WEBVTT - Bloomberg Surveillance TV: February 4, 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 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.960 Terminal and the Bloomberg Business App. Francis Donald of RBC writing, 0:00:38.040 --> 0:00:40.639 US tariffs in the size that they have been floated, 0:00:40.960 --> 0:00:43.479 or even a fraction of that size, could filter into 0:00:43.520 --> 0:00:48.400 the Canadian economy immediately, significantly and then persistently for many years. 0:00:48.520 --> 0:00:51.280 Francis joins us now for more and Francis, maybe we've 0:00:51.320 --> 0:00:54.040 avoided them, maybe they happen in one month's time. I 0:00:54.160 --> 0:00:55.840 don't know. But what I'd love to hear from you 0:00:56.280 --> 0:00:59.560 is the price of the uncertainty? What is the price 0:00:59.560 --> 0:01:00.400 that we have to pi. 0:01:01.400 --> 0:01:04.000 Well, even though this trade shock that we look to 0:01:04.040 --> 0:01:06.919 have avoided would have been the largest in one hundred 0:01:07.000 --> 0:01:10.440 years for the North American economy. We do have some 0:01:10.560 --> 0:01:13.120 things that we know about terriffs and the threat of 0:01:13.200 --> 0:01:16.840 tariffs from the twenty eighteen twenty nineteen experiences, and one 0:01:16.920 --> 0:01:19.360 of them is even just the existence that they may 0:01:19.400 --> 0:01:25.160 occur has historically stalled business investment, household decisions. It creates 0:01:25.200 --> 0:01:28.480 an uncertainty tax on the entirety of these economies that 0:01:28.600 --> 0:01:31.440 businesses lack clarity on what will happen next. So it 0:01:31.440 --> 0:01:34.440 wouldn't surprise me if we see a pause in business activity, 0:01:34.640 --> 0:01:37.880 a hit to business competence in the United States, Canada, 0:01:37.920 --> 0:01:40.679 and in other countries, and we see this distorting more 0:01:40.720 --> 0:01:42.720 of the Q one data on top of a period 0:01:42.880 --> 0:01:45.480 which historically we have a lot of trouble understanding the 0:01:45.560 --> 0:01:47.440 data from for seasonly adjusted reason. 0:01:47.800 --> 0:01:48.200 Francis. 0:01:48.240 --> 0:01:50.320 The way that John put it earlier was the some 0:01:50.560 --> 0:01:54.000 anti growth measures were being floated and dealed with, dealt 0:01:54.040 --> 0:01:56.320 with now by Donald Trump, and later there'll be the 0:01:56.320 --> 0:01:57.440 pro growth measures. 0:01:57.840 --> 0:01:58.800 Are these hits to. 0:01:58.800 --> 0:02:02.480 Potential growth offset with tax cuts and some of the 0:02:02.480 --> 0:02:03.320 other proposals. 0:02:04.400 --> 0:02:06.640 We haven't been able to make the math work on 0:02:06.840 --> 0:02:10.840 tariff revenue matching tax cut needs. But what's really critical 0:02:10.880 --> 0:02:12.880 here in Lisa I think you nailed it is the 0:02:12.919 --> 0:02:17.480 sequence of these events. Trade shocks, tariffs, they're saxflationary. We 0:02:17.560 --> 0:02:21.320 know that to be true. They limit growth, they create inflation. 0:02:21.720 --> 0:02:24.400 But then you might see, for example, tax cuts that 0:02:24.480 --> 0:02:28.160 come through deregulation that tends to be pro growth, pro inflation. 0:02:28.600 --> 0:02:30.760 And I think what's key here is that almost all 0:02:30.800 --> 0:02:34.280 of the policies that we've floated from Washington do have 0:02:34.360 --> 0:02:37.799 an inflationary element, but markets will care less about that, 0:02:37.880 --> 0:02:39.800 and the US will be able to absorb more of 0:02:39.800 --> 0:02:42.480 that inflation if it comes with a side of growth. 0:02:42.800 --> 0:02:44.760 And that's why I think you're seeing a lot more 0:02:44.800 --> 0:02:47.919 concern about the inflationary elements of tariffs than you are, 0:02:48.000 --> 0:02:51.440 for example, the inflationary elements of corporate tax cuts now 0:02:51.520 --> 0:02:54.600 underlying the surfaces. I think the real inflationary story, and 0:02:54.639 --> 0:02:56.840 the one that should be concerning us most of all, 0:02:57.120 --> 0:03:01.400 is that the US lacks workers jobs. It is heading 0:03:01.440 --> 0:03:05.079 into a period where it's going to experience real demographic challenges. 0:03:05.160 --> 0:03:08.280 We expect the labor participation rate to decline in twenty 0:03:08.320 --> 0:03:11.799 twenty five. We have the least amount of workers ever 0:03:11.960 --> 0:03:14.440 working in the United States right now, the most amount 0:03:14.480 --> 0:03:17.760 of retirees if we see a change to immigration policy, 0:03:17.800 --> 0:03:19.800 in fact we're already seeing some of that. We're going 0:03:19.840 --> 0:03:23.080 to see more challenges to labor supply. That's going to 0:03:23.080 --> 0:03:25.560 be the most nefarious form of inflation as it pushes 0:03:25.639 --> 0:03:29.080 up way just good but flows through the economy more broadly. So, 0:03:29.200 --> 0:03:32.079 inflation is one word, but there's all different types of inflation, 0:03:32.120 --> 0:03:35.520 and all these policies carry different variations of good inflation 0:03:35.680 --> 0:03:36.480 and bad inflation. 0:03:36.640 --> 0:03:39.160 Francis, there's so much uncertainty that FED officials are saying 0:03:39.240 --> 0:03:41.120 very little and a lot of people are cheering that 0:03:41.200 --> 0:03:44.920 and saying nobody knows. Have you seen enough to change 0:03:45.080 --> 0:03:47.840 your outlook for the year when it comes to growth, 0:03:47.920 --> 0:03:50.440 when it comes to inflation in the United States. 0:03:50.800 --> 0:03:54.840 Well, we were prepared to downgrade our US growth forecast 0:03:54.920 --> 0:03:57.320 if we had seen those twenty five percent tariffs on 0:03:57.360 --> 0:04:00.120 Canada and Mexico come through. Those would have shocked to 0:04:00.240 --> 0:04:02.920 US growth by a full percentage point in twenty twenty 0:04:02.920 --> 0:04:06.320 five and lifted inflation by half. As of right now, 0:04:06.360 --> 0:04:08.839 there's not enough even with the Chinese terces, to really 0:04:08.840 --> 0:04:11.680 make a meaningful change in that outlook. But our US 0:04:11.760 --> 0:04:14.400 rate strategist, Blake Gwynn has a really good line. He says, 0:04:14.400 --> 0:04:17.480 the set is going to be watchful, not reactive. Of course, 0:04:17.480 --> 0:04:19.280 the fet is filled with a lot of economists, and 0:04:19.320 --> 0:04:21.200 I think economists on the street are going to be 0:04:21.240 --> 0:04:22.720 doing something very similar to that. 0:04:22.880 --> 0:04:26.160 How much has changed, Francis in the last three months. 0:04:26.400 --> 0:04:28.600 I was listening to some comments from the Chicago Fed 0:04:28.640 --> 0:04:31.560 President Ustin Goilsby the same amount of sync with what 0:04:31.600 --> 0:04:33.320 I heard from him at the end of last year. 0:04:33.320 --> 0:04:33.839 That's for sure. 0:04:33.880 --> 0:04:35.960 Before Trump got into power, We've got to be more 0:04:35.960 --> 0:04:38.160 careful with how fast to cut rights. 0:04:38.160 --> 0:04:39.720 What has changed for them? 0:04:40.320 --> 0:04:42.840 Well, we may feel a huge sense of relief over 0:04:42.880 --> 0:04:45.560 the news from the past twenty four hours, but remember 0:04:45.640 --> 0:04:48.320 this massive trade shock. And I got to be clear here, 0:04:48.560 --> 0:04:51.040 this trade shock, twenty five percent tariffs on Mexico and 0:04:51.120 --> 0:04:54.560 China would have brought the average import terror for Americans 0:04:54.680 --> 0:04:57.839 up to almost eleven percent. It currently sits at three. 0:04:58.279 --> 0:05:01.560 It's a quadrupling of the trade pressure that would exist 0:05:01.640 --> 0:05:04.960 within the US economy. It didn't disappear. It's been paused 0:05:05.160 --> 0:05:07.920 for one month. We still have the April First America 0:05:08.600 --> 0:05:12.960 April first America first trade policy negotiations. We have USMCA 0:05:13.080 --> 0:05:16.760 being negotiated. We're hearing a lot of chatter about European tariffs, 0:05:16.760 --> 0:05:19.240 and then we have Chinese tariffs that came on that, 0:05:19.320 --> 0:05:21.440 as you mentioned at the start of the segment, is 0:05:21.480 --> 0:05:24.279 still a massive economic shock, and it would have to 0:05:24.320 --> 0:05:26.919 have you reevaluate how you're looking at the economy in 0:05:26.920 --> 0:05:30.599 twenty twenty five, especially if you're a central banker, because 0:05:30.600 --> 0:05:32.800 if you're a central banker in that situation, you're having 0:05:32.839 --> 0:05:36.440 to model growth down, inflation up. Some central banks only 0:05:36.440 --> 0:05:40.280 have an inflation target. This central bank has a dual mandate, 0:05:40.360 --> 0:05:42.520 and those mandates would go in the opposite direction. 0:05:42.880 --> 0:05:46.120 A rockin' haant place and somewhere in between. Francis, appreciate 0:05:46.120 --> 0:05:47.560 your time, soys Francis down. 0:05:47.520 --> 0:05:48.560 With a Bomby c. 0:06:00.040 --> 0:06:02.280 Find Saxon words join us now for more. If all 0:06:02.320 --> 0:06:04.599 of Wall Street's horses and all of Wall Street's men 0:06:04.600 --> 0:06:07.520 can't put the globalized economy back together again, how do 0:06:07.600 --> 0:06:10.440 we think about where best to allocate assets? 0:06:10.560 --> 0:06:12.479 What a question. Sarah Johns' is now for more, Serah, 0:06:12.480 --> 0:06:13.120 good morning. 0:06:12.920 --> 0:06:13.279 Good morning. 0:06:13.320 --> 0:06:15.039 I'm going to talk about red wine from that way, 0:06:16.279 --> 0:06:18.359 as much as I'd love to. Let's talk about this 0:06:18.800 --> 0:06:21.080 the policy mix that we're going to see from this administration. 0:06:21.160 --> 0:06:23.279 Does it a track capital or push it away. 0:06:23.720 --> 0:06:25.680 I think that that's a million dollar question right now, 0:06:25.760 --> 0:06:27.520 and it's certainly something that's been talked about for the 0:06:27.520 --> 0:06:29.159 first week in a way that it wasn't talked about 0:06:29.200 --> 0:06:31.320 in the first Trump one point er, right, There wasn't 0:06:31.400 --> 0:06:33.880 an argument about capital then, And I think that that 0:06:34.880 --> 0:06:37.200 what we're going to see is what we've seen so far, 0:06:37.279 --> 0:06:39.320 which is, you know, going this way, going that way. 0:06:39.360 --> 0:06:40.920 There's going to be a zigzag back and forth, and 0:06:40.960 --> 0:06:42.760 I think it is hard to pin those things down. 0:06:43.120 --> 0:06:44.880 So I don't know what the answer is yet, but 0:06:44.920 --> 0:06:47.160 the big fear is that it does have a negative 0:06:47.160 --> 0:06:48.000 effect on capital. 0:06:48.160 --> 0:06:50.120 The consensus view seems to be that this is still 0:06:50.160 --> 0:06:52.760 a pro growth administration, that it will attract capital. The 0:06:52.839 --> 0:06:55.279 S and P five hundred is still around six thousand, 0:06:55.360 --> 0:06:57.520 but there has been some damage done, particularly to the 0:06:57.520 --> 0:07:00.599 auto makers. How investible do you think certain industries with 0:07:00.640 --> 0:07:01.880 this cloud hanking over them? 0:07:02.400 --> 0:07:04.480 Well, the tough thing for the automakers is that that's 0:07:04.520 --> 0:07:07.120 a tough industry anyway, because it's so capital intensive and 0:07:07.160 --> 0:07:10.040 things change so fast. So I think that there is 0:07:10.120 --> 0:07:13.680 I mean, you obviously have seen on the semiconductor side, 0:07:13.720 --> 0:07:16.720 those stocks have not really recovered, even though the market 0:07:16.760 --> 0:07:19.040 seem to recover some of the issues from the deep seaks. 0:07:19.040 --> 0:07:20.840 So I think that there's a variety of different things 0:07:20.880 --> 0:07:22.840 going on at the moment, and people will start to 0:07:22.880 --> 0:07:26.000 have more enthusiasms or less, either for different sectors or 0:07:26.000 --> 0:07:28.880 different areas. But I think that this adding into the 0:07:28.920 --> 0:07:31.880 tariff thing absolutely puts you a little bit more of 0:07:31.920 --> 0:07:35.480 a question mark on going too deep into anything without 0:07:35.680 --> 0:07:38.480 recognizing that there's possible issues that are coming. 0:07:38.800 --> 0:07:41.680 We started the show with Steve Chivun of Federated and 0:07:41.720 --> 0:07:44.040 he came on and he does his typical Monday morning 0:07:44.040 --> 0:07:47.200 although it is Tuesday morning, he did his typical look, 0:07:47.320 --> 0:07:50.200 does all of your horses look at the fundamentals. There 0:07:50.240 --> 0:07:51.960 are a lot of good things going on out there, 0:07:51.960 --> 0:07:54.480 and he's generally bullish, and he's looking to buy on 0:07:54.520 --> 0:07:56.760 the dips, whether it's semiconductors or some of these other 0:07:56.800 --> 0:07:58.800 spaces that have been disrupted by tariffs. 0:07:59.120 --> 0:08:00.480 At what point do agree with that? 0:08:01.120 --> 0:08:04.160 Well, I think that there have been already areas where 0:08:04.320 --> 0:08:07.600 you have reasonably good value. I mean the discussion prior 0:08:07.640 --> 0:08:09.200 to a lot of this was that the SMP equal 0:08:09.200 --> 0:08:10.520 weight was going to start to catch up to the 0:08:10.560 --> 0:08:12.680 S and P because the SMP was so heavy in 0:08:12.720 --> 0:08:14.960 those top mag seven names. And so I think that 0:08:15.000 --> 0:08:17.080 there are areas where you can look at the valuations 0:08:17.120 --> 0:08:18.960 and go, you know, this is completely reasonable. You know, 0:08:19.000 --> 0:08:22.200 you look at things like some of the materials food. 0:08:22.400 --> 0:08:25.160 Some of the food stocks have gotten absolutely crushed. There 0:08:25.160 --> 0:08:27.120 are a couple of different things that we like in 0:08:27.160 --> 0:08:30.000 that area that have good dividend yields and reasonable valuations 0:08:30.040 --> 0:08:33.240 ten thirteen, fourteen times earnings. That's not crazy given where 0:08:33.240 --> 0:08:35.680 the SMP is right now. So there are obviously areas 0:08:35.679 --> 0:08:38.160 that you can look at, but it is definitely more 0:08:38.200 --> 0:08:40.680 of a nimbleness and you have to be watching things 0:08:40.760 --> 0:08:41.520 much more closely. 0:08:41.880 --> 0:08:45.880 We've seen the NASDAC underperform pretty considerably in text talks 0:08:45.920 --> 0:08:48.280 in general for the past more than a month. Actually, 0:08:48.640 --> 0:08:51.200 as you mentioned, they really haven't recovered at the same 0:08:51.200 --> 0:08:54.480 time that you have seen this broadening out. Yesterday was 0:08:54.520 --> 0:08:57.400 instructive in terms of what stocks would get most beaten 0:08:57.520 --> 0:08:59.720 up as some of the trade tensions really picked up 0:09:00.120 --> 0:09:04.439 small caps. So how much does the tariff talk threaten 0:09:04.480 --> 0:09:06.840 the broadening out that a lot of people have been 0:09:07.040 --> 0:09:07.640 hoping for. 0:09:08.200 --> 0:09:09.960 Well, I think that it's I mean, yes, you're going 0:09:10.000 --> 0:09:12.080 to get those reactions, and then you have to see 0:09:12.080 --> 0:09:14.720 where that data comes in and your discussion earlier about 0:09:14.720 --> 0:09:17.240 the FED there, I mean to the extent that they 0:09:17.280 --> 0:09:19.400 may not want to do anything. This sort of gives 0:09:19.400 --> 0:09:21.360 them cover not to do very much for some period 0:09:21.360 --> 0:09:23.640 of time as they sort out what's going on. It 0:09:23.679 --> 0:09:25.720 really is going to depend on where the economic data go, 0:09:26.040 --> 0:09:28.920 and that's going to matter for the small caps enormously 0:09:28.960 --> 0:09:30.760 as well as interest rates. And I think that that 0:09:30.920 --> 0:09:33.480 right now is one of those vulnerabilities that that's an 0:09:33.559 --> 0:09:36.840 economically sensitive area. Not that the rest of the market 0:09:36.920 --> 0:09:39.000 is an economically sensive but it's more so and it's 0:09:39.040 --> 0:09:40.840 more tuned to what's going on in the US economy. 0:09:40.960 --> 0:09:44.080 So I think for those companies, what really matters is 0:09:44.120 --> 0:09:47.040 how things are going on the earnings and the economic front. 0:09:47.280 --> 0:09:48.000 At that point. 0:09:48.480 --> 0:09:51.840 There's a real important message coming from the bond market yesterday, 0:09:52.120 --> 0:09:54.719 where we didn't see a huge rally in the ten 0:09:54.760 --> 0:09:56.960 year yield. We didn't see a huge sell off either 0:09:57.040 --> 0:10:00.440 from some of the inflationary impacts of potential play stry 0:10:00.440 --> 0:10:01.400 impacts of tariffs. 0:10:01.800 --> 0:10:03.080 What was the message to you? 0:10:03.440 --> 0:10:06.000 Was there one or was it just people paralyzed because 0:10:06.000 --> 0:10:07.800 they had no idea how to came it out. 0:10:07.920 --> 0:10:11.160 I think yesterday was It's interesting because I think that 0:10:11.240 --> 0:10:13.840 yesterday the equity markets obviously had a big reaction in 0:10:13.880 --> 0:10:15.680 the morning, but I think that there was some of 0:10:15.720 --> 0:10:17.800 a wait and see attitude about where is this really 0:10:17.840 --> 0:10:19.320 going to go by the end of the day, because 0:10:19.360 --> 0:10:22.040 we know that there is the possibility. I'm having phone calls, 0:10:22.080 --> 0:10:24.480 so that's telling you there's a possibility for this not 0:10:24.600 --> 0:10:27.600 to be as harsh as it sounds at the get go. 0:10:27.960 --> 0:10:30.160 So I think that on the bond market, people were 0:10:30.160 --> 0:10:32.640 more waiting to go. We're not really sure which way 0:10:32.640 --> 0:10:34.920 this is going to go, and it's until you know. 0:10:34.920 --> 0:10:37.199 If it had gone through to today and nothing had 0:10:37.280 --> 0:10:39.680 changed yesterday, I think you would have seen the bigger reaction. 0:10:39.760 --> 0:10:42.160 But I think because that reaction was muted within the 0:10:42.160 --> 0:10:44.960 same day it changed, I think that gave people enough 0:10:45.000 --> 0:10:46.880 time to go it's okay, we can wait before we 0:10:46.920 --> 0:10:47.800 make any major decision. 0:10:47.800 --> 0:10:49.280 I won't debate how much move, but I think on 0:10:49.320 --> 0:10:51.240 this stress test, I think we could take something Awhite 0:10:51.240 --> 0:10:54.520 directionally from what happened. The fact that yields dropped back 0:10:54.520 --> 0:10:56.760 at the long end, it didn't rise. There is something 0:10:56.760 --> 0:10:58.440 to be set. There be mostly and think can make 0:10:58.480 --> 0:11:00.960 that point. We discussed it earlier. The certain parts of 0:11:00.960 --> 0:11:03.840 this market, certain investors have begun to talk about the 0:11:03.920 --> 0:11:08.600 growth risk associated with tariffs, and not exclusively the inflation risk. 0:11:08.760 --> 0:11:11.200 Francis Donald mentioned that it would take about a percent 0:11:11.360 --> 0:11:14.000 off growth in the US if some of these tariffs had. 0:11:13.880 --> 0:11:17.000 Gone into effect. I think you're right on the long end. 0:11:17.200 --> 0:11:19.800 The fact that you saw yield curve flattening, it shows 0:11:19.840 --> 0:11:22.440 that people have a very clear sense of what kind 0:11:22.440 --> 0:11:24.200 of disinflationary hit it could have over the lot. 0:11:24.240 --> 0:11:25.719 I don't know what these tarifts would do. We've talked 0:11:25.760 --> 0:11:28.560 about this repeatedly. By definition, the import paces the tariff, 0:11:28.679 --> 0:11:30.800 how the cost gets distributed. It's going to depend on 0:11:30.840 --> 0:11:32.800 what the goods are. I know this though. You can't 0:11:32.840 --> 0:11:37.120 replace Ferrari. Ferrari coming out with earnings moments ago. Okay, 0:11:37.559 --> 0:11:41.480 FIE sales rising fourteen percent, one in four vehicles sold. 0:11:41.480 --> 0:11:44.080 Guess where in the United States? The stock is up 0:11:44.080 --> 0:11:45.600 this morning by a little more than three percent. 0:11:45.679 --> 0:11:48.000 You can't replace Ferrari, but some of us can't afford it, 0:11:48.040 --> 0:11:50.160 so it would be really nice to, you know, share 0:11:50.200 --> 0:11:50.680 it once. 0:11:50.559 --> 0:11:51.040 In a while. 0:11:51.200 --> 0:11:52.120 Let me have the keys. 0:11:53.440 --> 0:11:56.199 So obviously, you know you can enjoy it. 0:11:56.320 --> 0:11:56.800 I can't. 0:11:56.880 --> 0:11:59.240 Not many people can afford Opus one either. 0:11:59.000 --> 0:12:02.440 Brand I know, you know, it's sort of the perception is, 0:12:02.800 --> 0:12:04.960 you know that it's a really wonderful car, and I 0:12:05.000 --> 0:12:06.720 just wonder if any of this will dep that perception. 0:12:06.920 --> 0:12:09.680 Yes, agreed, going to see it, Sarah, Thank you as always, 0:12:09.679 --> 0:12:22.319 Sarah Hummett of Vampine Saxon Wood. George Sarah Vellos of 0:12:22.360 --> 0:12:25.200 Deutsche Bank saying euro dollar is a risk of parity, 0:12:25.440 --> 0:12:27.920 writing the drivers of euro dollar can be broken down 0:12:27.960 --> 0:12:33.319 into two parts, relative monetary policy and the tariff risk premium. George, 0:12:33.400 --> 0:12:35.400 John just now for more, George, welcome to the program. 0:12:35.440 --> 0:12:38.840 Let's talk about the second part, that tariff risk premium. 0:12:38.920 --> 0:12:39.560 How big is that? 0:12:41.760 --> 0:12:42.600 So, John, I. 0:12:42.640 --> 0:12:45.640 Think it's the key question for the next few months, 0:12:45.720 --> 0:12:48.760 and on our end, we're not spending much time trying 0:12:48.760 --> 0:12:50.600 to predict what President trub will do. 0:12:51.120 --> 0:12:52.760 I think the experience of the last few days has 0:12:52.760 --> 0:12:54.559 shown it's not a very fruitful exercise. 0:12:55.000 --> 0:12:57.360 It's all about trying to figure out what the market's 0:12:57.400 --> 0:13:01.080 pricing and therefore the risk distribution around its events. And 0:13:01.160 --> 0:13:03.560 when we look at the so called tariff risk premium, 0:13:03.600 --> 0:13:06.000 and you can see in many different parts of the market. 0:13:06.080 --> 0:13:08.520 You can see in the US inflation curve, you can 0:13:08.559 --> 0:13:10.040 see in the deviation. 0:13:09.640 --> 0:13:10.920 Of the dollar from fair value. 0:13:11.480 --> 0:13:13.440 You can even see in what's known as the EFP 0:13:14.000 --> 0:13:16.760 in COMEX futures for gold. When we look at all 0:13:16.800 --> 0:13:19.800 these tariff metrics, they've been send me a consistent message 0:13:20.000 --> 0:13:23.119 that the market's pricing a very limited tariff risk premium. 0:13:23.280 --> 0:13:27.080 It again tried to price more yesterday. It's now reverted back, 0:13:27.240 --> 0:13:30.640 but it's precisely because that tariff premium is still quite low. 0:13:30.880 --> 0:13:35.280 But we see the risk distribution skewed towards essentially pricing 0:13:35.320 --> 0:13:37.800 in more tariffs if and when they materialize. 0:13:37.960 --> 0:13:40.040 George, is that just the euro or can you say 0:13:40.040 --> 0:13:41.720 the same thing about the Chinese currency? 0:13:43.400 --> 0:13:44.920 I would say it's across the board. 0:13:45.000 --> 0:13:48.200 If you're looking at all global markets, whether you're looking 0:13:48.240 --> 0:13:51.360 at fixed income and the so called inflation hump that's 0:13:51.400 --> 0:13:54.679 pricing to break events. It is still that inflation hump 0:13:55.000 --> 0:13:58.440 is still very low. It is definitely valid for the 0:13:58.520 --> 0:14:01.360 dollar when you're looking at the euro, for example, when 0:14:01.360 --> 0:14:05.080 we mentioned parity, that is not a forecaster to speak 0:14:05.120 --> 0:14:08.240 at seven stone. It's just that if you get a 0:14:08.400 --> 0:14:11.440 reasonable outcome in terms of tariffs around the midpoint of 0:14:11.480 --> 0:14:14.520 the range that's been discussed, that's where we'd get to. 0:14:14.800 --> 0:14:17.160 Of course, if you're gett even worse outcomes, it could 0:14:17.200 --> 0:14:20.520 be bigger. China is more difficult because this is a 0:14:20.560 --> 0:14:24.760 policy determined currency. The market is not free floating, and 0:14:24.840 --> 0:14:28.640 I think this one is where the specific policy choices 0:14:28.680 --> 0:14:31.280 by the authorities will play much bigger role. 0:14:31.640 --> 0:14:35.040 George, you talk about the trade war risk premium, and 0:14:35.080 --> 0:14:38.600 that typically has been strong dollar. We've been talking on 0:14:38.640 --> 0:14:42.080 the show about at what point the hangover effect of 0:14:42.080 --> 0:14:45.600 the tip for tad of trade negotiations trade wars ends 0:14:45.760 --> 0:14:48.040 up with the rest of the world trying to withdraw 0:14:48.080 --> 0:14:51.320 money from the United States, not put money into the 0:14:51.480 --> 0:14:54.800 United States. How much and how closely are you watching 0:14:54.840 --> 0:14:58.880 what indicators to maybe suggest that the appetite for the 0:14:58.920 --> 0:15:00.640 dollar or serring to wane. 0:15:02.160 --> 0:15:05.320 That's a great question, and I think a very important one. 0:15:05.480 --> 0:15:07.840 So the way we think about it, first of all 0:15:08.000 --> 0:15:12.040 is relative economic impact. You have to think about currencies 0:15:12.080 --> 0:15:14.880 in that way, and the US possesses a number of 0:15:14.960 --> 0:15:18.800 unique features. It's the world's largest economy, it has the 0:15:18.920 --> 0:15:22.720 lowest share of trade, it has a big trade deficit, 0:15:22.840 --> 0:15:24.560 and it's very service is intensive. 0:15:24.800 --> 0:15:26.720 And President Trump, of course knows all these things. 0:15:26.800 --> 0:15:30.120 But what that means is that every time tariffs are threatened, 0:15:30.640 --> 0:15:33.560 it has an asymmetric impact on the rest of the world, 0:15:33.600 --> 0:15:36.480 and that's exactly why the dollar is strengthening. I think 0:15:36.520 --> 0:15:38.800 what you need to see for an unraveling of the 0:15:38.840 --> 0:15:42.720 inflows you allude to is essentially a big US centric 0:15:42.840 --> 0:15:46.560 growth slowdown that's more sharp than the rest of the 0:15:46.560 --> 0:15:50.200 world that causes the FED to become more dovish. And 0:15:50.280 --> 0:15:53.200 so far, especially given that tariffs are tied in with 0:15:53.320 --> 0:15:56.880 the fiscal negotiations, potentially in a fiscal expansion, we don't 0:15:56.880 --> 0:15:57.760 see any signs of that. 0:15:58.320 --> 0:16:00.560 In the meantime, there is the like we heard, as 0:16:00.560 --> 0:16:03.920 you said, the disproportionate effect in other countries that if 0:16:04.000 --> 0:16:06.680 tariffs do go into effect or even the suggestion of them, 0:16:06.680 --> 0:16:08.960 will slow economies like Canada. We heard that from the 0:16:09.000 --> 0:16:12.600 Bank of Canada or potentially in the European Union. On 0:16:12.640 --> 0:16:16.080 the margins, even though this is a single mandate ECB. 0:16:16.280 --> 0:16:19.480 Do you expect them to cut rates more aggressively to 0:16:19.600 --> 0:16:22.000 counteract some of that potential growth shock? 0:16:23.640 --> 0:16:25.920 Well, again, the ECB is a huge focus. 0:16:25.960 --> 0:16:28.160 And to go back to the point around the tariff 0:16:28.240 --> 0:16:31.400 screemom that was priced in uptil last week, the market 0:16:31.440 --> 0:16:33.480 was pricing the ECB to stop. 0:16:33.520 --> 0:16:36.480 Above two around two point one two point two. Now, 0:16:36.480 --> 0:16:39.480 if you think about that, that was the upper end of. 0:16:39.400 --> 0:16:43.120 The neutral range, which Leguard alluded to two twenty five 0:16:43.360 --> 0:16:45.720 to one seventy five. So of you on the ECB 0:16:45.880 --> 0:16:48.800 has definitely been more dubbish than market pricing. If you 0:16:48.840 --> 0:16:52.359 take a step back, European growth is below trend. Forwardlooking 0:16:52.440 --> 0:16:56.480 numbers of inflation are pointing at or below trend. You've 0:16:56.480 --> 0:16:59.360 got a net fiscal stances tightening and tariff risks. 0:16:59.720 --> 0:17:02.400 So we see the ECB potentially cutting down to one 0:17:02.400 --> 0:17:02.920 point fifty. 0:17:03.360 --> 0:17:05.879 The market has adjusted over the last few days, but 0:17:06.080 --> 0:17:08.720 I think especially versus the Fed, we see that rate 0:17:08.760 --> 0:17:10.600 differential widening again. 0:17:10.520 --> 0:17:12.919 Essent George mention it. I just want to jump in. 0:17:13.240 --> 0:17:17.200 I'm surprised that that's even somewhat contrarian right now. It's 0:17:17.240 --> 0:17:19.680 surprising to me that ECB officials are still talking about 0:17:19.720 --> 0:17:22.560 neutral and not talking about getting accommodative. 0:17:22.600 --> 0:17:23.760 When's that going to change? 0:17:25.040 --> 0:17:27.080 So it's a very interesting point in your age, John, 0:17:27.119 --> 0:17:29.080 because the narrative in the market is. 0:17:29.040 --> 0:17:30.600 That the ECB should be cutting more. 0:17:30.640 --> 0:17:33.439 But I always like distinguishing between the narrative and what 0:17:33.560 --> 0:17:35.200 ultimately matters, which is pricing. 0:17:35.520 --> 0:17:36.800 And if you look at market. 0:17:36.520 --> 0:17:39.040 Pricing for the ECB has been fairly hawkish, it's been 0:17:39.080 --> 0:17:42.760 above two. Why has that been the case? You have 0:17:42.920 --> 0:17:45.760 had sun rise and energy prices and the ECB sensitive 0:17:45.800 --> 0:17:49.040 to that. But I think crucially it's the ECB communication, 0:17:49.520 --> 0:17:54.520 especially from those hawkish members for example Governing Council member 0:17:54.520 --> 0:17:57.760 Shabul And I think what is required to change is 0:17:57.800 --> 0:18:02.080 for these members to gradually set that the ECB is 0:18:02.080 --> 0:18:04.600 going to need more, to do more, and I think 0:18:04.600 --> 0:18:06.240 we will get that over the next few months. 0:18:06.280 --> 0:18:09.040 Hey, George Clinic from you as always a foreign exchange. 0:18:09.080 --> 0:18:11.720 Appreciate your time, George Saravelos there of Deutsche Bank. 0:18:21.960 --> 0:18:23.240 Let's turn to the auto industry. 0:18:23.280 --> 0:18:26.600 Danaives have wet Bush is not overly concerned about Tariff's writing. 0:18:26.640 --> 0:18:29.040 The supply chain kind adjust to a near term shock 0:18:29.119 --> 0:18:30.360 and weather the storm. 0:18:30.440 --> 0:18:31.840 If these tariffs stand place. 0:18:31.640 --> 0:18:34.240 For thirty to sixty days, we see minimal impact to 0:18:34.320 --> 0:18:36.880 GM and to Ford Dan John's just now for more 0:18:36.960 --> 0:18:39.520 Dank and Monic greed to be here thirty days. If 0:18:39.560 --> 0:18:42.200 we got that in thirty days and they lasted thirty days, 0:18:42.440 --> 0:18:43.879 are we only saying there's only going to be like 0:18:43.920 --> 0:18:46.440