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

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

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

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

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

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

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

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

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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Let's talk about

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Speaker 2: the bond market. Lisa's favorite, the tenure government bondyard is

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Speaker 2: lower on this week for a seventh consecutive week, the

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Speaker 2: longest streak in more than five years. Steve Major of HSBC,

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Speaker 2: good friend of this program, good friend of ours, joined

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Speaker 2: us here in New York.

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Speaker 3: Steve, It's good to see you.

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Speaker 1: Good morning.

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Speaker 2: What's behind that rally of almost two months on tenure

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Speaker 2: government bondyards?

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Speaker 4: I think you touched on some of it in the

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Speaker 4: pre am can't call it a preamble. Yeah, So how

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Speaker 4: do you disseggregate this this bond valley? Because it probably

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Speaker 4: it probably starting with something really simple. It could be

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Speaker 4: the market was just too cheap. So there's a valuation angle,

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Speaker 4: and you can see it in swap spreads. You can

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Speaker 4: see it in US bond yields versus the rest of

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Speaker 4: the world. You can see it in real yields being

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Speaker 4: above two, all that kind of thing. So maybe point

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Speaker 4: one it was just too cheap, and then you get

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Speaker 4: some trigger events or you get something that that starts

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Speaker 4: to spark it. Maybe and I think maybe there was

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Speaker 4: a bit more confidence in the fiscal position and and

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Speaker 4: so I think you mentioned dog that could that could

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Speaker 4: be key. In between the date of the election back

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Speaker 4: in November and the inauguration, I think markets were also

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Speaker 4: sensing the regulatory shift, which meant there could have been

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Speaker 4: some pre positioning which was more favorable towards treasuries. Now

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Speaker 4: that was coming in the treasuries versus swap spread, right,

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Speaker 4: So there's a bunch of things that were happening. You've

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Speaker 4: talked about seven weeks of bond rally. I think it's

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Speaker 4: been helped by some of the forward looking data, so

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Speaker 4: Atlanta fed GDP, now some of the survey data think

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Speaker 4: about what's going to happen to confidence when uncertainty goes up,

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Speaker 4: so uncertainty is not volatility. Uncertainty in the real world,

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Speaker 4: in the real economy means people sit on their hands

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Speaker 4: and they don't do stuff. It means that the investments

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Speaker 4: aren't made, decisions aren't made, and that's not good for growth.

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Speaker 4: Uncertainty in markets normally means there's a big dispersion in

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Speaker 4: opinion about what's going to happen. But I think in

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Speaker 4: the real world it's actually consistent with the surveys softening

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Speaker 4: ahead of the real data.

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Speaker 2: It's completely against the grain compared to where we were

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Speaker 2: at the end of last year. And that's what's intriguing

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Speaker 2: for us on this program. At the end of last year,

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Speaker 2: when Donald Trump won the presidency, we saw curve steepen

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Speaker 2: and you're to push at the long end of the curve,

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Speaker 2: and people were talking about things like tax cuts, more issuance,

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Speaker 2: heavier supply, its st come.

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Speaker 3: Have we just parked that story? Can we ignore that story?

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Speaker 4: Again? Positioning is important. We came into the year with

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Speaker 4: the consensus position and the position being a bearish steepening

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Speaker 4: of the curve, inflation, fiscal blah blah blah. I did

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Speaker 4: in an interview with Manus at the start of the

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Speaker 4: year and I said, I'm not meeting any bomballs. That's

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Speaker 4: because there weren't any, right, So once you get a

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Speaker 4: bit of momentum, then people become a bit more confident.

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Speaker 4: And it's a bit scary the recency bias in these

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Speaker 4: markets and that people do like a bit of momentum.

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Speaker 4: And so I think the first move was positioning and

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Speaker 4: the consensus and then some trigger points. And now for

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Speaker 4: this ruddy to be continued, for it to be sustained,

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Speaker 4: you're going to have to get something in the data.

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Speaker 4: You mentioned payrolls, but it's really economy data. So the

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Speaker 4: economy is kind of being retrofitted to where the Fed

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Speaker 4: already took rates. Does that make sense, right, The idea

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Speaker 4: that maybe they cut too much time, Nobody was really

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Speaker 4: saying it, but at the time it seems that they

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Speaker 4: were cutting into a window where there was an opportunity

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Speaker 4: to come. And then of course bond yields went up

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Speaker 4: a lot, even though policy rates had come down one

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Speaker 4: hundred basis points, so something was wrong. So the bond

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Speaker 4: market is moving back into line, but really the economy

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Speaker 4: has to be fitted to where the policy rates are

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Speaker 4: as well. So there's a lot of this going on

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Speaker 4: that I think explains the bond ready move, and we

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Speaker 4: can get through four percent on the tens in the

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Speaker 4: next few weeks with this momentum continuing. If we're talking

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Speaker 4: about ten weeks of bond really, in three weeks time,

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Speaker 4: we'll be through four solutely.

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Speaker 5: What I'm hearing from you is that if we get

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Speaker 5: some weaker economic data, we could see this bond rally accelerate.

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Speaker 5: Wee get the ten year below four percent and the

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Speaker 5: idea of real growth concerns bleeding through the entire treasury space. Yeah,

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Speaker 5: how much do you buy the idea that this bond

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Speaker 5: market and this federal reserve is going to be constrained

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Speaker 5: by stiflationary fears, cyclation light, et cetera. How much does

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Speaker 5: policy play into this?

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Speaker 4: Quite rightly to qualify it with stagflation light, because you

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Speaker 4: know that pure stagflation requires recession and accelerating inflation. We're

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Speaker 4: nowhere near either of those at the moments, so you're

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Speaker 4: quite right to qualify that. It strikes me that inflation

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Speaker 4: between two and the three is not a problem for anyone,

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Speaker 4: and it's probably part of what's really desired because there's

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Speaker 4: too much debt, and the process of dissolving the debt

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Speaker 4: requires inflation to be a touchover target. I don't think

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Speaker 4: anyone's going to worry about two to three on inflation.

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Speaker 4: The Fed's already pivoted to a growth focus. They did

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Speaker 4: that last year and now we're seeing validation of that pivot. So,

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Speaker 4: as I said, the economy needs to fit to where

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Speaker 4: the to where the path of lower rates needs it

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Speaker 4: to be. That may sound like a reverse, a reverse

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Speaker 4: in the causality, but this sometimes is how it works.

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Speaker 3: Right.

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Speaker 4: So I'm not that worried about inflation and your famous

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Speaker 4: last words, but.

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Speaker 6: You're not that worried about inflation, but FED officials.

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Speaker 5: Are, and they're talking about the potential for having to choose,

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Speaker 5: having to weigh the evils of whether inflation is sticky

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Speaker 5: or even accelerating modestly and some sort of downside to growth. Yeah,

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Speaker 5: as barn investors, how do you grapple with it?

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Speaker 4: It's fair what you've said. That is part of their job,

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Speaker 4: and there are some in the FED who don't completely

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Speaker 4: worry about inflation so much, right, so that you have

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Speaker 4: a range of views, just like in any essential bank,

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Speaker 4: the fiscal policy I think is dominance. You've heard of

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Speaker 4: fiscal dominance. For the bond deal to be at the

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Speaker 4: right level for the fiscal policy, it needs to be

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Speaker 4: at four percent or below. The CBO. The Budget Office

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Speaker 4: is budgeting four point one zero on the ten year. Now,

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Speaker 4: back in September we were at three point six almost,

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Speaker 4: so it was nicely inside. So to be able to

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Speaker 4: afford this level of debt with the interest payments that

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Speaker 4: come from it, we need the yields below four. So

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Speaker 4: I think that by having a fiscally responsible treasury set

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Speaker 4: up and the expense cuts coming through and the economy cooling,

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Speaker 4: you haven't got to worry about inflation so much. I

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Speaker 4: think it is their job to be to be a

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Speaker 4: bit hawkish on inflation, but I don't really think it's

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Speaker 4: a problem.

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Speaker 2: I'll ask a simple question which requires a very thoughtful answer,

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Speaker 2: and I know you've given it some thought.

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Speaker 3: Does the supply matter?

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Speaker 4: No? Next question?

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Speaker 3: Why not?

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Speaker 2: Right?

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Speaker 4: So I have this conversation every day of the week

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Speaker 4: with clients. Right, and you think about from a trader's perspective,

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Speaker 4: it does matter because they've got to take down all

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Speaker 4: this supply and auctions and syndications and so there's a

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Speaker 4: concession around the supply that must that should not be confused.

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Speaker 4: That concession around the supply should not be confused with

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Speaker 4: their strategic view, because the bond yield is a function

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Speaker 4: of today's policy rate and expectations for that policy rate

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Speaker 4: where it ends up in the future. Right, And it

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Speaker 4: strikes me that it could be a double counting on

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Speaker 4: the yields if we start adding too much additional term

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Speaker 4: premium to what's already in the price. So if the

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Speaker 4: Federal Reserve thinks that the deficits are problem and is

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Speaker 4: causing inflation, then they're not going to cut rates. They

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Speaker 4: might even be hiking them, right. But if the Federal

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Speaker 4: Reserve things this economy is cooling down and the stock

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Speaker 4: of the debt and the interest payments are weighing on

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Speaker 4: future growth, and in fact, there's a path to lower rates,

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Speaker 4: and the second half of the year they are cutting

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Speaker 4: along that path.

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Speaker 5: Right.

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Speaker 4: So it just strikes me that it's very dangerous to

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Speaker 4: say always a lot of supply, the yield goes up,

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Speaker 4: because there is no empirical evidence for that. Look what's

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Speaker 4: going on in China and Japan, and also look at

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Speaker 4: the bond yield which is above four percent, it's around

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Speaker 4: four twenty five. The policy rate is four twenty five,

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Speaker 4: four point fifty. It doesn't strike me that there's a

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Speaker 4: lot wrong with a bond yield that reflects the view

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Speaker 4: that the policy rate is going to stay unchanged for

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Speaker 4: quite a long time. If you change that view to

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Speaker 4: the fact that the Fed is back on the path

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Speaker 4: of lower rates, the bond yield should come down. But

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Speaker 4: I don't know, there's this intuition that the supply matters.

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Speaker 4: It's informed by the auctions and the syndication and the

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Speaker 4: concessions that the dating rooms have to take in to

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Speaker 4: take into account. Right, but not to be confused for

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Speaker 4: the strategic view and where bonios would be staith.

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Speaker 2: I knew that would eventually States just face SAE.

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Speaker 3: State's going to say why why.

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Speaker 7: More clarity and more tariffs.

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Speaker 8: That's the message from the White House when it comes

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Speaker 8: to this deadline on Tuesday, that pause for twenty five

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Speaker 8: percent on Canada and Mexico unless they showed they were

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Speaker 8: doing enough to stop the flow of migrants and also

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Speaker 8: really fentanyl. Then those tariffs go into play, and then

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Speaker 8: the President ad really is spat on the works, adding

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Speaker 8: an additional ten percent when it comes to China. So

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Speaker 8: let's break all this down because the calendar is getting

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Speaker 8: very busy.

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Speaker 7: On the trade front. Kelly and Shaw joins me.

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Speaker 8: She's now with Hogal Lovers, but she was a former

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Speaker 8: senior White House trade advisor.

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Speaker 7: And negotiator under Trump. One point zero. Let's just start

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Speaker 7: with the calendar. March fourth, this.

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Speaker 8: Pause, but the directives already there, so unless they come

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Speaker 8: out with another executive order, those tariffs on Mexico and

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Speaker 8: Canada twenty five percent go into place, and then Donald

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Speaker 8: Trump added an additional ten percent on China March twelfth,

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Speaker 8: twenty five percent on steel and aluminum. April first, we

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Speaker 8: get the whole report of where trade is right now

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Speaker 8: in terms of reciprocity with America partners and April second,

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Speaker 8: auto tariffs, reciprocal tariffs across the board.

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Speaker 6: What are you focused on?

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Speaker 9: Can I say all of the above. It has certainly

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Speaker 9: been a busy week from trade, and on top of that,

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Speaker 9: we just got the confirmation of US Trade Representative Jamison Greer,

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Speaker 9: as well as the announcement after the Donald Trump and

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Speaker 9: Starmer bilateral of a US UK FTA which will be

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Speaker 9: negotiated soon so any one of these would be enough

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Speaker 9: to derail a trade lawyer's week. And so we have

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Speaker 9: all of these happening at once. So what I can

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Speaker 9: say is I think the President is just gearing up.

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Speaker 9: I think the calendar is only going to get even

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Speaker 9: more full, especially as we get closer to that April

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Speaker 9: line for all of those reports that are due, and

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Speaker 9: I fully expect him to continue this trade train for

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Speaker 9: the next several months and next couple of years.

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Speaker 8: How do you read the tea leaves right now? When

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Speaker 8: it comes to Canada Mexico. Let's start there, because those

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Speaker 8: are coming into place Tuesday. We have the Mexican Economy

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Speaker 8: official Minister here in Washington, d C.

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Speaker 7: Yesterday I met with Jamison Greer. Today is going to

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Speaker 7: meeting with Commerce Secretary Howard Lutnik.

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Speaker 8: We have the Canadian ventinyls are meeting with Tom.

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Speaker 6: Holman this week.

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Speaker 8: Do you think these two countries are offering enough concessions

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Speaker 8: for Trump to put out an EO saying the twenty

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Speaker 8: five percent will not go through.

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Speaker 7: Yeah.

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Speaker 9: I mean, when I'm picking up are somewhat positive signals

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Speaker 9: from both the Canadians and Mexicans in terms of how

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Speaker 9: those conversations are going. However, it is very clear that

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Speaker 9: what the President wants is a reduction in deaths related

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Speaker 9: defentanyl and cooperation in terms of the border and border security.

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Speaker 9: And so what I think will likely play out over

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Speaker 9: the next couple of days is a high pressure situation

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Speaker 9: in which the President is asking both Canada and Mexico

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Speaker 9: for more so that they could potentially announce on Tuesday

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Speaker 9: or Monday night some sort of suspension for an additional

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Speaker 9: thirty days or period of time. But you cannot fix

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Speaker 9: these issues overnight. I think it's going to take several months,

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Speaker 9: if not years, to resolve some of these core concerns

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Speaker 9: of the president. So my expectation is that best case

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Speaker 9: scenario from the perspective of Canada and Mexico, we see

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Speaker 9: another suspension that continues to get renewed periodically as these

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Speaker 9: issues continue to be resolved. But I'm hopeful that there

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Speaker 9: is that opportunity and.

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Speaker 8: Then Tuesday night, I'll have this joint addressed to Congress,

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Speaker 8: so potentially he can go and say, look at all

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Speaker 8: these concessions I got when it comes to immigration, which

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Speaker 8: I was elected to really clean up. And that's the

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Speaker 8: president's words when it comes to China. Is this additional

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Speaker 8: ten percent real?

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Speaker 7: I think so.

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Speaker 9: I think so because I don't see scope for the

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Speaker 9: United States and China to resolve the president's core fentanyl

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Speaker 9: concerns between now and Tuesday. I see Canada and Mexico here,

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Speaker 9: I see active negotiations. They have a representative from almost

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Speaker 9: every agency and every province of their respective governments. Those

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Speaker 9: conversations aren't happening between the United States and China. Rather,

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Speaker 9: I think some of those conversations are going to happen

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Speaker 9: after April.

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Speaker 6: That's when we've got.

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Speaker 9: The report on the Phase one compliance. We have the

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Speaker 9: report on the Biden administration's eighteen billion dollars of additional tariffs,

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Speaker 9: and we also have that report on China's IP practices

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Speaker 9: that are all due to the President with recommendations. And

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Speaker 9: that's what I think is going to tee up a

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Speaker 9: broader conversation that also involves s fentanyl on some of these.

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Speaker 7: Other issues with China.

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Speaker 8: So China responded overnight, and this is what the Commerce

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Speaker 8: Ministry said. If the US and system having its own way,

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Speaker 8: China will counter with all necessary measures to defend its

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Speaker 8: legitimate rights.

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Speaker 7: And then previously, though in February.

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Speaker 8: The response is we would take corresponding steps. So counter

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Speaker 8: versus corresponding, what kind of reciprocal action could we see

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Speaker 8: from Beijing.

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Speaker 9: Yeah, and I think you're seeing an uptick in the

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Speaker 9: rhetoric in response from MOFCOM this time. I mean ten

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Speaker 9: percent to twenty percent. You're doubling the tariff impact. I

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Speaker 9: do think that both sides have interest in not driving

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Speaker 9: the relationship off an economic cliff before those talks begin

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Speaker 9: after April first. But that said, China's going to have

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Speaker 9: to respond, and we've seen that play out for the

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Speaker 9: first four years of the Trump administration. I think we'll

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Speaker 9: see that same pattern play out in these second four years,

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Speaker 9: which is that for every action, there's an equal and

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Speaker 9: opposite reaction on the side of China and the United States.

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Speaker 9: So I do think we'll see retaliation. It could be

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Speaker 9: more tariffs, it could be additional entities added to the

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Speaker 9: Unreliable Entity list, the export controls, there could be a

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Speaker 9: number of things that China does.

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Speaker 7: But again, I think it's going.

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Speaker 9: To be fairly moderate in terms of their response because

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Speaker 9: there is an opportunity to resolve some of these things

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Speaker 9: in the short term.

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Speaker 7: You were in the room.

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Speaker 8: So Phase one, the trade deal that Trump didn't trump

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Speaker 8: one point zero, What do you think he wants this time?

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Speaker 7: Well, I think it's not as clear.

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Speaker 9: So during the first four years, what was clear to

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Speaker 9: us as negotiators is that the President was looking for

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Speaker 9: China to stop stealing US technology, stop engaging in unfair

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Speaker 9: trading practices, and stop subsidizing industries at the impact of

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Speaker 9: US exporters and third country markets. But what was challenging

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Speaker 9: for US is the fact that China has a state

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Speaker 9: directed economy and they're not going to back away from that.

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Speaker 9: They're not going to stop doing some of these things

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Speaker 9: that are so impactful for the United States. And so

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Speaker 9: it's not really clear what the President is going to

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Speaker 9: be asking of China this time. Certainly living up to

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Speaker 9: Phase one, certainly help and cooperation on fentanyl, but beyond that,

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Speaker 9: it's not clear what the acts are going to be

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Speaker 9: on the administration side, and by the way, on China

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Speaker 9: side as well, they're interested in the US backing off

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Speaker 9: on export controls, potentially backing off on some of these

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Speaker 9: national security measures, and I'm not sure there's really a

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Speaker 9: runway there for both sides to land the plane.

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Speaker 8: If you in the administration now and you are at

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Speaker 8: the table negotiating this. Does it help or hurt that

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Speaker 8: there's a barrage of trade headlines every single day?

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Speaker 9: Well, I think this is just the way it is, right.

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Speaker 9: I mean, President Trump, as you said, ran on immigration,

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Speaker 9: you ran on inflation, you ran on tariffs. And so

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Speaker 9: he's doing what he set out to do, and I

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Speaker 9: think he.

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Speaker 7: Only has warriors to do it.

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Speaker 9: And so to the extent he's looking to fundamentally change

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Speaker 9: the global trading system and enact some of these policies

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Speaker 9: he's been talking about for decades, even before he was

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Speaker 9: elected president, All of that has to happen quite quickly,

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Speaker 9: and so that's what I think you're seeing play out.

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Speaker 9: And that's why I think this is going to be

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Speaker 9: a very full plate for the next several months.

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Speaker 8: When it comes to the April second tariffs, the Wall

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Speaker 8: Street Journal this morning is saying administration officials are privately

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Speaker 8: indicating that the full reciprocal action will take longer than

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Speaker 8: April timeline to implement, up to six months or even

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Speaker 8: more so, even if we get the direction of travel

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Speaker 8: April first or second, When do you actually think the

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Speaker 8: tariffs When it comes to the baseline reciprocal tariffs actually come.

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Speaker 9: Into play well, I think it depends how they want

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Speaker 9: to structure this. Legally, the President has a number of

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Speaker 9: statutory authorities which he can use to impose tariffs, and

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Speaker 9: he can do a reciprocal tariff, baseline tariffs, products specific tariffs,

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Speaker 9: supply chain tariffs, and he's talked about some of these

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Speaker 9: over the past couple of weeks, and so he can

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Speaker 9: do that through these Section two thirty two investigations like

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Speaker 9: we saw for copper just this week. He can do

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Speaker 9: Section three oh one investigations, which is the type that

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Speaker 9: he used for tariffing China during his first term, and

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Speaker 9: these take several months, if not a year to complete.

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Speaker 9: I think they can do them much faster than the

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Speaker 9: statutory maximum of a year.

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Speaker 7: But that said, it's going to be up to the

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Speaker 7: team as.

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Speaker 9: To how they want to structure some of these tariffs,

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Speaker 9: and some of them will be overlapping because they'll involve

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Speaker 9: not just like the entire economy of a country or

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Speaker 9: a universal baseline style tariff, but also.

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Speaker 8: Very product specific tarists specific so it's going to be

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Speaker 8: a very long list. All week, we've been talking about

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Speaker 8: Canada Mexico, the United Kingdom, potentially a trade deal he's

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Speaker 8: announced yesterday's going to be there, the European Union. What

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Speaker 8: should be looking at next? Where do you think he's

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Speaker 8: going to target next?

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Speaker 9: Well, I think he's starting with North America. It's very

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Speaker 9: clear we have the largest trading relationships and trade deficits

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Speaker 9: with Mexico and Canada, and I think China is going

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Speaker 9: to be fast on the heels of North America.

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Speaker 6: But he's talked a lot about.

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Speaker 9: Europe and his plans for Europe over the past several

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Speaker 9: weeks as well, and so in addition to the major

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Speaker 9: trading partners that he's mentioned, the US Trade Representative issued

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Speaker 9: a request for comments last week in which they specifically

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Speaker 9: identified a number of countries that the administration is concerned about.

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Speaker 9: Those include the G twenty economies as well as countries

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Speaker 9: with whom we have a large trade deficit. So I

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Speaker 9: also have Vietnam on my list, I have South Korea,

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Speaker 9: I have Japan, and I have India on my list

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Speaker 9: as major priorities of the Trump administration throughout this first year.

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Speaker 8: Kelly, and thank you so much for joining us this morning.

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Speaker 7: You're insight so useful. Jonathan Kelly and Shaw.

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Speaker 9: There.

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Speaker 2: Andrew Homeholt of City is with us around a table

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Speaker 2: to break down the economicator. Andrew, good morning to you.

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Speaker 2: We'll get to inflation in just a moment. Let's start

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Speaker 2: with personal income versus personal spending. Income up, spending down,

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Speaker 2: what gifts.

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Speaker 10: Yeah, this is really interesting because we've had such strong

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Speaker 10: personal spending that has been the engine of growth and

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Speaker 10: resilience for the US economy, and now the month of

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Speaker 10: January we're seeing that week. And we already knew some

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Speaker 10: of that from the retail sales reading. We're seeing a

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Speaker 10: little bit more of that. And what we're seeing in

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Speaker 10: personal spending this morning, I think you have to take

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Speaker 10: that with all the positive data we've had for the

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Speaker 10: last several months, but this could be the start of

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Speaker 10: a slowing trend.

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Speaker 2: Soft data has been soft, you, Mitch on the consumer

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Speaker 2: soft the conference board early this week week. I want

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Speaker 2: to understand whether that is going to translate into weaker

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Speaker 2: hard data. It's early to say that. Yes, we're seeing

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Speaker 2: that right now with convention and confidence, but it's not

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Speaker 2: what you forecasting.

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Speaker 10: We think we're going to see at least some slowing

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Speaker 10: in consumer spending. I think you kind of have to,

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Speaker 10: just because we've had the savings rate at such a

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Speaker 10: low level and you can't just continue to run spending

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Speaker 10: above income forever.

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Speaker 6: So it was always going to slow down. I think

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Speaker 6: the question now is is it slowing a little bit

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Speaker 6: more sharply?

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Speaker 10: And it is interesting what you mentioned because you see

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Speaker 10: this across the soft data at the consumer service and

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Speaker 10: then also that services PMI.

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Speaker 6: That was really the big surprise that that number.

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Speaker 10: Came below fifty, coming into contraction, and now we're seeing

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Speaker 10: it in some of the hard data. Now, again, we

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Speaker 10: had really strong consumer spending in December, so I don't

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Speaker 10: think you want to make too.

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Speaker 6: Much of this weakness in January.

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Speaker 10: Maybe February we're going to go back and just continue

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Speaker 10: expanding again. But if we get a week reading in February,

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Speaker 10: then that is a trend, and that does line up

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Speaker 10: with what you're seeing in the survey data. So a

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Speaker 10: little more of a hint here that we're slowing down.

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Speaker 5: Yeah, it goes to this whole preemptive inflation anxiety. Is

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Speaker 5: this the evidence of it right here that people are

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Speaker 5: stockpiling more cash to earning more and they're spending that

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Speaker 5: much less. You're saying it's too early to call that

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Speaker 5: this time, but going.

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Speaker 7: Forward, we'll have to see.

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Speaker 5: You've been generally calling for a weakening in the economy

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Speaker 5: even before some of this PIA. I'm curious, what are

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Speaker 5: you looking at right now that gives fuel to that,

443
00:20:39,160 --> 00:20:42,560
Speaker 5: even amid the otherwise pretty benign outlooks that we're hearing

444
00:20:42,560 --> 00:20:43,200
Speaker 5: from companies.

445
00:20:43,400 --> 00:20:44,600
Speaker 10: I mean, if you think about the things that have

446
00:20:44,640 --> 00:20:47,760
Speaker 10: supported this economy, and again it's been a consumer spending story,

447
00:20:48,080 --> 00:20:51,080
Speaker 10: and it was the fiscal stimulus. It was equity prices

448
00:20:51,080 --> 00:20:53,840
Speaker 10: that were up twenty percent year after year, it was

449
00:20:53,880 --> 00:20:56,240
Speaker 10: house prices that were up much faster.

450
00:20:56,000 --> 00:20:56,760
Speaker 6: Than its typical.

451
00:20:57,119 --> 00:20:58,800
Speaker 10: And none of those things are happening now right The

452
00:20:58,840 --> 00:21:01,720
Speaker 10: fiscal is coming off off, you have equity markets that

453
00:21:01,760 --> 00:21:05,560
Speaker 10: are kind of moving more sideways. House prices are still increasing,

454
00:21:05,600 --> 00:21:07,919
Speaker 10: but not increasing at those really rapid rates that they

455
00:21:07,960 --> 00:21:08,440
Speaker 10: were before.

456
00:21:08,520 --> 00:21:09,440
Speaker 6: So all of.

457
00:21:09,359 --> 00:21:13,560
Speaker 10: Those tailwinds to growth are diminishing. So I'm not surprised

458
00:21:13,600 --> 00:21:15,920
Speaker 10: that we're seeing some slowing now. To your point, are

459
00:21:15,920 --> 00:21:18,200
Speaker 10: we seeing maybe somewhat of a sharper pullback because there's

460
00:21:18,200 --> 00:21:20,359
Speaker 10: some uncertainty out there, but we could be seeing that.

461
00:21:20,400 --> 00:21:22,080
Speaker 6: I just think it's premature. To really say that.

462
00:21:22,080 --> 00:21:24,199
Speaker 5: We know that you were calling from many more cuts

463
00:21:24,200 --> 00:21:27,440
Speaker 5: sat other people and talking about the generally weakening economy

464
00:21:27,800 --> 00:21:31,520
Speaker 5: paired with real disinflation. And this has been something that's

465
00:21:31,520 --> 00:21:34,679
Speaker 5: come under challenge recently from a policy overlay, that maybe

466
00:21:34,720 --> 00:21:36,959
Speaker 5: some of the tariffs and the rejiggering of the global

467
00:21:37,000 --> 00:21:40,439
Speaker 5: trade sphere would end up with a higher level of

468
00:21:40,440 --> 00:21:43,359
Speaker 5: inflation more permanently in tyflation light like.

469
00:21:45,320 --> 00:21:46,080
Speaker 6: Situations.

470
00:21:46,480 --> 00:21:47,920
Speaker 5: How much do you lean into that, how much do

471
00:21:47,920 --> 00:21:50,880
Speaker 5: you think that that is kind of what we may see.

472
00:21:51,440 --> 00:21:54,080
Speaker 10: There are no question that there's no question that there

473
00:21:54,160 --> 00:21:57,160
Speaker 10: are concerns and there should be concerns about longer term

474
00:21:57,200 --> 00:22:00,840
Speaker 10: structural inflation. If we're going to a more fragmented environment,

475
00:22:00,920 --> 00:22:03,480
Speaker 10: that's just going to be more inflationary for the global economy.

476
00:22:03,800 --> 00:22:05,399
Speaker 10: But what I'm really looking at right now is the

477
00:22:05,400 --> 00:22:08,120
Speaker 10: cyclical story. What's the cyclical story that we're seeing in

478
00:22:08,160 --> 00:22:12,080
Speaker 10: the US, and what we're seeing in those cyclical categories

479
00:22:12,080 --> 00:22:14,560
Speaker 10: of inflation, things like shelter inflation we're just talking about

480
00:22:14,920 --> 00:22:17,880
Speaker 10: that's cool, then that's probably cool persistently. So I think

481
00:22:17,920 --> 00:22:19,480
Speaker 10: that's part of what we're seeing in the market. Also,

482
00:22:19,680 --> 00:22:23,720
Speaker 10: is not that necessarily we've reached where we're trying to

483
00:22:23,760 --> 00:22:25,560
Speaker 10: get to, or the Fed's trying to get to on inflation.

484
00:22:25,640 --> 00:22:27,680
Speaker 10: Soide that we're at two percent inflation, clearly we're not.

485
00:22:27,720 --> 00:22:31,119
Speaker 10: We're a bit above that, but that pathway is there,

486
00:22:31,640 --> 00:22:35,760
Speaker 10: and if there's less concern about inflation staying elevated, then

487
00:22:35,840 --> 00:22:38,080
Speaker 10: concerns can shift to some of these growth concerns and

488
00:22:38,119 --> 00:22:38,720
Speaker 10: it becomes.

489
00:22:38,520 --> 00:22:40,040
Speaker 6: A little bit less balanced.

490
00:22:40,040 --> 00:22:41,879
Speaker 10: And so I think we're still very early innings of that,

491
00:22:41,960 --> 00:22:43,720
Speaker 10: but maybe that's what the market's doing a little bit.

492
00:22:43,720 --> 00:22:45,640
Speaker 2: Andrew, A lot of people are blaming the trade headlines,

493
00:22:45,680 --> 00:22:48,000
Speaker 2: no doubt of Runmack. The argument made the case on

494
00:22:48,040 --> 00:22:49,880
Speaker 2: this promegrame earlier this week that that was an ex

495
00:22:49,920 --> 00:22:53,639
Speaker 2: post rationalization for a slowdown that's already starts it.

496
00:22:53,800 --> 00:22:54,639
Speaker 3: Would you agree with that?

497
00:22:55,160 --> 00:22:55,639
Speaker 6: I think so.

498
00:22:55,800 --> 00:22:58,080
Speaker 10: I think maybe in some of the consumer sentiment data

499
00:22:58,160 --> 00:23:01,280
Speaker 10: you're seeing some of those trade related anxiety is reflected,

500
00:23:01,600 --> 00:23:04,199
Speaker 10: so that can affect the soft data. But spending for

501
00:23:04,240 --> 00:23:06,840
Speaker 10: the month of January, I really doubt that this is

502
00:23:06,880 --> 00:23:09,080
Speaker 10: being affected by trade uncertainty.

503
00:23:09,160 --> 00:23:11,320
Speaker 5: You say it's a cyclical kind of weakening. At the

504
00:23:11,320 --> 00:23:13,720
Speaker 5: same time, some people think that maybe the momentum is

505
00:23:13,760 --> 00:23:16,560
Speaker 5: just moving away from services back to goods, and that

506
00:23:16,640 --> 00:23:19,400
Speaker 5: you might see some of the weakness and services paired

507
00:23:19,440 --> 00:23:23,240
Speaker 5: with some of the strength that we're seeing in the

508
00:23:23,280 --> 00:23:24,199
Speaker 5: physical world.

509
00:23:24,560 --> 00:23:27,399
Speaker 10: Why do you reject that, I don't necessarily reject that.

510
00:23:27,840 --> 00:23:29,600
Speaker 10: You do see that to some extent in some of

511
00:23:29,640 --> 00:23:31,920
Speaker 10: the survey data and some of the diffusion indicies where

512
00:23:31,960 --> 00:23:35,840
Speaker 10: you see this sub fifty services diffusion index, So maybe

513
00:23:35,840 --> 00:23:39,760
Speaker 10: we're actually contracting in the services sector, whereas manufacturing diffusion

514
00:23:39,760 --> 00:23:42,480
Speaker 10: industries have moved above fifty now, So you do see

515
00:23:42,480 --> 00:23:44,400
Speaker 10: some of that in the data. But what I would

516
00:23:44,400 --> 00:23:46,960
Speaker 10: say about manufacturing is number one, it's a smaller share

517
00:23:46,960 --> 00:23:49,280
Speaker 10: of the US economy than services. Services is going to

518
00:23:49,280 --> 00:23:52,359
Speaker 10: be the more important driver. And number two, we still

519
00:23:52,359 --> 00:23:54,480
Speaker 10: have high interest rates, we still have a strong dollar.

520
00:23:54,520 --> 00:23:56,280
Speaker 10: Those are things that are going to weigh on manufacturing

521
00:23:56,320 --> 00:23:56,640
Speaker 10: as well.

522
00:23:56,720 --> 00:23:59,400
Speaker 3: First, right, can give us the month May. Why May?

523
00:24:00,080 --> 00:24:02,160
Speaker 6: We think in May they'll see enough.

524
00:24:02,200 --> 00:24:04,880
Speaker 10: FED officials will have seen enough to conclude that inflation

525
00:24:05,040 --> 00:24:08,720
Speaker 10: is slowing, that growth is slowing, and resolves some of

526
00:24:08,760 --> 00:24:12,200
Speaker 10: the uncertainty around tariffs and trade. April second is the

527
00:24:12,240 --> 00:24:14,160
Speaker 10: day when we're supposed to get some announcements.

528
00:24:13,680 --> 00:24:15,159
Speaker 3: It's March nineteenth. To snooze or not.

529
00:24:16,359 --> 00:24:18,280
Speaker 6: It is just probably a wait and see meeting.

530
00:24:18,359 --> 00:24:20,280
Speaker 10: Yeah, I don't know if I want to say snooze,

531
00:24:20,280 --> 00:24:22,159
Speaker 10: because it's my job to make these things interesting.

532
00:24:22,240 --> 00:24:24,119
Speaker 6: But I'll be tuning in. I'm not sure a lot

533
00:24:24,160 --> 00:24:24,720
Speaker 6: of others will.

534
00:24:24,760 --> 00:24:27,480
Speaker 2: We'll be here, Andrew Honjoso City. I hope others tune

535
00:24:27,480 --> 00:24:39,520
Speaker 2: in as well. Michael Kushmer more Can Stanley joined just

536
00:24:39,560 --> 00:24:42,000
Speaker 2: now for more Michael jumping into the city into the studio.

537
00:24:42,040 --> 00:24:43,320
Speaker 3: Good morning, sir, Good morning.

538
00:24:43,440 --> 00:24:46,160
Speaker 2: I mentioned BMP Parabah who said a few times earlier

539
00:24:46,400 --> 00:24:49,280
Speaker 2: this month that the Federal Reserve was comfortably numb. How

540
00:24:49,359 --> 00:24:52,720
Speaker 2: uncomfortable are they going to be in a few weeks time, it's.

541
00:24:52,640 --> 00:24:55,160
Speaker 1: Gonna well, they may be uncomfortable, but they'll have more

542
00:24:55,200 --> 00:24:59,520
Speaker 1: information about exactly how serious the Trump administration is on

543
00:25:00,040 --> 00:25:01,040
Speaker 1: using these tariffs.

544
00:25:01,040 --> 00:25:02,960
Speaker 3: Because we know that the use.

545
00:25:02,800 --> 00:25:05,720
Speaker 1: Of tariffs as multiple objectives. One is to extract other

546
00:25:05,800 --> 00:25:08,880
Speaker 1: concessions on other issues. That one is to raise revenue

547
00:25:08,920 --> 00:25:12,600
Speaker 1: to achieve their budgetary goals. So how those are balance

548
00:25:12,760 --> 00:25:16,359
Speaker 1: and the inflationary impact versus the negative economic growth impact

549
00:25:16,600 --> 00:25:19,159
Speaker 1: Juggling all those things, We're not sure how they're going

550
00:25:19,200 --> 00:25:20,960
Speaker 1: to weigh those things in the fedest a way to

551
00:25:21,000 --> 00:25:23,080
Speaker 1: see how they're going to judge.

552
00:25:22,920 --> 00:25:25,479
Speaker 2: Those go make some kind of underlying assumptions about how

553
00:25:25,480 --> 00:25:26,960
Speaker 2: this is going to play out for the year ahead.

554
00:25:27,000 --> 00:25:28,760
Speaker 3: What's your base case? What's the baseline for me?

555
00:25:29,760 --> 00:25:32,760
Speaker 1: The base case is that in general macroeconomicist was just

556
00:25:32,920 --> 00:25:36,800
Speaker 1: tariffs are stagflationaries, like a tax on the economy with

557
00:25:36,840 --> 00:25:39,240
Speaker 1: like a supply shock, and it's not good at least

558
00:25:39,240 --> 00:25:42,119
Speaker 1: in the short and the short term before longer term

559
00:25:42,200 --> 00:25:45,440
Speaker 1: production adjustments can occur. So in some sense you would

560
00:25:45,480 --> 00:25:48,680
Speaker 1: think this puts the FED in an uncomfortable position with

561
00:25:48,800 --> 00:25:52,119
Speaker 1: stagflation and outcomes are ambiguous as to what you should do.

562
00:25:52,440 --> 00:25:54,800
Speaker 1: How big a negative impact will have an economy in

563
00:25:54,840 --> 00:25:57,399
Speaker 1: the short term for a sound inflationary it will be.

564
00:25:57,880 --> 00:26:01,920
Speaker 1: And if you think about the Trump administration's policies could

565
00:26:01,960 --> 00:26:04,480
Speaker 1: be there's positive things about it. There's negative things about

566
00:26:04,520 --> 00:26:07,239
Speaker 1: it in terms of supply side, demand side, but the

567
00:26:07,240 --> 00:26:10,479
Speaker 1: headlines in the short term are quite with the trend

568
00:26:10,600 --> 00:26:13,360
Speaker 1: in spending and the economy a little weaker than expected

569
00:26:13,480 --> 00:26:16,160
Speaker 1: in recently is putting this little more downward pressure, which

570
00:26:16,160 --> 00:26:20,000
Speaker 1: makes I think maybe a little more nervous that maybe

571
00:26:20,040 --> 00:26:21,880
Speaker 1: the next couple of months that the economy be softer

572
00:26:22,000 --> 00:26:22,560
Speaker 1: that expected.

573
00:26:22,760 --> 00:26:25,000
Speaker 5: It's difficult to have conviction at a time. Whereas gold

574
00:26:25,080 --> 00:26:28,240
Speaker 5: Min Sachs put it, you end up with headline roulette.

575
00:26:28,280 --> 00:26:30,479
Speaker 5: How can you basically come up with any kind of

576
00:26:30,480 --> 00:26:34,960
Speaker 5: conviction if you're dealing with potential threats that emerge that

577
00:26:35,160 --> 00:26:37,000
Speaker 5: are unclear at different moments.

578
00:26:37,520 --> 00:26:38,880
Speaker 6: Do you have any conviction yet?

579
00:26:39,400 --> 00:26:41,920
Speaker 1: Well, the conviction has been that the underlying momentum of

580
00:26:41,960 --> 00:26:44,480
Speaker 1: the US economy has been strong, but narrowly based on

581
00:26:44,560 --> 00:26:47,240
Speaker 1: the buid administration. Was a lot of government spending. Tax

582
00:26:47,280 --> 00:26:51,800
Speaker 1: policy driven a growth in the economy. Employment growth was strong,

583
00:26:51,960 --> 00:26:54,800
Speaker 1: but inflation was high. We kind of knew what to

584
00:26:54,800 --> 00:26:56,880
Speaker 1: do with that. The Fed would cut rates if inflation

585
00:26:57,000 --> 00:26:59,320
Speaker 1: was low. And there's some signs of weakening the economy.

586
00:26:59,520 --> 00:27:02,120
Speaker 1: But going forward, these much more uncertain as to how

587
00:27:02,160 --> 00:27:04,320
Speaker 1: the economy is going to play out, so you have

588
00:27:04,400 --> 00:27:05,960
Speaker 1: to wait and see.

589
00:27:06,000 --> 00:27:08,160
Speaker 3: So we've adopted a more weight and see attitude.

590
00:27:08,160 --> 00:27:11,400
Speaker 1: We think credit markets are still pretty robust, corporate fundamentals

591
00:27:11,400 --> 00:27:15,040
Speaker 1: are really strong. Could they deteriorate at the margin. It's possible,

592
00:27:15,080 --> 00:27:17,680
Speaker 1: So we're a little leery of adding and taking big

593
00:27:17,760 --> 00:27:19,680
Speaker 1: bets on in credit markets. But by the other hand,

594
00:27:19,680 --> 00:27:22,440
Speaker 1: there's no these signs yet that the weakness we've seen.

595
00:27:22,480 --> 00:27:26,480
Speaker 1: Late January and February were really weird months in terms

596
00:27:26,480 --> 00:27:30,639
Speaker 1: of forest fire, forest fires in California, really cold weather.

597
00:27:30,920 --> 00:27:34,200
Speaker 1: How this that was disruptive to a tariffs and Trump policy.

598
00:27:34,240 --> 00:27:37,560
Speaker 1: How disruptive that was two people's behavior. Headlines are certainly

599
00:27:37,560 --> 00:27:42,080
Speaker 1: not very conducive to being confident about the future, with layoffs,

600
00:27:42,680 --> 00:27:48,360
Speaker 1: falling spending, the reductions of government spending.

601
00:27:48,720 --> 00:27:51,720
Speaker 5: So what would it take for you to get bullish

602
00:27:51,880 --> 00:27:54,520
Speaker 5: on long term bonds to actually think that this is

603
00:27:54,560 --> 00:27:55,840
Speaker 5: going to be a growth impact.

604
00:27:56,760 --> 00:27:58,760
Speaker 3: It will have to see the unemployment rate change.

605
00:27:58,760 --> 00:28:01,000
Speaker 1: I think that's the FED has employment mandate and it

606
00:28:01,000 --> 00:28:04,320
Speaker 1: has an inflation mandate, and the inflation situation was not

607
00:28:04,480 --> 00:28:07,280
Speaker 1: great lately. But this could be better in the next

608
00:28:07,280 --> 00:28:09,639
Speaker 1: couple months, or it could just go sideways. But the

609
00:28:09,840 --> 00:28:13,040
Speaker 1: unemployment rate stays where it is, the Fed's going to

610
00:28:13,119 --> 00:28:18,000
Speaker 1: find it tough to change policy from where we are today.

611
00:28:18,600 --> 00:28:21,240
Speaker 3: But we have seen big swings.

612
00:28:20,840 --> 00:28:24,160
Speaker 1: In FED attitudes towards policy in the last twelve months

613
00:28:24,440 --> 00:28:26,600
Speaker 1: July and summer of last year, when inflation was going

614
00:28:26,680 --> 00:28:28,680
Speaker 1: up for the first half of the year, the FED

615
00:28:28,720 --> 00:28:29,400
Speaker 1: said maybe.

616
00:28:29,200 --> 00:28:30,560
Speaker 3: No rate cuts, rain with the year.

617
00:28:30,560 --> 00:28:33,720
Speaker 1: By September lots of rate cuts, and now maybe not

618
00:28:33,760 --> 00:28:35,960
Speaker 1: so many rate cuts. I think they're very much in

619
00:28:36,000 --> 00:28:38,680
Speaker 1: the thing. We don't don't trust our models. We're going

620
00:28:38,720 --> 00:28:42,480
Speaker 1: to wait and see how actual data evolves. Data dependent,

621
00:28:42,720 --> 00:28:45,240
Speaker 1: but they're seem to be very responsive to short term

622
00:28:45,280 --> 00:28:48,080
Speaker 1: fluctuations in data, which have been fairly erratic.

623
00:28:48,280 --> 00:28:50,800
Speaker 2: We've seen risk markets, risk assets get hit a little

624
00:28:50,840 --> 00:28:53,560
Speaker 2: bit over the last week or so. Is the FED

625
00:28:53,600 --> 00:28:56,040
Speaker 2: put constraint given the risk that they face the two

626
00:28:56,040 --> 00:28:57,960
Speaker 2: way risks that some people have described.

627
00:28:58,280 --> 00:29:01,080
Speaker 1: I think it's constrained from the point of of responding

628
00:29:01,120 --> 00:29:05,000
Speaker 1: immediately to weakness and equities. If spending in the US

629
00:29:05,120 --> 00:29:07,400
Speaker 1: economy know has been led by high the high income

630
00:29:07,400 --> 00:29:09,800
Speaker 1: part of the distribution, and as we know, wealth effects

631
00:29:09,840 --> 00:29:12,440
Speaker 1: have been very powerfully positive for high income people in

632
00:29:12,480 --> 00:29:16,000
Speaker 1: terms of the equity market, the housing market, crypto markets,

633
00:29:16,040 --> 00:29:18,240
Speaker 1: whatever you want to call it. It's all been up, up, up,

634
00:29:18,400 --> 00:29:21,800
Speaker 1: So even if income growth hasn't been great, you feel wealthier.

635
00:29:21,800 --> 00:29:22,840
Speaker 3: You spend more money on.

636
00:29:22,840 --> 00:29:26,080
Speaker 1: Durable goods and holidays and things, things like that if

637
00:29:26,080 --> 00:29:28,400
Speaker 1: that is starting to start to worry about that. And

638
00:29:28,400 --> 00:29:33,360
Speaker 1: there's a story that the FED is indirectly targeting.

639
00:29:32,880 --> 00:29:34,360
Speaker 3: You know, the equity market.

640
00:29:34,640 --> 00:29:37,720
Speaker 1: The economy can't slow and inflation can slow unless the

641
00:29:37,720 --> 00:29:42,120
Speaker 1: equity market does worse, because that will slow spending of

642
00:29:42,200 --> 00:29:42,960
Speaker 1: high income people.

643
00:29:43,040 --> 00:29:44,400
Speaker 3: Does that help will hert the tenure?

644
00:29:45,480 --> 00:29:47,000
Speaker 6: It helps the ten ure?

645
00:29:47,800 --> 00:29:50,520
Speaker 1: I mean there is a story I've seen around that

646
00:29:50,640 --> 00:29:53,120
Speaker 1: maybe you know, the Trump administration is not targeting you know,

647
00:29:53,160 --> 00:29:54,640
Speaker 1: the S and P. As a measure of success is

648
00:29:54,680 --> 00:29:56,840
Speaker 1: the tenure treasury. The lower it goes, the better.

649
00:29:57,760 --> 00:30:00,760
Speaker 5: So let's just use some scenario analysis next year. By

650
00:30:00,760 --> 00:30:03,120
Speaker 5: the way, I'm turning into TK with my throat claim

651
00:30:03,160 --> 00:30:08,040
Speaker 5: and I apolished this, you know, he said this, Tara

652
00:30:08,160 --> 00:30:09,959
Speaker 5: is something one thing that leads to another. I am

653
00:30:10,000 --> 00:30:13,800
Speaker 5: curious next week on March fourth, if their tariffs are

654
00:30:13,840 --> 00:30:16,000
Speaker 5: put on, what happens to the tenure?

655
00:30:16,200 --> 00:30:17,960
Speaker 7: Does it rally or does it sell off?

656
00:30:18,200 --> 00:30:19,680
Speaker 3: I think it rallies.

657
00:30:21,400 --> 00:30:22,120
Speaker 6: Significantly.

658
00:30:22,200 --> 00:30:23,480
Speaker 3: I think that that I think.

659
00:30:23,360 --> 00:30:26,280
Speaker 1: The markets are more concerned with downside implications for growth

660
00:30:26,320 --> 00:30:28,680
Speaker 1: than they were about upside inflation surprises.

661
00:30:28,880 --> 00:30:31,280
Speaker 5: What shifted from late last year till now?

662
00:30:31,360 --> 00:30:34,760
Speaker 1: I think it's the actual data that's been weakening prior

663
00:30:34,880 --> 00:30:37,560
Speaker 1: to all this this tariff stuff, when people were not

664
00:30:39,000 --> 00:30:42,160
Speaker 1: sure that the demonstration was serious about imposing terrors.

665
00:30:42,160 --> 00:30:44,320
Speaker 3: Well this is just a negotiating tactics of go away.

666
00:30:44,640 --> 00:30:48,280
Speaker 1: But data has actually been weakening into this environment. So

667
00:30:48,320 --> 00:30:51,080
Speaker 1: it's the economy is more fragile, not for weak growth,

668
00:30:51,120 --> 00:30:53,840
Speaker 1: but weaker growth. So you think US growth has been

669
00:30:54,040 --> 00:30:58,360
Speaker 1: targeting artment toggling two and three percent, Well, if we

670
00:30:58,440 --> 00:31:00,920
Speaker 1: fall below two percent, I think the said put starts

671
00:31:00,960 --> 00:31:02,240
Speaker 1: becoming more operative again.

672
00:31:02,400 --> 00:31:04,800
Speaker 2: Michael Krishmer of Morgan Stanley loves to think about sir.

673
00:31:04,880 --> 00:31:05,200
Speaker 3: Thank you.

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00:31:06,000 --> 00:31:09,560
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00:31:09,600 --> 00:31:12,920
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00:31:12,960 --> 00:31:15,920
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00:31:19,960 --> 00:31:22,160
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