WEBVTT - Bloomberg Surveillance TV: September 16th, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordernt. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.320 Terminal and the Bloomberg Business app in Lincoln of bemo 0:00:37.440 --> 0:00:39.640 Right in the following, we're encouraged by the modest bid 0:00:39.680 --> 0:00:42.919 for treasuries. This does trigger our concern that investors are 0:00:42.960 --> 0:00:45.800 looking for a more dubvish CUD than Powell is going 0:00:45.840 --> 0:00:48.320 to deliver. On Wednesday, he joins us now for more 0:00:48.400 --> 0:00:50.879 in good morning morning, Happy to be here, Great to 0:00:50.920 --> 0:00:52.360 catch up with you. Let's talk about the bond market 0:00:52.400 --> 0:00:55.360 running so far this year, our performing the bond market 0:00:55.360 --> 0:00:58.360 bid has returned to treasuries. Let's start with why. What's 0:00:58.440 --> 0:01:00.080 driving that move for you? So? 0:01:00.120 --> 0:01:02.880 I think there are two main factors. The first is 0:01:03.240 --> 0:01:06.039 we got through the period of being concerned about a 0:01:06.080 --> 0:01:08.520 buyer strike in treasuries. Now we know that there's the 0:01:08.600 --> 0:01:10.320 man at the auction. Now we know there's plenty of 0:01:10.319 --> 0:01:13.760 demand in the secondary market. The second major issue is 0:01:13.800 --> 0:01:17.759 that the period for caref passed through to really move 0:01:17.800 --> 0:01:21.479 the inflation complex has largely passed. Now. That doesn't mean 0:01:21.520 --> 0:01:24.560 that there won't be upward pressure on goods inflation as 0:01:24.600 --> 0:01:27.440 a result of the trade war, but because it wasn't 0:01:27.520 --> 0:01:30.160 condensed into a three month period and is going to 0:01:30.200 --> 0:01:33.800 be spread out over twelve months maybe longer, that means 0:01:33.800 --> 0:01:36.280 that the market can move on to trading. What's next, 0:01:36.280 --> 0:01:38.440 and what's next is the resumption of normalization. 0:01:38.840 --> 0:01:41.120 Do you think that it's a paradox to see both 0:01:41.120 --> 0:01:43.160 a rally and the bond market and a rally in 0:01:43.280 --> 0:01:46.760 risk assets that seem to be really hedged on this 0:01:46.840 --> 0:01:48.440 idea of a reacceleration and growth. 0:01:49.040 --> 0:01:51.360 So I have been very surprised by the resilience of 0:01:51.400 --> 0:01:53.480 the equity market and the fact that we continue to 0:01:53.520 --> 0:01:57.400 move higher and higher and set new records every day. However, 0:01:57.640 --> 0:02:00.560 if we put it in the context of a monetary 0:02:00.600 --> 0:02:04.320 policy adjustment lower that is still holding out hopes for 0:02:04.360 --> 0:02:08.120 a soft landing I think that higher equity evaluations make 0:02:08.240 --> 0:02:10.880 sense in that context. It's not until we get a 0:02:11.120 --> 0:02:13.760 bigger spike in the unemployment rate or a slowdown on 0:02:13.800 --> 0:02:16.720 the consumption side that we would really start a conversation 0:02:16.760 --> 0:02:19.440 about a recession. And barring that, as long as the 0:02:19.480 --> 0:02:21.840 FED is in motion towards lower rates, I don't think 0:02:21.880 --> 0:02:22.679 there's a reason to sell. 0:02:22.840 --> 0:02:25.040 Is there a trigger point in terms of ten year 0:02:25.160 --> 0:02:28.320 yields that signals to you that we really are seeing weakness? 0:02:28.360 --> 0:02:31.560 Bad news is bad news versus just simply people getting 0:02:31.600 --> 0:02:34.800 stomped out of their short not long term treasury positions 0:02:34.840 --> 0:02:36.280 and being forced to buy. 0:02:37.080 --> 0:02:40.320 I think that at this stage, given how positive term 0:02:40.360 --> 0:02:43.880 premium is, particularly further out the curve, that we would 0:02:44.000 --> 0:02:47.080 need to see ten year yields below three seventy five 0:02:47.240 --> 0:02:50.560 or even three sixty five before I would characterize that 0:02:50.720 --> 0:02:54.119 as anything more than just going back to the prior range. 0:02:54.240 --> 0:02:56.560 So we could drift lower in rates just through the 0:02:56.560 --> 0:02:58.040 process of normalization. 0:02:58.320 --> 0:02:59.840 When we quite to you, we toallked about the risk 0:03:00.280 --> 0:03:02.720 into Wednesday, just a lamporight on that what is the 0:03:02.840 --> 0:03:04.960 risk coming into tomorrow's decision? 0:03:05.560 --> 0:03:08.840 So the market is poised for a very douvish takeaway 0:03:08.880 --> 0:03:12.480 from Powell. But the reality is if he goes twenty five, 0:03:12.919 --> 0:03:16.560 that means that we're still restrictive, we're slightly less restrictive 0:03:16.560 --> 0:03:20.120 than we have been, and he will justify continuing to 0:03:20.200 --> 0:03:23.600 remain somewhat restrictive in all the uncertainties. And so if 0:03:23.639 --> 0:03:27.240 the takeaway is that we're not starting twenty five bases 0:03:27.240 --> 0:03:30.240 points per meeting and instead it will be meeting by meeting, 0:03:30.400 --> 0:03:31.600 I think the market sells off. 0:03:31.720 --> 0:03:32.040 How much? 0:03:32.040 --> 0:03:34.680 Why will you put on the debt plot? The market 0:03:34.720 --> 0:03:36.960 loves to trade it and it gets revised all the time. 0:03:37.120 --> 0:03:40.120 So I'm cautious about assuming that that gets realized. 0:03:40.400 --> 0:03:42.320 Do you think that markets have really grappled with the 0:03:42.360 --> 0:03:44.400 idea of FED independence or have they just shrugged it 0:03:44.440 --> 0:03:45.320 off and say. 0:03:45.160 --> 0:03:46.040 What does that mean? 0:03:46.280 --> 0:03:49.200 How can we really even know? And ultimately, whoever's on 0:03:49.240 --> 0:03:51.640 the FED board, we'll do the right thing for the 0:03:51.680 --> 0:03:53.720 economy at a given time, Right, So what's the sort 0:03:53.720 --> 0:03:56.440 of pendulum there for when that starts to matter again? 0:03:57.320 --> 0:04:00.960 So if the FED didn't have the justify cation of 0:04:01.520 --> 0:04:05.120 slower payrolls growth and the bingchmark revisions lower, I think 0:04:05.240 --> 0:04:08.280 we would still be having a conversation about FED independence. 0:04:08.440 --> 0:04:10.560 But the fact of the matter is the data has 0:04:10.800 --> 0:04:14.040 caught up with the pressure that was coming from the administration, 0:04:14.400 --> 0:04:17.920 and so FED independence can be preserved while still cutting rates. 0:04:17.960 --> 0:04:19.960 So we're about thirty six minutes away from the retail 0:04:20.000 --> 0:04:23.120 sales figure that we get out from the United States 0:04:23.200 --> 0:04:24.719 and a real question of how to read this right? 0:04:24.800 --> 0:04:27.160 What are you looking for to indicate whether this builds 0:04:27.240 --> 0:04:30.240 unsoft payrolls data or whether this kind of flies in 0:04:30.279 --> 0:04:31.800 the face of that and points to a lot of 0:04:31.800 --> 0:04:32.919 confidence by consumers. 0:04:33.480 --> 0:04:36.160 Well, from a GDP perspective, we look at what's called 0:04:36.160 --> 0:04:39.520 the control group, with which I mean which backs out 0:04:39.560 --> 0:04:42.480 all the components that don't flow through to the GDP 0:04:43.080 --> 0:04:45.120 consumption figures, and so that'll be the key. 0:04:45.520 --> 0:04:47.120 And if it is zero. 0:04:46.960 --> 0:04:49.479 Point five point six, I think that that's going to 0:04:49.480 --> 0:04:52.560 be a strong showing for a month in which we 0:04:52.640 --> 0:04:54.320 saw weaker payrolls growth. 0:04:54.560 --> 0:04:56.160 There's another thanks to point and that makes us wow 0:04:56.200 --> 0:04:59.360 this morning that one't get as much attention impul prices. 0:05:00.040 --> 0:05:02.520 Important is that as an input to gauge who's paying 0:05:02.520 --> 0:05:04.800 the tariffs right now and who isn't. 0:05:05.160 --> 0:05:08.960 Well interestingly, import prices at this stage are not going 0:05:09.000 --> 0:05:11.599 to be as relevant to the tariff discussion. There will 0:05:11.640 --> 0:05:14.440 be more relevant to put in the final estimates on 0:05:14.520 --> 0:05:17.800 core PCE for this month or for the month of August. 0:05:17.800 --> 0:05:19.520 And I think that that's going to be important because 0:05:19.520 --> 0:05:22.280 we're tracking at zero point one eight, which means a 0:05:22.400 --> 0:05:26.400 very benign print on the Fed's preferred measure of inflation. 0:05:28.279 --> 0:05:31.800 Stay with us more Bloomberg surveillance coming up after this. 0:05:40.920 --> 0:05:43.479 Let's stand to trade. President Trump and She holding a 0:05:43.480 --> 0:05:47.000 call on Friday after trade talks concluded in Matrid, Spain, 0:05:47.120 --> 0:05:49.200 joining us now to discuss as the former senior White 0:05:49.240 --> 0:05:52.280 House Trade advisor Cally Ane. Sure, Cally Anne, welcome back 0:05:52.279 --> 0:05:54.280 to the program. So we get the phone call on 0:05:54.320 --> 0:05:56.880 Friday between Trump and She. What are you expecting to 0:05:56.920 --> 0:05:57.760 be the outcome of that? 0:05:59.200 --> 0:06:02.040 Good morning, Thanks much for having me back on Well. 0:06:02.080 --> 0:06:05.000 I think what this is is a pretty significant political 0:06:05.080 --> 0:06:08.200 and commercial deal. Now we don't exactly know the terms. 0:06:08.360 --> 0:06:11.520 All we know is that this involves US controlled ownership. 0:06:11.800 --> 0:06:14.839 President Trump teased with reporters yesterday that there may be 0:06:14.920 --> 0:06:18.479 some government ownership, either US or Chinese potentially involved in 0:06:18.520 --> 0:06:21.560 this as well. So we could see some unique deals 0:06:21.680 --> 0:06:23.360 kind of like what we've seen over the last few 0:06:23.360 --> 0:06:26.880 weeks with the Trump administration and exploring US ownership and 0:06:27.800 --> 0:06:30.440 types of investment credits. But we'll have to see what 0:06:30.480 --> 0:06:33.800 this ultimately results in. The readout was pretty good. I'm 0:06:33.839 --> 0:06:34.919 expecting this to move. 0:06:34.720 --> 0:06:35.480 Forward, Kelly. 0:06:35.600 --> 0:06:38.240 And what is a larger significance of this, given the 0:06:38.240 --> 0:06:41.400 fact that expectations were pretty high heading into this meeting 0:06:41.480 --> 0:06:45.200 that it wasn't just about TikTok but the broader dispute 0:06:45.240 --> 0:06:46.599 between the US and China. 0:06:47.800 --> 0:06:50.440 Yeah, I think that's a great question. And we certainly 0:06:50.440 --> 0:06:52.560 had a deadline coming up this week in terms of 0:06:52.560 --> 0:06:55.120 by dances need to divest in order to prevent the 0:06:55.200 --> 0:06:57.480 app from being banned in the United States. That's why 0:06:57.520 --> 0:07:00.960 the focus of this meeting was really on TikTok. But 0:07:01.000 --> 0:07:03.200 they met for two days. Clearly they talked about a 0:07:03.200 --> 0:07:05.400 host of other issues. So the question is, well, what 0:07:05.440 --> 0:07:08.560 about the other six hundred and fifty billion dollars worth 0:07:08.560 --> 0:07:12.480 of bilateral investment and trade and economic relations between the 0:07:12.560 --> 0:07:14.800 United States and China. Where do we go from here? 0:07:15.200 --> 0:07:17.520 And we don't know much so far. The talks have 0:07:17.560 --> 0:07:21.320 been relatively narrow in scope. They focused on export controls 0:07:21.320 --> 0:07:24.360 on the Chinese side for rare earth magnets. They focused 0:07:24.400 --> 0:07:28.560 on some US export controls. Potentially we could see some 0:07:28.600 --> 0:07:31.360 purchases announced as part of a leader level summit that 0:07:31.360 --> 0:07:34.200 could come as soon as the APEX summit in October. 0:07:34.960 --> 0:07:37.400 But beyond that, I think there's a lot of work 0:07:37.480 --> 0:07:40.160 left to do in this relationship, and I don't expect 0:07:40.160 --> 0:07:43.680 some grand Phase two style deal to emerge anytime soon. 0:07:43.920 --> 0:07:46.000 So then, is it surprising to you that it's going 0:07:46.040 --> 0:07:48.120 to be capped off on Friday with a phone call 0:07:48.160 --> 0:07:51.800 between Jijinping and Donald Trump given the narrow scope of 0:07:51.800 --> 0:07:52.800 what people are expecting. 0:07:53.960 --> 0:07:57.560 Yeah, well, again, this is a very significant issue for 0:07:57.600 --> 0:08:01.440 the president. He ran on keeping tik Talk alive notwithstanding 0:08:01.440 --> 0:08:04.320 a congressional ban. This is a shit that China has 0:08:04.360 --> 0:08:06.520 been able to hold. It's a piece of leverage that 0:08:06.560 --> 0:08:07.920 they're now giving away. 0:08:08.520 --> 0:08:09.640 So I think this is a. 0:08:09.600 --> 0:08:11.720 Sign that they are saying, Okay, we are gearing up 0:08:11.760 --> 0:08:14.040 for some leader level summit that might have some big 0:08:14.080 --> 0:08:17.520 purchasing commitments. Maybe they'll talk about a fentanyl and some 0:08:17.560 --> 0:08:20.160 sort of off ramp there with steps taken from China 0:08:20.160 --> 0:08:23.120 for confidence building. But again, I don't know that China's 0:08:23.160 --> 0:08:26.160 also interested in a broad based Phase two agreement either. 0:08:26.320 --> 0:08:29.560 I think China's looking to stabilize the relationship, and this 0:08:29.680 --> 0:08:32.079 goes towards that, but it doesn't fix all the things 0:08:32.080 --> 0:08:34.040 that are wrong in the US China relationship. 0:08:34.160 --> 0:08:35.800 And Kenny on something I was wrong about. I thought 0:08:35.800 --> 0:08:38.760 we'd move pretty quickly back to the purchase agreement secured 0:08:38.800 --> 0:08:40.360 in the president's first term. 0:08:40.640 --> 0:08:41.719 What's the hold up on that? 0:08:43.120 --> 0:08:45.400 Well, I think a lot of water has run under 0:08:45.400 --> 0:08:48.120 the bridge between Trump one and Trump two. You had 0:08:48.120 --> 0:08:51.640 the Biden administration who really didn't enforce any of these commitments. 0:08:52.080 --> 0:08:54.800 And now from China's perspective, this is something that they 0:08:54.800 --> 0:08:56.959 can give away. This is a piece of leverage. It's 0:08:57.200 --> 0:09:00.000 that commitments they've already made. They already committed to egg purchase, 0:09:00.520 --> 0:09:04.120 energy purchases, aircraft purchases, but they haven't really followed through 0:09:04.240 --> 0:09:06.800 with that. So again, I'm expecting to see them to 0:09:06.800 --> 0:09:09.680 commit to at least that, if not more, in the 0:09:09.720 --> 0:09:12.560 coming weeks and months. But we'll really have to see 0:09:12.600 --> 0:09:15.160 what else happens here. Again, the world has changed significantly 0:09:15.240 --> 0:09:17.480 in the last five or six years. I just think 0:09:17.520 --> 0:09:19.800 that the chessboard looks different well. 0:09:19.760 --> 0:09:22.400 Let's talk about the rest of the chessboard. USMCIA has 0:09:22.400 --> 0:09:25.520 got to be renegotiated. The Mexicans seem willing to put 0:09:25.520 --> 0:09:27.719 the walls up to the Chinese, something we know is 0:09:27.760 --> 0:09:30.600 going to annoy Beijing. I just wonder how the US 0:09:30.640 --> 0:09:32.400 and China are going to figure that out in the 0:09:32.440 --> 0:09:34.520 next year. And I just wonder if that's a recipe 0:09:34.520 --> 0:09:36.440 already for tention further down the road. 0:09:37.559 --> 0:09:40.520 Yeah, and this was really interesting, and I would actually 0:09:40.520 --> 0:09:43.520 rewind back just a few days to Friday, where the 0:09:43.520 --> 0:09:46.760 Department of Commerce put twenty three Chinese entities on its 0:09:46.920 --> 0:09:50.439 entity list. China of course retaliated with launching its own 0:09:50.480 --> 0:09:54.440 investigations of anti discrimination, anti dumping, and then it's finding 0:09:54.480 --> 0:09:57.520 in the Navidia case. But what we have here is 0:09:57.559 --> 0:09:59.760 a relationship where China and the US can still make 0:10:00.000 --> 0:10:03.680 progress on politically significant issues like TikTok, while at the 0:10:03.720 --> 0:10:06.840 same time defending their own interests on other areas of 0:10:06.880 --> 0:10:10.280 the economic and national security chessboard. So when it comes 0:10:10.360 --> 0:10:13.080 to Mexico and those tariffs that are now going to 0:10:13.120 --> 0:10:16.320 go into effect on Chinese imports, I think we're going 0:10:16.360 --> 0:10:18.680 to see the US asking more and more of that 0:10:18.760 --> 0:10:22.400 of US trading partners. Now Mexico is much more reliant 0:10:22.440 --> 0:10:24.920 on the United States than it is on China. I 0:10:24.920 --> 0:10:27.960 don't think every country is similarly situated in the same way, 0:10:28.520 --> 0:10:30.920 but there is this concept of changes to rules of 0:10:30.960 --> 0:10:33.920 origin that we've talked about and the administration has teased, 0:10:34.200 --> 0:10:36.000 and I think what that means is the US is 0:10:36.040 --> 0:10:38.080 going to be seeking from trading partners that if you 0:10:38.080 --> 0:10:40.680 want access to our market, you've got to limit the 0:10:40.760 --> 0:10:43.120 Chinese content that is in the goods that are coming 0:10:43.120 --> 0:10:45.559 into the United States. And I think to your point, 0:10:45.640 --> 0:10:48.280 that's going to cause more friction between the US and China. 0:10:48.440 --> 0:10:51.079 A lot of companies and economists have talked about how 0:10:51.080 --> 0:10:54.120 peak tariff uncertainty is behind us, and that's unleashing a 0:10:54.160 --> 0:10:56.840 lot of optimism at companies who feel like they at 0:10:56.920 --> 0:10:59.600 least know some of the rules of the road. Do 0:10:59.640 --> 0:11:01.920 you think that's right and that actually there's room to 0:11:01.960 --> 0:11:05.160 de escalate further, to see even a further softening and tone, 0:11:05.280 --> 0:11:08.360 especially ahead of next year's midterm elections. 0:11:09.760 --> 0:11:09.960 Yeah. 0:11:10.080 --> 0:11:12.720 My sense has been that where things are right now 0:11:12.760 --> 0:11:15.480 between the United States and China, with which is something 0:11:15.600 --> 0:11:18.400 like a thirty percent to fifty five percent average terif 0:11:18.520 --> 0:11:21.600 rate depending on the good where we have talks that 0:11:21.640 --> 0:11:25.840 are ongoing, but we're still separately taking national security and 0:11:25.880 --> 0:11:29.000 economic measures that may discriminate against the other. I think 0:11:29.040 --> 0:11:31.559 this is more or less the status quo, and while 0:11:31.600 --> 0:11:33.880 the numbers may shift around one way or the other, 0:11:33.960 --> 0:11:37.080 I think this is as stable as things get. And frankly, 0:11:37.559 --> 0:11:39.959 I think things could go the opposite way. If a 0:11:40.080 --> 0:11:42.480 year from now we still have China buying loads of 0:11:42.559 --> 0:11:45.160 Russian oil, if we still have China looking to be 0:11:45.280 --> 0:11:47.839 slow walking some of these discussions, if they're cutting off 0:11:47.880 --> 0:11:51.400 exports of rare earth magnets, this relationship could actually fall 0:11:51.440 --> 0:11:54.000 off a cliff and get much more unstable. But I 0:11:54.000 --> 0:11:56.080 think sort of the best case scenario from an investor 0:11:56.120 --> 0:11:58.880 perspective is probably the status quo right now. 0:12:01.280 --> 0:12:04.760 Stay with us. More Bloomberg surveillance coming up after this. 0:12:13.920 --> 0:12:16.720 Elliots Galou, the senior investment strategist that Bank of America 0:12:16.840 --> 0:12:18.840 Securities Joint just now for more and it's what an 0:12:18.840 --> 0:12:21.120 interesting moment, and welcome to the program. Picked out two 0:12:21.120 --> 0:12:23.760 bullet points from your survey this morning when it was released. 0:12:24.000 --> 0:12:27.840 We've got this equity allocation that's the highest in several months, 0:12:27.920 --> 0:12:31.040 and at the same time you've got these valuation fees 0:12:31.120 --> 0:12:33.360 dominating to alis. How do you think we're going to 0:12:33.360 --> 0:12:35.520 reconcile those two things. 0:12:36.600 --> 0:12:38.120 John, I think you know it's one of the great 0:12:38.120 --> 0:12:40.839 point from the global fund manager survey. On the one hand, 0:12:40.920 --> 0:12:44.920 investors see global stocks as the most overvalued on record, 0:12:44.960 --> 0:12:47.720 but that was already the case last month when you 0:12:47.760 --> 0:12:50.079 and I when you and I met, and at the 0:12:50.120 --> 0:12:53.719 same time they increase the exposure to your global equities 0:12:53.840 --> 0:12:57.360 through the highest since since February. In fact, you know, 0:12:57.480 --> 0:13:00.680 valuations matter is the one factor that matters most over 0:13:00.720 --> 0:13:04.120 the long term. But in the short term investors focus 0:13:04.160 --> 0:13:07.280 on the cycle, and this is a cycle that's dominated 0:13:07.320 --> 0:13:13.240 by strong macro forces, which are huge monetary easing. There 0:13:13.280 --> 0:13:16.160 have been ninety five rate cuts here to date, and 0:13:16.240 --> 0:13:19.040 from tomorrow the most important central bank in the world 0:13:19.040 --> 0:13:23.280 will join the rate cutting party. And on the other hand, 0:13:23.280 --> 0:13:26.800 there is a micro force like no other. I'm talking 0:13:26.840 --> 0:13:30.920 of course about AI, and investors and FMS investors are 0:13:31.040 --> 0:13:34.160 very bullish about AI. They think this is a deflationary force. 0:13:34.400 --> 0:13:36.720 They think this is a force that is already lifting 0:13:36.800 --> 0:13:40.360 productivity growth, and that is why they continue to buy 0:13:40.520 --> 0:13:43.160 the stock market and to buy the very expensive tech 0:13:43.440 --> 0:13:46.199 sector despite sky high evaluations. 0:13:46.240 --> 0:13:49.200 Alias they are bullish on AI, bullish on the equity market, 0:13:49.440 --> 0:13:52.400 how bullish are they on growth? I understand that everyone's 0:13:52.480 --> 0:13:54.560 long rate cuts at the moment, but is that leading 0:13:54.559 --> 0:13:55.800 to an improvement in the outlook? 0:13:57.520 --> 0:14:01.680 Look? Amongst the huge convictions from FMS investors, the one 0:14:02.080 --> 0:14:05.040 that the Fed will be cutting in global central banks 0:14:05.080 --> 0:14:08.520 will deliver further rate cuts is maybe the most conspicuous, right, 0:14:08.520 --> 0:14:11.160 and we have a share that is greater than eighty 0:14:11.160 --> 0:14:15.000 percent of FMS investors who expect short term rates to 0:14:15.040 --> 0:14:19.280 be lower. You mentioned the dichotomy between sky high valuation 0:14:19.400 --> 0:14:22.920 on one hand and an increase in equity exposure. The other 0:14:22.960 --> 0:14:25.600 dichotomy in the FMS is the fact that everyone expects 0:14:25.800 --> 0:14:29.200 rate cuts. A net majority see at least four rate 0:14:29.280 --> 0:14:31.320 cuts from the FED in the next twelve months. And 0:14:31.360 --> 0:14:34.640 on the other hand, investors are actually very highly concerned 0:14:34.640 --> 0:14:40.000 about inflation, you know, and consequently, the expectations that bond 0:14:40.080 --> 0:14:42.120 deals will rise in the next twelve months is the 0:14:42.200 --> 0:14:45.560 high since August twenty twenty two, when inflation was a 0:14:45.600 --> 0:14:49.200 few points higher. So I do believe that this view 0:14:49.240 --> 0:14:52.920 that the global economy is heading into a global soft 0:14:53.000 --> 0:14:57.560 lending is at the heart of global investors stock optimism. 0:14:57.640 --> 0:15:02.120 But ultimately they think the globally economy will weaken, but 0:15:02.520 --> 0:15:07.200 inflation as well is going to stay elevated. Altogether, the 0:15:07.240 --> 0:15:11.359 soft lending conviction is the one that explains why investors 0:15:11.800 --> 0:15:13.800 optimism in terms of stock exposure is. 0:15:13.720 --> 0:15:16.040 Wisic ellies, I want to stay on that for a minute. 0:15:16.080 --> 0:15:18.320 You said that the number one tail risk right now 0:15:18.400 --> 0:15:21.160 is inflation exactly because of what you just put out there. 0:15:21.360 --> 0:15:24.480 We're seeing inflation above two percent, We're seeing inflation above 0:15:24.520 --> 0:15:26.960 two and a half percent. What will it take for 0:15:27.200 --> 0:15:31.360 this to manifest itself in the psychees of investors? 0:15:33.520 --> 0:15:36.800 Okay, I do believe that the conviction that yes, inflation 0:15:37.240 --> 0:15:40.320 is here to stay above target, but AI, which is 0:15:40.360 --> 0:15:44.600 again dominant micro force that is driving investors bullishness, will 0:15:44.640 --> 0:15:47.720 be able to lift productivity growth over the long term, 0:15:48.000 --> 0:15:52.720 help put profits growth and health margin. Is what is 0:15:52.760 --> 0:15:57.680 also holding investors optimism in an environment where inflation is 0:15:58.240 --> 0:16:02.720 above target is the fact that the hyper scalers able 0:16:02.800 --> 0:16:06.840 to increase capex right an environment where inflation is high, 0:16:07.160 --> 0:16:10.160 usually investors would be a little bit worried about corporates 0:16:10.400 --> 0:16:14.360 increasing capex at the extent Hyperscaler are doing. And yet 0:16:14.560 --> 0:16:18.800 in this survey we find out that the CIOs, the 0:16:19.080 --> 0:16:24.400 typical fund managers participant, is asking CFOs to focus on 0:16:24.480 --> 0:16:26.000 capex more than anything else. 0:16:27.080 --> 0:16:27.400 AI. 0:16:27.520 --> 0:16:30.520 The conviction that AI is the dominant macro force is 0:16:30.600 --> 0:16:33.600 why at the end of the day, investors are bullish 0:16:33.880 --> 0:16:37.360 and they think inflation is Yes, it is a concern, 0:16:37.400 --> 0:16:39.960 but is not detrimental to stocks. 0:16:40.000 --> 0:16:42.120 And it fits this puzzle, this idea of how you 0:16:42.160 --> 0:16:45.720 can have ongoing growth without commensurate inflation and maybe a 0:16:45.760 --> 0:16:48.560 pretty chepid rate of hiring. I am curious about your 0:16:48.640 --> 0:16:50.280 view on the dollars. We've been talking a lot about 0:16:50.280 --> 0:16:53.560 the weakening trend that we've seen over the past number 0:16:53.560 --> 0:16:55.920 of months. You said that the fourth quarter pain trade 0:16:56.200 --> 0:16:59.280 seems to be a stronger dollar. Just how overweight our 0:16:59.320 --> 0:17:01.880 investors this idea of a weekening dollar right now. 0:17:03.440 --> 0:17:06.440 Look, if you look at the fund manager survey in itself, 0:17:06.560 --> 0:17:09.920 investors say that they are underway the dollar. We hit 0:17:10.040 --> 0:17:14.479 peak dollar bearishness in June. Since then it stabilized around 0:17:14.520 --> 0:17:17.600 that level. But when you look also at the hard 0:17:17.680 --> 0:17:21.040 positioning data, the flows data. To US, it feels that 0:17:21.119 --> 0:17:25.120 investors are emotionally burished on the dollar rather than physically verish. 0:17:25.160 --> 0:17:27.080 If you look at the flows data, the picture that 0:17:27.160 --> 0:17:30.840 we solver the summer is quite mesmerizing because with in fact, 0:17:30.880 --> 0:17:34.560 we didn't see any net new inflows to US equity funds, 0:17:34.640 --> 0:17:37.360 but at the same time in August we actually saw 0:17:37.440 --> 0:17:41.480 the biggest monthly inflow to US bond funds, driven by 0:17:41.640 --> 0:17:44.640 near record pace of inflows into US IG funds. 0:17:44.760 --> 0:17:47.720 So if investors were truly perish. 0:17:47.359 --> 0:17:50.159 Physically berish on the dollar, they would they would not 0:17:50.240 --> 0:17:53.840 be buying US bonds at a record pace. So we 0:17:53.880 --> 0:17:56.520 think it's really a matter of hedging. Investors want to 0:17:56.600 --> 0:17:59.520 hedge against a weeker dollar, but they are not ready 0:17:59.560 --> 0:18:04.600 to sell the beloved US assets. And we think that 0:18:04.880 --> 0:18:08.640 US dollar bear market or the debasement of the US 0:18:08.760 --> 0:18:12.680 dollar is to us the cleanest investment theme into twenty 0:18:12.760 --> 0:18:16.399 twenty six. The price of gold, the price of crypto's 0:18:17.000 --> 0:18:19.240 signal that the dollar will weaken further. 0:18:19.359 --> 0:18:21.199 Allies, before you go and just want to sweaze this in. 0:18:21.240 --> 0:18:22.920 You're sitting in London. The present is going to join 0:18:22.960 --> 0:18:25.000 you in the next twenty four hours or so he'll 0:18:25.040 --> 0:18:27.960 arrive in the UK as well. You've got these contrarian 0:18:28.040 --> 0:18:31.320 long trades in here, bonds being one the other UK 0:18:31.440 --> 0:18:34.399 equities elis, why does that jump on the page to you? 0:18:36.480 --> 0:18:38.480 Look, this is why I'm in London today, you know, 0:18:38.600 --> 0:18:41.320 just to be an advocate of UK equalities. You know, 0:18:41.640 --> 0:18:45.399 a very unloved asset. You know what struck me in 0:18:45.480 --> 0:18:50.360 the fund manager service that investors will already underweight UK stocks, 0:18:50.520 --> 0:18:53.399 but what happened in September is that they decrease their 0:18:53.400 --> 0:18:57.639 allocation to UK equities by the most since two thousand 0:18:57.640 --> 0:18:59.920 and four, matching the biggest drop on record. 0:19:00.080 --> 0:19:01.760 So if investors truly. 0:19:01.520 --> 0:19:04.479 Believe that the economy will be heading into a soft lending, 0:19:04.840 --> 0:19:08.080 that bond yields will remain anchor and we won't see 0:19:08.080 --> 0:19:11.920 a big breakout of global government bond yields. I think 0:19:11.920 --> 0:19:14.920 there is one asset that is very cheap, very much 0:19:14.960 --> 0:19:17.240 and their own, and in which you can get to 0:19:17.600 --> 0:19:18.760 a big bank for your buck. 0:19:19.040 --> 0:19:19.960 It's UK Greece. 0:19:20.520 --> 0:19:24.000 Stay with us. More Bloomberg surveillance coming up after this. 0:19:33.240 --> 0:19:36.400 The latest in this market an upside surprise on US 0:19:36.520 --> 0:19:40.119 retail sales. The control group positive zero point seven percent. 0:19:40.400 --> 0:19:42.719 The estimate and our survey we were looking for zero 0:19:42.760 --> 0:19:45.760 point four with us around the table. Steve Rashutto of 0:19:45.960 --> 0:19:48.200 zero Steve Goomonik, good morning. It's going to see you, sir, 0:19:48.560 --> 0:19:51.200 at the epicenter of your research. I think you're cool 0:19:51.480 --> 0:19:53.920 at the moment. You ask the right question, just how 0:19:53.960 --> 0:19:57.760 restrictive is monetary policy? Clearly the Federal Reserve's got one 0:19:57.800 --> 0:19:59.280 opinion on that. What's yours. 0:19:59.760 --> 0:20:03.000 Well, the Federal Reserve opinion is three percent is neutral. 0:20:03.840 --> 0:20:06.639 My view is four percent is neutral. So we're a 0:20:06.680 --> 0:20:09.760 heck of a lot closer to neutral than the Federal 0:20:09.800 --> 0:20:12.800 Reserve would be. Assuming the difference between us is what 0:20:12.880 --> 0:20:17.960 you assume for the real underlying rate of interest that's 0:20:18.000 --> 0:20:21.920 required in the economy to achieve the Fed's balanced trajectory 0:20:22.320 --> 0:20:26.080 of a long term maximum sustainable employment and low inflation. 0:20:26.560 --> 0:20:29.000 The FED thinks it's one percent. We think it's two percent. 0:20:29.040 --> 0:20:31.359 So if the Fed's credible at a two percent inflation rate, 0:20:31.400 --> 0:20:34.000 which is largely be questionable as well, then you're at 0:20:34.000 --> 0:20:35.919