WEBVTT - Bloomberg Surveillance TV: February 28, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:36.880 Bloomberg Terminal and the Bloomberg Business app. Let's talk about 0:00:36.880 --> 0:00:39.920 the bond market. Lisa's favorite, the tenure government bondyard is 0:00:40.040 --> 0:00:43.720 lower on this week for a seventh consecutive week, the 0:00:43.800 --> 0:00:47.680 longest streak in more than five years. Steve Major of HSBC, 0:00:47.920 --> 0:00:50.200 good friend of this program, good friend of ours, joined 0:00:50.240 --> 0:00:50.919 us here in New York. 0:00:50.920 --> 0:00:51.760 Steve, It's good to see you. 0:00:51.800 --> 0:00:52.280 Good morning. 0:00:52.440 --> 0:00:55.080 What's behind that rally of almost two months on tenure 0:00:55.120 --> 0:00:56.040 government bondyards? 0:00:56.240 --> 0:00:58.000 I think you touched on some of it in the 0:00:59.440 --> 0:01:08.200 pre am can't call it a preamble. Yeah, So how 0:01:08.240 --> 0:01:12.800 do you disseggregate this this bond valley? Because it probably 0:01:12.800 --> 0:01:15.959 it probably starting with something really simple. It could be 0:01:16.080 --> 0:01:18.840 the market was just too cheap. So there's a valuation angle, 0:01:18.880 --> 0:01:20.680 and you can see it in swap spreads. You can 0:01:20.720 --> 0:01:23.399 see it in US bond yields versus the rest of 0:01:23.440 --> 0:01:25.920 the world. You can see it in real yields being 0:01:26.000 --> 0:01:28.440 above two, all that kind of thing. So maybe point 0:01:28.440 --> 0:01:30.039 one it was just too cheap, and then you get 0:01:30.080 --> 0:01:33.520 some trigger events or you get something that that starts 0:01:33.560 --> 0:01:36.840 to spark it. Maybe and I think maybe there was 0:01:37.120 --> 0:01:39.880 a bit more confidence in the fiscal position and and 0:01:39.920 --> 0:01:42.520 so I think you mentioned dog that could that could 0:01:42.600 --> 0:01:46.360 be key. In between the date of the election back 0:01:46.400 --> 0:01:49.720 in November and the inauguration, I think markets were also 0:01:49.920 --> 0:01:53.440 sensing the regulatory shift, which meant there could have been 0:01:53.520 --> 0:01:57.520 some pre positioning which was more favorable towards treasuries. Now 0:01:57.640 --> 0:02:00.840 that was coming in the treasuries versus swap spread, right, 0:02:00.880 --> 0:02:03.200 So there's a bunch of things that were happening. You've 0:02:03.240 --> 0:02:06.000 talked about seven weeks of bond rally. I think it's 0:02:06.000 --> 0:02:09.520 been helped by some of the forward looking data, so 0:02:10.000 --> 0:02:14.040 Atlanta fed GDP, now some of the survey data think 0:02:14.040 --> 0:02:17.280 about what's going to happen to confidence when uncertainty goes up, 0:02:17.320 --> 0:02:21.000 so uncertainty is not volatility. Uncertainty in the real world, 0:02:21.040 --> 0:02:23.280 in the real economy means people sit on their hands 0:02:23.880 --> 0:02:27.440 and they don't do stuff. It means that the investments 0:02:27.480 --> 0:02:30.720 aren't made, decisions aren't made, and that's not good for growth. 0:02:31.680 --> 0:02:35.640 Uncertainty in markets normally means there's a big dispersion in 0:02:35.720 --> 0:02:37.960 opinion about what's going to happen. But I think in 0:02:38.000 --> 0:02:41.960 the real world it's actually consistent with the surveys softening 0:02:42.040 --> 0:02:43.320 ahead of the real data. 0:02:43.360 --> 0:02:46.160 It's completely against the grain compared to where we were 0:02:46.160 --> 0:02:48.040 at the end of last year. And that's what's intriguing 0:02:48.080 --> 0:02:50.080 for us on this program. At the end of last year, 0:02:50.400 --> 0:02:53.520 when Donald Trump won the presidency, we saw curve steepen 0:02:53.760 --> 0:02:55.720 and you're to push at the long end of the curve, 0:02:55.800 --> 0:02:59.120 and people were talking about things like tax cuts, more issuance, 0:02:59.360 --> 0:03:01.000 heavier supply, its st come. 0:03:01.280 --> 0:03:03.560 Have we just parked that story? Can we ignore that story? 0:03:03.919 --> 0:03:06.440 Again? Positioning is important. We came into the year with 0:03:06.520 --> 0:03:10.480 the consensus position and the position being a bearish steepening 0:03:10.520 --> 0:03:13.639 of the curve, inflation, fiscal blah blah blah. I did 0:03:13.960 --> 0:03:16.359 in an interview with Manus at the start of the 0:03:16.440 --> 0:03:19.359 year and I said, I'm not meeting any bomballs. That's 0:03:19.400 --> 0:03:22.040 because there weren't any, right, So once you get a 0:03:22.080 --> 0:03:25.760 bit of momentum, then people become a bit more confident. 0:03:25.919 --> 0:03:29.200 And it's a bit scary the recency bias in these 0:03:29.240 --> 0:03:31.680 markets and that people do like a bit of momentum. 0:03:32.040 --> 0:03:36.120 And so I think the first move was positioning and 0:03:36.560 --> 0:03:40.720 the consensus and then some trigger points. And now for 0:03:40.760 --> 0:03:43.320 this ruddy to be continued, for it to be sustained, 0:03:43.320 --> 0:03:46.160 you're going to have to get something in the data. 0:03:46.880 --> 0:03:50.440 You mentioned payrolls, but it's really economy data. So the 0:03:50.480 --> 0:03:54.280 economy is kind of being retrofitted to where the Fed 0:03:54.320 --> 0:03:57.920 already took rates. Does that make sense, right, The idea 0:03:58.000 --> 0:04:01.280 that maybe they cut too much time, Nobody was really 0:04:01.320 --> 0:04:03.480 saying it, but at the time it seems that they 0:04:03.480 --> 0:04:05.839 were cutting into a window where there was an opportunity 0:04:05.840 --> 0:04:08.000 to come. And then of course bond yields went up 0:04:08.040 --> 0:04:10.080 a lot, even though policy rates had come down one 0:04:10.120 --> 0:04:13.480 hundred basis points, so something was wrong. So the bond 0:04:13.560 --> 0:04:16.320 market is moving back into line, but really the economy 0:04:16.360 --> 0:04:18.560 has to be fitted to where the policy rates are 0:04:18.960 --> 0:04:21.440 as well. So there's a lot of this going on 0:04:21.480 --> 0:04:24.280 that I think explains the bond ready move, and we 0:04:24.279 --> 0:04:26.960 can get through four percent on the tens in the 0:04:26.960 --> 0:04:30.880 next few weeks with this momentum continuing. If we're talking 0:04:30.920 --> 0:04:33.360 about ten weeks of bond really, in three weeks time, 0:04:33.440 --> 0:04:36.000 we'll be through four solutely. 0:04:36.200 --> 0:04:37.880 What I'm hearing from you is that if we get 0:04:37.920 --> 0:04:40.920 some weaker economic data, we could see this bond rally accelerate. 0:04:40.960 --> 0:04:43.200 Wee get the ten year below four percent and the 0:04:43.240 --> 0:04:48.600 idea of real growth concerns bleeding through the entire treasury space. Yeah, 0:04:48.640 --> 0:04:51.320 how much do you buy the idea that this bond 0:04:51.360 --> 0:04:53.480 market and this federal reserve is going to be constrained 0:04:54.000 --> 0:04:57.880 by stiflationary fears, cyclation light, et cetera. How much does 0:04:57.920 --> 0:04:58.920 policy play into this? 0:04:59.279 --> 0:05:02.159 Quite rightly to qualify it with stagflation light, because you 0:05:02.200 --> 0:05:06.080 know that pure stagflation requires recession and accelerating inflation. We're 0:05:06.120 --> 0:05:08.480 nowhere near either of those at the moments, so you're 0:05:08.560 --> 0:05:12.040 quite right to qualify that. It strikes me that inflation 0:05:12.200 --> 0:05:15.080 between two and the three is not a problem for anyone, 0:05:15.200 --> 0:05:18.400 and it's probably part of what's really desired because there's 0:05:18.400 --> 0:05:21.120 too much debt, and the process of dissolving the debt 0:05:21.240 --> 0:05:23.680 requires inflation to be a touchover target. I don't think 0:05:23.720 --> 0:05:26.239 anyone's going to worry about two to three on inflation. 0:05:26.520 --> 0:05:29.440 The Fed's already pivoted to a growth focus. They did 0:05:29.440 --> 0:05:33.640 that last year and now we're seeing validation of that pivot. So, 0:05:33.839 --> 0:05:35.840 as I said, the economy needs to fit to where 0:05:35.880 --> 0:05:38.479 the to where the path of lower rates needs it 0:05:38.520 --> 0:05:41.560 to be. That may sound like a reverse, a reverse 0:05:41.600 --> 0:05:45.039 in the causality, but this sometimes is how it works. 0:05:45.120 --> 0:05:45.320 Right. 0:05:45.720 --> 0:05:50.120 So I'm not that worried about inflation and your famous 0:05:50.200 --> 0:05:51.520 last words, but. 0:05:52.640 --> 0:05:55.120 You're not that worried about inflation, but FED officials. 0:05:54.680 --> 0:05:58.360 Are, and they're talking about the potential for having to choose, 0:05:58.560 --> 0:06:02.800 having to weigh the evils of whether inflation is sticky 0:06:03.040 --> 0:06:08.560 or even accelerating modestly and some sort of downside to growth. Yeah, 0:06:08.640 --> 0:06:10.800 as barn investors, how do you grapple with it? 0:06:10.800 --> 0:06:13.120 It's fair what you've said. That is part of their job, 0:06:13.680 --> 0:06:15.960 and there are some in the FED who don't completely 0:06:16.080 --> 0:06:18.640 worry about inflation so much, right, so that you have 0:06:18.640 --> 0:06:21.320 a range of views, just like in any essential bank, 0:06:22.000 --> 0:06:24.680 the fiscal policy I think is dominance. You've heard of 0:06:24.680 --> 0:06:27.920 fiscal dominance. For the bond deal to be at the 0:06:28.000 --> 0:06:30.160 right level for the fiscal policy, it needs to be 0:06:30.200 --> 0:06:34.640 at four percent or below. The CBO. The Budget Office 0:06:35.360 --> 0:06:38.320 is budgeting four point one zero on the ten year. Now, 0:06:38.360 --> 0:06:40.679 back in September we were at three point six almost, 0:06:40.760 --> 0:06:43.800 so it was nicely inside. So to be able to 0:06:43.839 --> 0:06:46.839 afford this level of debt with the interest payments that 0:06:46.880 --> 0:06:49.640 come from it, we need the yields below four. So 0:06:49.880 --> 0:06:54.160 I think that by having a fiscally responsible treasury set 0:06:54.240 --> 0:07:00.080 up and the expense cuts coming through and the economy cooling, 0:07:00.200 --> 0:07:03.720 you haven't got to worry about inflation so much. I 0:07:03.720 --> 0:07:06.000 think it is their job to be to be a 0:07:06.000 --> 0:07:08.320 bit hawkish on inflation, but I don't really think it's 0:07:08.360 --> 0:07:08.800 a problem. 0:07:08.960 --> 0:07:11.960 I'll ask a simple question which requires a very thoughtful answer, 0:07:11.960 --> 0:07:13.200 and I know you've given it some thought. 0:07:13.480 --> 0:07:14.520 Does the supply matter? 0:07:15.520 --> 0:07:16.840 No? Next question? 0:07:17.120 --> 0:07:17.480 Why not? 0:07:21.000 --> 0:07:21.200 Right? 0:07:21.680 --> 0:07:23.960 So I have this conversation every day of the week 0:07:24.000 --> 0:07:27.440 with clients. Right, and you think about from a trader's perspective, 0:07:28.240 --> 0:07:30.440 it does matter because they've got to take down all 0:07:30.480 --> 0:07:33.320 this supply and auctions and syndications and so there's a 0:07:33.320 --> 0:07:37.200 concession around the supply that must that should not be confused. 0:07:37.240 --> 0:07:39.840 That concession around the supply should not be confused with 0:07:39.880 --> 0:07:43.320 their strategic view, because the bond yield is a function 0:07:43.400 --> 0:07:46.600 of today's policy rate and expectations for that policy rate 0:07:46.640 --> 0:07:49.520 where it ends up in the future. Right, And it 0:07:49.560 --> 0:07:52.200 strikes me that it could be a double counting on 0:07:52.280 --> 0:07:54.920 the yields if we start adding too much additional term 0:07:54.960 --> 0:07:57.400 premium to what's already in the price. So if the 0:07:57.400 --> 0:08:00.560 Federal Reserve thinks that the deficits are problem and is 0:08:00.600 --> 0:08:02.920 causing inflation, then they're not going to cut rates. They 0:08:03.000 --> 0:08:05.480 might even be hiking them, right. But if the Federal 0:08:05.560 --> 0:08:08.480 Reserve things this economy is cooling down and the stock 0:08:08.520 --> 0:08:10.680 of the debt and the interest payments are weighing on 0:08:10.720 --> 0:08:14.320 future growth, and in fact, there's a path to lower rates, 0:08:14.320 --> 0:08:16.000 and the second half of the year they are cutting 0:08:16.800 --> 0:08:17.600 along that path. 0:08:17.800 --> 0:08:18.040 Right. 0:08:18.200 --> 0:08:21.800 So it just strikes me that it's very dangerous to 0:08:21.800 --> 0:08:23.720 say always a lot of supply, the yield goes up, 0:08:24.000 --> 0:08:27.720 because there is no empirical evidence for that. Look what's 0:08:27.720 --> 0:08:31.480 going on in China and Japan, and also look at 0:08:31.480 --> 0:08:34.199 the bond yield which is above four percent, it's around 0:08:34.200 --> 0:08:37.240 four twenty five. The policy rate is four twenty five, 0:08:37.280 --> 0:08:40.920 four point fifty. It doesn't strike me that there's a 0:08:41.000 --> 0:08:43.760 lot wrong with a bond yield that reflects the view 0:08:43.800 --> 0:08:45.960 that the policy rate is going to stay unchanged for 0:08:46.040 --> 0:08:48.520 quite a long time. If you change that view to 0:08:48.559 --> 0:08:50.319 the fact that the Fed is back on the path 0:08:50.360 --> 0:08:53.559 of lower rates, the bond yield should come down. But 0:08:54.040 --> 0:08:56.960 I don't know, there's this intuition that the supply matters. 0:08:57.320 --> 0:09:00.400 It's informed by the auctions and the syndication and the 0:09:00.400 --> 0:09:03.400 concessions that the dating rooms have to take in to 0:09:03.480 --> 0:09:05.880 take into account. Right, but not to be confused for 0:09:05.960 --> 0:09:08.400 the strategic view and where bonios would be staith. 0:09:08.640 --> 0:09:12.760 I knew that would eventually States just face SAE. 0:09:12.760 --> 0:09:13.960 State's going to say why why. 0:09:24.000 --> 0:09:25.520 More clarity and more tariffs. 0:09:25.520 --> 0:09:27.480 That's the message from the White House when it comes 0:09:27.520 --> 0:09:30.480 to this deadline on Tuesday, that pause for twenty five 0:09:30.520 --> 0:09:34.079 percent on Canada and Mexico unless they showed they were 0:09:34.120 --> 0:09:36.800 doing enough to stop the flow of migrants and also 0:09:36.920 --> 0:09:40.200 really fentanyl. Then those tariffs go into play, and then 0:09:40.640 --> 0:09:42.839 the President ad really is spat on the works, adding 0:09:42.880 --> 0:09:45.400 an additional ten percent when it comes to China. So 0:09:45.480 --> 0:09:47.480 let's break all this down because the calendar is getting 0:09:47.559 --> 0:09:48.160 very busy. 0:09:47.960 --> 0:09:50.080 On the trade front. Kelly and Shaw joins me. 0:09:50.200 --> 0:09:53.400 She's now with Hogal Lovers, but she was a former 0:09:53.440 --> 0:09:55.560 senior White House trade advisor. 0:09:55.120 --> 0:09:58.280 And negotiator under Trump. One point zero. Let's just start 0:09:58.280 --> 0:10:00.360 with the calendar. March fourth, this. 0:10:00.400 --> 0:10:03.480 Pause, but the directives already there, so unless they come 0:10:03.480 --> 0:10:07.200 out with another executive order, those tariffs on Mexico and 0:10:07.280 --> 0:10:09.400 Canada twenty five percent go into place, and then Donald 0:10:09.440 --> 0:10:12.520 Trump added an additional ten percent on China March twelfth, 0:10:12.559 --> 0:10:15.439 twenty five percent on steel and aluminum. April first, we 0:10:15.520 --> 0:10:17.800 get the whole report of where trade is right now 0:10:17.800 --> 0:10:21.079 in terms of reciprocity with America partners and April second, 0:10:21.400 --> 0:10:23.880 auto tariffs, reciprocal tariffs across the board. 0:10:24.440 --> 0:10:25.480 What are you focused on? 0:10:26.880 --> 0:10:29.400 Can I say all of the above. It has certainly 0:10:29.400 --> 0:10:31.440 been a busy week from trade, and on top of that, 0:10:31.480 --> 0:10:36.120 we just got the confirmation of US Trade Representative Jamison Greer, 0:10:36.440 --> 0:10:39.760 as well as the announcement after the Donald Trump and 0:10:40.160 --> 0:10:43.920 Starmer bilateral of a US UK FTA which will be 0:10:43.960 --> 0:10:47.200 negotiated soon so any one of these would be enough 0:10:47.240 --> 0:10:49.320 to derail a trade lawyer's week. And so we have 0:10:49.640 --> 0:10:52.640 all of these happening at once. So what I can 0:10:52.679 --> 0:10:54.800 say is I think the President is just gearing up. 0:10:55.280 --> 0:10:57.200 I think the calendar is only going to get even 0:10:57.280 --> 0:10:59.720 more full, especially as we get closer to that April 0:11:00.080 --> 0:11:02.360 line for all of those reports that are due, and 0:11:02.400 --> 0:11:05.120 I fully expect him to continue this trade train for 0:11:05.160 --> 0:11:07.520 the next several months and next couple of years. 0:11:07.559 --> 0:11:09.079 How do you read the tea leaves right now? When 0:11:09.080 --> 0:11:11.360 it comes to Canada Mexico. Let's start there, because those 0:11:11.360 --> 0:11:15.040 are coming into place Tuesday. We have the Mexican Economy 0:11:15.080 --> 0:11:17.439 official Minister here in Washington, d C. 0:11:17.640 --> 0:11:19.839 Yesterday I met with Jamison Greer. Today is going to 0:11:19.960 --> 0:11:21.640 meeting with Commerce Secretary Howard Lutnik. 0:11:21.760 --> 0:11:25.800 We have the Canadian ventinyls are meeting with Tom. 0:11:25.520 --> 0:11:26.480 Holman this week. 0:11:26.960 --> 0:11:29.920 Do you think these two countries are offering enough concessions 0:11:29.960 --> 0:11:32.640 for Trump to put out an EO saying the twenty 0:11:32.640 --> 0:11:34.040 five percent will not go through. 0:11:34.840 --> 0:11:35.080 Yeah. 0:11:35.120 --> 0:11:37.840 I mean, when I'm picking up are somewhat positive signals 0:11:37.880 --> 0:11:40.320 from both the Canadians and Mexicans in terms of how 0:11:40.320 --> 0:11:44.200 those conversations are going. However, it is very clear that 0:11:44.280 --> 0:11:47.400 what the President wants is a reduction in deaths related 0:11:47.440 --> 0:11:51.599 defentanyl and cooperation in terms of the border and border security. 0:11:52.000 --> 0:11:54.199 And so what I think will likely play out over 0:11:54.240 --> 0:11:57.200 the next couple of days is a high pressure situation 0:11:57.320 --> 0:11:59.760 in which the President is asking both Canada and Mexico 0:11:59.840 --> 0:12:03.000 for more so that they could potentially announce on Tuesday 0:12:03.080 --> 0:12:05.920 or Monday night some sort of suspension for an additional 0:12:05.920 --> 0:12:09.080 thirty days or period of time. But you cannot fix 0:12:09.120 --> 0:12:11.839 these issues overnight. I think it's going to take several months, 0:12:11.840 --> 0:12:14.400 if not years, to resolve some of these core concerns 0:12:14.400 --> 0:12:17.240 of the president. So my expectation is that best case 0:12:17.240 --> 0:12:20.280 scenario from the perspective of Canada and Mexico, we see 0:12:20.280 --> 0:12:24.959 another suspension that continues to get renewed periodically as these 0:12:25.000 --> 0:12:27.400 issues continue to be resolved. But I'm hopeful that there 0:12:27.480 --> 0:12:28.560 is that opportunity and. 0:12:28.559 --> 0:12:30.800 Then Tuesday night, I'll have this joint addressed to Congress, 0:12:30.840 --> 0:12:32.480 so potentially he can go and say, look at all 0:12:32.520 --> 0:12:35.000 these concessions I got when it comes to immigration, which 0:12:35.040 --> 0:12:38.440 I was elected to really clean up. And that's the 0:12:38.480 --> 0:12:41.559 president's words when it comes to China. Is this additional 0:12:41.600 --> 0:12:42.360 ten percent real? 0:12:43.080 --> 0:12:43.480 I think so. 0:12:44.320 --> 0:12:46.480 I think so because I don't see scope for the 0:12:46.559 --> 0:12:50.600 United States and China to resolve the president's core fentanyl 0:12:50.640 --> 0:12:54.400 concerns between now and Tuesday. I see Canada and Mexico here, 0:12:54.440 --> 0:12:58.200 I see active negotiations. They have a representative from almost 0:12:58.240 --> 0:13:01.520 every agency and every province of their respective governments. Those 0:13:01.559 --> 0:13:05.240 conversations aren't happening between the United States and China. Rather, 0:13:05.280 --> 0:13:07.240 I think some of those conversations are going to happen 0:13:07.280 --> 0:13:08.319 after April. 0:13:08.480 --> 0:13:09.520 That's when we've got. 0:13:09.320 --> 0:13:12.240 The report on the Phase one compliance. We have the 0:13:12.400 --> 0:13:16.920 report on the Biden administration's eighteen billion dollars of additional tariffs, 0:13:17.120 --> 0:13:20.000 and we also have that report on China's IP practices 0:13:20.000 --> 0:13:22.679 that are all due to the President with recommendations. And 0:13:22.720 --> 0:13:24.280 that's what I think is going to tee up a 0:13:24.360 --> 0:13:27.360 broader conversation that also involves s fentanyl on some of these. 0:13:27.280 --> 0:13:28.240 Other issues with China. 0:13:28.360 --> 0:13:31.040 So China responded overnight, and this is what the Commerce 0:13:31.080 --> 0:13:33.439 Ministry said. If the US and system having its own way, 0:13:33.559 --> 0:13:36.320 China will counter with all necessary measures to defend its 0:13:36.400 --> 0:13:37.280 legitimate rights. 0:13:37.920 --> 0:13:40.160 And then previously, though in February. 0:13:40.240 --> 0:13:43.760 The response is we would take corresponding steps. So counter 0:13:43.920 --> 0:13:47.480 versus corresponding, what kind of reciprocal action could we see 0:13:47.480 --> 0:13:48.079 from Beijing. 0:13:48.800 --> 0:13:51.320 Yeah, and I think you're seeing an uptick in the 0:13:51.400 --> 0:13:54.920 rhetoric in response from MOFCOM this time. I mean ten 0:13:54.960 --> 0:13:58.640 percent to twenty percent. You're doubling the tariff impact. I 0:13:58.720 --> 0:14:01.679 do think that both sides have interest in not driving 0:14:01.720 --> 0:14:05.439 the relationship off an economic cliff before those talks begin 0:14:05.720 --> 0:14:09.320 after April first. But that said, China's going to have 0:14:09.360 --> 0:14:11.319 to respond, and we've seen that play out for the 0:14:11.640 --> 0:14:13.760 first four years of the Trump administration. I think we'll 0:14:13.800 --> 0:14:16.480 see that same pattern play out in these second four years, 0:14:16.679 --> 0:14:18.599 which is that for every action, there's an equal and 0:14:18.640 --> 0:14:22.280 opposite reaction on the side of China and the United States. 0:14:22.320 --> 0:14:24.200 So I do think we'll see retaliation. It could be 0:14:24.240 --> 0:14:26.840 more tariffs, it could be additional entities added to the 0:14:26.920 --> 0:14:29.800 Unreliable Entity list, the export controls, there could be a 0:14:29.880 --> 0:14:31.480 number of things that China does. 0:14:31.760 --> 0:14:32.920 But again, I think it's going. 0:14:32.840 --> 0:14:35.440 To be fairly moderate in terms of their response because 0:14:35.440 --> 0:14:37.640 there is an opportunity to resolve some of these things 0:14:37.760 --> 0:14:38.480 in the short term. 0:14:38.520 --> 0:14:39.400 You were in the room. 0:14:39.520 --> 0:14:42.160 So Phase one, the trade deal that Trump didn't trump 0:14:42.200 --> 0:14:43.960 one point zero, What do you think he wants this time? 0:14:44.680 --> 0:14:46.800 Well, I think it's not as clear. 0:14:47.040 --> 0:14:49.560 So during the first four years, what was clear to 0:14:49.640 --> 0:14:52.400 us as negotiators is that the President was looking for 0:14:52.520 --> 0:14:55.760 China to stop stealing US technology, stop engaging in unfair 0:14:55.800 --> 0:15:00.400 trading practices, and stop subsidizing industries at the impact of 0:15:00.640 --> 0:15:04.400 US exporters and third country markets. But what was challenging 0:15:04.600 --> 0:15:06.760 for US is the fact that China has a state 0:15:06.840 --> 0:15:09.720 directed economy and they're not going to back away from that. 0:15:09.720 --> 0:15:11.520 They're not going to stop doing some of these things 0:15:11.520 --> 0:15:15.040 that are so impactful for the United States. And so 0:15:15.280 --> 0:15:17.800 it's not really clear what the President is going to 0:15:17.800 --> 0:15:20.120 be asking of China this time. Certainly living up to 0:15:20.160 --> 0:15:25.720 Phase one, certainly help and cooperation on fentanyl, but beyond that, 0:15:25.960 --> 0:15:28.320 it's not clear what the acts are going to be 0:15:28.320 --> 0:15:30.320 on the administration side, and by the way, on China 0:15:30.400 --> 0:15:32.600 side as well, they're interested in the US backing off 0:15:32.640 --> 0:15:35.360 on export controls, potentially backing off on some of these 0:15:35.440 --> 0:15:38.400 national security measures, and I'm not sure there's really a 0:15:38.520 --> 0:15:40.640 runway there for both sides to land the plane. 0:15:40.680 --> 0:15:42.680 If you in the administration now and you are at 0:15:42.680 --> 0:15:45.200 the table negotiating this. Does it help or hurt that 0:15:45.240 --> 0:15:48.280 there's a barrage of trade headlines every single day? 0:15:49.720 --> 0:15:52.240 Well, I think this is just the way it is, right. 0:15:52.280 --> 0:15:54.560 I mean, President Trump, as you said, ran on immigration, 0:15:54.640 --> 0:15:56.680 you ran on inflation, you ran on tariffs. And so 0:15:56.760 --> 0:15:59.160 he's doing what he set out to do, and I 0:15:59.160 --> 0:15:59.600 think he. 0:15:59.560 --> 0:16:01.000 Only has warriors to do it. 0:16:01.080 --> 0:16:03.840 And so to the extent he's looking to fundamentally change 0:16:03.880 --> 0:16:06.440 the global trading system and enact some of these policies 0:16:06.440 --> 0:16:09.120 he's been talking about for decades, even before he was 0:16:09.160 --> 0:16:12.000 elected president, All of that has to happen quite quickly, 0:16:12.240 --> 0:16:14.080 and so that's what I think you're seeing play out. 0:16:14.120 --> 0:16:15.400 And that's why I think this is going to be 0:16:15.440 --> 0:16:17.280 a very full plate for the next several months. 0:16:17.320 --> 0:16:19.400 When it comes to the April second tariffs, the Wall 0:16:19.440 --> 0:16:22.400 Street Journal this morning is saying administration officials are privately 0:16:22.480 --> 0:16:25.320 indicating that the full reciprocal action will take longer than 0:16:25.400 --> 0:16:28.440 April timeline to implement, up to six months or even 0:16:28.480 --> 0:16:31.680 more so, even if we get the direction of travel 0:16:31.720 --> 0:16:34.160 April first or second, When do you actually think the 0:16:34.280 --> 0:16:37.520 tariffs When it comes to the baseline reciprocal tariffs actually come. 0:16:37.400 --> 0:16:39.720 Into play well, I think it depends how they want 0:16:39.760 --> 0:16:42.520 to structure this. Legally, the President has a number of 0:16:42.600 --> 0:16:45.760 statutory authorities which he can use to impose tariffs, and 0:16:45.800 --> 0:16:50.040 he can do a reciprocal tariff, baseline tariffs, products specific tariffs, 0:16:50.040 --> 0:16:52.560 supply chain tariffs, and he's talked about some of these 0:16:52.640 --> 0:16:55.120 over the past couple of weeks, and so he can 0:16:55.160 --> 0:16:57.960 do that through these Section two thirty two investigations like 0:16:58.000 --> 0:17:00.240 we saw for copper just this week. He can do 0:17:00.400 --> 0:17:03.280 Section three oh one investigations, which is the type that 0:17:03.320 --> 0:17:07.399 he used for tariffing China during his first term, and 0:17:07.440 --> 0:17:09.760 these take several months, if not a year to complete. 0:17:09.800 --> 0:17:11.840 I think they can do them much faster than the 0:17:11.880 --> 0:17:13.920 statutory maximum of a year. 0:17:14.560 --> 0:17:15.960 But that said, it's going to be up to the 0:17:15.960 --> 0:17:16.560 team as. 0:17:16.400 --> 0:17:18.520 To how they want to structure some of these tariffs, 0:17:18.520 --> 0:17:20.679 and some of them will be overlapping because they'll involve 0:17:20.760 --> 0:17:24.600 not just like the entire economy of a country or 0:17:24.720 --> 0:17:26.920 a universal baseline style tariff, but also. 0:17:26.840 --> 0:17:29.240 Very product specific tarists specific so it's going to be 0:17:29.240 --> 0:17:31.760 a very long list. All week, we've been talking about 0:17:31.840 --> 0:17:35.359 Canada Mexico, the United Kingdom, potentially a trade deal he's 0:17:35.400 --> 0:17:37.760 announced yesterday's going to be there, the European Union. What 0:17:37.880 --> 0:17:40.360 should be looking at next? Where do you think he's 0:17:40.400 --> 0:17:41.879 going to target next? 0:17:42.320 --> 0:17:44.560 Well, I think he's starting with North America. It's very 0:17:44.560 --> 0:17:47.720 clear we have the largest trading relationships and trade deficits 0:17:47.760 --> 0:17:51.160 with Mexico and Canada, and I think China is going 0:17:51.200 --> 0:17:53.199 to be fast on the heels of North America. 0:17:53.560 --> 0:17:55.320 But he's talked a lot about. 0:17:55.080 --> 0:17:57.560 Europe and his plans for Europe over the past several 0:17:57.600 --> 0:18:00.160 weeks as well, and so in addition to the major 0:18:00.160 --> 0:18:04.040 trading partners that he's mentioned, the US Trade Representative issued 0:18:04.119 --> 0:18:06.760 a request for comments last week in which they specifically 0:18:06.800 --> 0:18:10.200 identified a number of countries that the administration is concerned about. 0:18:10.440 --> 0:18:13.120 Those include the G twenty economies as well as countries 0:18:13.160 --> 0:18:15.560 with whom we have a large trade deficit. So I 0:18:15.600 --> 0:18:18.159 also have Vietnam on my list, I have South Korea, 0:18:18.240 --> 0:18:20.280 I have Japan, and I have India on my list 0:18:20.520 --> 0:18:24.040 as major priorities of the Trump administration throughout this first year. 0:18:24.240 --> 0:18:26.359 Kelly, and thank you so much for joining us this morning. 0:18:26.359 --> 0:18:29.240 You're insight so useful. Jonathan Kelly and Shaw. 0:18:29.280 --> 0:18:29.480 There. 0:18:40.000 --> 0:18:42.639 Andrew Homeholt of City is with us around a table 0:18:42.640 --> 0:18:44.919 to break down the economicator. Andrew, good morning to you. 0:18:45.280 --> 0:18:47.160 We'll get to inflation in just a moment. Let's start 0:18:47.160 --> 0:18:51.200 with personal income versus personal spending. Income up, spending down, 0:18:51.400 --> 0:18:51.960 what gifts. 0:18:52.320 --> 0:18:54.800 Yeah, this is really interesting because we've had such strong 0:18:54.840 --> 0:18:57.719 personal spending that has been the engine of growth and 0:18:57.760 --> 0:19:00.600 resilience for the US economy, and now the month of 0:19:00.680 --> 0:19:02.639 January we're seeing that week. And we already knew some 0:19:02.680 --> 0:19:04.480 of that from the retail sales reading. We're seeing a 0:19:04.480 --> 0:19:06.040