1 00:00:02,400 --> 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 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and am Marie Hordern join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:35,840 Speaker 2: Bloomberg Terminal and the Bloomberg Business app. 10 00:00:36,560 --> 00:00:40,960 Speaker 1: Joining us now is Brandon Ferris of the Steel Manufacturers Association. Brandon, 11 00:00:41,200 --> 00:00:43,000 Speaker 1: thank you so much for being with us. I just 12 00:00:43,040 --> 00:00:46,560 Speaker 1: want to start with how the increase in stealing aluminum 13 00:00:46,600 --> 00:00:50,760 Speaker 1: tariffs works hand in hand with this deal for some 14 00:00:50,800 --> 00:00:53,920 Speaker 1: sort of participation with dpon steel taking a stake of 15 00:00:54,040 --> 00:00:54,840 Speaker 1: US steal. 16 00:00:56,320 --> 00:00:59,160 Speaker 3: Absolutely well. Thank you for having me today, and with 17 00:00:59,240 --> 00:01:02,040 Speaker 3: the deal and with what President Trump announced on Friday 18 00:01:02,040 --> 00:01:05,360 Speaker 3: of raising the tariffs to fifty percent, President Trump is 19 00:01:05,400 --> 00:01:09,160 Speaker 3: responding to an industry that has suffered from surges of 20 00:01:09,360 --> 00:01:13,759 Speaker 3: dirt cheap steel from foreign imports, particularly from China, and 21 00:01:13,840 --> 00:01:17,399 Speaker 3: so as part of this which was the largest investment 22 00:01:17,400 --> 00:01:21,360 Speaker 3: in Pennsylvania history these fifty percent. Raising the tariffs to 23 00:01:21,400 --> 00:01:24,800 Speaker 3: fifty percent helps protect the American steel industry. 24 00:01:25,440 --> 00:01:28,280 Speaker 4: We've learned that the US imports about seventy percent of 25 00:01:28,280 --> 00:01:31,240 Speaker 4: its steel needs is according to Morgan Stanley. So do 26 00:01:31,280 --> 00:01:34,360 Speaker 4: you think actually they really need this level of protection. 27 00:01:36,640 --> 00:01:40,440 Speaker 3: Yes, so even at twenty five percent, And the US 28 00:01:40,480 --> 00:01:43,840 Speaker 3: International Trade Commission did a report on the two thirty 29 00:01:43,840 --> 00:01:46,800 Speaker 3: two tariffs for steel, and what they found was that 30 00:01:46,840 --> 00:01:50,280 Speaker 3: the price impacts were minimal, but what they really had 31 00:01:50,320 --> 00:01:54,280 Speaker 3: a tremendous effect on was lowering the imports. Twenty four 32 00:01:54,360 --> 00:01:58,240 Speaker 3: percent of imports were lowered when President Trump first instituted 33 00:01:58,280 --> 00:02:01,960 Speaker 3: these tariffs in twenty eighteen. And so what we're still 34 00:02:02,040 --> 00:02:06,720 Speaker 3: seeing is surges of steel into the US. China over 35 00:02:06,720 --> 00:02:10,080 Speaker 3: the last year has dumped more than one hundred million 36 00:02:10,200 --> 00:02:13,480 Speaker 3: tons into the global market. That is more than we 37 00:02:13,520 --> 00:02:15,960 Speaker 3: make in the US in a year. So yes, we 38 00:02:16,080 --> 00:02:19,239 Speaker 3: do believe that bumping up the number to fifty percent 39 00:02:19,400 --> 00:02:21,400 Speaker 3: is going to be very helpful for our industry. 40 00:02:21,560 --> 00:02:24,400 Speaker 4: Construction companies, I'm sure you've seen have worn that these 41 00:02:24,480 --> 00:02:26,840 Speaker 4: levees are going to be increasing the cost of critical 42 00:02:26,880 --> 00:02:29,560 Speaker 4: building materials. Do you have concern about the knock on 43 00:02:29,600 --> 00:02:32,160 Speaker 4: effects what this fifty percent level means for the steel 44 00:02:32,160 --> 00:02:34,960 Speaker 4: industry for things like construction as well as the auto sector. 45 00:02:36,880 --> 00:02:40,600 Speaker 3: Absolutely, anytime a tear, for any time a trade knob 46 00:02:40,680 --> 00:02:43,600 Speaker 3: is turned, you have to look at the ramifications. And 47 00:02:44,000 --> 00:02:47,640 Speaker 3: when the International Trade Commission studied the two thirty two tariffs, 48 00:02:47,720 --> 00:02:51,480 Speaker 3: what it found was for the downstream industries, zero point 49 00:02:51,600 --> 00:02:56,920 Speaker 3: two percent increase on their prices, So again small increase 50 00:02:56,960 --> 00:03:00,960 Speaker 3: on prices, but a major effect on taking the imports down. 51 00:03:01,240 --> 00:03:03,880 Speaker 4: The Trump administration, though had or Trump himself had opposed 52 00:03:03,919 --> 00:03:07,280 Speaker 4: this deal on the campaign trail. Are you happy about 53 00:03:07,280 --> 00:03:08,880 Speaker 4: the nip on US steel deal. 54 00:03:10,720 --> 00:03:14,839 Speaker 3: We're looking forward to receiving more information. Again, what we 55 00:03:14,880 --> 00:03:18,280 Speaker 3: look at is right now it is the number one 56 00:03:18,400 --> 00:03:21,239 Speaker 3: deal that has ever been announced in Pennsylvania. One of 57 00:03:21,280 --> 00:03:25,400 Speaker 3: our other members, New Course Steel, had just recently announced 58 00:03:25,440 --> 00:03:28,919 Speaker 3: the largest investment in West Virginia history. So two out 59 00:03:28,919 --> 00:03:33,040 Speaker 3: of fifty states the largest investment in their history is steel, 60 00:03:33,280 --> 00:03:35,080 Speaker 3: and so we like where this trend is heading. 61 00:03:35,400 --> 00:03:38,680 Speaker 5: Brandon, you mentioned the dumping of steel in US markets 62 00:03:38,720 --> 00:03:41,720 Speaker 5: coming from China, but let's be clear, this terifile effect 63 00:03:41,920 --> 00:03:44,520 Speaker 5: much more than China. It is a sledgehammer, and you've 64 00:03:44,520 --> 00:03:47,760 Speaker 5: seen complaints, for example, from the EU, from the UK. 65 00:03:48,560 --> 00:03:50,520 Speaker 5: Is this the right method to take for what is 66 00:03:50,560 --> 00:03:53,000 Speaker 5: a very serious problem. Should there have been something more 67 00:03:53,040 --> 00:03:55,080 Speaker 5: surgical coming from the administration. 68 00:03:56,800 --> 00:03:59,360 Speaker 3: We do believe that the two thirty two steel tariffs 69 00:03:59,400 --> 00:04:03,640 Speaker 3: are searched, and with this, yes, we do believe that 70 00:04:03,720 --> 00:04:07,400 Speaker 3: it will help our industry. And the problem is not 71 00:04:07,720 --> 00:04:12,160 Speaker 3: just China, it's global overcapacity. Lots of countries use cheap 72 00:04:12,280 --> 00:04:15,280 Speaker 3: Chinese steel to replace their own and then send theirs 73 00:04:15,320 --> 00:04:19,280 Speaker 3: onto the global market, and so this will help solve 74 00:04:19,360 --> 00:04:20,280 Speaker 3: that issue. 75 00:04:20,600 --> 00:04:23,600 Speaker 5: So another concern, which again the most recent moves I'm 76 00:04:23,640 --> 00:04:26,280 Speaker 5: sure you're hoping to concern, is something of just job 77 00:04:26,320 --> 00:04:30,360 Speaker 5: stability and job security and any guarantees that the administration 78 00:04:30,440 --> 00:04:33,960 Speaker 5: and many people hope that kneepon Steel will guarantee, Brandon, 79 00:04:34,000 --> 00:04:36,839 Speaker 5: how far can those guarantees go when it is an 80 00:04:36,880 --> 00:04:39,440 Speaker 5: industry that is facing a lot of changes, that is 81 00:04:39,480 --> 00:04:43,320 Speaker 5: facing changes when it comes to technology that change the workforce. 82 00:04:43,360 --> 00:04:45,839 Speaker 5: How long can job security be guaranteed. 83 00:04:48,279 --> 00:04:50,360 Speaker 3: I can't speak for US Steel, but what I can 84 00:04:50,480 --> 00:04:52,720 Speaker 3: say for all of our members is that they have 85 00:04:52,880 --> 00:04:55,880 Speaker 3: a more full order book than they've had in years. 86 00:04:56,520 --> 00:04:59,960 Speaker 3: And what we're hearing is that we're hearing growth. Nearly 87 00:05:00,120 --> 00:05:03,200 Speaker 3: every one of our members has announced growth, and this 88 00:05:03,320 --> 00:05:06,719 Speaker 3: means more jobs, this means more revenue, this means better 89 00:05:06,760 --> 00:05:09,760 Speaker 3: benefits for the economy. And so right now, what we're 90 00:05:09,800 --> 00:05:12,440 Speaker 3: looking at, and what we've looked at since President Trump 91 00:05:12,480 --> 00:05:16,240 Speaker 3: first instituted these terraces in twenty eighteen, is a changed 92 00:05:16,320 --> 00:05:18,640 Speaker 3: industry and a changed for the better. And that's what 93 00:05:18,680 --> 00:05:21,560 Speaker 3: we're looking at when President Trump has recently made this 94 00:05:21,680 --> 00:05:23,440 Speaker 3: change to fifty percent as well. 95 00:05:23,240 --> 00:05:26,040 Speaker 1: Brandon, are you worried about the US losing customers if 96 00:05:26,200 --> 00:05:29,599 Speaker 1: the US angers essentially Canada and the European Union, as 97 00:05:29,640 --> 00:05:33,080 Speaker 1: some of its biggest exporters are the people who actually 98 00:05:33,080 --> 00:05:35,760 Speaker 1: buy some of this steel and aluminum, maybe setting them 99 00:05:35,760 --> 00:05:38,960 Speaker 1: to look elsewhere if suddenly prices are that much more expensive. 100 00:05:41,240 --> 00:05:44,880 Speaker 3: What we can say is that most of the steel 101 00:05:44,960 --> 00:05:47,680 Speaker 3: produced in the US is used in the US. We 102 00:05:47,720 --> 00:05:49,800 Speaker 3: do have some trade with Canada, we do have some 103 00:05:49,880 --> 00:05:52,080 Speaker 3: trade with Mexico, and I know that there are going 104 00:05:52,120 --> 00:05:55,599 Speaker 3: to be negotiations this year talking about that. But as 105 00:05:55,640 --> 00:05:59,400 Speaker 3: far as protecting the domestic steel industry, which is vital 106 00:05:59,560 --> 00:06:04,400 Speaker 3: for economic security, energy security, national security. We believe that 107 00:06:04,520 --> 00:06:07,000 Speaker 3: moving the tariffs up to fifty percent was a very 108 00:06:07,040 --> 00:06:07,560 Speaker 3: good move. 109 00:06:08,000 --> 00:06:11,000 Speaker 1: Brandon Faris of the Steel Manufacturers Association, thank you so 110 00:06:11,080 --> 00:06:24,560 Speaker 1: much for being with us. Turning back to trade, China 111 00:06:24,720 --> 00:06:28,080 Speaker 1: hitting back the Trump administration accusing the US and violating 112 00:06:28,400 --> 00:06:31,360 Speaker 1: is trade truths. Former Trump trade official Kate Calluquids joins 113 00:06:31,440 --> 00:06:31,800 Speaker 1: US now. 114 00:06:32,320 --> 00:06:35,000 Speaker 6: Kate, thank you so much for being with us. What's 115 00:06:35,040 --> 00:06:35,800 Speaker 6: your take. 116 00:06:35,920 --> 00:06:38,279 Speaker 1: On the ratcheting up intensions that we saw between the 117 00:06:38,279 --> 00:06:41,480 Speaker 1: officials in China and the US over the past four 118 00:06:41,560 --> 00:06:42,240 Speaker 1: or five days. 119 00:06:43,320 --> 00:06:45,400 Speaker 7: It has been a whirlwind. I think in the US 120 00:06:45,520 --> 00:06:49,000 Speaker 7: China space. Of course, we saw huge tariffs, We saw 121 00:06:49,040 --> 00:06:52,880 Speaker 7: those tariffs come down without much else agreed between the 122 00:06:52,880 --> 00:06:55,920 Speaker 7: two parties, and now this war of words. I think 123 00:06:55,960 --> 00:06:58,040 Speaker 7: it lends itself to the fact that some of the 124 00:06:58,520 --> 00:07:02,640 Speaker 7: very baseline issues between the two nations remain very much 125 00:07:02,680 --> 00:07:05,880 Speaker 7: in place, even though domestic pressure forced both sides to 126 00:07:05,880 --> 00:07:08,560 Speaker 7: bring those tariffs down. So we're very much in the 127 00:07:08,640 --> 00:07:10,640 Speaker 7: same space without the tear of pressure. 128 00:07:10,680 --> 00:07:13,320 Speaker 4: I think, Kate, is there really going to be an 129 00:07:13,400 --> 00:07:17,520 Speaker 4: agreement if there isn't some understanding between the two countries 130 00:07:17,840 --> 00:07:20,480 Speaker 4: on the AI sector and advanced semiconductors. 131 00:07:22,000 --> 00:07:24,920 Speaker 7: Well, you know, I suppose it depends on what China 132 00:07:25,000 --> 00:07:27,280 Speaker 7: is willing to accept here, because I think that it's 133 00:07:27,440 --> 00:07:30,920 Speaker 7: very clear from the United States perspective that these types 134 00:07:30,960 --> 00:07:34,200 Speaker 7: of export restrictions on high tech goods are here to stay. 135 00:07:34,880 --> 00:07:38,920 Speaker 7: In the big strategic economic competition with China, the focus 136 00:07:38,960 --> 00:07:42,920 Speaker 7: from both sides, frankly in DC has been to restrict 137 00:07:43,040 --> 00:07:46,720 Speaker 7: access of these technologies. So unless China is willing to 138 00:07:46,760 --> 00:07:49,800 Speaker 7: accept that, I think we're not going to see an agreement. 139 00:07:49,840 --> 00:07:53,080 Speaker 7: They're going to have to decide I think whether this 140 00:07:53,240 --> 00:07:55,400 Speaker 7: is a status quo that they can move forward with. 141 00:07:55,880 --> 00:07:58,560 Speaker 4: Is there a chance that the Trump administration gives in 142 00:07:58,640 --> 00:08:01,800 Speaker 4: more and allows them some access to this sector. 143 00:08:03,000 --> 00:08:05,560 Speaker 7: Well, you know, President Trump, of course, has sent some 144 00:08:05,640 --> 00:08:08,720 Speaker 7: mixed messages around what he expects and hopes from China. 145 00:08:09,400 --> 00:08:12,840 Speaker 7: After the tear off Detonte, the President announced his long 146 00:08:12,920 --> 00:08:15,880 Speaker 7: term goal is to do business with China, which you 147 00:08:15,880 --> 00:08:18,640 Speaker 7: know undermines a bit this notion that we could really 148 00:08:18,720 --> 00:08:20,000 Speaker 7: sever our economies. 149 00:08:20,560 --> 00:08:21,760 Speaker 6: So I wouldn't say never. 150 00:08:22,520 --> 00:08:25,520 Speaker 7: The President certainly has shown, you know, willingness to walk 151 00:08:25,560 --> 00:08:27,840 Speaker 7: back some of his strong rhetoric but this will be 152 00:08:27,880 --> 00:08:32,079 Speaker 7: difficult because, you know, in a bipartisan way, Congress has 153 00:08:32,120 --> 00:08:33,520 Speaker 7: been quite firm on this point. 154 00:08:33,880 --> 00:08:34,520 Speaker 6: The rhetor grick. 155 00:08:34,559 --> 00:08:36,640 Speaker 4: We've seen the war of words back and forth over 156 00:08:36,679 --> 00:08:39,760 Speaker 4: the weekend from Friday to today. Could that derail a 157 00:08:39,800 --> 00:08:42,600 Speaker 4: potential talk that Kevin has had said we should expect 158 00:08:42,640 --> 00:08:44,079 Speaker 4: this week between the two leaders. 159 00:08:45,200 --> 00:08:48,160 Speaker 7: I suppose it could, although the signals I see on 160 00:08:48,240 --> 00:08:51,000 Speaker 7: the US side at least are very strong language from 161 00:08:51,000 --> 00:08:55,160 Speaker 7: the President, softer language of course from his his you know, 162 00:08:55,400 --> 00:08:58,959 Speaker 7: cabinet officials. We saw Ambassador Greer, Secretary Bessett try to 163 00:08:59,720 --> 00:09:02,920 Speaker 7: walk back a bit the very strong tone to say 164 00:09:03,360 --> 00:09:06,800 Speaker 7: things aren't going great, but we're hoping the leaders will speak. 165 00:09:06,880 --> 00:09:09,120 Speaker 7: So the US at least is sending a very strong 166 00:09:09,200 --> 00:09:12,319 Speaker 7: signal that it would like to see a leader level discussion. 167 00:09:12,640 --> 00:09:14,360 Speaker 1: Do we have a sense, Kate of what the ultimate 168 00:09:14,400 --> 00:09:16,920 Speaker 1: goal is? It feels like that's getting lost in all 169 00:09:17,000 --> 00:09:20,480 Speaker 1: of this, is the idea to decouple with respect to 170 00:09:20,520 --> 00:09:22,719 Speaker 1: tech between the US and China, to time or on 171 00:09:22,800 --> 00:09:25,960 Speaker 1: video saying that that's not the answer. Is it to 172 00:09:26,040 --> 00:09:30,040 Speaker 1: just isolate China with the allies that we have, albeit 173 00:09:30,080 --> 00:09:32,840 Speaker 1: in a somewhat messy way, we don't have real sense 174 00:09:32,880 --> 00:09:34,480 Speaker 1: of that through all of this, do you. 175 00:09:35,920 --> 00:09:36,120 Speaker 8: Well? 176 00:09:36,160 --> 00:09:38,720 Speaker 7: I wish I could help come up with a stronger 177 00:09:38,800 --> 00:09:42,480 Speaker 7: clear plan here. The reality is the President has many, 178 00:09:43,000 --> 00:09:46,040 Speaker 7: many goals when it comes to economic relationships with the 179 00:09:46,040 --> 00:09:48,280 Speaker 7: rest of the world, and at times these do appear 180 00:09:48,440 --> 00:09:52,000 Speaker 7: somewhat to conflict with one another. As I said, I 181 00:09:52,040 --> 00:09:54,800 Speaker 7: do think his long term goal here is to reset 182 00:09:54,840 --> 00:09:57,760 Speaker 7: the relationship with China, but to continue to have an 183 00:09:57,760 --> 00:10:01,480 Speaker 7: economic relationship with China. Regrettably, I think some of these 184 00:10:01,520 --> 00:10:05,319 Speaker 7: other discussions, whether it's with the Europeans, India, others, the 185 00:10:05,480 --> 00:10:11,440 Speaker 7: stealing aluminum tariff announcements, cloud the the framework of where 186 00:10:11,480 --> 00:10:13,680 Speaker 7: we're gonna go with China. So I'd say we're not 187 00:10:13,760 --> 00:10:16,560 Speaker 7: quite there yet. I don't know that the President has 188 00:10:16,600 --> 00:10:18,880 Speaker 7: been as specific as he needs to be with the 189 00:10:19,000 --> 00:10:21,040 Speaker 7: Chinese as to where he hopes to go, and so 190 00:10:21,080 --> 00:10:23,359 Speaker 7: we're gonna need to have a little bit more discussion 191 00:10:23,400 --> 00:10:25,640 Speaker 7: before we can see something emerging. 192 00:10:26,000 --> 00:10:27,920 Speaker 1: We heard over the weekend from a number of different 193 00:10:27,920 --> 00:10:31,040 Speaker 1: advisors to President Trump that July ninth is the deadline 194 00:10:31,080 --> 00:10:33,200 Speaker 1: and it will not be extended past that. In terms 195 00:10:33,240 --> 00:10:35,440 Speaker 1: of the reciprocal tariffs, do you believe that. 196 00:10:37,640 --> 00:10:40,440 Speaker 7: Well, I think the President is always flexible, and I 197 00:10:40,440 --> 00:10:42,720 Speaker 7: think if we need to go beyond July ninth, we'll 198 00:10:42,720 --> 00:10:45,160 Speaker 7: find a way to go beyond July ninth. Of course, 199 00:10:45,200 --> 00:10:47,840 Speaker 7: the President is a bit on his heels given the 200 00:10:47,960 --> 00:10:50,880 Speaker 7: court decision last week, but I think it means that 201 00:10:50,920 --> 00:10:54,439 Speaker 7: he's going to show signals that he can move tariff's 202 00:10:54,480 --> 00:10:57,120 Speaker 7: forward in other manners as we've seen. We saw the 203 00:10:57,120 --> 00:10:59,920 Speaker 7: announcement on steel in aluminum. He has quite a few 204 00:11:00,040 --> 00:11:03,360 Speaker 7: other tools in his toolbox to bring to the ready. 205 00:11:03,520 --> 00:11:07,280 Speaker 7: So I think other nations really ought to continue negotiating 206 00:11:07,320 --> 00:11:09,840 Speaker 7: with the United States and keep this date in mind. 207 00:11:09,880 --> 00:11:11,480 Speaker 6: It benefits them as. 208 00:11:11,360 --> 00:11:15,199 Speaker 7: Well to negotiate some deals before the President starts to 209 00:11:15,320 --> 00:11:18,199 Speaker 7: use these other tariffs. But if we need to extend, 210 00:11:18,400 --> 00:11:22,439 Speaker 7: I think the President and certainly Secretary Dissent has indicated 211 00:11:23,240 --> 00:11:25,160 Speaker 7: if we need more time, we'll take more time. 212 00:11:25,480 --> 00:11:26,000 Speaker 8: Just quickly. 213 00:11:26,080 --> 00:11:28,640 Speaker 1: When you talk to your clients, what are the risk dates, 214 00:11:28,960 --> 00:11:31,640 Speaker 1: the risk events that you have the flag to them 215 00:11:31,920 --> 00:11:34,080 Speaker 1: saying this, actually you need to keep your eye out. 216 00:11:33,960 --> 00:11:37,640 Speaker 7: For Well, when I talk to my clients, I really say, 217 00:11:37,840 --> 00:11:40,280 Speaker 7: you know, predicting is too late in the game. We 218 00:11:40,360 --> 00:11:44,320 Speaker 7: need to anticipate big outcomes as opposed to the actual 219 00:11:44,400 --> 00:11:47,200 Speaker 7: when and the dates and to when they might occur, 220 00:11:47,320 --> 00:11:50,000 Speaker 7: because we know the President wants to move on large 221 00:11:50,040 --> 00:11:54,000 Speaker 7: scale sectoral tariffs beyond II but beyond China. We are 222 00:11:54,000 --> 00:11:57,200 Speaker 7: anticipating several big decisions this summer when it comes to 223 00:11:57,240 --> 00:12:03,320 Speaker 7: semiconductor tariffs, pharmaceuticals, copper, critical minerals, and a range of 224 00:12:03,360 --> 00:12:06,400 Speaker 7: other two thirty two tariffs. We have impending review of 225 00:12:06,440 --> 00:12:09,720 Speaker 7: the US Mexico Canada agreement. So when I speak to 226 00:12:09,760 --> 00:12:12,160 Speaker 7: my clients, we're working to prepare for all of these 227 00:12:12,240 --> 00:12:16,520 Speaker 7: eventualities to ensure that they're they're well positioned even before 228 00:12:16,559 --> 00:12:17,640 Speaker 7: a date is announced. 229 00:12:17,880 --> 00:12:20,360 Speaker 1: Kay Klukwitz, former Trump trade official, thank you so much 230 00:12:20,400 --> 00:12:33,240 Speaker 1: for being with us. Anita Bajave of Bank of America, writing, 231 00:12:33,360 --> 00:12:36,319 Speaker 1: we now forecast one hundred basis points of cuts next 232 00:12:36,440 --> 00:12:39,320 Speaker 1: year with low conviction. Who pencil these cuts in for 233 00:12:39,360 --> 00:12:42,240 Speaker 1: the second half of twenty twenty six? Aditya joins us 234 00:12:42,240 --> 00:12:44,800 Speaker 1: now and Aditya thank you for that, because we're all 235 00:12:44,920 --> 00:12:49,040 Speaker 1: humbly having low conviction about absolutely everything, So join the club. 236 00:12:49,280 --> 00:12:50,240 Speaker 6: We're joining the club. 237 00:12:50,400 --> 00:12:52,440 Speaker 1: I am curious what you make of some of those 238 00:12:52,520 --> 00:12:55,360 Speaker 1: Chris Waller comments where he seems to talk about good 239 00:12:55,440 --> 00:12:57,640 Speaker 1: news rate cuts at a time when so many other 240 00:12:57,679 --> 00:13:00,200 Speaker 1: FED officials are saying, we have no clue. 241 00:13:00,559 --> 00:13:02,680 Speaker 8: Thank you for having me. I think we have no clue. 242 00:13:02,679 --> 00:13:05,960 Speaker 8: It is probably a more accurate representation of where we stand. 243 00:13:06,280 --> 00:13:10,280 Speaker 8: The challenge here is that we had fairly favorable based 244 00:13:10,320 --> 00:13:12,520 Speaker 8: effects on inflation for the first four months of the year, 245 00:13:12,559 --> 00:13:14,840 Speaker 8: and so it isn't hugely surprising that we got down 246 00:13:14,840 --> 00:13:16,440 Speaker 8: to about two and a half percent on the core. 247 00:13:16,800 --> 00:13:18,680 Speaker 8: The problem is over the next eight months, the base 248 00:13:18,720 --> 00:13:22,199 Speaker 8: effects are much less favorable, and so going down further 249 00:13:22,320 --> 00:13:25,000 Speaker 8: is very unlikely, and in fact, it's more likely that 250 00:13:25,280 --> 00:13:29,000 Speaker 8: as the tariff set in, inflation will increase on a 251 00:13:29,080 --> 00:13:29,920 Speaker 8: year of year basis. 252 00:13:29,920 --> 00:13:30,040 Speaker 3: Well. 253 00:13:30,080 --> 00:13:32,120 Speaker 5: Chris Waller's argument in that was that you could look 254 00:13:32,160 --> 00:13:34,240 Speaker 5: through that because we don't have the same tightness in 255 00:13:34,240 --> 00:13:36,480 Speaker 5: the labor market, and the ability for employees to go 256 00:13:36,520 --> 00:13:38,520 Speaker 5: to their employer and say, hey, inflation's going up, pay 257 00:13:38,559 --> 00:13:41,120 Speaker 5: me more is limited because they just want to hold 258 00:13:41,160 --> 00:13:42,880 Speaker 5: on to their jobs at this point. Is that a 259 00:13:42,920 --> 00:13:44,680 Speaker 5: fair characterization of where we are? 260 00:13:45,040 --> 00:13:47,760 Speaker 8: Okay, But if inflation's above target and you aren't sure 261 00:13:47,800 --> 00:13:49,680 Speaker 8: whether you should look through the shock or not. And 262 00:13:49,720 --> 00:13:51,760 Speaker 8: at the same time, the labor market's holding up, what's 263 00:13:51,760 --> 00:13:53,080 Speaker 8: the why do you need to cut it all? 264 00:13:53,520 --> 00:13:54,760 Speaker 5: Yeah, fair enough, We don't. 265 00:13:54,600 --> 00:13:56,440 Speaker 8: Think they're cutting this year, just to be clear. 266 00:13:56,320 --> 00:13:59,840 Speaker 5: So they're not cutting this year. But also another input 267 00:13:59,840 --> 00:14:01,679 Speaker 5: in to this, and this is something Michael Gabe and 268 00:14:01,800 --> 00:14:04,040 Speaker 5: Morgan Stanley has talked about. This idea that we're going 269 00:14:04,080 --> 00:14:06,800 Speaker 5: to have low immigration and low immigration also means that 270 00:14:06,840 --> 00:14:10,400 Speaker 5: the labor market's going to stay tight as employment growth slows. 271 00:14:10,960 --> 00:14:13,120 Speaker 5: How much is that going to impact the outlook as 272 00:14:13,120 --> 00:14:14,000 Speaker 5: this year progresses. 273 00:14:14,480 --> 00:14:16,760 Speaker 8: That's a more difficult one. I think it'll be very 274 00:14:16,760 --> 00:14:19,800 Speaker 8: differentiated sector by sector. You're going to be seeing some 275 00:14:19,960 --> 00:14:23,360 Speaker 8: sectors that are more dependent on immigration that could see 276 00:14:23,600 --> 00:14:27,680 Speaker 8: wage pressure, such as construction, measure, in hospitality, agriculture. But 277 00:14:27,760 --> 00:14:30,880 Speaker 8: in aggregate, if you're basically shrinking the population, you're reducing 278 00:14:30,960 --> 00:14:32,920 Speaker 8: supply and demands. So it could also end up being 279 00:14:32,920 --> 00:14:33,320 Speaker 8: a wash. 280 00:14:33,600 --> 00:14:35,280 Speaker 4: You said that if the labor market is holding up 281 00:14:35,280 --> 00:14:37,600 Speaker 4: and inflation goes higher, why should the Fed do anything? Well, 282 00:14:37,640 --> 00:14:39,400 Speaker 4: if inflation is going higher, shouldn't. 283 00:14:39,040 --> 00:14:39,560 Speaker 5: It be hiking? 284 00:14:40,040 --> 00:14:42,440 Speaker 8: Right? So that's a question that comes up every now 285 00:14:42,480 --> 00:14:45,160 Speaker 8: and then I think there's some ways away from hiking, 286 00:14:45,240 --> 00:14:47,800 Speaker 8: just because policy rates are already quite elevated, so they'll 287 00:14:47,800 --> 00:14:50,920 Speaker 8: feel like they have some buffer. And again they'd rather 288 00:14:51,080 --> 00:14:54,080 Speaker 8: be late than wrong. This is a point that we've 289 00:14:54,080 --> 00:14:56,080 Speaker 8: made and I think it holds in both directions. 290 00:14:56,440 --> 00:14:59,120 Speaker 4: So you think this potentially will happen even though you 291 00:14:59,200 --> 00:15:00,680 Speaker 4: have a little bit of great salt on there the 292 00:15:00,720 --> 00:15:02,840 Speaker 4: second half of twenty twenty six. So do you think 293 00:15:02,840 --> 00:15:05,680 Speaker 4: we'll have certainty on trade policy out of Washington by 294 00:15:05,680 --> 00:15:07,160 Speaker 4: the second half of twenty twenty six? 295 00:15:07,400 --> 00:15:09,440 Speaker 8: Right, So the way we're thinking about the second half 296 00:15:09,480 --> 00:15:12,960 Speaker 8: of twenty twenty six is that by that point inflation 297 00:15:13,120 --> 00:15:16,120 Speaker 8: will the tariff riven. Inflation will start to roll off 298 00:15:16,160 --> 00:15:18,640 Speaker 8: the year of a year rate because of base effects. 299 00:15:18,960 --> 00:15:21,920 Speaker 8: So with inflation below three percent, maybe a slightly loser 300 00:15:22,000 --> 00:15:24,800 Speaker 8: label market and different FED leadership, you might end up 301 00:15:24,840 --> 00:15:25,600 Speaker 8: getting great cuts. 302 00:15:25,680 --> 00:15:28,080 Speaker 1: You said, different FED leadership. This is the question that 303 00:15:28,080 --> 00:15:30,040 Speaker 1: we all really want to ask. Is Chris Waller just 304 00:15:30,040 --> 00:15:30,840 Speaker 1: trying to get the job? 305 00:15:31,640 --> 00:15:32,760 Speaker 8: I'll let you decide that. 306 00:15:32,880 --> 00:15:34,600 Speaker 1: Okay, Well, it seems like a lot of people would 307 00:15:34,600 --> 00:15:37,680 Speaker 1: say yes. Is this the mainstream thought or could this 308 00:15:37,760 --> 00:15:38,840 Speaker 1: be the mainstream thought? 309 00:15:39,080 --> 00:15:39,920 Speaker 8: Of the Federal Reserve. 310 00:15:39,960 --> 00:15:42,160 Speaker 1: Do you think that this is the person to watch 311 00:15:42,240 --> 00:15:44,880 Speaker 1: to see the direction for the Federal Reserve in twenty 312 00:15:44,920 --> 00:15:46,400 Speaker 1: twenty six Chris Waller. 313 00:15:46,480 --> 00:15:49,480 Speaker 8: So he seems to be for now at least a 314 00:15:49,520 --> 00:15:51,480 Speaker 8: bit of an outlier on the committee. I think what 315 00:15:51,520 --> 00:15:56,400 Speaker 8: you're hearing from Chair Powell and then others like Hammock 316 00:15:56,760 --> 00:16:00,520 Speaker 8: and Williams is that the FED is very patient right now. 317 00:16:00,640 --> 00:16:02,680 Speaker 8: They just have no idea. Honestly, if you ask me 318 00:16:03,280 --> 00:16:05,240 Speaker 8: told me that the FED should be preemptive, I would 319 00:16:05,240 --> 00:16:07,120 Speaker 8: ask you, what is the FED even trying to preempt 320 00:16:07,200 --> 00:16:10,080 Speaker 8: right now? There's risks in both directions to trade policy, 321 00:16:10,080 --> 00:16:14,040 Speaker 8: there's risks in both directions to fiscal policy. Let's just 322 00:16:14,080 --> 00:16:16,680 Speaker 8: wait and see how it plays out. So Waller seems 323 00:16:16,680 --> 00:16:19,760 Speaker 8: to have a pretty optimistic outlook that we're going to 324 00:16:19,760 --> 00:16:21,560 Speaker 8: be able to do good news rate cuts by the 325 00:16:21,640 --> 00:16:23,160 Speaker 8: end of this year, and that just seems a little 326 00:16:23,160 --> 00:16:24,000 Speaker 8: bit too soon for us. 327 00:16:24,040 --> 00:16:25,040 Speaker 6: I'm sympathetic with this. 328 00:16:25,600 --> 00:16:27,680 Speaker 1: The question though, of wait and see for a data 329 00:16:27,720 --> 00:16:30,200 Speaker 1: dependent FED really raises a question of what are you 330 00:16:30,240 --> 00:16:34,120 Speaker 1: waiting for? Because the data is so incredibly messy, not 331 00:16:34,160 --> 00:16:37,720 Speaker 1: only from a backward looking forward looking midigum working kind 332 00:16:37,760 --> 00:16:39,880 Speaker 1: of point of view, but also just from a data 333 00:16:39,880 --> 00:16:42,400 Speaker 1: collection point of view, You've had a real question about 334 00:16:42,520 --> 00:16:45,760 Speaker 1: lowering of response rates to some of the nonfarm payrolls. 335 00:16:45,800 --> 00:16:49,320 Speaker 1: Responses sentiment surveys are basically throw a darted to dartboard. 336 00:16:49,360 --> 00:16:51,560 Speaker 1: What do you do with the integrity of some of 337 00:16:51,560 --> 00:16:52,520 Speaker 1: the data that we're getting. 338 00:16:52,720 --> 00:16:54,840 Speaker 8: So the good news about the payroll surveys is that 339 00:16:54,880 --> 00:16:56,920 Speaker 8: at least by the time you get to the third reading, 340 00:16:57,400 --> 00:16:58,880 Speaker 8: the response rate is pretty decent. 341 00:16:58,960 --> 00:17:01,600 Speaker 6: Yeah when you get that, yeah, you get that. 342 00:17:01,760 --> 00:17:02,520 Speaker 8: Two months later. 343 00:17:02,880 --> 00:17:04,560 Speaker 6: Okay, but the piping. 344 00:17:04,640 --> 00:17:07,560 Speaker 5: Well, and then you have data that's unreliable. You have 345 00:17:07,640 --> 00:17:10,760 Speaker 5: a FED that's not moving. The FED is not in 346 00:17:10,760 --> 00:17:13,199 Speaker 5: the driver's seat. It is a political economy, and you 347 00:17:13,200 --> 00:17:15,360 Speaker 5: can even see it in what's happening with the currency market. 348 00:17:15,960 --> 00:17:18,960 Speaker 5: Interest rate differentials are not making a difference. Is it 349 00:17:19,000 --> 00:17:22,480 Speaker 5: a problem that the FED is very passive right now? 350 00:17:22,480 --> 00:17:25,240 Speaker 5: That they are very reactive? Is it a problem, especially 351 00:17:25,440 --> 00:17:27,399 Speaker 5: if this economy heads in a worse direction. 352 00:17:27,760 --> 00:17:30,320 Speaker 8: I wouldn't characterize the FED as fassive. I think they've 353 00:17:30,359 --> 00:17:33,840 Speaker 8: actually been pretty clear about their stunds. They've pushed back 354 00:17:33,880 --> 00:17:37,320 Speaker 8: against market pricing of rate cuts. They've made it very 355 00:17:37,359 --> 00:17:40,080 Speaker 8: clear that they're concerned about inflation to a degree that 356 00:17:40,240 --> 00:17:42,080 Speaker 8: was more than perhaps I would have expected. I mean, 357 00:17:42,080 --> 00:17:43,800 Speaker 8: did you look at the minutes last week? It was 358 00:17:44,040 --> 00:17:46,600 Speaker 8: it was really striking for me. They had this when 359 00:17:46,600 --> 00:17:49,720 Speaker 8: they were the discussion around balance of risks. They basically 360 00:17:49,760 --> 00:17:53,920 Speaker 8: gave you this laundry list of concerns about why inflation 361 00:17:54,040 --> 00:17:56,760 Speaker 8: might end up being sticky, and then just a sentence 362 00:17:56,840 --> 00:17:59,119 Speaker 8: or two in the other direction, right, which is probably 363 00:17:59,160 --> 00:18:02,360 Speaker 8: written by. 364 00:18:02,920 --> 00:18:04,880 Speaker 5: What is the danger? Just just lay it out for us. 365 00:18:05,040 --> 00:18:08,760 Speaker 5: If the FOMC starts to coalesce a Chris Waller type 366 00:18:08,800 --> 00:18:12,560 Speaker 5: of policy, outlook, what is the scenario? Why is that 367 00:18:12,560 --> 00:18:13,400 Speaker 5: the wrong decision? 368 00:18:14,320 --> 00:18:17,040 Speaker 8: I think it's concerning in the sense that we just 369 00:18:17,119 --> 00:18:20,680 Speaker 8: don't know what policy is going to get implemented first, 370 00:18:21,040 --> 00:18:22,639 Speaker 8: and then second, we don't know how it's going to 371 00:18:22,640 --> 00:18:26,240 Speaker 8: affect the economy. Right, Basically, what we're looking at is 372 00:18:26,359 --> 00:18:29,880 Speaker 8: a negative supply shop from the tariffs being offset by 373 00:18:29,920 --> 00:18:33,360 Speaker 8: potentially a positive demand shock from fiscal policy. That can 374 00:18:33,400 --> 00:18:35,560 Speaker 8: give you the offset that you're looking for on the 375 00:18:35,560 --> 00:18:37,199 Speaker 8: fiscal side. It you can give you the offset that 376 00:18:37,200 --> 00:18:39,720 Speaker 8: you're looking for on the output side. The problem is 377 00:18:39,760 --> 00:18:42,680 Speaker 8: it can be additive on inflation, right. That's why they 378 00:18:42,720 --> 00:18:47,040 Speaker 8: have to be very careful about the risks around inflation. 379 00:18:47,119 --> 00:18:49,440 Speaker 8: And the other concern would be just that companies could 380 00:18:49,720 --> 00:18:52,240 Speaker 8: raise their prices a little bit every year if they're 381 00:18:52,280 --> 00:18:55,080 Speaker 8: concerned about losing market share. Right, So you could get 382 00:18:55,160 --> 00:18:58,120 Speaker 8: less inflation in the short run, but stickier inflation over time. 383 00:18:58,280 --> 00:18:59,520 Speaker 1: Just to give us a compass for how to look 384 00:18:59,520 --> 00:19:01,840 Speaker 1: at the weak head, what data point do you think 385 00:19:01,920 --> 00:19:04,720 Speaker 1: is going to be most relevant? The jolts, the job openings, 386 00:19:05,119 --> 00:19:07,760 Speaker 1: the non farm payrolls report on Friday, or the Beige 387 00:19:07,760 --> 00:19:10,719 Speaker 1: Book with all those quotes from specific regions telling you 388 00:19:10,800 --> 00:19:13,159 Speaker 1: I feel good, I feel terrible, I feel inflation, I 389 00:19:13,200 --> 00:19:13,880 Speaker 1: feel layoffs. 390 00:19:13,880 --> 00:19:16,399 Speaker 8: I think it's the unemployment rate. You really want to 391 00:19:16,400 --> 00:19:19,440 Speaker 8: watch the unemployment rate. I mean, typically the establishment survey 392 00:19:19,480 --> 00:19:22,159 Speaker 8: is more reliable than the household survey. But as you 393 00:19:22,200 --> 00:19:25,399 Speaker 8: mentioned earlier, we're in an environment where there's some very 394 00:19:25,440 --> 00:19:28,720 Speaker 8: movement around immigration policy and that can effect leave a 395 00:19:28,760 --> 00:19:31,639 Speaker 8: supply that can affect non farm payrolls. So the unemployment rate, 396 00:19:31,720 --> 00:19:34,720 Speaker 8: as long as that stays four point two percent or below, 397 00:19:34,760 --> 00:19:36,680 Speaker 8: I think the Fed's going to be very comfortable sitting 398 00:19:36,680 --> 00:19:37,080 Speaker 8: where they are. 399 00:19:37,119 --> 00:19:39,320 Speaker 1: Adj Bahave thank of America, Thank you so much. 400 00:19:39,359 --> 00:19:41,840 Speaker 6: Great to see you. 401 00:19:50,040 --> 00:19:53,920 Speaker 1: Victoria Fernandez of cross Mark writing, uncertainty remains even if 402 00:19:54,000 --> 00:19:57,000 Speaker 1: economic data and tacticals show the markets holding their own 403 00:19:57,000 --> 00:20:00,679 Speaker 1: for now, we see additional toppiness in the coming quarters. 404 00:20:00,760 --> 00:20:03,320 Speaker 1: Victoria joins us now for more, Victoria join the club. 405 00:20:03,359 --> 00:20:05,679 Speaker 1: Everyone's seeing choppiness because it's very hard to get a 406 00:20:05,720 --> 00:20:09,240 Speaker 1: sense of what kind of direction to go in. I 407 00:20:09,280 --> 00:20:11,800 Speaker 1: want to start with something that Danny was talking about earlier, 408 00:20:11,840 --> 00:20:14,640 Speaker 1: which is that it's very hard to know which thing 409 00:20:14,720 --> 00:20:17,960 Speaker 1: to focus on at any given time. Have we gone 410 00:20:18,000 --> 00:20:20,720 Speaker 1: past earnings and so now the focus just shifts squarely 411 00:20:20,760 --> 00:20:23,200 Speaker 1: to trade or does it shift to the deficit, or 412 00:20:23,280 --> 00:20:25,000 Speaker 1: does it shift to something else completely. 413 00:20:26,359 --> 00:20:28,159 Speaker 9: Yeah, I wish i could give you a good answer 414 00:20:28,160 --> 00:20:30,920 Speaker 9: on that, Lisa, but I'm just not really sure where 415 00:20:30,960 --> 00:20:31,960 Speaker 9: the focus is going to be. 416 00:20:32,000 --> 00:20:32,840 Speaker 6: As you guys. 417 00:20:32,600 --> 00:20:36,040 Speaker 9: Mentioned earlier, it changes on a daily basis. So we're 418 00:20:36,119 --> 00:20:39,879 Speaker 9: mostly through earnings, but there still are some good retail 419 00:20:39,960 --> 00:20:41,600 Speaker 9: earnings that are going to be coming out this week. 420 00:20:41,640 --> 00:20:43,800 Speaker 9: We've got some tech earnings coming out, but I think 421 00:20:43,840 --> 00:20:46,560 Speaker 9: we're basically through that component. It's going to be do 422 00:20:46,720 --> 00:20:49,800 Speaker 9: expectations of earnings continue to get. 423 00:20:51,080 --> 00:20:53,360 Speaker 6: Moved lower for the next couple of quarters. 424 00:20:53,440 --> 00:20:55,480 Speaker 9: That's going to be the key component as it relates 425 00:20:55,520 --> 00:20:58,280 Speaker 9: to earnings, and we've seen that happen, so that's going 426 00:20:58,320 --> 00:21:01,119 Speaker 9: to be of concern. But obviously headlines they're going to 427 00:21:01,119 --> 00:21:03,960 Speaker 9: be driving so much of this. The consumer is what 428 00:21:04,000 --> 00:21:07,280 Speaker 9: people are watching. Credit spreads is what we're watching, Corporate 429 00:21:07,359 --> 00:21:08,880 Speaker 9: profits is what we're watching. 430 00:21:09,119 --> 00:21:11,240 Speaker 6: Those are all important, and they're all going to. 431 00:21:11,320 --> 00:21:14,520 Speaker 9: Move on a daily basis depending on what it's hearing 432 00:21:14,760 --> 00:21:16,800 Speaker 9: from trade and from the tax bill. 433 00:21:17,000 --> 00:21:18,160 Speaker 6: So I think you have to take it. 434 00:21:18,119 --> 00:21:22,120 Speaker 9: All in stride through a lens however, of not being 435 00:21:22,160 --> 00:21:24,960 Speaker 9: sure how much you can rely on the data, because 436 00:21:25,160 --> 00:21:27,120 Speaker 9: how much of it is just due to the pull 437 00:21:27,200 --> 00:21:30,000 Speaker 9: forward that we saw on March. That's another element you 438 00:21:30,080 --> 00:21:32,760 Speaker 9: have to bake into your observations. 439 00:21:32,119 --> 00:21:34,000 Speaker 1: Which is one reason Victoria that a lot of people 440 00:21:34,040 --> 00:21:37,080 Speaker 1: got a lot of confidence from earnings over the past 441 00:21:37,080 --> 00:21:39,920 Speaker 1: couple of weeks. They came in significantly better than expected, 442 00:21:39,960 --> 00:21:43,320 Speaker 1: Julian Emmanuel calling it a boom in earnings and the 443 00:21:43,359 --> 00:21:46,359 Speaker 1: consequence in the response in markets. 444 00:21:46,800 --> 00:21:47,320 Speaker 6: That's real. 445 00:21:47,600 --> 00:21:50,119 Speaker 1: You are seeing those profits, you are seeing companies that 446 00:21:50,160 --> 00:21:52,560 Speaker 1: are still able to reaffirm some of their guidance. 447 00:21:52,960 --> 00:21:54,520 Speaker 6: Does that give you confidence to. 448 00:21:54,440 --> 00:21:56,919 Speaker 1: Be a little bit more bullish in risk assets than 449 00:21:56,960 --> 00:21:57,959 Speaker 1: you were previously. 450 00:21:59,200 --> 00:22:01,600 Speaker 9: I think it gives a confidence in knowing that we 451 00:22:01,680 --> 00:22:05,680 Speaker 9: will come through the choppiness that we're talking about over 452 00:22:05,720 --> 00:22:08,760 Speaker 9: the next couple of quarters, through all of the trade headlines. 453 00:22:08,960 --> 00:22:12,840 Speaker 9: We will come through that, hopefully with stronger economic elements 454 00:22:12,880 --> 00:22:14,840 Speaker 9: on the other side of that. One of the most 455 00:22:14,840 --> 00:22:17,960 Speaker 9: important things I think we're seeing out of earnings is 456 00:22:17,960 --> 00:22:21,199 Speaker 9: that we can continue to have that CAPEX number because 457 00:22:21,320 --> 00:22:24,640 Speaker 9: profits remains strong. So you had revenues of what six 458 00:22:24,720 --> 00:22:28,600 Speaker 9: percent or so this last quarter. When you look at CAPEX, 459 00:22:28,640 --> 00:22:32,239 Speaker 9: you go to two and a half times multiplier in 460 00:22:32,280 --> 00:22:35,240 Speaker 9: regards to every dollar spent, and that's thirteen percent of 461 00:22:35,280 --> 00:22:38,640 Speaker 9: our GDP. So I think CAPEX could be an element 462 00:22:38,920 --> 00:22:42,000 Speaker 9: that continues to boost the economy even with the churning 463 00:22:42,000 --> 00:22:43,440 Speaker 9: that we anticipate Victoria. 464 00:22:43,480 --> 00:22:47,159 Speaker 5: How surprising is that figure, just because when all of 465 00:22:47,200 --> 00:22:49,840 Speaker 5: the trade headlines started to kick off, the narrative was, 466 00:22:49,880 --> 00:22:53,160 Speaker 5: and let's be honestill, is that businesses are paralyzed by 467 00:22:53,160 --> 00:22:55,200 Speaker 5: it that they're not committing capital. They don't want to 468 00:22:55,240 --> 00:22:57,280 Speaker 5: put things to work because they just don't know what 469 00:22:57,359 --> 00:23:00,159 Speaker 5: type of environment they're going to be operating in. The 470 00:23:00,240 --> 00:23:04,000 Speaker 5: CAPEX figures we got and the expectations for them. Not 471 00:23:04,040 --> 00:23:06,160 Speaker 5: trying to be cute here, but are they real? 472 00:23:08,000 --> 00:23:09,879 Speaker 9: You know, I would have thought if you'd ask me 473 00:23:10,000 --> 00:23:12,720 Speaker 9: that maybe six weeks ago, I would have been very 474 00:23:12,760 --> 00:23:16,000 Speaker 9: concerned in regards to the earnings that were coming, to 475 00:23:16,040 --> 00:23:19,359 Speaker 9: the guidance that we would get as it relates to CAPEX, 476 00:23:19,480 --> 00:23:21,639 Speaker 9: because of exactly the elements you said, because of the 477 00:23:21,720 --> 00:23:24,600 Speaker 9: uncertainty and not knowing what to do going forward. But 478 00:23:24,720 --> 00:23:27,280 Speaker 9: it seems like a lot of the businesses over this 479 00:23:27,440 --> 00:23:31,000 Speaker 9: last earning season have really kind of reiterated some of 480 00:23:31,040 --> 00:23:34,600 Speaker 9: those CAPEX spins. Obviously some has been pulled back, but 481 00:23:34,680 --> 00:23:37,640 Speaker 9: overall we've still had some strength there. So I think 482 00:23:37,680 --> 00:23:41,120 Speaker 9: if that continues, which it seems like it might, if 483 00:23:41,160 --> 00:23:45,119 Speaker 9: things stay status quo or slowly begin to improve on 484 00:23:45,200 --> 00:23:47,800 Speaker 9: the tear front and on the tax bill front, then 485 00:23:47,840 --> 00:23:50,640 Speaker 9: I think you have the opportunity to see the markets 486 00:23:50,920 --> 00:23:53,159 Speaker 9: move higher once we get through the headlines. 487 00:23:53,240 --> 00:23:56,880 Speaker 5: So American companies still want to spend, still want capital expenditures. 488 00:23:56,960 --> 00:23:59,640 Speaker 5: Victoria in Europe, it was much weaker what we got 489 00:23:59,640 --> 00:24:03,200 Speaker 5: from there. Earnings in terms of capital expenditures, we are 490 00:24:03,240 --> 00:24:04,920 Speaker 5: looking at an S and P that's up just half 491 00:24:04,920 --> 00:24:07,200 Speaker 5: a percent so far from the year in Europe. Stocks 492 00:24:07,200 --> 00:24:09,800 Speaker 5: are up seven and a half percent looking at the 493 00:24:09,840 --> 00:24:13,399 Speaker 5: company earnings. Does that suggests that that balance needs to 494 00:24:13,440 --> 00:24:16,919 Speaker 5: shift back to the US, that European outperformance maybe has 495 00:24:16,960 --> 00:24:18,000 Speaker 5: gone as far as it can. 496 00:24:19,359 --> 00:24:21,640 Speaker 9: I think there's a few elements that kind of drive 497 00:24:21,720 --> 00:24:25,800 Speaker 9: that story of shifting maybe back to the US. We had, 498 00:24:26,160 --> 00:24:28,639 Speaker 9: you know, kind of broadened out some of our exposure 499 00:24:28,680 --> 00:24:31,800 Speaker 9: to include Europe earlier in the year, but you had 500 00:24:31,840 --> 00:24:34,960 Speaker 9: a lot of catalysts that drove that. You had the 501 00:24:35,080 --> 00:24:37,800 Speaker 9: change to the debt, you had an increase in defense spending, 502 00:24:37,840 --> 00:24:40,720 Speaker 9: and we saw the European markets really respond, and at 503 00:24:40,720 --> 00:24:42,879 Speaker 9: that point we thought it was time to take some money. 504 00:24:42,600 --> 00:24:43,920 Speaker 6: Off the table and move back. 505 00:24:44,119 --> 00:24:48,320 Speaker 9: And now you have increased concerns around inflation, We're seeing 506 00:24:48,359 --> 00:24:51,239 Speaker 9: increased concerns, like you said, around corporate profits and what 507 00:24:51,280 --> 00:24:53,640 Speaker 9: that means for capex. So I do think you could 508 00:24:53,680 --> 00:24:56,920 Speaker 9: trim those positions, move them back into the US, into 509 00:24:56,960 --> 00:25:00,119 Speaker 9: some of the sectors where you're seeing the momentum play. 510 00:25:00,160 --> 00:25:02,680 Speaker 9: That's the most important factor right now, and the market 511 00:25:02,720 --> 00:25:05,840 Speaker 9: is the momentum factor. Beta has kind of hit a 512 00:25:05,840 --> 00:25:07,480 Speaker 9: little bit of a peak, and so I think that 513 00:25:07,600 --> 00:25:11,320 Speaker 9: flows into this story of trimming those winners and maybe 514 00:25:11,320 --> 00:25:13,280 Speaker 9: moving back into some of the areas that have better 515 00:25:13,320 --> 00:25:14,359 Speaker 9: potential going forward. 516 00:25:14,400 --> 00:25:16,399 Speaker 1: How much of the international story will be told by 517 00:25:16,400 --> 00:25:19,640 Speaker 1: what happens with some of the budget negotiations in Washington, 518 00:25:19,680 --> 00:25:20,320 Speaker 1: DC right. 519 00:25:20,240 --> 00:25:23,600 Speaker 9: Now, Well, I think it all ties into what we're 520 00:25:23,600 --> 00:25:26,240 Speaker 9: seeing as it relates to the dollar and into currencies, 521 00:25:26,280 --> 00:25:28,760 Speaker 9: which you guys have been talking about this morning. So 522 00:25:28,800 --> 00:25:32,480 Speaker 9: we've seen the dollar come down in concern around the deficit. 523 00:25:32,800 --> 00:25:35,280 Speaker 9: You see that play out on a global basis, So 524 00:25:35,359 --> 00:25:37,119 Speaker 9: you want to look at some of those countries that 525 00:25:37,520 --> 00:25:41,200 Speaker 9: maybe have current accounts on the positive side of that 526 00:25:41,200 --> 00:25:45,080 Speaker 9: that should be supportive of their currencies versus the US. 527 00:25:45,359 --> 00:25:48,840 Speaker 9: But obviously it's a global trade economy right now, and 528 00:25:48,880 --> 00:25:51,679 Speaker 9: so anything that happens on these fronts is going to 529 00:25:51,800 --> 00:25:54,960 Speaker 9: affect everywhere. And we've seen it in yields rising. We 530 00:25:55,040 --> 00:25:58,000 Speaker 9: talked about US yields rising this morning. We've seen it 531 00:25:58,040 --> 00:26:00,200 Speaker 9: in guilt and we've seen it in boons as well well. 532 00:26:00,440 --> 00:26:02,480 Speaker 4: But how much of what's going on in Washington, DC 533 00:26:02,600 --> 00:26:05,440 Speaker 4: when it comes to the fiscal package actually a headwind 534 00:26:05,760 --> 00:26:07,560 Speaker 4: or is it a tail wind, because the fact of 535 00:26:07,600 --> 00:26:10,879 Speaker 4: the matter is this is just current policy as the 536 00:26:11,000 --> 00:26:12,040 Speaker 4: crux of this bill. 537 00:26:13,400 --> 00:26:14,080 Speaker 6: Yeah, Am Marie. 538 00:26:14,119 --> 00:26:17,200 Speaker 9: It's interesting because we always thought that from the very 539 00:26:17,240 --> 00:26:19,000 Speaker 9: beginning of this new administration. 540 00:26:19,400 --> 00:26:21,840 Speaker 6: We didn't think it was just like tariffs on their own. 541 00:26:21,880 --> 00:26:22,919 Speaker 6: It was always kind. 542 00:26:22,800 --> 00:26:26,600 Speaker 9: Of a more holistic plan of tariffs and deregulation and 543 00:26:26,680 --> 00:26:30,359 Speaker 9: lower taxes and improving some of these elements for businesses. 544 00:26:30,600 --> 00:26:32,640 Speaker 6: And so I think you have to look at what's 545 00:26:32,680 --> 00:26:33,160 Speaker 6: going on. 546 00:26:33,119 --> 00:26:36,040 Speaker 9: In Washington through that lens and say, how does this 547 00:26:36,160 --> 00:26:39,760 Speaker 9: help counteract some of the more downside elements that we're 548 00:26:39,800 --> 00:26:43,399 Speaker 9: seeing from tariffs. It's a very important component. Congress is 549 00:26:43,480 --> 00:26:46,359 Speaker 9: relying on some of the tariff revenue to offset some 550 00:26:46,400 --> 00:26:48,439 Speaker 9: of the deficit costs. That's how they're able to go 551 00:26:48,480 --> 00:26:50,760 Speaker 9: in and say that this is not going to add 552 00:26:50,800 --> 00:26:51,520 Speaker 9: to the deficit. 553 00:26:51,720 --> 00:26:53,399 Speaker 6: So it's something that we have to watch. 554 00:26:53,440 --> 00:26:57,439 Speaker 9: It's all tied together and hopefully we come out of 555 00:26:57,480 --> 00:26:59,280 Speaker 9: this with some benefits from both sides. 556 00:26:59,400 --> 00:27:02,480 Speaker 1: Victoria cross Mark, thank you so much for being with us. 557 00:27:02,800 --> 00:27:05,000 Speaker 1: Have a great week ahead, and we'll see you soon. 558 00:27:05,720 --> 00:27:09,280 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 559 00:27:09,280 --> 00:27:12,640 Speaker 2: in markets, economics, and geopolitics. 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