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

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

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Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day

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

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

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

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

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

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Speaker 2: Terminal and the Bloomberg Business app. So here's the lass

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Speaker 2: this morning, minutes of the latest Fed minutes showing a

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Speaker 2: hawkish tilt several committee members considering hiking rates due to

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Speaker 2: sticky inflation. Terry Wiseman of Macquarie right in the case

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Speaker 2: for a raidcun was very weak already. It wasn't completely

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Speaker 2: unexpected that the minutes lean to the hawkish side. Terry

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Speaker 2: joins us now for more Terry, good morning, Good morning.

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Speaker 2: Is there a case for a hike?

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Speaker 3: There is a case for hawkishness.

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Speaker 1: Now, whether that's trans into a hike or not, it

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Speaker 1: certainly will not happen in the next few months. If

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Speaker 1: there is going to be a hike. It's going to

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Speaker 1: be a little bit further down the line this year,

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Speaker 1: maybe in the fourth quarter. But let's talk about why

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Speaker 1: there's a case for hawkishness if not a hike. Optically,

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Speaker 1: this is an economy, the US economy, that has not

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Speaker 1: seen inflation at target for five years. I mean, we

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Speaker 1: have been persistently above that target. The other reason, of course,

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Speaker 1: optically again is that the unemployment rate is very low.

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Speaker 1: If you consider what the feds two mandates are, there

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Speaker 1: is no basis for not being cautious, which can translate

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Speaker 1: as rhetorical hawkishness, as it did.

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Speaker 3: In the minutes.

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Speaker 1: So that's the case effectively for a hike if you

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Speaker 1: want to stretch it. But it's certainly the case for

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Speaker 1: hawkishness without even the stretch. Keep in mind, one of

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Speaker 1: the reasons we weren't surprised that even going into the

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Speaker 1: meeting on January twenty ninth, that this would be a

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Speaker 1: hawkish outcome, at least rhetorically, including from the press or

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Speaker 1: that Chair Powell gave on that day, was that the

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Speaker 1: composition of the FOMC changed at the turn of the year,

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Speaker 1: as it always does.

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Speaker 3: Four members left and four members.

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Speaker 1: Came in, and if you look at the disposition of

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Speaker 1: the four members that came in, marginally more hawkish than

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Speaker 1: the four members that came out, or more cautious, certainly.

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Speaker 1: So this is not a surprise that there was a

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Speaker 1: tone in the minutes that stressed the need to maybe

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Speaker 1: even do away with a new with the dubbish bias

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Speaker 1: implicit in the policy outlook.

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Speaker 3: Uh yeah, this is this is this is the case.

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Speaker 2: Effectively it to your point, they're managing the optics. They're

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Speaker 2: also centing a sun potentially for a prolonged pause. Do

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Speaker 2: you believe that pause expires with new leadership of the halfway?

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Speaker 1: So this is the market certainly believes that it expires.

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Speaker 1: Right If you if you look at the look the

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Speaker 1: forward curve right now in the money markets in the

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Speaker 1: US and the overnight index products, it is suggesting that

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Speaker 1: the FED is going to cut twice. How can you

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Speaker 1: suggest that the Fed is going to cut twice when

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Speaker 1: they just came out with fairly cautious, slash hawkish minutes,

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Speaker 1: when inflation is still above the target, and when the

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Speaker 1: unemployment rate is very low. The only conclusion that one

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Speaker 1: can draw from looking at that curve is that the

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Speaker 1: market expects that there will be a structural break in

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Speaker 1: the nature and disposition of the meeting opinion on the

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Speaker 1: FOMC upon the change in the chairmanship. That's the only

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Speaker 1: way that I can square that circle.

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Speaker 4: Yesterday Noyel Robinia was with John and Lisa and he

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Speaker 4: was talking about how the FETE is not an absolute

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Speaker 4: monarch and Moorsh needs to convince the rest of the committee.

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Speaker 4: Kenny convinced the rest of the committee.

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Speaker 3: The market certainly believes that he can.

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Speaker 1: There is no way I can explain that implied fifty

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Speaker 1: basis points of cuts this year without the presumption that

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Speaker 1: the market is making that Worsh can convince the committee.

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Speaker 1: Worsh does have help on the committee, obviously, he has

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Speaker 1: Chris Waller, at the very least potentially Michelle Bowman, who

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Speaker 1: would look things his way when it comes to cutting.

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Speaker 1: I want to make the case though, that there is

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Speaker 1: an intellectual basis for a cut as well, just as

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Speaker 1: we just discussed an intellectual basis for a potential hike.

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Speaker 1: And that is the case that Kevin Warreshon's been making,

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Speaker 1: which is that let's not look at the data, let's

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Speaker 1: not look at these optics let's just wonder about and

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Speaker 1: think about what the implications of deregulation will be on

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Speaker 1: the economy, what the implications of the AI revolution will

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Speaker 1: be on the economy, potentially, what the implications of reverse

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Speaker 1: migration will be. But the first two things are the

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Speaker 1: most important. The debate at the FED going forward and

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Speaker 1: the decision it will make will probably turn on what

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Speaker 1: the median voter thinks about the AI Revolution.

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Speaker 3: That is going to get a lot more talk.

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Speaker 1: There's going to be a lot more bandwidth at the

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Speaker 1: FED intellectually about what the long term implication of this

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Speaker 1: will be for inflation, for employment.

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Speaker 4: What do you think do you think is inflationary or disinflation?

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Speaker 1: So I think it's inflationary in the short term, but

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Speaker 1: obviously the promise of a disinflationary trend in the long

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Speaker 1: term once the investment is in place and it's deployed,

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Speaker 1: is there.

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Speaker 3: I think the.

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Speaker 1: People who are being cautious right now, even with respect

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Speaker 1: to AI let alone the optics of low unemployment and

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Speaker 1: high inflation, are being hawkish because they actually believe that

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Speaker 1: they could be an additional inflationary impulse in the economy

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Speaker 1: over the next few months. In view of all of

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Speaker 1: the investments spending. Now we're obviously we're already seeing the

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Speaker 1: effects of AI implicitly in the CPI. It's one of

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Speaker 1: the reasons why electricity prices are high. So there is

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Speaker 1: a case to be made for the short term. I

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Speaker 1: think the doves, though, the structural doves, are also saying, hey,

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Speaker 1: let's not even if inflation is high in the short term,

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Speaker 1: let's not worry about that because the benefit of running

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Speaker 1: the economy hot for a while in terms of the

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Speaker 1: investment that you get in AI will pay off in

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Speaker 1: spades down the road with the disinflation is going to create,

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Speaker 1: and the inflation you have to tolerate now is the price

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Speaker 1: you have to pay for the revolution that we're going

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Speaker 1: to see in the next few months.

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Speaker 3: That's another intellectual argument.

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Speaker 2: This is deeply sophisticated stuff. So forgive me for trying

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Speaker 2: to make this very simple, but foreign exchange is the

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Speaker 2: bullcase for the dollar rebuilding, given I think you've just said,

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Speaker 2: at least in the short set.

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Speaker 1: Not really, because in part the bookcase on the dollar

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Speaker 1: was not so much based on what the FED was

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Speaker 1: going to do. It was also based on where the

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Speaker 1: value where the dollar is invaluation terms, which is still

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Speaker 1: very expensive from a long term historical perspective. And the

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Speaker 1: other case for dollar weakness, if you will, was the

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Speaker 1: idea that the US was disengaging from the rest of

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Speaker 1: the world, and this would attenuate, it would start to

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Speaker 1: fray the view of the US dollar as the reserve

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Speaker 1: currency in the international medium of exchange. If the US

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Speaker 1: re engages with the rest of the world, I think

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Speaker 1: there's a better case for a strong dollar there than

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Speaker 1: with respect to what the FED is going to do.

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Speaker 1: And I will highlight that Marco Rubio's speech this past

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Speaker 1: weekend could be that turn of events could mark that

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Speaker 1: turn of events that makes the US re engage with

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Speaker 1: the rest.

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Speaker 4: So is Marco Rubio dollar bullish and JD.

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Speaker 3: Van's is dollar bearish.

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Speaker 1: That's not a bad way to think about it. I

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Speaker 1: guess what we're guess. What you need to consider here

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Speaker 1: is whether or not Marco Rubio has managed to undo

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Speaker 1: all the consternation that the US received over the past

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Speaker 1: year from its enemies, from its allies, from its erthswhile

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Speaker 1: allies where it's future allies, et cetera.

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Speaker 3: It's hard to say.

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Speaker 1: We're watching the situation, but we want to see if

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Speaker 1: if the administration takes Marco Rubio's words to heart.

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Speaker 3: Stay with us.

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Speaker 2: More Bloomberg surveillance coming up after this. Tensions very clearly

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Speaker 2: rising between the US and Iran. US force is amassing

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Speaker 2: their largest military build up in the Middle.

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Speaker 5: East in decades.

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Speaker 2: The White House maintaining a potential deal to avoid a

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Speaker 2: conflict is still on the table. At Mills of Raymond James,

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Speaker 2: we've often heard the President be congratulated for peace through strength.

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Speaker 2: He has a means of doing things, a way of

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Speaker 2: doing things. It's targeted, it's contained, its high impact. Could

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Speaker 2: this be a different approach, Jonathan, It's possible, But I

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Speaker 2: do think that the base case here is President Trump

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Speaker 2: likes to escalate, to de escalate.

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Speaker 6: He wants to put a lot of pressure her on

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Speaker 6: if there is a strike. He does like those quick wins.

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Speaker 6: I think it's really important the conversation we've been having

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Speaker 6: already this morning on affordability. The President has a real

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Speaker 6: issue already on affordability. If this does cause a market reaction,

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Speaker 6: especially within energy markets, that is a very limited window

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Speaker 6: that he has. And I think one of the big

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Speaker 6: issues here is that when we go back to June.

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Speaker 6: When we look at what happened in Venezuela with Maduro,

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Speaker 6: there was a very clear objective and there was a

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Speaker 6: lot of political support, maybe not necessarily kind of broadly

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Speaker 6: within the American public, but within the policy circles that

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Speaker 6: this was a specific action that needed to be taken.

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Speaker 6: I don't know what that specific action that needs to

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Speaker 6: be taken right now, Besides some of the conversations we've

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Speaker 6: been having for years protesters in Richmond of uranium, kind

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Speaker 6: of the nuclear program within Iran, What is the need

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Speaker 6: right now to do this.

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Speaker 4: I don't have that question, and Iran is not Venezuela.

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Speaker 4: It's entirely different complex. What would be a quick win

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Speaker 4: for the president then if he were to strike Roan?

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Speaker 6: Yeah, Amory, I would have to kind of look specifically

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Speaker 6: at what Israel has been talking about related to the

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Speaker 6: ballistic missile capabilities of Iran. One of the big changes

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Speaker 6: since October seventh is that deterrence is no longer the option.

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Speaker 6: There is a much greater emphasis on offensive strategies.

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Speaker 5: If there are.

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Speaker 6: Concerns that the nuclear program continues to enrich, that they

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Speaker 6: could be closer to a weapon that could be deployed

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Speaker 6: via ballistic missile. Taking out those ballistic missile facilities would

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Speaker 6: be kind of one of those possible quick wins. Another

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Speaker 6: attack on the nuclear sites is also possible if there's

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Speaker 6: been a rebound, but that also upsets some of the

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Speaker 6: conversations that Donald Trump wanted to have after the attacks

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Speaker 6: of last June, that those nuclear facilities had been obliterated.

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Speaker 6: So he does run the risk that if he goes

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Speaker 6: after those, it opens the question what was the actual

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Speaker 6: damage and.

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Speaker 4: The question, of course, a lot of people are talking

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Speaker 4: about how this might not be short lived. This could

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Speaker 4: be days, weeks, and even maybe months long ed. Is

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Speaker 4: there a potential that Donald Trump starts looking like George Bush?

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Speaker 4: When you look at the Middle East right now in

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Speaker 4: the US military posture, it looks like two thousand and three.

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Speaker 3: Yeah.

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Speaker 6: So what we've told clients at Raymond James is that

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Speaker 6: when we look at these geopolitical events, there hasn't been

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Speaker 6: a huge market reaction because of the fact that they've

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Speaker 6: been targeted. Those quote unquote quick wins have taken place. Amory,

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Speaker 6: if we do go into weeks or months, if we

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Speaker 6: start having those comparisons to the last time we've had

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Speaker 6: major build ups in the Middle East. That would be

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Speaker 6: a very different market expectation than what we have right now.

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Speaker 6: So any conversation about comparisons is not a conversation this

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Speaker 6: market wants to have.

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Speaker 4: Ed, how does he do this at the same time

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Speaker 4: as he's going to give a huge speech today on

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Speaker 4: affordability and potentially even the rhetoric coming out and moving

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Speaker 4: a military hardware in the region without even a strike

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Speaker 4: yet happening, is pushing oil prices higher.

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Speaker 6: Yeah, what I would say is, so we have the

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Speaker 6: speech on affordability in Georgia today, We're on tariff watch

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Speaker 6: on the Supreme Court, maybe Friday, maybe.

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Speaker 5: Monday, maybe Tuesday.

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Speaker 6: Tuesday night, we have the State of the Union address,

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Speaker 6: So there is a level of escalation right in front

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Speaker 6: of the time when President Trump is going to be

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Speaker 6: in primetime on every single channel addressing the nation. And

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Speaker 6: so I do think that there is some level of

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Speaker 6: coordination between all of these activities and the military build

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Speaker 6: up that we see. We might not have a resolution

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Speaker 6: before the State of the Union address, and that State

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Speaker 6: of the Union address could be the thing that we're

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Speaker 6: all watching to get a signal of what might happen next.

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Speaker 4: Do you think there's a chance he actually takes the

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Speaker 4: strike before in the State of the Union and then

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Speaker 4: has this window into the US public to explain why

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Speaker 4: he did so.

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Speaker 6: It's possible, you know, the State of the Union address

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Speaker 6: is unlike any other opportunity of the year. Generally speaking,

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Speaker 6: State of the Union addresses are well scripted much in advance.

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Speaker 5: They don't like breaking news. When you've seen.

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Speaker 6: Breaking news into State of the Union addresses, they come

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Speaker 6: across disjointed. So from a kind of pure political perspective,

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Speaker 6: you generally don't want to have those events right before

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Speaker 6: these events. So maybe making the case as to what

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Speaker 6: is necessary with Iran is maybe a better strategy, and

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Speaker 6: having that ability to say the forces are in the region,

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Speaker 6: it is up to Iran, we need them to denuclearize.

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Speaker 6: I don't think they necessarily want to kind of be

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Speaker 6: clear about what they want on regime change, because that's

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Speaker 6: not a clear cut outcome as well, high stakes on

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Speaker 6: a very kind of important address, especially if he wants

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Speaker 6: the message to be affordability.

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Speaker 5: Talking about you know, kind of a.

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Speaker 6: Major political entanglement and geopolitical risk is not necessarily what

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Speaker 6: gives the president kind of any political tailwinds it's a

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Speaker 6: lot of headwinds.

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Speaker 2: Instead, can we finish on the Supreme Court and the

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Speaker 2: potential for getting that decision before the weekend? The optics

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Speaker 2: say could be very important. Do you think Supreme Court

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Speaker 2: Justice says want to sit there in front of a

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Speaker 2: State the Union Address after making a decision to strike

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Speaker 2: down the president's tariffs? Is that something that they would

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Speaker 2: have to consider going into the weekend?

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Speaker 6: It is, Jonathan, And what we've seen in the times

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Speaker 6: past when the Supreme Court has made decisions close to

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Speaker 6: the State of the Union address, presidents have almost wagged

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Speaker 6: their finger at the Supreme Court, and there's been a

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Speaker 6: conversation about was that appropriate.

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Speaker 5: We look back to.

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Speaker 6: The Citizens United decision, looking back to kind of decisions

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Speaker 6: that the President Obama didn't like with the Court. This

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Speaker 6: would be something that President Trump takes very personal. He

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Speaker 6: is someone that would be very likely to do this.

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Speaker 6: One final thought on the Supreme Court decision, what we

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Speaker 6: keep on telling clients at Raymond James is that it's

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Speaker 6: an important decision, but the Court might change the process,

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Speaker 6: they are not going to change the outcome.

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Speaker 5: Tariffs are here to stay.

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Speaker 6: The President has a lot of other authorities, no matter

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Speaker 6: what the Supreme Court does. These tariffs that have existed

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Speaker 6: since April second of last year will continue after any

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Speaker 6: Supreme Court decision. There might be a little bit of

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Speaker 6: a process change or a little bit of a hiccup

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Speaker 6: in timing, but it doesn't change what the President is

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Speaker 6: able to do.

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Speaker 2: Stay with us more Bloomberg Surveillance coming up after this.

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Speaker 2: Let's turn to tech investor concerns over heavy campex causing

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Speaker 2: shaft stock swings in recent weeks down flags of Newberger.

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Speaker 2: Berman writes in the campex debate is likely to remain

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Speaker 2: an overhang in the near term, but we think the

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Speaker 2: aggressive level of investment makes sense for some companies. Dan

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Speaker 2: joins us now for more. Dan, welcome to the program

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Speaker 2: for many. For some this is a great contradiction. How

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Speaker 2: can this technology be this disruptive and upend software stocks

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Speaker 2: and at the same time the money being spent by

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Speaker 2: the hyperscalers is said to be a waste of money?

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Speaker 5: Can both be true?

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Speaker 3: Good morning, John, Great to be with you.

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Speaker 7: As always, there are elements of disruption that are permeating

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Speaker 7: the entire technology sector, certainly in software. The questions around

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Speaker 7: what models from the likes of open AI and anthropic.

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Speaker 7: What will do to those businesses. We actually see opportunities

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Speaker 7: in the software sector, and I'll take Microsoft, which I

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Speaker 7: think is executing very well. They are infusing more capabilities

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Speaker 7: agents into their software offerings. When we speak to customers,

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Speaker 7: they look at Microsoft as an even more strategic partner

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Speaker 7: than it's been in the past, given the opportunities. And

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Speaker 7: then on the hyperscaler capex, if I look at Google

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Speaker 7: spending one hundred and eighty billion, you're seeing the results, John,

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Speaker 7: You're seeing a search business. They're transforming with aioverview. Their

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Speaker 7: cloud business is surging, and so I expect these cross

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Speaker 7: currents to remain the focus in the near term. But

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Speaker 7: I expect as we move through this year, the market

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Speaker 7: will see the returns. It'll see businesses like Google, like Microsoft,

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Speaker 7: becoming more durable, which can help drive share price outperformance

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Speaker 7: in my view.

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Speaker 2: Now, let's talk about other beneficiaries and companies that just

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Speaker 2: don't seem to be working right now. Stocks, more specifically

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Speaker 2: in video flat on the down on the month, even

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Speaker 2: though we're seeing these massive numbers come out of the hyperscalers.

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Speaker 5: What gives the.

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Speaker 7: Market's worried about a level of both deceleration in in

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Speaker 7: Nvidia's business given just how strong it's been, and of

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Speaker 7: course competition remains fierce, and so I like in Nvidia

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Speaker 7: at current levels. What we're seeing is that they're executing

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Speaker 7: incredibly well on their product roadmap, with Blackwell ramping as

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Speaker 7: we speak, Reuben launching later this year. And so really

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Speaker 7: the power or the magic if you like, of Nvidia

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Speaker 7: is both the chips, the systems, and then the software,

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Speaker 7: and so they are really a platform company that's laying

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Speaker 7: the foundation for others to build upon. And so the

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Speaker 7: vibrancy of their ecosystem John in my view, sets the

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Speaker 7: company up very well. So yes, short term concerns about growth,

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Speaker 7: and of course remember that there are capacity constraints. So

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Speaker 7: I like the outlook for Nvidia in the year ahead, and.

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Speaker 4: They report next Wednesday. How high is the bar for

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Speaker 4: them to clear?

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Speaker 7: The bar is high, but and I would expect that

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Speaker 7: they're going to beat expectations. But the challenge for them

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Speaker 7: is is there isn't enough supply. And at the same time,

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Speaker 7: there are questions around China, and China has been de

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Speaker 7: risked from their numbers, but the market's going to worry

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Speaker 7: about the push and pull around the competitive forces around

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Speaker 7: a level of deceleration, and that I expect to be

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Speaker 7: to be the dynamic into the spring. I do think though,

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Speaker 7: as we get more visibility on Rubin later this year,

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Speaker 7: and really this continued broadening of their growth drivers, as

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Speaker 7: you see opportunities longer term for Nvidia in areas like

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Speaker 7: robotics as one example, that will help propel the stock,

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Speaker 7: assuming again continued strong execution on their product cycles, which

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Speaker 7: which we anticipate given the strong track record of Jensen

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Speaker 7: and the leadership team there.

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Speaker 2: It's quite a track record, that's for sure. This is

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Speaker 2: the Bloomberg Surveillance Podcast, bringing you the best in markets, economics,

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Speaker 2: and geopolitics. You can watch the show live on Bloomberg

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Speaker 2: TV weekday mornings from six am to nine am Eastern.

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Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else

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Speaker 2: you listen, and as always, on the Bloomberg Terminal and

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Speaker 2: the Bloomberg Business app.