1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,200 Speaker 2: Terminal and the Bloomberg Business app. W Yoda of JP 10 00:00:37,280 --> 00:00:40,680 Speaker 2: Morgan writing, we view the upcoming earning season as important 11 00:00:40,680 --> 00:00:43,479 Speaker 2: for the market as we work through downward revisions. We 12 00:00:43,520 --> 00:00:46,280 Speaker 2: have widened our base case range to fifty seven hundred 13 00:00:46,320 --> 00:00:50,440 Speaker 2: to sixty two hundred to reflect increased volatility and uncertainty. 14 00:00:50,479 --> 00:00:52,760 Speaker 2: Abby joined us now for morgod Morning. Gabby, good morning. 15 00:00:52,800 --> 00:00:54,880 Speaker 2: There's plenty of uncertainty, let's put it that way, and 16 00:00:55,040 --> 00:00:58,639 Speaker 2: companies are using different approaches to offer clarity and visibility 17 00:00:58,720 --> 00:01:02,520 Speaker 2: to investors. Southwest was upfront, brutal, direct, We're in recession. 18 00:01:02,760 --> 00:01:03,760 Speaker 2: What do you have an sway? 19 00:01:04,240 --> 00:01:06,560 Speaker 3: Well, so I actually think all we're talking about last 20 00:01:06,560 --> 00:01:09,200 Speaker 3: week and how strong the performance was. And obviously there 21 00:01:09,240 --> 00:01:11,039 Speaker 3: was a lot going on from a macro perspective and 22 00:01:11,080 --> 00:01:14,440 Speaker 3: the discussions around trade, but on like, actually we were 23 00:01:14,440 --> 00:01:17,440 Speaker 3: getting pretty good earnings results, and particularly as it released 24 00:01:17,480 --> 00:01:19,640 Speaker 3: the aipower demand side, I would say that was like 25 00:01:19,680 --> 00:01:22,959 Speaker 3: an area of particular strength. And I think in terms 26 00:01:23,000 --> 00:01:27,160 Speaker 3: of the way that companies are approaching their guidance, Look, 27 00:01:27,240 --> 00:01:30,120 Speaker 3: this is obviously a very difficult environment for them, but 28 00:01:30,240 --> 00:01:31,600 Speaker 3: we thought it was going to be a lot like 29 00:01:31,640 --> 00:01:34,280 Speaker 3: twenty twenty where they kind of just like no guidance. 30 00:01:34,400 --> 00:01:36,039 Speaker 3: You know, we don't know what's going to happen, so 31 00:01:36,040 --> 00:01:38,200 Speaker 3: we're just going to pull this. And that's not really 32 00:01:38,200 --> 00:01:41,199 Speaker 3: what's happening. Like you're getting them trying to work through 33 00:01:41,280 --> 00:01:44,080 Speaker 3: these different scenarios. Like sometimes you're getting two different scenarios. 34 00:01:44,120 --> 00:01:46,399 Speaker 3: Maybe you're getting a muddle through. And it's been really 35 00:01:46,400 --> 00:01:49,960 Speaker 3: interesting to hear which companies and in our view, become 36 00:01:50,000 --> 00:01:53,240 Speaker 3: more de risk. Let's say they extrapolate April second teriff 37 00:01:53,280 --> 00:01:55,320 Speaker 3: rates throughout the year like that to us is an 38 00:01:55,320 --> 00:01:58,520 Speaker 3: attractive entry point for whatever company that may be. But like, 39 00:01:58,600 --> 00:02:01,920 Speaker 3: you're not really getting these these massive guide downs in 40 00:02:02,000 --> 00:02:04,640 Speaker 3: terms of the full year outlook into US that's you know, 41 00:02:04,760 --> 00:02:06,560 Speaker 3: a lot of that is really driven by the AI 42 00:02:07,440 --> 00:02:10,160 Speaker 3: power demand story that happened last week, but overall has 43 00:02:10,200 --> 00:02:12,000 Speaker 3: just been better than expected in terms of earning. 44 00:02:12,200 --> 00:02:13,880 Speaker 2: Some of the earnings themselves have been pretty decent to 45 00:02:13,919 --> 00:02:17,200 Speaker 2: your point, But I'm finding get difficult door distinction between 46 00:02:17,400 --> 00:02:20,639 Speaker 2: good underlying demand and just a rebuild of Infantry's word 47 00:02:20,680 --> 00:02:21,880 Speaker 2: about supply not being there. 48 00:02:21,960 --> 00:02:24,680 Speaker 3: Yeah, I mean, I think that's a really difficult like 49 00:02:24,760 --> 00:02:27,520 Speaker 3: line to thread in terms of what really is real demand. 50 00:02:27,560 --> 00:02:30,520 Speaker 3: But I think for the most part, right if we're 51 00:02:30,560 --> 00:02:34,240 Speaker 3: thinking about the banks who reported earlier on like overall, 52 00:02:34,400 --> 00:02:37,080 Speaker 3: like the overall spend outlook like you didn't see a 53 00:02:37,120 --> 00:02:38,920 Speaker 3: massive bump in terms of it was like mid single 54 00:02:38,919 --> 00:02:41,120 Speaker 3: digit spend. In terms of a consumer outlook, that's pretty 55 00:02:41,160 --> 00:02:42,880 Speaker 3: in line with what we've seen over the past couple 56 00:02:42,919 --> 00:02:45,760 Speaker 3: of months. And importantly, looking forward, you know, you didn't 57 00:02:45,760 --> 00:02:49,640 Speaker 3: see really massive reserve builds in terms of the banks either, 58 00:02:49,680 --> 00:02:52,720 Speaker 3: so their outlook doesn't feel like it's that uncertain as 59 00:02:52,760 --> 00:02:53,760 Speaker 3: it relates to the consumer. 60 00:02:53,800 --> 00:02:56,079 Speaker 4: At the moment, I'm feeling a massive disconnect right now. 61 00:02:56,160 --> 00:02:58,200 Speaker 4: We just spoke with Christian Keller if Barclay is talking 62 00:02:58,240 --> 00:03:00,240 Speaker 4: about how recession of the US's base came. So we 63 00:03:00,280 --> 00:03:02,760 Speaker 4: were talking with Lori Calvasina of RBC. We said, if 64 00:03:02,760 --> 00:03:05,600 Speaker 4: a session actually does transpire in the US, you're talking 65 00:03:05,639 --> 00:03:08,079 Speaker 4: about forty two hundred to forty five hundred for the 66 00:03:08,120 --> 00:03:11,360 Speaker 4: baseline S and P five hundred, you're talking about gains 67 00:03:11,360 --> 00:03:14,800 Speaker 4: from here. Fifty seven hundred is you're low in terms 68 00:03:14,800 --> 00:03:16,560 Speaker 4: of this range at a time where we're currently at 69 00:03:16,560 --> 00:03:19,480 Speaker 4: fifty five twenty five. Why is there such a disconnect 70 00:03:19,639 --> 00:03:22,200 Speaker 4: between economists and stock analysts. 71 00:03:22,320 --> 00:03:25,000 Speaker 3: Well, because, look, I think and taking a step back 72 00:03:25,040 --> 00:03:27,440 Speaker 3: and thinking about where we came into the year, like 73 00:03:27,600 --> 00:03:29,679 Speaker 3: we're coming off of a really strong base. Like I 74 00:03:29,680 --> 00:03:31,959 Speaker 3: think comparing this to like the twenty eighteen period is 75 00:03:32,000 --> 00:03:33,919 Speaker 3: a little bit difficult because it was a completely different 76 00:03:33,919 --> 00:03:36,880 Speaker 3: economic backdrop. Right, We're coming into the year and we're 77 00:03:36,880 --> 00:03:39,160 Speaker 3: in like a pretty solid footing from both a consumer 78 00:03:39,200 --> 00:03:42,280 Speaker 3: and a corporate standpoint, And so you do like there 79 00:03:42,360 --> 00:03:44,360 Speaker 3: is a position of strength that we're coming from that 80 00:03:44,560 --> 00:03:47,280 Speaker 3: like we can take somewhat of a hit. Obviously, time 81 00:03:47,360 --> 00:03:50,520 Speaker 3: is taking in terms of how long this uncertainty persists. 82 00:03:50,560 --> 00:03:53,160 Speaker 3: And you know, the President heard this from some companies 83 00:03:53,240 --> 00:03:55,080 Speaker 3: last week when he met with them, saying like, look, 84 00:03:55,160 --> 00:03:57,520 Speaker 3: this is a matter of weeks in terms of empty shelves, 85 00:03:57,520 --> 00:03:59,560 Speaker 3: and that is very important, right, Like, the longer this 86 00:03:59,640 --> 00:04:04,000 Speaker 3: goes on, the more uncertain and the uncertainty pervades, the 87 00:04:04,160 --> 00:04:07,120 Speaker 3: less likely, you know, the upside becomes becomes a reality. 88 00:04:07,200 --> 00:04:09,880 Speaker 4: How many companies are actually gaming out that anything even 89 00:04:09,920 --> 00:04:13,200 Speaker 4: close to the tariffs as announced on Liberation Day are 90 00:04:13,240 --> 00:04:16,160 Speaker 4: going to stick? In other words, how many of the analysts, 91 00:04:16,320 --> 00:04:19,200 Speaker 4: how much of the ranges and the outlooks that companies 92 00:04:19,240 --> 00:04:22,560 Speaker 4: are coming up with are basically expecting to go back 93 00:04:22,560 --> 00:04:25,080 Speaker 4: to something like that ten percent baseline as well as 94 00:04:25,080 --> 00:04:26,200 Speaker 4: subsectoral tariffs. 95 00:04:26,240 --> 00:04:28,160 Speaker 3: Well, so I would say the amount of companies that 96 00:04:28,200 --> 00:04:29,960 Speaker 3: are going back to April second is like kind of 97 00:04:29,960 --> 00:04:31,840 Speaker 3: few and far between. And again those are like kind 98 00:04:31,880 --> 00:04:34,279 Speaker 3: of gems to us in terms of the opportunity set. 99 00:04:34,480 --> 00:04:36,720 Speaker 3: But what you are getting is you're getting some idea 100 00:04:36,760 --> 00:04:38,920 Speaker 3: of like what it's going to cost from a tariff 101 00:04:38,960 --> 00:04:41,159 Speaker 3: perspective from companies. And this is across the board, Like 102 00:04:41,160 --> 00:04:43,480 Speaker 3: pharma companies, We've heard from a lot of healthcare companies 103 00:04:43,520 --> 00:04:46,039 Speaker 3: and like we haven't even had those sectoral tariffs announced, 104 00:04:46,240 --> 00:04:48,360 Speaker 3: and they're trying to like figure out how much they're 105 00:04:48,400 --> 00:04:50,480 Speaker 3: going to have to spend, and so we're assuming it's 106 00:04:50,480 --> 00:04:53,520 Speaker 3: based on the current environment, right without having to really extrapolate, 107 00:04:54,360 --> 00:04:56,440 Speaker 3: and so there is like a cost structure around it, 108 00:04:56,520 --> 00:04:58,560 Speaker 3: and there's obviously a revenue headwind that they're trying to 109 00:04:58,560 --> 00:05:01,479 Speaker 3: take into account. So wrapping heads around how they're getting 110 00:05:01,480 --> 00:05:03,760 Speaker 3: there is like important for us to help us think. 111 00:05:03,560 --> 00:05:04,839 Speaker 5: Through the ear ahead. 112 00:05:04,839 --> 00:05:06,320 Speaker 3: But I wouldn't say there was like a ton of 113 00:05:06,360 --> 00:05:09,279 Speaker 3: companies that took April second and extrapolated, but they're at 114 00:05:09,360 --> 00:05:11,560 Speaker 3: least incorporating I think that ten percent universal. 115 00:05:11,600 --> 00:05:14,560 Speaker 1: When you think of the potential upside to your figures, 116 00:05:14,600 --> 00:05:16,000 Speaker 1: what would it take? Is it policy? 117 00:05:16,080 --> 00:05:16,640 Speaker 2: Is it the Fed? 118 00:05:17,040 --> 00:05:19,599 Speaker 3: Yeah, it's policy. I mean I think the Fed. You know, 119 00:05:19,640 --> 00:05:21,680 Speaker 3: if for like a couple of weeks ago and you 120 00:05:21,720 --> 00:05:23,479 Speaker 3: got asked like what would be the bull like what 121 00:05:23,480 --> 00:05:25,240 Speaker 3: would cause the bowl case? I think it would have 122 00:05:25,279 --> 00:05:27,760 Speaker 3: included the FED, and it would have included some policy 123 00:05:27,760 --> 00:05:30,920 Speaker 3: pivot from the administration. I think a FED pivot at 124 00:05:30,920 --> 00:05:33,960 Speaker 3: this point wouldn't necessarily be short term positive, right because 125 00:05:34,000 --> 00:05:36,400 Speaker 3: it would be because the FED saw weakness. So I 126 00:05:36,440 --> 00:05:39,440 Speaker 3: think really The only like bullish outcome is that you 127 00:05:39,480 --> 00:05:41,960 Speaker 3: see this pivot from the administration, and the market obviously 128 00:05:42,040 --> 00:05:43,719 Speaker 3: seems to be sniffing that out. In terms of what 129 00:05:43,720 --> 00:05:45,960 Speaker 3: we're seeing from a PE perspective, we're at like close 130 00:05:46,000 --> 00:05:48,839 Speaker 3: to twenty times again and again only down two percent 131 00:05:48,920 --> 00:05:51,960 Speaker 3: since Liberation Day, So there is an element of that, 132 00:05:52,000 --> 00:05:54,800 Speaker 3: But I do think that's where the ball case is now. 133 00:05:54,800 --> 00:05:56,880 Speaker 1: They're talking a lot about these eighteen deals. I can 134 00:05:56,880 --> 00:05:58,800 Speaker 1: get with other trading partners, but when you're talking about 135 00:05:58,800 --> 00:06:02,760 Speaker 1: a bullish case, talking about one, right it's China, what 136 00:06:02,800 --> 00:06:03,719 Speaker 1: do you need to see? 137 00:06:04,120 --> 00:06:06,200 Speaker 3: Well, I mean, I think in terms of what the 138 00:06:06,240 --> 00:06:10,279 Speaker 3: market's probably thinking, it's closer to like thirty to fifty percent. 139 00:06:10,320 --> 00:06:13,479 Speaker 3: In terms of the effective teriff right there. I think 140 00:06:13,480 --> 00:06:16,640 Speaker 3: that would bring down the overall terif rate, like effective 141 00:06:16,720 --> 00:06:19,640 Speaker 3: terror rate for the US something between ten to fifteen percent, 142 00:06:19,680 --> 00:06:22,200 Speaker 3: which is like digestible and something that like if we 143 00:06:22,240 --> 00:06:24,760 Speaker 3: think about again going back into expectations for the beginning 144 00:06:24,800 --> 00:06:26,440 Speaker 3: of the year, that's probably where it would have been, 145 00:06:26,560 --> 00:06:29,240 Speaker 3: right like ten to fifteen maybe worst case scenario, still 146 00:06:29,279 --> 00:06:32,440 Speaker 3: a massive increase in terms of where we were prior. 147 00:06:32,560 --> 00:06:34,559 Speaker 3: But I think at least more digestible than the twenty 148 00:06:34,560 --> 00:06:36,640 Speaker 3: five to thirty percent that we had on Liberation Day. 149 00:06:36,680 --> 00:06:38,120 Speaker 4: This week is going to be check full of things 150 00:06:38,120 --> 00:06:39,880 Speaker 4: other than tariff talk, which is going to be exciting 151 00:06:39,880 --> 00:06:41,800 Speaker 4: for people looking to sink their teeth into something that's 152 00:06:42,000 --> 00:06:44,640 Speaker 4: more concrete with numbers and that reflect things that. 153 00:06:44,560 --> 00:06:45,440 Speaker 5: Have already happened. 154 00:06:45,520 --> 00:06:47,120 Speaker 4: I wonder how you look at some of the economic 155 00:06:47,160 --> 00:06:49,200 Speaker 4: data that we're going to be getting. A labor market 156 00:06:49,279 --> 00:06:51,960 Speaker 4: report that a lot of people preemptively are dismissing is 157 00:06:52,000 --> 00:06:56,599 Speaker 4: backward looking and not really important jolts, data, ism, manufacturing. 158 00:06:56,920 --> 00:06:59,240 Speaker 4: How much does it matter to you based on what 159 00:06:59,279 --> 00:07:01,200 Speaker 4: you just said, which we are coming from a very 160 00:07:01,240 --> 00:07:04,320 Speaker 4: different place economically than we were in twenty eighteen. 161 00:07:04,600 --> 00:07:06,320 Speaker 3: Well, I think, Look, I think it's important, but I 162 00:07:06,320 --> 00:07:09,400 Speaker 3: think it's also juxtaposed to what's happening in terms like 163 00:07:09,440 --> 00:07:11,400 Speaker 3: we're going to be focused mostly on earnings. Like you said, 164 00:07:11,400 --> 00:07:13,360 Speaker 3: we have forty percent of market cap reporting and some 165 00:07:13,400 --> 00:07:15,120 Speaker 3: of the biggest names, and I think that's going to 166 00:07:15,160 --> 00:07:17,280 Speaker 3: be Like what has been the story for the S 167 00:07:17,280 --> 00:07:19,000 Speaker 3: and P five hundred over the past couple of years. 168 00:07:19,080 --> 00:07:21,200 Speaker 3: Is this AI story which nobody seems to be talking 169 00:07:21,200 --> 00:07:24,320 Speaker 3: about anymore. So you're getting these like very you know, 170 00:07:24,440 --> 00:07:27,000 Speaker 3: high growth, high quality companies at a discount at the 171 00:07:27,000 --> 00:07:29,480 Speaker 3: moment obviously aside from what we saw last week, but 172 00:07:29,600 --> 00:07:31,760 Speaker 3: still trading at a discount. And so that's really where 173 00:07:31,760 --> 00:07:33,800 Speaker 3: our focus is right because it's part of our bullish 174 00:07:33,800 --> 00:07:35,840 Speaker 3: thesis is that you continue to see that spend and 175 00:07:35,840 --> 00:07:39,120 Speaker 3: that's pervasive through the rest of the market in terms 176 00:07:39,120 --> 00:07:40,760 Speaker 3: of a capack. So we're going to get a lot 177 00:07:40,760 --> 00:07:43,200 Speaker 3: of information there and I think that's what we're going 178 00:07:43,280 --> 00:07:45,480 Speaker 3: to be focused on from an equity market standpoint this 179 00:07:45,520 --> 00:07:46,800 Speaker 3: week's aside from mac. 180 00:07:46,840 --> 00:07:48,280 Speaker 2: The thing that conflicts with that, as you know, is 181 00:07:48,280 --> 00:07:50,680 Speaker 2: that they are cycular Gris, but they're also facing an 182 00:07:50,720 --> 00:07:54,120 Speaker 2: international bank job which is increasingly fragmented. I'm thinking more 183 00:07:54,880 --> 00:07:57,400 Speaker 2: like Apple directly. Apple. I'm just going to bring up 184 00:07:57,440 --> 00:08:00,360 Speaker 2: the name directly. They're facing a big situation China. They 185 00:08:00,440 --> 00:08:02,600 Speaker 2: can have to spend a lot of money moving supply 186 00:08:02,680 --> 00:08:05,080 Speaker 2: out of China into places like India. For those kind 187 00:08:05,080 --> 00:08:08,239 Speaker 2: of companies have difficult Is this moment for them, Well, look. 188 00:08:08,080 --> 00:08:09,680 Speaker 3: I think this isn't the first time they've seen this. 189 00:08:09,800 --> 00:08:11,840 Speaker 3: These tensions have been going on in terms of trade 190 00:08:11,880 --> 00:08:15,120 Speaker 3: as it relates to particular industries like semiconductors since twenty eighteen, 191 00:08:15,160 --> 00:08:18,120 Speaker 3: it was continued throughout you know, the past couple of 192 00:08:18,200 --> 00:08:20,440 Speaker 3: years under the Biden administration as well, So this isn't 193 00:08:20,480 --> 00:08:22,920 Speaker 3: new news. And obviously a lot of this and a 194 00:08:22,920 --> 00:08:25,120 Speaker 3: lot of that re routing had already taken place post 195 00:08:25,200 --> 00:08:28,760 Speaker 3: twenty eighteen. So look, it's not easy. It's still difficult, 196 00:08:28,800 --> 00:08:31,480 Speaker 3: but they have you know, their global supply chains. They 197 00:08:31,520 --> 00:08:35,320 Speaker 3: at least have negotiating power as it relates to you know, 198 00:08:35,400 --> 00:08:37,840 Speaker 3: other other countries and suppliers, so they at least are 199 00:08:37,840 --> 00:08:40,000 Speaker 3: coming from a position of strength. And that standpoint when 200 00:08:40,040 --> 00:08:43,720 Speaker 3: I'm talking about these large diversified companies, and so I think, 201 00:08:43,800 --> 00:08:46,240 Speaker 3: I think it's not easy, but if anyone's going to 202 00:08:46,280 --> 00:08:47,719 Speaker 3: be able to navigate it, I think it would be 203 00:08:47,760 --> 00:08:48,520 Speaker 3: these larger companies. 204 00:08:48,600 --> 00:08:50,840 Speaker 2: So that one's a must watch. Apple reporting on Thursday, 205 00:08:50,840 --> 00:08:52,760 Speaker 2: IBB be good to say a soays thanks for being here, 206 00:08:52,760 --> 00:09:05,839 Speaker 2: Abbyoda that of JP Morgan, a former senior Trump try 207 00:09:05,920 --> 00:09:08,760 Speaker 2: devisor canay on Shaw writing, I do not expect to 208 00:09:08,760 --> 00:09:12,400 Speaker 2: see a full blown US China trade deal this year. 209 00:09:12,679 --> 00:09:14,520 Speaker 2: Callyan joins US now for more Kenney and welcome to 210 00:09:14,559 --> 00:09:17,680 Speaker 2: the program. What can be achieved in the interim between 211 00:09:17,679 --> 00:09:18,760 Speaker 2: now and gear end? 212 00:09:20,040 --> 00:09:21,440 Speaker 5: Good morning, Thanks for having me. 213 00:09:21,520 --> 00:09:24,040 Speaker 6: Well, we're certainly in a he said, She said, when 214 00:09:24,040 --> 00:09:26,480 Speaker 6: it comes to US China relations, and I'll put that 215 00:09:26,920 --> 00:09:28,960 Speaker 6: to the side just for a moment. I think in 216 00:09:29,000 --> 00:09:32,160 Speaker 6: the short term, the administration is looking to ink potentially 217 00:09:32,240 --> 00:09:35,640 Speaker 6: up to seventeen deals. Now that those won't be full 218 00:09:35,679 --> 00:09:39,240 Speaker 6: blown trade deals, but they will be agreements in principle, 219 00:09:39,280 --> 00:09:41,600 Speaker 6: and we'll get the details of those written by lawyers 220 00:09:41,600 --> 00:09:44,760 Speaker 6: in the months to come. But that is part of 221 00:09:44,800 --> 00:09:48,080 Speaker 6: the negotiation strategy with China, and that is to lay 222 00:09:48,120 --> 00:09:50,360 Speaker 6: the groundwork where the US has deals with a number 223 00:09:50,360 --> 00:09:53,280 Speaker 6: of key trading partners, going into a broader discussion with 224 00:09:53,400 --> 00:09:55,400 Speaker 6: China so that they have more of a leg up. 225 00:09:55,760 --> 00:09:58,280 Speaker 6: China is taking a very similar strategy, and it's charm 226 00:09:58,320 --> 00:10:01,480 Speaker 6: offensive with a number of countries around the world. But 227 00:10:01,640 --> 00:10:04,439 Speaker 6: this US China relationship is going to get worked out 228 00:10:04,480 --> 00:10:05,520 Speaker 6: over years. 229 00:10:05,200 --> 00:10:05,880 Speaker 5: And not months. 230 00:10:06,080 --> 00:10:07,760 Speaker 2: Kelly on how do the Europeans fits in. 231 00:10:09,120 --> 00:10:14,880 Speaker 6: Well, A US europe deal has eluded multiple administrations for decades. Now, 232 00:10:15,280 --> 00:10:17,680 Speaker 6: I do think that there is a genuine effort between 233 00:10:17,720 --> 00:10:20,640 Speaker 6: the administration and some European leaders to see what they 234 00:10:20,679 --> 00:10:23,320 Speaker 6: can do in terms of stopping the bleeding with respect 235 00:10:23,360 --> 00:10:27,280 Speaker 6: to these twenty percent reciprocal tariffs. But the European Union 236 00:10:27,440 --> 00:10:31,760 Speaker 6: is a very advanced and entrench regulatory system and it's 237 00:10:31,800 --> 00:10:34,040 Speaker 6: going to be very very hard for them to pivot 238 00:10:34,200 --> 00:10:36,360 Speaker 6: and to change and to concede on some of the 239 00:10:36,400 --> 00:10:38,200 Speaker 6: requests that the Trump administration has. 240 00:10:38,240 --> 00:10:40,560 Speaker 5: So I'm not particularly optimistic, Kelly. 241 00:10:40,640 --> 00:10:43,439 Speaker 1: What are those requests that the Trump administration is telling 242 00:10:43,480 --> 00:10:45,679 Speaker 1: the Europeans they have to see in order to get 243 00:10:45,679 --> 00:10:46,400 Speaker 1: a trade agreement. 244 00:10:47,440 --> 00:10:50,600 Speaker 6: Well, they haven't made those demands public except for this 245 00:10:50,760 --> 00:10:54,120 Speaker 6: National Trade Estimate, which President Trump and Jamison Grewer have 246 00:10:54,200 --> 00:10:56,800 Speaker 6: held up on multiple occasions and said, here are the 247 00:10:56,840 --> 00:11:00,120 Speaker 6: list of non tariff barriers. But they are long stan 248 00:11:00,280 --> 00:11:03,080 Speaker 6: and well known. So they are talking about the VAT tax, 249 00:11:03,120 --> 00:11:07,360 Speaker 6: but some of the regulatory barriers in agriculture, in automotive, 250 00:11:08,040 --> 00:11:11,720 Speaker 6: some of the EU's subsidy programs, the digital services taxes 251 00:11:11,760 --> 00:11:14,760 Speaker 6: that a number of EU countries maintain. There are quite 252 00:11:14,800 --> 00:11:16,760 Speaker 6: a few barriers to trade that are going to make 253 00:11:16,760 --> 00:11:19,400 Speaker 6: it very very challenging. And tariffs really are just the 254 00:11:19,440 --> 00:11:20,800 Speaker 6: tip of the iceberg. 255 00:11:20,520 --> 00:11:22,960 Speaker 1: When it comes to China. What needs to happen for 256 00:11:23,160 --> 00:11:26,080 Speaker 1: one of them, either Beijing or Washington, to blink, because 257 00:11:26,160 --> 00:11:28,400 Speaker 1: right now it's just a tremendous amount of noise. 258 00:11:29,720 --> 00:11:33,240 Speaker 6: Yeah, certainly, and drama is certainly a feature of US 259 00:11:33,360 --> 00:11:34,760 Speaker 6: China trade negotiations. 260 00:11:34,760 --> 00:11:35,960 Speaker 5: It was during Trump one. 261 00:11:36,040 --> 00:11:38,680 Speaker 6: I fully expect it to remain a part of Trump 262 00:11:38,679 --> 00:11:41,920 Speaker 6: two point zero. I do think that behind the scenes, 263 00:11:41,960 --> 00:11:45,320 Speaker 6: both sides are looking for a political off ramp that 264 00:11:45,520 --> 00:11:48,120 Speaker 6: saves face. These one hundred and twenty five percent and 265 00:11:48,120 --> 00:11:50,960 Speaker 6: one hundred and forty five percent tariffs are not sustainable 266 00:11:51,400 --> 00:11:54,600 Speaker 6: in the short or medium or long term. So I 267 00:11:54,640 --> 00:11:57,480 Speaker 6: do expect to see some sort of de escalation in 268 00:11:57,559 --> 00:12:00,760 Speaker 6: the coming weeks or potentially months, But in terms of 269 00:12:00,800 --> 00:12:03,480 Speaker 6: a full blown trade deal, I don't know that that's 270 00:12:03,600 --> 00:12:05,760 Speaker 6: possible anytime soon, if at all. 271 00:12:06,600 --> 00:12:06,800 Speaker 5: Now. 272 00:12:06,880 --> 00:12:09,520 Speaker 6: I do think both sides will at some point sit 273 00:12:09,600 --> 00:12:12,320 Speaker 6: down and try to work out some of their shared differences. 274 00:12:12,679 --> 00:12:14,599 Speaker 6: But at the end of four years, I think the 275 00:12:14,720 --> 00:12:16,840 Speaker 6: US and China are going to do less trade with 276 00:12:16,880 --> 00:12:18,080 Speaker 6: one another and not more. 277 00:12:18,280 --> 00:12:20,719 Speaker 1: But you're talking about an off ramp potentially we could 278 00:12:20,760 --> 00:12:22,880 Speaker 1: see before they sit down. When do you think that 279 00:12:22,920 --> 00:12:25,200 Speaker 1: offramp would be well. 280 00:12:25,440 --> 00:12:27,679 Speaker 6: I was hopeful that the two sides could have found 281 00:12:27,679 --> 00:12:28,439 Speaker 6: something in. 282 00:12:28,440 --> 00:12:29,840 Speaker 5: The first couple of weeks. 283 00:12:30,679 --> 00:12:33,360 Speaker 6: But you've got, on the one hand, President Trump saying 284 00:12:33,360 --> 00:12:35,520 Speaker 6: that I only want to do this at the leader level. 285 00:12:35,880 --> 00:12:38,400 Speaker 6: On the other hand, you have President she who's saying 286 00:12:38,480 --> 00:12:40,400 Speaker 6: I'm not going to do this at the leader level, 287 00:12:40,440 --> 00:12:44,160 Speaker 6: appoint someone else. And so both sides are engaged in 288 00:12:44,200 --> 00:12:47,280 Speaker 6: this game of chicken, arguing that the other side has 289 00:12:47,360 --> 00:12:50,400 Speaker 6: more to lose than they do now. Back in Trump 290 00:12:50,559 --> 00:12:53,440 Speaker 6: one point zero, we had the G twenty and these 291 00:12:53,480 --> 00:12:56,880 Speaker 6: other international forum that were happening around the same time 292 00:12:57,000 --> 00:12:59,160 Speaker 6: as the trade war, which gave the two leaders a 293 00:12:59,200 --> 00:13:02,640 Speaker 6: political opportunity to meet on the sidelines. We don't have 294 00:13:02,720 --> 00:13:05,440 Speaker 6: that in the short term. So it is either going 295 00:13:05,480 --> 00:13:09,160 Speaker 6: to be President Trump saying okay, I'll appoint someone, or 296 00:13:09,200 --> 00:13:12,080 Speaker 6: some backchanneling, potentially some Track one point five or Track 297 00:13:12,120 --> 00:13:15,240 Speaker 6: two diplomacy between CEOs going back and forth to try 298 00:13:15,280 --> 00:13:16,040 Speaker 6: to work things out. 299 00:13:16,200 --> 00:13:17,920 Speaker 4: Kelly On, you pointed out that we're about two and 300 00:13:17,920 --> 00:13:21,720 Speaker 4: a half months into President Trump's three month window to 301 00:13:21,920 --> 00:13:25,320 Speaker 4: make trade deals with virtually every nation in the entire world, 302 00:13:25,480 --> 00:13:28,280 Speaker 4: and it points to how unfeasible infeasible. This is how 303 00:13:28,360 --> 00:13:31,760 Speaker 4: much is this just a period of time to reset 304 00:13:31,840 --> 00:13:35,600 Speaker 4: the narrative before having another extension and then another extension 305 00:13:35,679 --> 00:13:38,600 Speaker 4: before there's a realistic timeframe for how long it takes 306 00:13:38,600 --> 00:13:39,400 Speaker 4: trade deals. 307 00:13:39,160 --> 00:13:39,640 Speaker 5: To be inked. 308 00:13:41,080 --> 00:13:44,000 Speaker 6: Yeah, And this is where there's a distinction between these 309 00:13:44,040 --> 00:13:48,480 Speaker 6: full blown trade deals versus these agreements in principle. And 310 00:13:48,559 --> 00:13:51,679 Speaker 6: I do think that it is possible to reach agreements 311 00:13:51,679 --> 00:13:54,000 Speaker 6: in principle, which is basically an outline of some of 312 00:13:54,040 --> 00:13:55,560 Speaker 6: the key components. 313 00:13:55,000 --> 00:13:58,079 Speaker 5: Of what will be in those deals in a short 314 00:13:58,120 --> 00:13:59,000 Speaker 5: period of time. 315 00:13:59,240 --> 00:14:02,280 Speaker 6: But if you want to have drafted text that captures 316 00:14:02,360 --> 00:14:04,440 Speaker 6: these trade deals, that's going to take months and months 317 00:14:04,480 --> 00:14:07,240 Speaker 6: and months of time and a ton of work by 318 00:14:07,320 --> 00:14:11,400 Speaker 6: various lawyers. Now, that said, if you're still dealing with 319 00:14:11,440 --> 00:14:14,080 Speaker 6: seventeen or eighteen countries, that's still a lot to do 320 00:14:14,200 --> 00:14:17,120 Speaker 6: between now and July ninth. So I do think for 321 00:14:17,240 --> 00:14:21,760 Speaker 6: countries where substantial progress has been made, the president is 322 00:14:21,880 --> 00:14:24,400 Speaker 6: likely to extend that period of time, although he has 323 00:14:24,400 --> 00:14:26,560 Speaker 6: not said that he will do that. And then for 324 00:14:26,640 --> 00:14:29,600 Speaker 6: countries that are maybe not as far along, the president's 325 00:14:29,640 --> 00:14:31,840 Speaker 6: going to feel some pressure to turn those terrorists back 326 00:14:31,880 --> 00:14:34,760 Speaker 6: on so that his threat means something and to try 327 00:14:34,760 --> 00:14:37,200 Speaker 6: to squeeze some countries at the end of that ninety 328 00:14:37,280 --> 00:14:39,600 Speaker 6: day period, So I think we'll see a mix. 329 00:14:39,680 --> 00:14:42,640 Speaker 4: On April second, there was a big question around what 330 00:14:42,720 --> 00:14:45,880 Speaker 4: the ultimate goal was of this new Terra regime. Was 331 00:14:45,920 --> 00:14:50,480 Speaker 4: it revenue raising, was it penalizing national security issues or 332 00:14:50,520 --> 00:14:52,960 Speaker 4: potential trade partners that hadn't been doing the right thing? 333 00:14:53,000 --> 00:14:55,600 Speaker 4: Or was it fairness. Now that we've seen some of 334 00:14:55,600 --> 00:14:58,160 Speaker 4: these negotiations, do we have a better sense of the 335 00:14:58,200 --> 00:15:01,000 Speaker 4: overarching framework of what the goal really is. 336 00:15:02,400 --> 00:15:05,920 Speaker 6: Yeah, And I think that different tariffs have different goals. 337 00:15:05,960 --> 00:15:08,920 Speaker 6: So clearly one of the north stars of the administration 338 00:15:09,160 --> 00:15:13,840 Speaker 6: is addressing this substantial one point two trillion dollar trade deficit, 339 00:15:14,240 --> 00:15:16,600 Speaker 6: and that, to me, is what this ten percent global 340 00:15:16,640 --> 00:15:19,680 Speaker 6: baseline tariff is about. But when it comes to these 341 00:15:19,680 --> 00:15:23,840 Speaker 6: more advanced reciprocal tariffs like that forty six percent on Vietnam, 342 00:15:23,920 --> 00:15:27,480 Speaker 6: that twenty percent on the EU, that is about fairness 343 00:15:27,520 --> 00:15:30,320 Speaker 6: and leveling the playing field and addressing some of the 344 00:15:30,440 --> 00:15:34,680 Speaker 6: unfair trade practices, the unbalanced trade that the President has 345 00:15:34,720 --> 00:15:39,280 Speaker 6: been talking about. National security tariffs are really those sectoral tariffs, 346 00:15:39,280 --> 00:15:43,400 Speaker 6: so those on semiconductors, pharma, steel, aluminum and autos. And 347 00:15:43,440 --> 00:15:45,960 Speaker 6: then this revenue point which the President raises to me 348 00:15:46,080 --> 00:15:49,160 Speaker 6: is more about messaging. It's about selling that domestically to 349 00:15:49,200 --> 00:15:52,720 Speaker 6: the American people about why leaving tariffs in place, particularly 350 00:15:52,720 --> 00:15:55,960 Speaker 6: why negotiations are ongoing, may not be the worst thing 351 00:15:56,000 --> 00:15:57,960 Speaker 6: in the world because look at the tariff revenue that's 352 00:15:58,000 --> 00:15:58,400 Speaker 6: coming in. 353 00:15:58,440 --> 00:16:00,000 Speaker 5: But I don't see that as one of the prime 354 00:16:00,120 --> 00:16:00,720 Speaker 5: Mary goals. 355 00:16:00,880 --> 00:16:03,920 Speaker 1: Over the weekend, the Treasury Secretary was asked about this 356 00:16:03,960 --> 00:16:07,520 Speaker 1: whole strategy putting tariffs on pulling them back, and the 357 00:16:07,560 --> 00:16:11,960 Speaker 1: Treasure Secretary said, actually, it's called strategic uncertainty and game theory. 358 00:16:12,120 --> 00:16:15,040 Speaker 1: You were an individual at the negotiating table. Do you 359 00:16:15,080 --> 00:16:18,840 Speaker 1: think this strategic uncertainty is damaging or actually useful? 360 00:16:20,080 --> 00:16:22,320 Speaker 5: Well, I think it depends on where you're sitting. 361 00:16:22,640 --> 00:16:25,040 Speaker 6: And as a negotiator, I used to say that, and 362 00:16:25,080 --> 00:16:27,360 Speaker 6: I spent ten years as a negotiator for the US 363 00:16:27,480 --> 00:16:30,400 Speaker 6: government that I had the most fun working for President 364 00:16:30,400 --> 00:16:33,040 Speaker 6: Trump because my trading partner sitting on the other side 365 00:16:33,120 --> 00:16:35,640 Speaker 6: really had no idea what my leader was going to do, 366 00:16:36,080 --> 00:16:38,720 Speaker 6: which actually gave me a fair amount of leverage at 367 00:16:38,720 --> 00:16:41,960 Speaker 6: the table to try to advance US interests. Now sitting 368 00:16:41,960 --> 00:16:47,440 Speaker 6: on the other side now representing companies. That uncertainty, that 369 00:16:47,560 --> 00:16:50,920 Speaker 6: lack of clarity that will we have tariffs tomorrow won't 370 00:16:50,920 --> 00:16:54,760 Speaker 6: we is incredibly challenging in terms of making investment decisions 371 00:16:54,800 --> 00:16:58,960 Speaker 6: and supply chain decisions. But that strategic ambiguity is really 372 00:16:59,000 --> 00:17:02,040 Speaker 6: aimed at other trades partners, and the message is not 373 00:17:02,080 --> 00:17:04,399 Speaker 6: for the business community, and so I think that tension 374 00:17:04,440 --> 00:17:07,600 Speaker 6: makes it a bit challenging, particularly for domestic stakeholders, while 375 00:17:07,640 --> 00:17:08,560 Speaker 6: the President. 376 00:17:08,200 --> 00:17:08,880 Speaker 5: Works this out. 377 00:17:09,200 --> 00:17:11,440 Speaker 2: Kelly, I appreciate your time as always, Kelly, I'm sure 378 00:17:11,600 --> 00:17:23,760 Speaker 2: they Former senior Trump trade advisor Amanda Line of a 379 00:17:23,800 --> 00:17:26,520 Speaker 2: black Rock writing, we see scope for additional spread widening 380 00:17:26,560 --> 00:17:29,520 Speaker 2: and credit. Underpinning this view is our expectation for a 381 00:17:29,560 --> 00:17:32,720 Speaker 2: more challenging growth inflation mix, as well as our expectation 382 00:17:32,880 --> 00:17:36,320 Speaker 2: that the hard economic data will eventually catch down to 383 00:17:36,359 --> 00:17:39,320 Speaker 2: the soft sentiment data. Amanda joins us now for more. Amanda, 384 00:17:39,320 --> 00:17:41,600 Speaker 2: good morning, morning, Thank you for having me. Eventually, can 385 00:17:41,640 --> 00:17:43,359 Speaker 2: we put some details on eventually? 386 00:17:44,080 --> 00:17:47,560 Speaker 7: So I think taking a step back, the market seems 387 00:17:47,560 --> 00:17:49,119 Speaker 7: to be taking a bit of I would say, a 388 00:17:49,160 --> 00:17:51,399 Speaker 7: temporary reprieve from the fact that we haven't seen this 389 00:17:51,480 --> 00:17:54,600 Speaker 7: soft data translate directly into hard data immediately if you 390 00:17:54,680 --> 00:17:57,080 Speaker 7: actually look at what these companies are saying though, which 391 00:17:57,240 --> 00:18:00,000 Speaker 7: even the companies over the last seven days of report 392 00:18:00,600 --> 00:18:04,080 Speaker 7: haven't really baked in expectations of shifts and trade policy, 393 00:18:04,119 --> 00:18:06,359 Speaker 7: and so I think actually what we're looking for is 394 00:18:06,359 --> 00:18:08,119 Speaker 7: the second half of this year. If you look at 395 00:18:08,119 --> 00:18:10,440 Speaker 7: home builders, they're not expecting higher costs to hit closing 396 00:18:10,560 --> 00:18:13,359 Speaker 7: until the third quarter or fourth quarter. Industrial companies aren't 397 00:18:13,359 --> 00:18:16,119 Speaker 7: expecting higher costs until they work through inventory, possibly to 398 00:18:16,200 --> 00:18:18,760 Speaker 7: the second half of this year. So corporates are I 399 00:18:18,800 --> 00:18:21,960 Speaker 7: think we're still figuring this out to a large degree, 400 00:18:22,000 --> 00:18:24,159 Speaker 7: so it's not surprising that we haven't seen it in 401 00:18:24,200 --> 00:18:26,600 Speaker 7: the hard data yet. I think just because we haven't 402 00:18:26,640 --> 00:18:28,280 Speaker 7: seen it in the hard data, though, doesn't mean that 403 00:18:28,320 --> 00:18:30,639 Speaker 7: it's not eventually in train, and so we are bracing 404 00:18:30,640 --> 00:18:32,440 Speaker 7: for that. But I would say it's probably going to 405 00:18:32,480 --> 00:18:33,680 Speaker 7: be a second half of this year. 406 00:18:33,920 --> 00:18:35,399 Speaker 2: Some of the hot ice, of course flat sid by 407 00:18:35,400 --> 00:18:37,359 Speaker 2: front load, and we saw that in retail sales, and 408 00:18:37,400 --> 00:18:39,320 Speaker 2: I think you say in earnings as well, to some extent, 409 00:18:39,480 --> 00:18:43,159 Speaker 2: how are you distinguishing between genuine underlying demand and just 410 00:18:43,240 --> 00:18:45,679 Speaker 2: a stalk pile and getting ready for supply not be 411 00:18:45,720 --> 00:18:45,960 Speaker 2: in there. 412 00:18:46,000 --> 00:18:47,600 Speaker 7: So I've spent a lot of time in company earnings 413 00:18:47,640 --> 00:18:50,440 Speaker 7: called transcripts, and they actually are even having a really 414 00:18:50,440 --> 00:18:53,199 Speaker 7: difficult time figuring out what is front loading and what 415 00:18:53,320 --> 00:18:55,560 Speaker 7: is actually real demand. I think it's going to be 416 00:18:55,600 --> 00:18:57,879 Speaker 7: a matter of time before we see that playthrough. But 417 00:18:57,960 --> 00:19:00,480 Speaker 7: even in the autos, for example, we did a really 418 00:19:00,560 --> 00:19:02,720 Speaker 7: large jump in auto sales. I think you can kind 419 00:19:02,720 --> 00:19:05,159 Speaker 7: of put the mosaic together and figure out that is 420 00:19:05,200 --> 00:19:07,439 Speaker 7: some front loading. But I think when we take a 421 00:19:07,440 --> 00:19:10,200 Speaker 7: step back a corporate credit markets, high old spreads, for example, 422 00:19:10,240 --> 00:19:15,040 Speaker 7: have retraced forty seven percent of the widening since mid February. 423 00:19:15,320 --> 00:19:18,800 Speaker 7: It's been striking how quickly these markets are kind of 424 00:19:18,840 --> 00:19:22,480 Speaker 7: mean reverting. So investors, I think, are getting these opportunities 425 00:19:22,520 --> 00:19:24,960 Speaker 7: to put money to work at more attractive spreads, but 426 00:19:25,000 --> 00:19:27,960 Speaker 7: they're becoming short lived. They're snapping back. We don't think 427 00:19:27,960 --> 00:19:30,080 Speaker 7: we've seen the end of that. We're around three sixty 428 00:19:30,119 --> 00:19:32,280 Speaker 7: in HILD spreads. In order to bake in a real 429 00:19:32,320 --> 00:19:34,600 Speaker 7: material growth slowdown, we would need to be five fifty 430 00:19:34,680 --> 00:19:37,360 Speaker 7: six fifty. A recession would be even above that. Recessions 431 00:19:37,400 --> 00:19:38,600 Speaker 7: on our base case I should. 432 00:19:38,320 --> 00:19:40,679 Speaker 4: Say, just to put some numbers on that, on April eighth, 433 00:19:40,880 --> 00:19:44,040 Speaker 4: the average yield and high old bonds was eight point 434 00:19:44,040 --> 00:19:46,639 Speaker 4: seven percent. It is currently down to seven point eight percent. 435 00:19:46,720 --> 00:19:49,560 Speaker 4: Just massive snapback as everyone piled in. I want to 436 00:19:49,600 --> 00:19:52,959 Speaker 4: understand the buying dynamics. How much you're seeing the buyer 437 00:19:53,080 --> 00:19:57,240 Speaker 4: base for credit instruments shift maybe away from the foreign buyer, 438 00:19:57,320 --> 00:20:00,440 Speaker 4: away from the Japanese, away from the Europeans, and toward 439 00:20:00,440 --> 00:20:01,680 Speaker 4: a more domestic audience. 440 00:20:01,840 --> 00:20:05,159 Speaker 7: So for an investor's own around one quarter of the 441 00:20:05,320 --> 00:20:08,320 Speaker 7: US corporate bond market, so it's not just treasuries or equities, 442 00:20:08,320 --> 00:20:11,159 Speaker 7: they also own corporate debt. I would say the marginal 443 00:20:11,359 --> 00:20:16,080 Speaker 7: dollar has been in place to reallocate to European credit 444 00:20:16,200 --> 00:20:18,560 Speaker 7: for a couple of years now, ever since the FED 445 00:20:18,640 --> 00:20:21,480 Speaker 7: was started, ever since the ECV rather started hiking rates 446 00:20:21,480 --> 00:20:24,040 Speaker 7: because you had some yield build up in that market. 447 00:20:24,200 --> 00:20:26,040 Speaker 7: I would say, on the margin, given some of the 448 00:20:26,080 --> 00:20:30,119 Speaker 7: optimism around the fiscal support, there is incremental interest in 449 00:20:30,160 --> 00:20:33,520 Speaker 7: putting money to work in Europe. It's tempered by two things, however, 450 00:20:33,640 --> 00:20:36,560 Speaker 7: One the growth backdrop in Europe isn't great either, and 451 00:20:36,600 --> 00:20:39,320 Speaker 7: so we are expecting some headwinds from shifts and trade policy. 452 00:20:39,359 --> 00:20:41,160 Speaker 7: You can see that and even some of the survey 453 00:20:41,240 --> 00:20:44,000 Speaker 7: data from Europe. And two, the US corporate bond market 454 00:20:44,080 --> 00:20:47,919 Speaker 7: is the most diverse, deep liquid market for corporate investors. 455 00:20:47,960 --> 00:20:51,680 Speaker 7: So if you're looking for high quality spread product, there's 456 00:20:51,760 --> 00:20:54,280 Speaker 7: not a lot of availability in Europe. So I think 457 00:20:54,520 --> 00:20:57,600 Speaker 7: by that extension, investors will still need to allocate a 458 00:20:57,640 --> 00:20:58,960 Speaker 7: significant amount to the US. 459 00:20:58,760 --> 00:21:00,240 Speaker 4: Market, which is the reason why you haven't see the 460 00:21:00,320 --> 00:21:02,679 Speaker 4: numbers fall off that much. I wonder how much of 461 00:21:02,680 --> 00:21:06,240 Speaker 4: competition the credit market is getting from the treasury market. 462 00:21:06,280 --> 00:21:08,639 Speaker 4: The fact that the US Treasury Department is going to 463 00:21:08,680 --> 00:21:12,280 Speaker 4: be announcing their quarterly refunding estimate today and then on 464 00:21:12,359 --> 00:21:15,919 Speaker 4: Wednesday their actual schedule of issue ince. How much is 465 00:21:15,960 --> 00:21:18,920 Speaker 4: that creating a real challenge for you in understanding the 466 00:21:18,960 --> 00:21:21,680 Speaker 4: dynamic going forward for how the fair pricing. 467 00:21:21,320 --> 00:21:22,320 Speaker 5: Of credit really works. 468 00:21:22,440 --> 00:21:24,680 Speaker 7: So related to this is part of the reason why 469 00:21:24,720 --> 00:21:27,480 Speaker 7: we like actually moving down in quality in Europe in 470 00:21:27,640 --> 00:21:30,479 Speaker 7: US corporate credit. For this reason, the treasury market has 471 00:21:30,520 --> 00:21:33,439 Speaker 7: been very volatile. We're expecting steeper curves, We're expecting a 472 00:21:33,480 --> 00:21:36,400 Speaker 7: rebuild and term premium. For that reason, we think it's 473 00:21:36,400 --> 00:21:39,600 Speaker 7: important for investors to capture the additional spread premium where 474 00:21:39,600 --> 00:21:41,960 Speaker 7: they can in corporate credit to kind of offset some 475 00:21:42,000 --> 00:21:45,399 Speaker 7: of that volatility and boost those total returns. Actually, parts 476 00:21:45,440 --> 00:21:48,320 Speaker 7: of high yield have outperformed investment grade on a total 477 00:21:48,359 --> 00:21:51,119 Speaker 7: return basis so far this year, and even the lowest 478 00:21:51,160 --> 00:21:54,439 Speaker 7: quality portions of high yield have outperformed the equity market. 479 00:21:54,640 --> 00:21:56,800 Speaker 7: So actually the credit market, even though it's been a 480 00:21:56,840 --> 00:21:59,720 Speaker 7: really volatile year to date, is still offering a bit 481 00:21:59,760 --> 00:22:02,879 Speaker 7: of a reprieve in terms of total returns because of 482 00:22:02,920 --> 00:22:05,320 Speaker 7: that spread pickup. If you move down into the high 483 00:22:05,400 --> 00:22:08,880 Speaker 7: end of high yield, you're not actually foregoing that much 484 00:22:08,960 --> 00:22:11,760 Speaker 7: credit quality relatives tay, for example, the low end of 485 00:22:11,800 --> 00:22:15,240 Speaker 7: investment grade. So we do like moving down in quality 486 00:22:15,320 --> 00:22:17,080 Speaker 7: a bit to pick up that extra spread premium to 487 00:22:17,160 --> 00:22:20,080 Speaker 7: kind of cushion those total returns. As for the competition point, 488 00:22:20,560 --> 00:22:23,560 Speaker 7: we're just bracing for a significant amount of treasury supply. 489 00:22:23,960 --> 00:22:26,480 Speaker 7: That's been a theme for the past several quarters. We 490 00:22:26,600 --> 00:22:29,360 Speaker 7: know that because of the deficits, but I do still 491 00:22:29,400 --> 00:22:32,200 Speaker 7: feel that corporates recognize the difference between the sovereign risk 492 00:22:32,359 --> 00:22:35,000 Speaker 7: and the corporate credit risks. There's still a really significant 493 00:22:35,000 --> 00:22:37,159 Speaker 7: need for corporate credit allocations, But I think really the 494 00:22:37,240 --> 00:22:40,560 Speaker 7: name of the game is actually duration has been very volatile. 495 00:22:40,840 --> 00:22:43,520 Speaker 7: We're better off allocating to credit for carry and income, 496 00:22:43,600 --> 00:22:46,000 Speaker 7: so favoring that short duration and picking up spread when 497 00:22:46,040 --> 00:22:46,280 Speaker 7: you can. 498 00:22:46,359 --> 00:22:48,560 Speaker 2: Are you seeing investors a broad discriminate between the two 499 00:22:48,720 --> 00:22:52,199 Speaker 2: between self, between treasuries and psychoporate credit In America? 500 00:22:52,640 --> 00:22:55,200 Speaker 7: For sure, I think the allocation to corporate credit is 501 00:22:55,640 --> 00:22:58,240 Speaker 7: really in its own bucket. I think the decision for 502 00:22:58,480 --> 00:23:01,879 Speaker 7: investors really from our covers has been twofold. Am I 503 00:23:01,960 --> 00:23:05,520 Speaker 7: investing for total or excess returns? And so where am 504 00:23:05,520 --> 00:23:07,800 Speaker 7: I aiming in the credit quality spectrum? Am I aiming 505 00:23:07,840 --> 00:23:11,000 Speaker 7: for duration or not? And then also the relative value 506 00:23:11,000 --> 00:23:13,600 Speaker 7: as you alluse to Lisa cross regions. The other tricky 507 00:23:13,640 --> 00:23:16,480 Speaker 7: thing for Europe is that valuations haven't reset that much, 508 00:23:16,720 --> 00:23:19,200 Speaker 7: So if you are allocating that marginal dollar to Europe, 509 00:23:19,840 --> 00:23:22,399 Speaker 7: the valuations haven't given you a great entry point at 510 00:23:22,400 --> 00:23:22,640 Speaker 7: this point. 511 00:23:22,800 --> 00:23:24,640 Speaker 2: Cerently, at times this month is found like old US 512 00:23:24,680 --> 00:23:27,040 Speaker 2: assets are trying in one buck hit day today. 513 00:23:27,000 --> 00:23:29,639 Speaker 4: Which it has except now when you look under the 514 00:23:29,680 --> 00:23:31,879 Speaker 4: hood and what you've seen even in the flows is 515 00:23:31,920 --> 00:23:35,320 Speaker 4: that yes, foreign investors have been shifting away on the 516 00:23:35,359 --> 00:23:38,080 Speaker 4: margins from treasuries but not credit because of some of 517 00:23:38,119 --> 00:23:39,760 Speaker 4: these ideas, and that's why people could say we can 518 00:23:39,800 --> 00:23:42,720 Speaker 4: still get around some of the corporate story in the US, 519 00:23:43,000 --> 00:23:44,280 Speaker 4: but maybe not the government story. 520 00:23:44,359 --> 00:23:46,399 Speaker 2: Right now, Amanda's going to see you waste thanks to 521 00:23:46,480 --> 00:23:58,359 Speaker 2: dropping by Amanda Lanea in there of black Crook, no 522 00:23:58,480 --> 00:24:00,119 Speaker 2: doctor of ramdmac John. Just now for more and the 523 00:24:00,200 --> 00:24:02,880 Speaker 2: welcome to the program, sir. Before we get into details, Neil, 524 00:24:03,240 --> 00:24:04,960 Speaker 2: you wrote about it recently, I just want to sit 525 00:24:05,000 --> 00:24:05,280 Speaker 2: on this. 526 00:24:05,400 --> 00:24:06,240 Speaker 4: Just for a beat. 527 00:24:06,320 --> 00:24:08,720 Speaker 2: The rock pool that we've seen to consensus, Neil, that 528 00:24:08,800 --> 00:24:11,800 Speaker 2: you've written about, just frame that historically, how quick, how 529 00:24:11,920 --> 00:24:15,080 Speaker 2: vicious this has been well, as you. 530 00:24:15,040 --> 00:24:16,760 Speaker 8: Know, I mean, I think one of the ways recession 531 00:24:16,840 --> 00:24:20,120 Speaker 8: works is through that element of surprise, So people think 532 00:24:20,160 --> 00:24:21,840 Speaker 8: things are going to be okay and then they're not, 533 00:24:22,000 --> 00:24:25,159 Speaker 8: and that prompts the clearing out of inventory's investment, hiring 534 00:24:25,359 --> 00:24:28,000 Speaker 8: and so forth. And it's been quite dramatic. I mean, 535 00:24:28,080 --> 00:24:30,959 Speaker 8: remember we went into the year looking for Q four 536 00:24:31,080 --> 00:24:35,280 Speaker 8: Q four growth of around two percent and now it's 537 00:24:35,600 --> 00:24:38,639 Speaker 8: around half a percent. So you've seen a fairly meaningful 538 00:24:38,680 --> 00:24:42,800 Speaker 8: download revision to GDP growth expectations for twenty twenty five, 539 00:24:43,720 --> 00:24:45,640 Speaker 8: and if you go outside the COVID years, the last 540 00:24:45,680 --> 00:24:48,040 Speaker 8: time anything like that's happened is two thousand and nine, 541 00:24:48,200 --> 00:24:50,560 Speaker 8: So it's pretty dramatic. 542 00:24:50,920 --> 00:24:53,080 Speaker 2: You've been tracking some week a data, not just at 543 00:24:53,119 --> 00:24:54,879 Speaker 2: the start of this year, but from the back end 544 00:24:54,920 --> 00:24:56,840 Speaker 2: of last year as well. Neil, just give us the 545 00:24:56,880 --> 00:24:59,280 Speaker 2: trend of things at the moment and how you'll navigate 546 00:24:59,280 --> 00:25:01,080 Speaker 2: payrolls on day, because I can tell you for a 547 00:25:01,119 --> 00:25:02,760 Speaker 2: lot of people in the market at the moment, they 548 00:25:02,800 --> 00:25:05,439 Speaker 2: seem to be willing to ignore strength and they'll triple 549 00:25:05,480 --> 00:25:08,680 Speaker 2: down on weakness. What's your approach, Well, I. 550 00:25:08,600 --> 00:25:12,520 Speaker 8: Think that makes sense because I mean, you know, to me, 551 00:25:12,600 --> 00:25:15,080 Speaker 8: it's to the extent that any number is strong, it's 552 00:25:15,119 --> 00:25:18,080 Speaker 8: probably somewhat backward looking. And if it's weaker, it just 553 00:25:18,119 --> 00:25:21,800 Speaker 8: means that the economy was even softer than we thought 554 00:25:21,840 --> 00:25:24,280 Speaker 8: going into all this. But you know, take a step 555 00:25:24,320 --> 00:25:27,280 Speaker 8: back and think about what happened last year. We saw 556 00:25:27,280 --> 00:25:29,720 Speaker 8: a very strong growth in consumer spending that was driven 557 00:25:29,760 --> 00:25:31,960 Speaker 8: primarily by or to a large. 558 00:25:31,760 --> 00:25:33,400 Speaker 5: Extent, by a decline in the savings rate. 559 00:25:33,440 --> 00:25:36,840 Speaker 8: If you look at real incomes excluding transfers, it's up 560 00:25:36,840 --> 00:25:39,600 Speaker 8: only one and a half percent, So even if you 561 00:25:39,640 --> 00:25:43,200 Speaker 8: assume the savings rate stable, you're going to get weaker consumption. 562 00:25:44,000 --> 00:25:49,040 Speaker 8: At the same time, a non residential business fixed investment contracted. 563 00:25:48,520 --> 00:25:49,680 Speaker 5: Towards the end of last year. 564 00:25:49,680 --> 00:25:52,399 Speaker 8: It only added about thirty basis points on average to 565 00:25:52,480 --> 00:25:54,520 Speaker 8: growth in twenty twenty four. Believe it or not, John, 566 00:25:54,520 --> 00:26:00,600 Speaker 8: that's actually less than the contribution from healthcare services consumption. 567 00:26:00,720 --> 00:26:02,680 Speaker 8: So it just tells you about the sort of cyclical 568 00:26:02,760 --> 00:26:07,080 Speaker 8: momentum in the economy going into twenty twenty five. And 569 00:26:07,520 --> 00:26:09,800 Speaker 8: you know, this year, I think what's been notable was 570 00:26:09,800 --> 00:26:14,600 Speaker 8: the ongoing increase in completed unsold new housing inventory, which 571 00:26:14,640 --> 00:26:17,359 Speaker 8: sort of begs the question about what home builders are 572 00:26:17,359 --> 00:26:19,520 Speaker 8: going to do. It probably means they're going to cut 573 00:26:19,560 --> 00:26:23,080 Speaker 8: back on residential construction, and I think in turn that 574 00:26:23,119 --> 00:26:27,600 Speaker 8: probably means some slowing and residential construction employment. So, you know, 575 00:26:27,640 --> 00:26:30,560 Speaker 8: I think the onus is really on the economic growth goals, 576 00:26:32,440 --> 00:26:35,520 Speaker 8: and you know, my sense is that you know, things 577 00:26:35,640 --> 00:26:38,000 Speaker 8: can get a little bit sloppy over the next couple 578 00:26:38,000 --> 00:26:38,600 Speaker 8: of quarters. 579 00:26:38,960 --> 00:26:41,399 Speaker 4: Let's say, Neil, every single FED official is watching right 580 00:26:41,440 --> 00:26:43,560 Speaker 4: now and they're quiet period. They're taking advantage of that 581 00:26:43,680 --> 00:26:45,600 Speaker 4: and reading all of your reports and saying, Okay, we're 582 00:26:45,600 --> 00:26:48,200 Speaker 4: going to cut by a full percentage point. We'll cut 583 00:26:48,280 --> 00:26:50,680 Speaker 4: dramatically in the next couple of meetings in order to 584 00:26:50,680 --> 00:26:51,359 Speaker 4: get ahead of this. 585 00:26:51,760 --> 00:26:55,560 Speaker 8: How much would that help, Well, I don't know that 586 00:26:55,600 --> 00:26:57,840 Speaker 8: it would help that much, because I do think to 587 00:26:57,840 --> 00:26:59,960 Speaker 8: some extent the train has sort of left the station. 588 00:27:00,160 --> 00:27:02,160 Speaker 8: That doesn't mean I wouldn't encourage them to start thinking 589 00:27:02,240 --> 00:27:07,080 Speaker 8: about recalibrating monetary policy. But I think it's important to 590 00:27:07,160 --> 00:27:09,040 Speaker 8: keep in mind that, you know, think about the areas 591 00:27:09,040 --> 00:27:11,719 Speaker 8: of the economy that are affected the most by the 592 00:27:11,760 --> 00:27:17,000 Speaker 8: trade war. It's stuff like consumer durable goods, it's stuff 593 00:27:17,080 --> 00:27:20,480 Speaker 8: like housing. So those are the areas that the FED 594 00:27:20,520 --> 00:27:23,359 Speaker 8: can help. But I don't think they can offset a 595 00:27:23,359 --> 00:27:26,679 Speaker 8: full impact of the trade war. So the FED is 596 00:27:26,800 --> 00:27:30,399 Speaker 8: just one part of this. But really to kind of 597 00:27:31,720 --> 00:27:35,240 Speaker 8: totally shift the narrative, I mean, you just see, you know, 598 00:27:35,320 --> 00:27:37,200 Speaker 8: the uncertainty sort of abate. 599 00:27:37,520 --> 00:27:39,480 Speaker 4: I feel like we've switched roles, Neil. It sounds like 600 00:27:39,520 --> 00:27:42,199 Speaker 4: you're really downbeat, and I'm thinking, well, the companies are 601 00:27:42,200 --> 00:27:44,720 Speaker 4: not sounding that downbeat. Corporate executives are coming out and 602 00:27:44,720 --> 00:27:47,159 Speaker 4: saying we can manage through that, and their estimates have 603 00:27:47,200 --> 00:27:50,920 Speaker 4: actually surprised to the upside in a large number of instances. 604 00:27:51,359 --> 00:27:53,159 Speaker 4: Why does that not come for you and give you 605 00:27:53,200 --> 00:27:55,560 Speaker 4: a sense that actually, maybe it's not as bad as 606 00:27:55,600 --> 00:27:56,320 Speaker 4: people are saying. 607 00:27:59,000 --> 00:28:01,280 Speaker 8: Well, I mean, you know, time will tell. I mean, 608 00:28:01,359 --> 00:28:03,119 Speaker 8: I don't know that that's true. I just saw an 609 00:28:03,200 --> 00:28:05,320 Speaker 8: article in the Wall Street Journal this morning talking about 610 00:28:05,320 --> 00:28:08,080 Speaker 8: how companies are sort of shelving their cap X plans. 611 00:28:09,000 --> 00:28:12,119 Speaker 8: You know, the fact that we're talking about a large 612 00:28:12,119 --> 00:28:16,040 Speaker 8: amount of companies pulling their earnings guidance, Lisa, I mean, 613 00:28:16,040 --> 00:28:19,400 Speaker 8: if they're pulling their earnings guidance, they're not spending point. 614 00:28:19,640 --> 00:28:21,840 Speaker 8: You know, simple as that. So you know, I don't 615 00:28:21,880 --> 00:28:25,320 Speaker 8: really see that much optimism out there. If anything, CEO 616 00:28:25,400 --> 00:28:30,320 Speaker 8: confidence has been waning because people got the sequencing. 617 00:28:29,760 --> 00:28:30,280 Speaker 5: Wrong, right. 618 00:28:30,320 --> 00:28:32,800 Speaker 8: I mean, when they bet on Donald Trump, they bet 619 00:28:32,840 --> 00:28:37,120 Speaker 8: on tax cuts, deregulation, and tariffs in that order. And 620 00:28:37,400 --> 00:28:39,880 Speaker 8: obviously we started with the last thing first. And that's 621 00:28:39,960 --> 00:28:42,720 Speaker 8: kind of the big, the big issue in my opinion. 622 00:28:42,440 --> 00:28:44,120 Speaker 1: Because, as you know, Neil, the last thing is the 623 00:28:44,160 --> 00:28:47,280 Speaker 1: thing that Trump can do unilatterly by himself. You recently 624 00:28:47,280 --> 00:28:49,200 Speaker 1: had a piece out where you talked about Trump's recent 625 00:28:49,240 --> 00:28:53,840 Speaker 1: comments around Powell, soothing comments around China, and you said 626 00:28:53,840 --> 00:28:56,720 Speaker 1: that Trump is starting to quote feel the market, But 627 00:28:56,760 --> 00:28:58,480 Speaker 1: at the end of the day, the tariffs are in 628 00:28:58,520 --> 00:29:01,200 Speaker 1: place when it comes to China. How quickly, Neil, do 629 00:29:01,240 --> 00:29:03,840 Speaker 1: you think that they need to start evaporating or this 630 00:29:03,960 --> 00:29:06,640 Speaker 1: is going to get brutal very quickly. 631 00:29:07,800 --> 00:29:08,920 Speaker 5: Well, I think we're already there. 632 00:29:08,960 --> 00:29:11,920 Speaker 8: I mean, there's a lot of interesting comments that the 633 00:29:11,960 --> 00:29:14,440 Speaker 8: market sort of runs with on any given day, but 634 00:29:14,560 --> 00:29:16,120 Speaker 8: at the end of the day, just look at what's 635 00:29:16,160 --> 00:29:19,200 Speaker 8: going on. We effectively have a trade embargo in place 636 00:29:19,240 --> 00:29:22,440 Speaker 8: with one of our largest trading partners, and the primary 637 00:29:22,440 --> 00:29:25,000 Speaker 8: debate right now seems to be whether are they talking 638 00:29:25,120 --> 00:29:27,960 Speaker 8: or not talking? Are they fake talking, are they talking 639 00:29:27,960 --> 00:29:30,120 Speaker 8: through back channels? I mean, it's a little bit ridiculous. 640 00:29:30,320 --> 00:29:33,440 Speaker 8: Just focus on what's actually happening. We have an effective 641 00:29:33,480 --> 00:29:39,200 Speaker 8: tariff rate in the twenties and we continue to have 642 00:29:39,440 --> 00:29:44,480 Speaker 8: fairly substantial tariffs on with China. That's effectively resulting in 643 00:29:43,720 --> 00:29:49,480 Speaker 8: a zero in terms of bilateral trade. To me, that's important, 644 00:29:49,520 --> 00:29:53,600 Speaker 8: and that's going to mean that you inventories are going 645 00:29:53,680 --> 00:29:59,440 Speaker 8: to be pretty problematic relatively soon, probably sometime over the 646 00:29:59,480 --> 00:29:59,960 Speaker 8: next month. 647 00:30:00,400 --> 00:30:04,280 Speaker 2: Neil final take. Kevin wash how close away to installing 648 00:30:04,320 --> 00:30:05,200 Speaker 2: a shadow FED share? 649 00:30:07,280 --> 00:30:09,600 Speaker 8: Well, I mean he has a habit of just you know, 650 00:30:09,680 --> 00:30:12,640 Speaker 8: you talk about the blackout period. Mike McKee mentioned that 651 00:30:12,720 --> 00:30:14,760 Speaker 8: I find it hysterical that he's out in the Wall 652 00:30:14,800 --> 00:30:20,160 Speaker 8: Street Journal with an outbed, but you know, look I don't, 653 00:30:20,240 --> 00:30:22,200 Speaker 8: I don't. I mean I took a quick read of 654 00:30:22,240 --> 00:30:25,880 Speaker 8: his his outbed. You know, I think I think it's 655 00:30:25,960 --> 00:30:28,320 Speaker 8: ridiculous to really say that the FED is the reason 656 00:30:28,360 --> 00:30:33,400 Speaker 8: why we have profligate spending. I mean, remember when interest 657 00:30:33,480 --> 00:30:36,520 Speaker 8: rates were zero and the FED was doing open ended QE. 658 00:30:37,120 --> 00:30:39,600 Speaker 8: The government at the time was going out on an 659 00:30:39,640 --> 00:30:42,239 Speaker 8: austerity budget and we talked about sequester and all that. 660 00:30:42,400 --> 00:30:45,040 Speaker 8: So I think he has the cause and effect wrong. 661 00:30:45,080 --> 00:30:46,320 Speaker 5: I mean, the reason why. 662 00:30:47,640 --> 00:30:51,120 Speaker 8: Rates were so low was because probably there was austerity, 663 00:30:51,200 --> 00:30:54,280 Speaker 8: not the other way around. So I mean, I think 664 00:30:54,800 --> 00:30:57,760 Speaker 8: talking about firing Powell is bad. Replacing him with Kevin 665 00:30:57,960 --> 00:30:59,880 Speaker 8: Wassh wouldn't be much better. 666 00:31:00,400 --> 00:31:04,760 Speaker 2: No data of run back. This is the Bloomberg Surveillance Podcast, 667 00:31:04,880 --> 00:31:08,760 Speaker 2: bringing you the best in markets, economics, angio politics. You 668 00:31:08,800 --> 00:31:11,560 Speaker 2: can watch the show live on Bloomberg TV weekday mornings 669 00:31:11,600 --> 00:31:14,520 Speaker 2: from six am to nine am Eastern. Subscribe to the 670 00:31:14,560 --> 00:31:18,040 Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and 671 00:31:18,120 --> 00:31:21,160 Speaker 2: as always, on the Bloomberg terminal and the Bloomberg Business app.