Speaker 1: they want to adhere to these U S nations. Right now,
Speaker 1: they've been very compliant and they've halted imports for me,
Speaker 1: but that's not necessarily a given going forward. Then with
Speaker 1: China will definitely see a decrease in some respects. But
Speaker 1: China's got a whole lot of Iranian oil actually stored
Speaker 1: in a port right near China, and they can basically
Speaker 1: tap into that oil. It's not it hasn't passed through
Speaker 1: customs yet, so it hasn't actually been imported to give
Speaker 1: me to China, and they could basically just tap into
Speaker 1: that at which they have been doing. But there's a
Speaker 1: lot of oil there, so we could see UH imports
Speaker 1: from China continue for some time. Um. Then we've got Venezuela.
Speaker 1: What in the world is going on there of the
Speaker 1: US leaning on India to try to get them to
Speaker 1: stop importing Venezuelan oil, but look, you can't ask them
Speaker 1: to stop importing Iranian and Venezuelan oil at the same time.
Speaker 1: Plus we've seen this, um, you know, we've seen a
Speaker 1: lot of uh, you know, action going on in Venezuela
Speaker 1: that hasn't reached the oil importing the oil producing areas yet,
Speaker 1: but it could, particularly if Guido isn't successful in in Caracas.
Speaker 1: There's definitely a possibility, and I think that the pdvs
Speaker 1: A people know this, that the tensions could move out
Speaker 1: of Caracas and into other areas, particularly the oil producing regions.
Speaker 1: So dr world, How much leverage does the United States
Speaker 1: have on some of these companies like China, like India
Speaker 1: about you know where they import their oil from. Yeah,
Speaker 1: it really depends, and um I think it really does depend.
Speaker 1: So some of the big importers in in India, We've
Speaker 1: got Naraya, which is actually owned by Rossnas mostly and
Speaker 1: so that's going to be very difficult to convince them
Speaker 1: to stop importing venezuela and oil because and in fact,
Speaker 1: what we've seen happen is that China and Russia are
Speaker 1: actually importing venezuela and oil and then reselling it. So,
Speaker 1: you know, we may not necessarily be able to even
Speaker 1: track whether India is bo buying venezuelan oil. That's just
Speaker 1: you know, it looks like they're buying from China or
Speaker 1: it looks like it's buying from Russia. But it's really
Speaker 1: Venezuelan and and this is a big issue, and so
Speaker 1: the US means a lot on its diplomatic influence. But um,
Speaker 1: you know, we know that the Commerce Secretary is actually
Speaker 1: in India right now for a um for finance confidence
Speaker 1: and part to state in a trade form. And you
Speaker 1: know he's saying, look, the US government cannot you know,
Speaker 1: make sure that you get oil at a discount. Just
Speaker 1: don't do that. That's not how it works. And India
Speaker 1: is really looking for some kind of They're saying, we'll
Speaker 1: look give us something. We want to comply with your sanctions,
Speaker 1: but you know we need something for from you. We're
Speaker 1: speaking with Dr eleen walda president of Transversal Consulting, and
Speaker 1: I just want to take a step back because there
Speaker 1: are all of these idiosyncratic stories, uh specific to nations
Speaker 1: and geopolitical battles. I'm trying to understand, are we at
Speaker 1: a greater risk of an oil glut or are we
Speaker 1: one crisis away from an oil shortage? Even this seems
Speaker 1: like a very basic question, and yet there are many
Speaker 1: different answers that I've gotten to this. It almost depends
Speaker 1: on the day that you ask that question. Because last week,
Speaker 1: when we got the e I A numbers that showed
Speaker 1: a huge bill that seemed like we're on the verge
Speaker 1: of a massive oil glut. And then if you look
Speaker 1: at um the demand side of the equation, then you're saying, well, look,
Speaker 1: we could be heading to a global recession and that's
Speaker 1: going to tak demand and then we're definitely going to
Speaker 1: be in an oil glut. So so so it really depends,
Speaker 1: I think what numbers you're looking at and on what
Speaker 1: day of the week. But if you're looking at what's
Speaker 1: coming from Iran, what's happening with Russia, what's happening with Venezuela,
Speaker 1: then you could say, look, we're heading towards a possible
Speaker 1: oil shortage because Iran could be could be down a
Speaker 1: million barrels. Venezuela could you know it could hold production
Speaker 1: at any point. You know, they're they're one oil upgrader
Speaker 1: or malfunction away from from barely putting any oil in
Speaker 1: the market. And then you've got Russia with this contaminated
Speaker 1: oil and they say that they have resumed clean oil sales,
Speaker 1: but but Belarus is saying, look, we're still getting contaminated oil,
Speaker 1: and we don't know what to do with it, So
Speaker 1: if you look at it from that respect, you're saying, well,
Speaker 1: we could be actually in a shortage. Plus, you've got
Speaker 1: Saudi Saudias, You've got a Ramco raising their pricing to
Speaker 1: Asia saying we are will sell you oil in June,
Speaker 1: but we're going to charge more for it because we
Speaker 1: think there's less oil out there. You've got fewer options.
Speaker 1: Dr ellen Wald, thank you so much for joining us.
Speaker 1: Dr walda's president Transversal Consulting. She's also a nonresident Senior
Speaker 1: Fellow at the Atlantic Council's Global Energy Center and a
Speaker 1: contributor to Bloomberg Opinion. Dr wall thank you so much.
Speaker 1: Joining us. Here is of course our very own Mike mcloane,
Speaker 1: who covers this sector and has for years. He is
Speaker 1: a commodity strategist for Bloomberg Intelligence. Mike, it seems like
Speaker 1: equity markets in the US are trying to shake off
Speaker 1: concerns of some sort of increase in trade tensions between
Speaker 1: the U S and China. Not the same in soft commodities.
Speaker 1: What's going on, at least not yet. The market is
Speaker 1: basically expecting this, hoping for and it was kind of
Speaker 1: the main hope for the support at the time, and
Speaker 1: in fact, hedge funds are records short. So right now
Speaker 1: we're giving hedge funds a gift. They're making money. Their
Speaker 1: record short corn, soybeans. I've never seen him that short
Speaker 1: before in the markets, working so forth. But it needs
Speaker 1: to be sustained. You know, this is the growing season,
Speaker 1: This is really what matters. In fact, what's down really
Speaker 1: the most days lean hawks, because we're expecting to export those.
Speaker 1: Wait a minute, lean hogs were not on my g
Speaker 1: l c O screen. I thought I had everything here.
Speaker 1: Well it's it's there in the Bloomberg Commodity Index. Not
Speaker 1: as widely traded, but that's been really one of the
Speaker 1: problems out of China is the African swine fever reducing
Speaker 1: their apply. They need to import more. We expected more
Speaker 1: to be from the US and okay, well that might
Speaker 1: be off the table. So you mentioned just where are
Speaker 1: we in the growing season, planting season? Where are we
Speaker 1: here for these commodity prime planting season right now? And
Speaker 1: this is the time of year you're usually pricing a
Speaker 1: little bit of production risk premium, meaning what if we
Speaker 1: don't get the best weather. For the last five years,
Speaker 1: we had some of the best weather in history, but
Speaker 1: we're not doing that yet this year. We're actually pricing
Speaker 1: in the discount, which is very rare and more so
Speaker 1: now and with record shorts, so the market is set
Speaker 1: up for potential massive rally, but it just needs a spark,
Speaker 1: and right now it's the wrong way. Well, I'm trying
Speaker 1: to understand. I want to go back to what you
Speaker 1: were talking about with respect to the hedge funds that
Speaker 1: are have record shorts. Is this because this is basically
Speaker 1: a hedge against a deal not getting done between the
Speaker 1: US and China, uh, you know, and that sort of
Speaker 1: offsetting long bets in equities. Or is this because they
Speaker 1: do expect some sort of risk with respect to the
Speaker 1: planting season or some other issue that will lead to
Speaker 1: a decline in prices much more of the former, And
Speaker 1: I think that's what we're most people are missing, is
Speaker 1: this is a very much macro picture interest and hedge
Speaker 1: funds are all especially being former macro hedge fund strategists,
Speaker 1: this makes a lot of sense. This is your short
Speaker 1: where you think it's going to matter the most and
Speaker 1: right here, but it's also when weather premiums gonna matter
Speaker 1: within a month, and that's really not gonna make a
Speaker 1: difference until really July. So, Mike, we talked about kind
Speaker 1: of exporting agricultural exports. Just give us a sense of
Speaker 1: how much of some of these soft commodities agricultural commodities
Speaker 1: are in fact exported to China. For example, first and
Speaker 1: foremost of soybeans. So before I guess we were exporting
Speaker 1: about sixty before last year, typically we were up the
Speaker 1: fifty percent of our total exports is a total production,
Speaker 1: soybeans were being exported most of them too um to China.
Speaker 1: That dropped down the forty percent last year, and now
Speaker 1: we're hoping to get that back up, but typically takes
Speaker 1: a little while. And now we have these massive supply.
Speaker 1: There's just these big bags of soybeans everywhere. We gotta
Speaker 1: get rid of that. Yeah, just waiting out to be sold.
Speaker 1: Really interesting. The idea that this soft commodities have become
Speaker 1: such sort of a macro bet. Is there any other
Speaker 1: period in history that's analogous to this where soft commodities
Speaker 1: have played such a central role in macro trading strategies?
Speaker 1: You have to go back. One of the first things
Speaker 1: I think of when you say that is the Great
Speaker 1: Grain Robbery, which was in the early I think it
Speaker 1: was seventy three or so. We exported a whole bunch
Speaker 1: of grain to the Soviet Union at the time because
Speaker 1: they were had a massive drought and had very little,
Speaker 1: um little production. I just remember four grain traders in
Speaker 1: the pits were talked about, Yeah, that's when I lost
Speaker 1: my job and I stopped trading into becoming a pit clerk.
Speaker 1: Because there's a lot of people who lost a lot
Speaker 1: and made a lot there in that period. So I
Speaker 1: have to go back, just real quick into the lean hogs.
Speaker 1: Are the prices going up or down? Well, they went
Speaker 1: up a lot and now they're mean reverting back down.
Speaker 1: So the market priced in this massive increase in demand
Speaker 1: with swine fever, and it's not getting it, at least
Speaker 1: it might not be getting it. With his latest tweet
Speaker 1: lean hoggs, I mean you heard it here first, that
Speaker 1: pork bellies. It's used to be used to bellies. Paul
Speaker 1: Sweeney is getting hungry. It is eleven oh eight a m.
Speaker 1: Wall Street time, and he is very interested in lean hoggs.
Speaker 1: Only with Mike mcglow, can you talk about lean hoggs.
Speaker 1: But Mike covers all things commodities. Mike mcglogne commodity strategies
Speaker 1: for Bloomberg Intelligence. Thanks so much for joining us. I mean,
Speaker 1: I think we'll probably talking to him a lot more. Well.
Speaker 1: The trade talks between the US and China hit a
Speaker 1: little bit of a speed bump yesterday as President Trump
Speaker 1: tweeted that he will consider raising a tariffs by the
Speaker 1: end of the week. To get the latest on what
Speaker 1: on this developing story, we turned to Mike McDonough. Mike
Speaker 1: is a chief economist for Financial Products of Bloomberg. He
Speaker 1: joins us live here in a Bloomberg eleven three oh studios. So, Mike,
Speaker 1: from your perspective and you're a reading of what's been
Speaker 1: going on over the last twenty four hour, do you
Speaker 1: think the trade negotion trade negotiations are in fact really
Speaker 1: at an impasse? Here? What you said, they hit a
Speaker 1: speed bump. I guess we're trying to figure out whether
Speaker 1: it's a speed bump or a wall. Right. Uh, you
Speaker 1: know this is a serious concern, right what what what drove?
Speaker 1: But what was the driver of this tweet? Is it
Speaker 1: just trying to squeeze out a couple of extra concessions
Speaker 1: or is it something more meaningful or structural? That they're
Speaker 1: trying to change with the potential agreement. I just have
Speaker 1: to say that is so two nine. What's driving that tweet?
Speaker 1: I mean, honestly, this is very, very very current. Mike McDonough,
Speaker 1: I am looking at a story just published on the
Speaker 1: Bloomberg that Robert lydhis or the top negotiator with China
Speaker 1: for the US, told President Trump that Beijing was backpedaling
Speaker 1: on the trade deal that they originally agreed with, saying
Speaker 1: that they would not change Chinese law as part of
Speaker 1: the agreement, which was part of the initial arrangement. If
Speaker 1: that's the case, President Trump's tweets aren't, what's to blame
Speaker 1: is that there is a structural problem in the negotiations
Speaker 1: that maill make it very hard to get a deal
Speaker 1: done in your term. Now agreed, that would be a
Speaker 1: major structural issue, structural issue, and it would be quite
Speaker 1: challenging the seats here. Trump has now also put on
Speaker 1: this deadline of Friday where he was increased tariffs. It's
Speaker 1: very hard for me to say, even if you have
Speaker 1: a low level delegation come from China to have these talks,
Speaker 1: I don't see how they get enough done by Friday
Speaker 1: to prevent these from being implemented, especially if that is
Speaker 1: the cause. You know, one one thing I've always talked
Speaker 1: about with you guys on the show is that you know,
Speaker 1: back in Q four, both economies were weakening, markets were
Speaker 1: selling off, and I think the bar for a trade
Speaker 1: deal on both sides had gone down. Subsequently, Kona's China's
Speaker 1: economy stabilizing, the US is doing much better. Markets are
Speaker 1: doing better, So I almost wonder if the bar for
Speaker 1: both sides has gone up, So maybe they regret a
Speaker 1: couple of the concessions they had made in the past,
Speaker 1: which would jive. I mean, that's just a theory I have,
Speaker 1: but it would jive with what you were saying about
Speaker 1: China pulling back some of the intellectual property I mean again,
Speaker 1: which brings us to the question that I always have. Um,
Speaker 1: you know, when we talk about this trade issue issue,
Speaker 1: who really needs it more? Would you guess? And even
Speaker 1: given you mentioned both economies tend to be doing a
Speaker 1: little bit better, what do you think who's which side
Speaker 1: needs a good deal more? You know, I mean, I
Speaker 1: think you know, it depends on if you're talking what
Speaker 1: what perspective you're talking from in short term or long term.
Speaker 1: But I think um, President Trump looking at you know,
Speaker 1: elections aren't that far away. I think he that victory
Speaker 1: would go a long way for him politically, and it
Speaker 1: would also do a lot for markets, which are kind
Speaker 1: of one and the same. You know, one thing, you
Speaker 1: have to think about how much of the market market
Speaker 1: performance over the past several months has been because they've
Speaker 1: kind of written off this trade war. This isn't something
Speaker 1: we really need to worry about. So if you bring
Speaker 1: that back front and center, it will have you know,
Speaker 1: cause yourself in a market may cause some uncertainty with
Speaker 1: within business leaders. Maybe then push off investment. You could
Speaker 1: actually cause the economy to slow down based on the
Speaker 1: sentiment of that, and then we go back to where
Speaker 1: we were. So I think both sides really needed um,
Speaker 1: you know, China's economy again, it was slowing. They've kind
Speaker 1: of stabilized it. You suddenly put these tariffs on, They're
Speaker 1: gonna there's gonna be a lot more need for stimulus,
Speaker 1: physical monetary stimulus. There both sides needed, uh, and I
Speaker 1: think that's why ultimately we get it. But I have
Speaker 1: to say this was certainly an unexpected curveball for everybody.
Speaker 1: You know, the more than I hear you talk, and
Speaker 1: you're very familiar with China with these negotiations. Uh, the
Speaker 1: more I'm surprised that the market response has been as
Speaker 1: muted as it is, because basically, President Trump, I don't
Speaker 1: see how he can back down from implementing tariffs that
Speaker 1: he's threatening unless there's some meaningful shift by either the
Speaker 1: Chinese negotiators coming over without losing face. And it seems
Speaker 1: like China's kind of, I don't know, putting their feet
Speaker 1: in the ground. They're not necessarily they're not necessarily rolling over.
Speaker 1: I mean, I think the market reaction has been fairly significant,
Speaker 1: but I do agree people are just trying to figure
Speaker 1: out what what do we make of this? Is this
Speaker 1: something you know? Do we get these tariffs even if
Speaker 1: it's temporary, and then we get a trade deal. I
Speaker 1: think the baseline for most people is there will still
Speaker 1: be a trade deal, though the road they're certainly got
Speaker 1: a bit bumpier. Um. But I think if you take
Speaker 1: this out even a step further, if you're Europe or
Speaker 1: if you're North Korea, if you're anyone right now who's
Speaker 1: negotiating with Trump and he's been saying things are going
Speaker 1: really well, or it's trending in the right direction, you're
Speaker 1: gonna take a step back and be concerned right now.
Speaker 1: I think. I mean, to me, the administration lost some
Speaker 1: credibility in terms with with some of their partners are
Speaker 1: trying to negotiate with because now they're going to have
Speaker 1: to question trust. Um So, I think that's something that
Speaker 1: the markets also going to have to kind of digest. Now.
Speaker 1: Think about it, if these trade talks get back on track,
Speaker 1: or the markets or investors going to uh see a
Speaker 1: tweet from Trump and say, Okay, Trump saying things are
Speaker 1: going well, must be going well. I don't. I don't
Speaker 1: think they're going to trust that the same way they
Speaker 1: did so. I think they're going to need much more
Speaker 1: tangible results, uh to feel good about what's happening on trade. So, Mike,
Speaker 1: let's see if you can give us a sense of
Speaker 1: how much these tariffs really hurt the Chinese. Have we
Speaker 1: seen any data to suggests that they really are something
Speaker 1: that are concerned to the Chinese and the government. It's
Speaker 1: definitely a concern. I mean, you know, the the tariffs
Speaker 1: that have been put in place right now, um so,
Speaker 1: China's economy was slowing originally because of the deleveraging process
Speaker 1: some domestic reasons. But then you know, at the start
Speaker 1: of this year and towards end of last year, you
Speaker 1: got these tariffs which did start taking a few tents
Speaker 1: of a percent probably off China Chinese GDP growth. You
Speaker 1: implement the full swath of tariffs that are being discussed,
Speaker 1: you know, you're you're talking about a much more meaningful
Speaker 1: clip on China's GDP growth rate from I've seen estimates
Speaker 1: from half a percent to a full percent UH. That
Speaker 1: would force the Chinese government, you know, right after they
Speaker 1: finally stabilize the economy, to have to consider far more
Speaker 1: meaningful UH stimulus, both on the physical monetary side, and
Speaker 1: that's not something as you're trying to, you know, stabilize
Speaker 1: your economy, de leverage something you want to have to
Speaker 1: be dealing with. Mike mcdonnoth, thank you so much for
Speaker 1: being with us. This is such an interesting area because honestly,
Speaker 1: the fate of these trade discussions really will determine the
Speaker 1: trajectory of a lot of the rest of twenty nineteen.
Speaker 1: So definitely a really important area to focus on. Mike
Speaker 1: McDonald's chief economist for Financial Products at Bloomberg LP, joining
Speaker 1: us here in our Bloomberg Interactive Broker's studios. Thanks for
Speaker 1: listening to the Bloomberg P and L podcast. You can
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