Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
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Speaker 2: or anywhere else you listen, and as always on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Max Ketner of HSBC,
Speaker 2: writing Goldilocks, has had a few scratches in the last
Speaker 2: few weeks. Data misses have started to cast some down
Speaker 2: over the idea of US exceptionalism. However, we'd argue this
Speaker 2: is precisely what we're looking for. Max joined us now
Speaker 2: from more Mask in morning. Good Welcome to New York.
Speaker 2: We've got a lot to catch up on. What's that
Speaker 2: last line about? This is precisely what we're looking for.
Speaker 3: I think overall, if you think from a more strategic perspecse,
Speaker 3: then actually this is the kind of stuff you want
Speaker 3: for US exceptionalism, Because the problem is I think two
Speaker 3: months back, the consender's opinion was, you've got to buy
Speaker 3: the dollar, You've got to buy US equities, and actually,
Speaker 3: when we look at anything else, don't even look at it.
Speaker 3: It's not even worth looking at. It's just the US
Speaker 3: and nothing else. And here we are two months later,
Speaker 3: and all of a sudden, nothing's worked. So one of
Speaker 3: the you know, one of the key ingredients for both
Speaker 3: this idea of US exceptionalism but also the idea of
Speaker 3: goldiloxers is that you've got these persistent doubts around it
Speaker 3: that you know, people are saying, oh, Ai, how are
Speaker 3: we going to make money with AI? And how about
Speaker 3: you know, this big, big discount of the rest of
Speaker 3: world equities, international equities versus the US, isn't the US
Speaker 3: too expensive? So this perpetual question around valuations, now that's
Speaker 3: the strategic question. Right then you're saying, hey, that idea
Speaker 3: of US exceptionalism is not dead, absolutely not, because you know,
Speaker 3: we've got lower corporate taxes, the S and P effective
Speaker 3: tax rates, much lower your Roe gap. I think I
Speaker 3: would always argue, look, you can look at valiations as
Speaker 3: a really really negative sign from a strategic a longer
Speaker 3: term perspective in the US. But you can also look
Speaker 3: the other way around and say, your roe gap between
Speaker 3: the US and the rest of the world has more
Speaker 3: than quadrupled in fifteen years. So fine, you're paying a
Speaker 3: higher price, but guess what you're getting more than four
Speaker 3: times as much profitability. Again, that's the strategic perspective. Doesn't
Speaker 3: tell us, unfortunately, an awful lot about the next couple
Speaker 3: of weeks.
Speaker 2: This has been the most exhausting five percent pullback I
Speaker 2: think I've ever witnessed on the anquity market on the
Speaker 2: S and P five hundred. Do you buy this weakness
Speaker 2: or chase the strength in Europe? With banks up twenty
Speaker 2: five percent today on the stock six hundred, Yeah, I'd rather.
Speaker 4: Look elsewhere right now.
Speaker 3: So we've just put out a note this morning saying, look, guys,
Speaker 3: probably the US is not the place to be right now,
Speaker 3: at least tactically, because those tariff headlines are probably not
Speaker 3: going to go away. I think for the FED put
Speaker 3: to come back into action, there simply isn't enough weakness yet.
Speaker 3: So you said, this has been the most exhausting five
Speaker 3: percent pullback, and I feel it.
Speaker 2: I think all of us for fe Have you ever
Speaker 2: seen anything like this when sentiment seems to have shifted
Speaker 2: so much but the market's only done so little.
Speaker 4: It's amazing. I mean it is.
Speaker 3: We've actually done someone analysis on this this week when
Speaker 3: we look at some of our positioning and some of
Speaker 3: our momentum indicators. The drawdown that we've seen so far
Speaker 3: is almost only half of what we would usually see
Speaker 3: when our indicators go down by that much. So you've
Speaker 3: got a big, big shift down in those positioning indicators.
Speaker 3: But normally you'd say, yeah, that's probably like six seven
Speaker 3: percent down, but by that time it was only three
Speaker 3: four percent down.
Speaker 4: So that is exhausting. I get it. But the problem
Speaker 4: is for the FED put to.
Speaker 3: Come back, we need we would need more weakness. You know,
Speaker 3: you're saying five percent, Yeah fine, but is the FED
Speaker 3: really going to go in? It's like, oh my god,
Speaker 3: and videos down, So yeah, we need to cut right for.
Speaker 4: About a second.
Speaker 5: There is this question about the journey mattering, and this
Speaker 5: is a sort of bit of theme over the past
Speaker 5: couple of weeks. How much does the journey matter if
Speaker 5: the destination is a good one, And we're talking about
Speaker 5: how it's only a five percent pullback, but it can
Speaker 5: be uptime, then down twenty percent, and then eventually what's
Speaker 5: a five percent in one day? So it raises this
Speaker 5: question about risk reward models. At a time where you
Speaker 5: cannot model this type of volatility, you cannot model headline risk,
Speaker 5: how much is that alone pushing capital away from the
Speaker 5: United States right now?
Speaker 3: I think on a tactic basis, Yes, I think on
Speaker 3: a tactic basis. So that's exactly what you want to
Speaker 3: do when we look at you know, the US, when
Speaker 3: if you have predicted what's what's happening now from a
Speaker 3: policy perspective in US, if you had told me that
Speaker 3: a month ago, I would have said, risk off everywhere,
Speaker 3: don't buy Europe, buy Europe even less, don't.
Speaker 4: Buy China, don't buy em No, no, no, don't buy anything.
Speaker 3: Now you look at it, I'm like, actually, you know what,
Speaker 3: Europe's really looking great? Like Germany, you know, as a German,
Speaker 3: I look at this, I'm like, this is as watershed
Speaker 3: as you can imagine, right, Like the Germans spending money
Speaker 3: and I know that from myself.
Speaker 4: To get myself.
Speaker 3: I'm in New York and I'm just like, really, coffee
Speaker 3: seven dollars.
Speaker 4: I'm like, I'm not going to have coffee.
Speaker 3: Actually, no, I'm going to go to the Bloomberg office
Speaker 3: every day, get my coffee for free, and then I'll
Speaker 3: go away.
Speaker 4: I don't have to spend money. You can find it
Speaker 4: in you know.
Speaker 3: But it is genuinely it is such an extremely watershed
Speaker 3: moment for Germany.
Speaker 4: And then you look at the banks and we've.
Speaker 3: Just you know, when I came in it's like twenty
Speaker 3: five percent.
Speaker 4: You still want to buy that? Heck? Yeah, absolutely.
Speaker 5: So when do you think that the optimism has gone
Speaker 5: too far? We were just talking to Jane Fowley trying
Speaker 5: to pour some cold water on this optimism that we're
Speaker 5: hearing around. When do you know that we're overstating it
Speaker 5: or understating it? What are you looking for?
Speaker 3: Once you stop having the conversations about should we worry
Speaker 3: and what could stop it?
Speaker 4: I think then were they right?
Speaker 3: So it's a bit like the where the idea of
Speaker 3: you as exceptionalism at the end of December beginning of January.
Speaker 3: Once everyone's super bowled up, then yeah, fine, you're probably done.
Speaker 3: But to be honest, when you look at positioning indicators,
Speaker 3: when you look at flows, certainly flows have been starting
Speaker 3: to come back into European equities, but they've only just started. Right,
Speaker 3: two months ago, you'd have said, why are we even
Speaker 3: looking in Europe?
Speaker 4: What's the point? Right? What is the point?
Speaker 3: And now we look at it, I'm like, wow, this
Speaker 3: is like the best thing ever.
Speaker 4: It's been two months.
Speaker 3: It might again because it's so exhausting, it might be
Speaker 3: like two years, but it's genuinely just a couple of weeks.
Speaker 3: I'll give you an example. I was in Frankfurt literally
Speaker 3: three weeks ago. The amount of conversations with clients I've
Speaker 3: had about fiscal stimulus, about infrastructure, defense, spinning was zero
Speaker 3: absolutely three.
Speaker 4: Yeah, because three weeks ago were like, never gonna happen.
Speaker 3: Come on, you need a two thirds majority, Come on,
Speaker 3: why are we talking?
Speaker 4: Yeah, let's talk about the next sing It's three weeks ago.
Speaker 3: This is as honestly, this is as watershed as we
Speaker 3: can imagine. And then you look at you look away
Speaker 3: from the US and you're saying, hey, why would I
Speaker 3: not buy German mid and small caps or European smaller
Speaker 3: mid caps.
Speaker 4: You look at China.
Speaker 3: You look at the ags tech trade, right, the broadening
Speaker 3: AI trade.
Speaker 4: You look at China Internet. Yeah, that still makes sense.
Speaker 4: You look at Japan.
Speaker 3: Japan, Hey, rates probably going also a bit higher. Japan
Speaker 3: banks fight, they've rallied, they've rallied a lot, but with
Speaker 3: rates maybe going another twenty five bits higher than the
Speaker 3: market is currently pricing, great, still good for the banks.
Speaker 3: So you look outside of the US and there's loads
Speaker 3: of things happening now that are actually really uncorrelated to
Speaker 3: the US, Whereas four weeks ago I would have said,
Speaker 3: if this happens in the US, everything's going to be
Speaker 3: correlation is one and everything's going down, And it's exactly
Speaker 3: the opposite.
Speaker 4: Which is in fact really good.
Speaker 3: You know, we guys have this conversation about correction and
Speaker 3: in exhausting five percent. If we were sitting in Frankfurt,
Speaker 3: we'd be happy, Daisy, I mean, we'd be like freaking
Speaker 3: cowboys right now?
Speaker 6: Are you and you're Frankfurt German friends? Thanking the President
Speaker 6: of the United States for this?
Speaker 4: No? I think, you know, that's probably a bit too far.
Speaker 3: I honestly also don't really care what the you know,
Speaker 3: what the what the catalyst is sort of the catalyst
Speaker 3: is the important thing from a market perspective is number one,
Speaker 3: is it happening?
Speaker 4: Is it likely happening.
Speaker 3: Number two is a sustainable and that looks like it's happening.
Speaker 6: You have a lot of conviction though that this is
Speaker 6: happening and will be sustainable. You don't think this is
Speaker 6: a head fake from the German politicians.
Speaker 3: I think we've gone too far for that to be
Speaker 3: be a headfake, right, for that to be like, oh, actually,
Speaker 3: never mind, Like we just thought we're going to spend
Speaker 3: eight on a billion.
Speaker 6: Pretty focal when it comes to spending.
Speaker 3: Yeah, but that is mostly red tape and mostly bureaucracy,
Speaker 3: right that is, and I think that's more the longer
Speaker 3: term issue. So then we get to your question on it, like,
Speaker 3: is this a headfake tactically it's not.
Speaker 4: Is this a great three six month trade? Absolutely?
Speaker 3: Is this the watershed moment where we're burying use exceptionalism
Speaker 3: and the next three to five years we're only buying
Speaker 3: European equities and now European.
Speaker 4: Profitability is going up relative to the US.
Speaker 3: Probably no, because you know, you've seen what Dragus was
Speaker 3: saying two weeks ago around implicit tariffs within Europe, that
Speaker 3: we've got implicitly forty five percent tariffs within the EU
Speaker 3: on goods and one hundred and ten percent on services.
Speaker 3: You look at the EU Recovery Fund now, it's that
Speaker 3: the uptake on the Recovery fun from almost five years
Speaker 3: ago keeps being subpart in subpart because it's not like
Speaker 3: corporates don't want it and governments don't want it. But
Speaker 3: there's so much red tape, so much bureaucracy within the
Speaker 3: EU right that needs to be tackled. That's not going
Speaker 3: to be tackled with infrastructure and defense spending.
Speaker 4: But those are two separate things.
Speaker 3: And you know, we can talk about the strategic asset decision,
Speaker 3: the seven to ten year decision, or the sort of
Speaker 3: six month decision where you're saying, is this is the
Speaker 3: spending the watershed moment for the next six months.
Speaker 2: One in six months time, can the bond market absorb
Speaker 2: it when we're having a real conversation about a massive
Speaker 2: tax bill going through Congress him in the United States?
Speaker 4: I think so. I think Union in Germany as well, and.
Speaker 2: Than the global bond marketing. Yeah, globe Germany's issue in more.
Speaker 2: US might have to issue more. What does that look like?
Speaker 3: But I think Germany traditionally basically starts issuing more on bills,
Speaker 3: so that actually, at some point I think will be
Speaker 3: bringing in natural buyers foot bones. It still means, obviously,
Speaker 3: as we get more issuance that probably bones are going
Speaker 3: to continue to achieap and versus swaps in the next
Speaker 3: few few weeks and months, but that that trade has
Speaker 3: gone an awful long lot already. But you know, I
Speaker 3: think I'm not particularly bothered. I think in the US,
Speaker 3: I'm also not bothered because you know, we can look
Speaker 3: always at the government debt side of things, but when
Speaker 3: we look at the corporate the private corporate debt side
Speaker 3: of things, massive de leveraging in the last fifteen years.
Speaker 3: Now you look at in TRST payments of corporates.
Speaker 4: When you look at those, we're on a We're like
Speaker 4: on a twenty year low because you know.
Speaker 3: Corporates have been hoarding cash. They get the high cash rate,
Speaker 3: and they've locked in maturities.
Speaker 4: You look at the S and P.
Speaker 3: You got almost sixty percent of debt that's maturing after
Speaker 3: twenty thirty. Why would I you know, when people are like, oh, yeah,
Speaker 3: but there's all this stuff from corporates, I'm like, great,
Speaker 3: call me in fifteen years.
Speaker 4: Oh okay.
Speaker 3: So from that, like you know, the corporate sector and
Speaker 3: the private household sector actually looks way way more healthy
Speaker 3: to absorb sort of that bigger issues.
Speaker 2: The Europeans just sounds so happy right now, don't they.
Speaker 4: Have You never seen me happy? Like blame the coffee.
Speaker 3: I blame the free coffee, you know, give the German
Speaker 3: free stuff, and yet he's happy.
Speaker 5: All I can say is watch him go buy a
Speaker 5: seven dollars copper coffee and all.
Speaker 4: Of a sudden.
Speaker 5: You know, these fiscal stimulus plans, they're real.
Speaker 2: Yeah, come back when it's like eurote dollar one twenty one,
Speaker 2: twenty five, back to one fifty again.
Speaker 4: Max is going to see it. Thanks, that'll make a difference.
Speaker 2: Max Kenna of HSPC, Jen Folly of Rabberbank, writing the
Speaker 2: return of US growth concerns has clearly been a drag
Speaker 2: on the dollar. However, the change and the fundamental drivers
Speaker 2: behind the euro have been even more dramatic. Jane joined
Speaker 2: us now for more. Jane, welcome to the program. I
Speaker 2: have to say we talked about this a little bit
Speaker 2: earlier this hour. It takes time to internalize a shift
Speaker 2: this large on the continent. It will take weeks, months,
Speaker 2: maybe even years. Jane, could you just communicate from your
Speaker 2: standpoint how large a shift we're seeing from Germany.
Speaker 7: Well, certainly as a significant shift in terms of the
Speaker 7: news that we've had, But of course everybody in Europe
Speaker 7: is aware that things take time in order to come
Speaker 7: into fruition, and this is a real issue I think
Speaker 7: for the but the people who've been buying euros, you know,
Speaker 7: aggressively this week. Is this just a sugar rush or
Speaker 7: will we actually have a different determination of the time
Speaker 7: frame it needs to get this money through from Germany,
Speaker 7: from the EU, into the economy, into the defense sector.
Speaker 7: And if there are disappointments along the way in terms
Speaker 7: of that timing, well you know we could see one
Speaker 7: oh five again in your adoration, and potentially quite quickly,
Speaker 7: because we know that there are hurdles. We know that
Speaker 7: if this change in fiscal policy gets through Germany, well
Speaker 7: it's with the outgoing parliament. The new parliament after March
Speaker 7: twenty fifth could have legal challenges even to this. And
Speaker 7: then what about capacity. Europe doesn't have huge capacity in
Speaker 7: terms of defense. How quickly can it actually spend all
Speaker 7: of this money? So we know that the timeline for
Speaker 7: Europe could be quite disappointing.
Speaker 5: So Jane, you raised your forecast to You're a dollar
Speaker 5: to one oh seven. You said that you're going to
Speaker 5: update that by the end of this week. That means
Speaker 5: you have one day to really look at all of
Speaker 5: the facts and figure out how much is real and
Speaker 5: how much is overly optimistic. What are you looking at
Speaker 5: to make that determination, and what's the range of potential outcomes.
Speaker 7: Well, you know, I do think anything from the FAD
Speaker 7: is going to be really important here because you know,
Speaker 7: we're hearing the arguments about the slowing in US growth.
Speaker 7: You know, we can see also, you know, the stock
Speaker 7: market and how that in the US could affect confidence
Speaker 7: for the US consumer. But even though if we were
Speaker 7: to accept the fact that the US economy is slowing, well,
Speaker 7: what about inflation, Because yeah, okay, maybe we were a
Speaker 7: little bit optimistic or pessimistic in terms of the inflation
Speaker 7: push from tariffs at the start of the year, but
Speaker 7: taps are still inflationary. And even if the FED is
Speaker 7: worried about growth, it's unlikely to cut interest rates aggressively
Speaker 7: if it's concerned on the inflation front. So I think
Speaker 7: that's a really important part. To what degree are the
Speaker 7: FED able to cut interest rates in an environment where
Speaker 7: inflation has been looking sticky. It was looking sticky because
Speaker 7: of the Biden month through the end of the Biden administration,
Speaker 7: likely took sticky now because of tariffs, and we just
Speaker 7: don't know the impact of those tariffs, so the Fed
Speaker 7: likely to be cautious on that front. So whereas that
Speaker 7: give the dollar a little prop higher, it's possible that
Speaker 7: the worries about timing about German fiscal spending could actually
Speaker 7: not the euro a little bit lower from the perch
Speaker 7: that we've seen over the last couple of days.
Speaker 5: Although if you take a step back, Jane, I wonder
Speaker 5: if Bob Michael is on to something and whether you
Speaker 5: would agree with this idea that more broadly, maybe it's
Speaker 5: not this week, but maybe it's this month, Maybe it's
Speaker 5: the next couple of months that we're seeing the peak
Speaker 5: in dollar exceptionalism, and with all of the money looking
Speaker 5: to be raised elsewhere, there is going to be a
Speaker 5: sucking sound away from the United States and dollar assets.
Speaker 7: Well, you know, I think this is a question really
Speaker 7: for about US exceptionalism, really for the next decade, for
Speaker 7: the next two or three decades, even I think it's
Speaker 7: going to be able to be answered in a very
Speaker 7: short term. I mean to me, you know, one of
Speaker 7: the definitions of US exceptionalism is the fact that the
Speaker 7: dollar has its own fundamentals, and that derives from the
Speaker 7: fact that about fifty percent of the world's invoices are
Speaker 7: in dollars, and that means that even when negative news
Speaker 7: comes from say the US budget, people need their dollars.
Speaker 7: They buy their dollars. That's why it is essentially a
Speaker 7: safe haven. And for that to change, we're going to
Speaker 7: have this very slow and it's already started, this very
Speaker 7: slow progression away from using dollars as an invoicing currency
Speaker 7: and therefore, you know, as a reserve currency. That that
Speaker 7: has started. It's quite possible that that Trump's policies with
Speaker 7: respect to Europe, with respect Canada, Mexico, et cetera, made
Speaker 7: people move away from the dollars, but that is a
Speaker 7: very slow process and I don't think we're going to
Speaker 7: be able to answer that question quickly.
Speaker 4: Well, what fills the voya, Jane, Well.
Speaker 7: You know precisely, and that is why the movement away
Speaker 7: from the dollars from the dollar, use of the dollar
Speaker 7: internationally will be very very slow. I mean, clearly what
Speaker 7: we've seen over the last few years is you know,
Speaker 7: China wanting to use the remimbia is more of an
Speaker 7: invoicing currency for instance. That will carry on, and some
Speaker 7: of its trade allies will continue to you know, be
Speaker 7: pushed in that direction. It is going to be interesting
Speaker 7: to see whether or not there is a European response
Speaker 7: over the next four years. That perhaps will depend what
Speaker 7: happens between Trump and Europe in terms of tariffs, for instance.
Speaker 7: But again, I think the question about de dollarization is
Speaker 7: a very slow one.
Speaker 2: Hey, Joan, I appreciate it. Jane Fowley there of Rammerbank
Speaker 2: on the shifts we're seeing out of Germany.
Speaker 4: So here's the latest this morning.
Speaker 2: Market's looking for more terifily from the Trump administration delaying
Speaker 2: levies on auto imports for a month. Jason Firman of
Speaker 2: the Harvard Kennedy School, writing, I've rarely seen an economy
Speaker 2: turned negative as quickly as this one has.
Speaker 4: But people shouldn't get over their skis.
Speaker 2: I expect all of this to slow growth and add
Speaker 2: to inflation, but don't expect anything dramatic in the data
Speaker 2: right away. Jason joins us now for more. Jason, welcome back.
Speaker 2: To the program sir, and I'm totally with you. I
Speaker 2: think we all are. This shift was seeing its sentiment
Speaker 2: in just a month, so big and so quick. What
Speaker 2: does that more constructive tone come from at the end
Speaker 2: of that quote that why should we ultimately avoid anything
Speaker 2: too dramatic.
Speaker 8: Look, there's no debate that the Trump administration's impact on
Speaker 8: the economy has been negative. Just about everything they've done
Speaker 8: has been negative for the economy and is going to
Speaker 8: hurt it. You can debate the magnitude, and partly I'm
Speaker 8: reacting to there was the Atlanta Fed's GDP now said
Speaker 8: that the economy was cratering in the first quarter. I
Speaker 8: think that number was flawed. Things move slowly, you know,
Speaker 8: consumers are really really nervous. But my guess is that
Speaker 8: they're probably still spending and they're going to wait and
Speaker 8: see how things turn out. So the types of problems
Speaker 8: we're seeing now, they take time to build. They don't
Speaker 8: just go straight to recession.
Speaker 4: Jason.
Speaker 6: We do have a carve out though for the auto sector,
Speaker 6: and there's lots of conversation. Maybe agricultural will be next.
Speaker 6: If your USMCA compliant, you get a carve out. Basically
Speaker 6: does that mean, the twenty five percent tariffs came and went,
Speaker 6: and what's the impact going to be.
Speaker 8: You know, there's twerts that are going to come, those
Speaker 8: tarifts that are going to go, and then there's more
Speaker 8: tarersts that are going to come back. I mean, you
Speaker 8: just showed Howard Lutnik. He expressed pretty clearly that there's
Speaker 8: going to be more and more and more, and as
Speaker 8: he just said, they're going to stick. So, yeah, you
Speaker 8: can do carve outs, but there's still lots and lots
Speaker 8: and lots of tariffs on Canada and Mexico. And remember
Speaker 8: we're less than two months in to this administration. In
Speaker 8: Trump's first administration, it took him nearly eighteen months to
Speaker 8: get to the first set of tariffs. That was after
Speaker 8: an extensive and judicious process, and it was on a
Speaker 8: much smaller set of imports than anything we're seeing.
Speaker 6: Now, what do you make of the April second argument
Speaker 6: that they're looking for reciprocity basically trying to make sure
Speaker 6: they can rewrite the rules of trade so that it
Speaker 6: actually is in their mind free and fair.
Speaker 8: We already have reciprocity if you look at other rich
Speaker 8: countries their tariffs against the United States tend to average
Speaker 8: about one two percent. Are tariffs against them average about
Speaker 8: one two percent. On average, they're the same. Now, there's
Speaker 8: some things they have higher tariffs than we do. Some
Speaker 8: things they have lower tireffs than we do, but they
Speaker 8: average out to about the same, So we have reciprocity.
Speaker 8: If they want to sit down and do a free
Speaker 8: trade agreement and get those tariffs from one to zero,
Speaker 8: I'd sign up and be wildly enthusiastic.
Speaker 4: Jason, you said that it takes time.
Speaker 5: This is a barge, and to shift to the US
Speaker 5: economy will take more than just a couple of weeks
Speaker 5: of bad sentiment. At what point do you think that
Speaker 5: we'll actually start seeing some of the uncertainty and some
Speaker 5: potentially the expectation of higher prices begin to show up
Speaker 5: in the economic data, the hard data.
Speaker 8: Yeah, I mean, I think you're going to start to
Speaker 8: see it right away, but it'll start pretty small and grow.
Speaker 8: Some of what I'm most worried about here is actually
Speaker 8: what it does on a five or ten year time horizon.
Speaker 8: When you're talking about how businesses think about their integrated
Speaker 8: supply chains, how they organize themselves to have maximum efficiency. Now,
Speaker 8: they're going to have to think how they organize themselves
Speaker 8: to be resilient against an extremely uncertain political system. But
Speaker 8: I think you'll start to see it a little bit
Speaker 8: right away, but it will really grow. And of course
Speaker 8: it depends on do these tariffs escalate or do they
Speaker 8: end up dropping all of them, And of course anything
Speaker 8: is possible.
Speaker 5: This is a pretty significant regime shift, at least when
Speaker 5: it comes to tariffs. And yet what we've been talking
Speaker 5: about a lot of this morning has been Europe, and
Speaker 5: has been China, and has been what's going on there
Speaker 5: with respect to fiscal stimulus and supporting their defense sector.
Speaker 5: And it's raised this question that JP Morgan's Bob Michael
Speaker 5: raised yesterday where he said we saw the peak in
Speaker 5: US dollar exceptionalism this week.
Speaker 4: Do you agree with that?
Speaker 5: Is that something that you're seeing in terms of the
Speaker 5: slow drip feed of rearranging supply chains and even maybe
Speaker 5: invoicing that we see around the world.
Speaker 8: I feel pretty good about the dollar and pretty secure
Speaker 8: about the dollar, although if you wanted to do something
Speaker 8: about dollar supremacy, you would throw a massive amount of
Speaker 8: uncertainty into the US economy, which is what we're seeing
Speaker 8: right now. But I think even that won't be enough.
Speaker 8: And look what we're seeing in Europe is good. I'm
Speaker 8: glad that Germany is untying its hands. I know that's
Speaker 8: a little bit for the bond market to adjust to upfront,
Speaker 8: but absolutely the right move. And Europe has been behind
Speaker 8: in spending on its own defense. They do need to
Speaker 8: shift to something more closer to a wartime economy that
Speaker 8: they can really be in a better position to defend themselves.
Speaker 2: They've been massively behind. Jason's going to hear from it
Speaker 2: as always, Jason Furman there at the Harvard Kennedy School.
Speaker 2: I think you refer to the US economy as a budge,
Speaker 2: more like a supertanker joining us now, Constant Hunter of
Speaker 2: the Economist Group, You're fuvery worried about that on Constant
Speaker 2: joined us now from more Constance. Welcome to the program.
Speaker 2: Let's talk about the jobs data first. So no drama
Speaker 2: in jobless claims, that's good news. Are you expecting any
Speaker 2: drama in the payrolls report tomorrow morning?
Speaker 1: And we're expecting a soccer play role report than we've
Speaker 1: seen on the three and six month average, So I
Speaker 1: would say about one hundred and eighty thousand. What we're
Speaker 1: going to be looking for though, is under the hood
Speaker 1: what's happening, right, So it's not just government employees, but
Speaker 1: that services employees and consultants. That's where you've seen a
Speaker 1: lot of layoffs, right, So there's a multiplier effect from
Speaker 1: what's happening, And so there are a lot of people
Speaker 1: on the.
Speaker 9: Job market with very highly qualified skills. If we continue
Speaker 9: to have a.
Speaker 1: Fairly strong labor market and strong economy, I think those
Speaker 1: people will get sort of hoovered up in into other jobs.
Speaker 1: But if we don't, then you're looking at some more
Speaker 1: longer term damage to the US economy constance.
Speaker 5: We were talking earlier this morning about this being really
Speaker 5: a big economy that takes time to really damage that
Speaker 5: some of the sentiment shift has happened a lot quicker
Speaker 5: than the actual underlying data.
Speaker 4: Would you agree with that?
Speaker 9: Yes, absolutely. I Mean, one of the things that we look.
Speaker 1: At to think about forecasting payrolls is the ISM Services
Speaker 1: Employment Indicator, and that AD is still ticking up even
Speaker 1: though that's a real really a real time indicator.
Speaker 9: But another thing that we look at that's really.
Speaker 1: Valuable is an uncertainty in text that combines three things
Speaker 1: so it combines uncertainty gleaned from actually EIU documents.
Speaker 9: On our own website behind our paywall.
Speaker 1: It looks at changes in the tax code, so of
Speaker 1: course we have the tci JA up for possible extension,
Speaker 1: and then it looks for differential between economists forecasts. And
Speaker 1: when we look at that index, when it has spiked up,
Speaker 1: it has presaged a recession is coming. And we are
Speaker 1: at levels that are well above the two thousand and
Speaker 1: eight financial crisis, well above what happened during the dot
Speaker 1: com bubble, and well above what happened in the nineteen
Speaker 1: ninety SNL crisis. We're not quite at COVID levels, but
Speaker 1: we're pretty elevated. And so what we're doing is we're
Speaker 1: using that to forecast how is this going to impact capex,
Speaker 1: How is this going to impact household consumption?
Speaker 5: How reliable has that kind of sentiment data that open
Speaker 5: constants at a time. And I know that there are
Speaker 5: other things that go into this, but right now some
Speaker 5: people are pointing to the sentiment and talking about how
Speaker 5: negative it is. And Mary's been talking about the Beige
Speaker 5: Book all morning, and she's right. And the word uncertainty
Speaker 5: or some variation of that came forty seven times in
Speaker 5: addition to the forty nine times of terrorist I'm just
Speaker 5: wondering we're not saying the shift though in consumer spending
Speaker 5: habits just yet. I mean, people are worried about it,
Speaker 5: but we're not seeing it. So is there a chance
Speaker 5: that what people say and feel and what they do
Speaker 5: just isn't going to cohere like we've seen in previous cycles?
Speaker 9: So are humans going to keep being humans? Yes?
Speaker 1: We have a lot of dichotomy right in between what
Speaker 1: we say and what we do, So yes, that's a
Speaker 1: significant possibility, And I think we also have to think
Speaker 1: about some of that front Bloating is happening in terms
Speaker 1: of consumer behavior as well, right people buying things. If
Speaker 1: they were planning to buy a car this year, maybe
Speaker 1: they're saying, well, maybe I should buy it now rather
Speaker 1: than wait until April or May, when perhaps it.
Speaker 9: Will be more expensive.
Speaker 1: With that said, though, you'd rarely have you seen this
Speaker 1: level of heightened uncertainty without seeing it cause some pull
Speaker 1: back both in capital expenditure and consumer behavior. I would
Speaker 1: say one thing underpinning this that we have not necessarily
Speaker 1: had in previous cycles, right, is we really are in
Speaker 1: the midst of an incredible productivity boom, and that could
Speaker 1: give us a bit more cushion.
Speaker 9: Than we would normally normally have.
Speaker 1: And then the other thing is that the Fed knows
Speaker 1: that it can afford to wait should things get wobbily,
Speaker 1: because we have such an immense amount of mortgage equity
Speaker 1: in homes and so you saw yesterday all it took
Speaker 1: was the slightest move down and you had a huge
Speaker 1: increase in applications for new homes and applications for refinancing.
Speaker 1: So there's a lot of capital there on the sidelines
Speaker 1: to be deployed in the economy should we get into
Speaker 1: a weaker situation and should the Fed need to lower rates?
Speaker 6: Constants, what kind of impact are you seeing DOGE have
Speaker 6: on the labor market?
Speaker 1: I mean, right now, I would say it's negligible, right
Speaker 1: like we didn't see it show up and claims it's
Speaker 1: a large economy. So, yes, these federal workers are getting
Speaker 1: laid off, but they're really highly qualified individuals generally speaking,
Speaker 1: right with advanced degrees and important specializations. So if are
Speaker 1: not rehired by government once people realized that they were
Speaker 1: actually doing valuable jobs, then it's very likely that they'll
Speaker 1: get rehired within the economy, and then, of course, some
Speaker 1: people choose this opportunity to take an early retirement.
Speaker 2: Constant Hunter, the of the Economistic Group, a constant thank
Speaker 2: you for joining us to break down the latest on
Speaker 2: the labor market. This is the Bloomberg Surveillance Podcast, bringing
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