WEBVTT - Bloomberg Surveillance TV: June 9, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferroh. Along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.520 Terminal and the Bloomberg Business App. Andrew Honhorst of City 0:00:37.560 --> 0:00:41.920 pushing his Federate cut forecast to September from July, writing, 0:00:41.960 --> 0:00:44.240 we continue to expect the FED to cut policy rates 0:00:44.240 --> 0:00:47.600 more aggressively than what the market is pricing. Andrew joined 0:00:47.640 --> 0:00:49.840 us now for more, Andrew kamnik Ronick, and let's start 0:00:49.840 --> 0:00:51.760 with the timing. So you push back from June to 0:00:51.880 --> 0:00:55.080 July and now from July to September. What's not going 0:00:55.120 --> 0:00:55.480 your way? 0:00:56.040 --> 0:00:58.920 The labor market data is what just hasn't given the 0:00:58.960 --> 0:01:01.720 FED that clear say that they need to be cutting. 0:01:02.040 --> 0:01:04.040 And I think that's what's difficult here, is that we 0:01:04.480 --> 0:01:07.240 see the signs in various data that they will be 0:01:07.319 --> 0:01:08.280 cutting eventually. 0:01:08.520 --> 0:01:10.039 But when that time is. 0:01:10.040 --> 0:01:11.679 They're actually going to make that first cut, they're going 0:01:11.720 --> 0:01:13.520 to have to see the unemployment rate and move higher. 0:01:13.800 --> 0:01:16.360 It rounded to four point two percent. That's going to 0:01:16.440 --> 0:01:17.559 be enough to keep them on hold. 0:01:17.720 --> 0:01:20.520 So you've lost confidence on the timing, but maintained confidence 0:01:20.520 --> 0:01:22.960 on the degree to which we will get a response 0:01:23.000 --> 0:01:25.680 from them, which will be much more aggressive than the 0:01:25.720 --> 0:01:26.560 market is priced for. 0:01:27.040 --> 0:01:28.400 Why are you maintaining that confidence. 0:01:29.080 --> 0:01:29.800 I think it's not. 0:01:29.880 --> 0:01:31.600 That hard to get there if you look at things 0:01:31.600 --> 0:01:33.480 like the FED Beage Book. Now I know that the 0:01:33.520 --> 0:01:34.960 FED is looking at the hard data. They're going to 0:01:35.000 --> 0:01:36.720 wait until they see that in the hard data. If 0:01:36.720 --> 0:01:38.880 you read the FED page book, it said the economy 0:01:38.920 --> 0:01:43.479 is contracting and employment was unchanged over the intermeeting time period, So. 0:01:43.560 --> 0:01:44.720 We're not hiring people. 0:01:45.040 --> 0:01:48.720 We have an economy that maybe contracting, according to the 0:01:48.720 --> 0:01:51.880 page book at least slowing down significantly, housing sector that's 0:01:51.880 --> 0:01:53.680 in contraction. So I think that there's a lot of 0:01:53.720 --> 0:01:56.280 signs out there that we will see weaker data. 0:01:56.600 --> 0:01:58.280 You have to actually see that in the data, though, 0:01:58.280 --> 0:01:59.240 before the Fed's going to move. 0:01:59.320 --> 0:02:01.840 It feels like test It is so difficult to get 0:02:01.840 --> 0:02:03.840 your head around yesterday the data came out, or on 0:02:03.920 --> 0:02:06.240 Friday the yes, it feels like yesterday, how the DAYA 0:02:06.320 --> 0:02:08.400 came out and it was better than expected. Yay, people 0:02:08.480 --> 0:02:10.200 are looking at this. Not a bad number in this, 0:02:10.280 --> 0:02:11.919 people take more time to look at it. Lots of 0:02:11.960 --> 0:02:14.240 bad numbers in this, in particular the two month revision 0:02:14.320 --> 0:02:17.680 downward of ninety five thousand and the idea that the 0:02:18.040 --> 0:02:21.359 household survey lost over six hundred thousand jobs. There is 0:02:21.400 --> 0:02:24.919 this feeling that the economy, that the labor market is contracting. 0:02:25.000 --> 0:02:27.720 As you said, at what point do you think that 0:02:27.800 --> 0:02:30.440 it's going to be evident enough in the data. Do 0:02:30.480 --> 0:02:32.320 you feel like that's coming soon or do you feel 0:02:32.320 --> 0:02:33.680 like that's been what's been delayed. 0:02:34.200 --> 0:02:35.920 I think that is what's been delayed. I think it 0:02:35.960 --> 0:02:38.160 is coming in the next few months. We know that 0:02:38.200 --> 0:02:40.639 this has been a very uncomfortable labor market where we've 0:02:40.639 --> 0:02:42.959 had a low hiring rate. We're starting to see in 0:02:43.000 --> 0:02:44.919 the weekly data, and that's what I would be watching here, 0:02:44.960 --> 0:02:48.760 continuing jobless claims. These continuing jobless claims are starting to rise, 0:02:48.800 --> 0:02:50.480 So we don't have a big increase. 0:02:50.160 --> 0:02:51.200 In initial jobless claims. 0:02:51.240 --> 0:02:53.480 People are being laid off from their jobs, but when 0:02:53.520 --> 0:02:55.680 people are out of work, they're finding it hard to 0:02:55.680 --> 0:02:58.520 get back into work. That's why the continuing claims are rising. 0:02:58.840 --> 0:03:01.399 That should mean the unemployment rate rises. We saw something 0:03:01.480 --> 0:03:04.280 very similar last summer, and if you remember September, we 0:03:04.320 --> 0:03:06.760 got that fifty basis point cut. So I think we're 0:03:06.800 --> 0:03:08.600 kind of in a similar dynamic to what we saw 0:03:08.720 --> 0:03:11.120 last year, probably a couple months before you get the 0:03:11.120 --> 0:03:11.519 Fed moved. 0:03:11.560 --> 0:03:13.520 It also raises a question of which rate is more 0:03:13.560 --> 0:03:16.000 important to watch. We're talking about the FED funds rate, 0:03:16.040 --> 0:03:18.040 the one rate that the Fed has control over. At 0:03:18.040 --> 0:03:20.519 the same time that there were all question marks over 0:03:20.560 --> 0:03:22.880 ten year, over thirty year treasuries, the auctions that are 0:03:22.919 --> 0:03:26.000 coming up in the remainder of the week on Wednesday 0:03:26.000 --> 0:03:29.920 and Thursday. How much do you think that weaker growth 0:03:30.360 --> 0:03:34.320 infers lower rates substantially on the longer end, which is 0:03:34.360 --> 0:03:36.880 sort of key to stimulating the economy in any kind 0:03:36.880 --> 0:03:37.960 of real way in a downturn. 0:03:38.080 --> 0:03:39.800 Yeah, So that's a new challenge for the FED that 0:03:39.920 --> 0:03:42.200 sometimes when we're getting weaker data. Now we're seeing the 0:03:42.240 --> 0:03:44.240 equity market sell off, and usually you would think that 0:03:44.280 --> 0:03:46.360 would mean the treasury market would rally and yields would 0:03:46.360 --> 0:03:49.720 move lower. But we've had this phenomenon where sometimes the 0:03:49.720 --> 0:03:52.000 treasure market sells off and we actually get higher yields, 0:03:52.480 --> 0:03:55.000 and that's an issue for the Fed because we can 0:03:55.040 --> 0:03:57.760 have lower growth now and higher yields in the long end. 0:03:58.160 --> 0:04:01.400 I mentioned the housing market mortgage rates that have stayed higher. 0:04:01.760 --> 0:04:02.760 You really need to see. 0:04:02.600 --> 0:04:04.480 Those mortgage rates come down, I think, to get the 0:04:04.520 --> 0:04:09.320 housing market expanding again. It is contracting now, and what 0:04:09.480 --> 0:04:11.920 can do that now is the FED cutting rates. So 0:04:11.960 --> 0:04:13.600 it's just another reason that the Fed, I think, is 0:04:13.600 --> 0:04:15.720 going to have to cut. They're not going to look 0:04:15.760 --> 0:04:18.000 at that tenure yield and say we're reacting directly to 0:04:18.040 --> 0:04:19.840 the tenure yield, but indirectly they're going. 0:04:19.760 --> 0:04:21.080 To see it in the data, and that's going to 0:04:21.120 --> 0:04:21.520 leave them. 0:04:21.640 --> 0:04:23.599 Just about on Lisa's questioning, though, they did cut one 0:04:23.680 --> 0:04:26.480 hundred basis points and the long guns sound off. So basically, 0:04:26.520 --> 0:04:28.760 they cut interest rates and mortgage rates went up. And 0:04:28.800 --> 0:04:30.679 as a belief that when they did cut, they weren't 0:04:30.720 --> 0:04:34.200 committed to anchoring inflation expectations, So no surprise this time 0:04:34.240 --> 0:04:36.200 around what they are saying the core of the Federal Reserve. 0:04:36.240 --> 0:04:39.200 Every single speech the chairman over and over again committed 0:04:39.200 --> 0:04:41.840 to anchoring inflation expectations, which rates the question about you, 0:04:41.920 --> 0:04:45.560 Rolti McCall. Can they move fast and decisively to respond 0:04:45.600 --> 0:04:48.159 to a downturn in the economy and at the same 0:04:48.240 --> 0:04:51.680 time cover themselves about anchoring inflation expectations. 0:04:51.839 --> 0:04:54.080 Yeah, it is a big challenge here, and it really 0:04:54.080 --> 0:04:56.720 depends on the measure of inflation expectations that you look 0:04:56.760 --> 0:04:59.120 at how worried you are about those da anchoring. If 0:04:59.160 --> 0:05:01.360 you look at University Michigan survey, for instance, we've had 0:05:01.360 --> 0:05:04.360 a big move higher in the inflation expectations, other surveys 0:05:04.440 --> 0:05:06.800 not so much. I think what they need to do 0:05:06.920 --> 0:05:10.520 is really focus on the fundamentals here, and this focus 0:05:10.600 --> 0:05:13.120 on inflation, I think is fighting. 0:05:12.920 --> 0:05:14.680 The battle of two or three years ago. 0:05:15.480 --> 0:05:18.200 That was a time when the Fed thought that inflation 0:05:18.279 --> 0:05:20.279 was going to be transitory. It turned out to be persistent. 0:05:20.560 --> 0:05:23.279 We have now house prices that are moving down. This 0:05:23.400 --> 0:05:27.800 is not an economy that is just too full of 0:05:27.839 --> 0:05:31.440 demand with supply constraints and you get really high inflation. 0:05:31.520 --> 0:05:32.920 That's what happened a couple of years ago. 0:05:33.279 --> 0:05:34.880 I think this is an economy where we actually have 0:05:34.960 --> 0:05:37.120 demand that's cooling. That means we're not going to get 0:05:37.120 --> 0:05:39.440 a lot of inflationary pressure. That means they can look 0:05:39.480 --> 0:05:41.440 through if we have a one time price level increasing. 0:05:41.520 --> 0:05:44.320 Governor wall is making a similar argument. It's a convincing one. 0:05:44.480 --> 0:05:47.000 How lonely is kelvinor Walla on the FMC, I. 0:05:46.960 --> 0:05:49.000 Think pretty lonely. Look right now, I'd like to give 0:05:49.040 --> 0:05:51.240 him some company. I agree with the point that he's making, 0:05:51.320 --> 0:05:53.680 But again, I think that's why you have to see 0:05:53.720 --> 0:05:56.359 this so clearly in the activity data, which kind of 0:05:56.400 --> 0:05:58.720 means that the Fed is going to wait longer than 0:05:58.760 --> 0:06:01.160 they usually would before they cut because they want this 0:06:01.279 --> 0:06:03.960 really clear signal from the labor market, because they're worried 0:06:03.960 --> 0:06:04.599 about inflation. 0:06:04.800 --> 0:06:07.400 They've talked about September. John Williams and the New York 0:06:07.440 --> 0:06:09.719 Fed has talked about September. I wonder if September is 0:06:09.720 --> 0:06:10.800 still too soon. 0:06:11.080 --> 0:06:12.720 Well, it depends on the data and whether you get 0:06:12.760 --> 0:06:15.320 some sort of reflection there. I mean, Peter Sheer of 0:06:15.360 --> 0:06:18.080 Academy Securities is making the argument that if they really 0:06:18.120 --> 0:06:19.800 wanted to cut, they could have even looked at the 0:06:19.800 --> 0:06:21.800 non farm payrolls report that we got on Friday and 0:06:21.839 --> 0:06:24.919 made an argument to cut right now. To Andrew's point, 0:06:25.040 --> 0:06:28.560 there is a fear that the runaway inflation that they 0:06:28.600 --> 0:06:31.880 failed to stave off immediately is going to be something 0:06:31.880 --> 0:06:33.400 that's repeated, and they don't want to do that. So 0:06:33.400 --> 0:06:35.320 they're going to have to lean into inflation. And Wednesday 0:06:35.360 --> 0:06:37.200 CPI print's going to be really important on that front. 0:06:37.240 --> 0:06:40.279 Things are super finely balanced. If NFP was bat on Friday, 0:06:40.320 --> 0:06:41.839 because the best of the week's thanks, it wasn't great 0:06:41.880 --> 0:06:44.039 at all, Right, NFP was bat on Friday, would be 0:06:44.080 --> 0:06:46.679 having a very different conversation this Monday morning. 0:06:46.800 --> 0:06:49.599 Yeah, and probably President Trump would have more company with 0:06:49.680 --> 0:06:52.960 his one percentage point rate cut, not give fuel to 0:06:53.560 --> 0:06:54.960 otherwise pretty solid economy. 0:06:55.040 --> 0:06:56.719 Andrew, it's going to see you. Thanks for the update, 0:06:56.760 --> 0:07:08.680 Andrew holmeholst there of City. Let's turned back to what 0:07:08.800 --> 0:07:11.600 top story for Wall Street? President Trump saying he expects 0:07:11.640 --> 0:07:14.080 talks between the US and China to go very well 0:07:14.200 --> 0:07:16.559 after his phone call with China sheet just last week. 0:07:16.720 --> 0:07:20.040 Elizabeth Economy of the Hoover Institution joined US Now for more. Elizabeth, 0:07:20.080 --> 0:07:21.960 welcome back to this program. It's always good to hear 0:07:21.960 --> 0:07:24.520 your thoughts on a very sensitive issue. There's a phrase 0:07:24.560 --> 0:07:28.280 that you've used, strategic decoupling. Can we begin with that phrase? 0:07:28.520 --> 0:07:31.000 What does that phrase mean to you? And ultimately, with 0:07:31.040 --> 0:07:33.840 that in mind, what's the purpose of these talks in London. 0:07:35.440 --> 0:07:39.160 So I think strategic decoupling basically refers to the fact 0:07:39.160 --> 0:07:43.760 that both countries have identified the other as their most 0:07:43.800 --> 0:07:47.640 significant long term strategic challenge, and each sees it as 0:07:48.760 --> 0:07:52.960 in its interest to begin to reduce its dependency on 0:07:53.000 --> 0:07:55.320 the other in terms of trade and investment. And this 0:07:55.400 --> 0:07:58.040 is a process that's been underway, certainly from the Chinese 0:07:58.080 --> 0:08:00.840 perspective for a number of years. We've seen with their 0:08:00.880 --> 0:08:03.840 Made in China twenty twenty five program right the effort 0:08:03.880 --> 0:08:07.080 to reduce dependency across ten critical cutting edge areas of 0:08:07.120 --> 0:08:11.000 technology to ensure that Chinese companies dominate not only domestically, 0:08:11.040 --> 0:08:12.800 but also become global champions. 0:08:13.200 --> 0:08:14.640 And I think, beginning with the Biden. 0:08:14.400 --> 0:08:17.920 Administration, the post COVID period sense of the United States 0:08:17.960 --> 0:08:21.880 is too reliant on China for a number of products 0:08:21.920 --> 0:08:24.360 of goods that we need for our human security. 0:08:24.440 --> 0:08:27.440 That was the personal protective equipment, but also. 0:08:27.320 --> 0:08:30.640 As we see today, things like rare earth elements and 0:08:30.720 --> 0:08:35.319 so I think that's the broader sort of strategic context 0:08:35.320 --> 0:08:38.360 for what we see taking place in terms of what 0:08:38.400 --> 0:08:41.560 that means today in terms of these discussions. I think 0:08:41.720 --> 0:08:44.600 the reason that we see the two sides coming together 0:08:44.640 --> 0:08:46.760 at this moment, in the sort of middle or early 0:08:46.800 --> 0:08:51.240 stages of the ninety day pause on the tariffs, is 0:08:51.280 --> 0:08:54.720 that we've seen from the Chinese perspective, the United States 0:08:55.200 --> 0:09:00.679 put export controls on the Quahwei assand chips on computer 0:09:00.760 --> 0:09:03.719 design software, and of course this big move on the 0:09:03.800 --> 0:09:07.400 visa revocations for Chinese students. So they view the United 0:09:07.400 --> 0:09:12.960 States as having not upheld the spirit of the initial 0:09:13.000 --> 0:09:18.079 trade discussions that were held last month. From the US perspective, 0:09:18.120 --> 0:09:21.160 of course, what we're concerned about in the moment is 0:09:21.240 --> 0:09:26.640 the toughening export licenses on rare earth elements that Chinese. 0:09:26.679 --> 0:09:29.360 It was our understanding that the Chinese would lift these 0:09:29.440 --> 0:09:35.000 licensing restrictions after the first set of negotiations. That didn't happen, 0:09:35.040 --> 0:09:37.480 and so that's why both sides are now at the table. 0:09:37.760 --> 0:09:39.920 This certainly feels a lot more complicated than it did 0:09:40.200 --> 0:09:42.679 in the president's first term. In the president's first term, 0:09:42.720 --> 0:09:44.800 a lot of these issues could just be addressed with 0:09:44.880 --> 0:09:47.920 purchase agreements. We've heard them talk about those purchase agreements, 0:09:47.960 --> 0:09:49.560 but I just wandered this time in your mind whether 0:09:49.600 --> 0:09:52.400 you believe these can be addressed, can be pushed to 0:09:52.440 --> 0:09:54.920 one side with just a simple purchase agreement and the 0:09:55.000 --> 0:09:57.240 narrowing of the trade balance, or at least the commitment 0:09:57.440 --> 0:09:57.920 to do that. 0:09:59.240 --> 0:10:02.640 Well, we saw in terms of the President's first deal 0:10:02.760 --> 0:10:06.720 with the UK that you know, in large part, that's 0:10:06.720 --> 0:10:09.480 what it amounted to. I think for China, of course, 0:10:09.480 --> 0:10:12.800 there are other issues tied to economic and national security 0:10:12.800 --> 0:10:16.480 that will continue to be irritance in the relationship. But 0:10:16.760 --> 0:10:20.520 I believe that for the president, for President Trump, that 0:10:20.640 --> 0:10:23.840 significant new purchases by the Chinese would at least go 0:10:24.120 --> 0:10:28.760 some way to addressing his concerns around the bilateral trade deficit, 0:10:28.800 --> 0:10:31.400 which is of course, you know, at least initially what 0:10:31.520 --> 0:10:35.720 impelled a lot of well impelled this global sort of 0:10:35.760 --> 0:10:37.079 set of terrorists. 0:10:37.320 --> 0:10:38.440 So I think that. 0:10:38.360 --> 0:10:40.240 They could make some progress if they were to announce, 0:10:40.800 --> 0:10:43.280 you know, big new purchases, but I think you're right 0:10:43.320 --> 0:10:45.959 that it wouldn't solve what's really at the heart of 0:10:46.360 --> 0:10:47.240 the challenge here. 0:10:47.360 --> 0:10:50.160 And Elizabeth, there's been this discussion around how much incentive 0:10:50.240 --> 0:10:53.640 China really has to make some sort of agreement to 0:10:54.200 --> 0:10:56.600 come to some sort of resolution or have some sort 0:10:56.600 --> 0:10:59.319 of purchase arrangement with the United States, given the fact 0:10:59.640 --> 0:11:02.080 that our president's usin paying seems to be doubling down 0:11:02.120 --> 0:11:05.400 in a pretty significant way and willing for the economy 0:11:05.440 --> 0:11:08.760 to slow as long as there are certain strategic goals 0:11:08.760 --> 0:11:10.640 that are achieved over not necessarily the next. 0:11:10.559 --> 0:11:12.000 Year or two, but ten years. 0:11:12.200 --> 0:11:14.959 How much do you feel like the leverage has shifted, 0:11:15.040 --> 0:11:16.760 that the desires have shifted here. 0:11:17.679 --> 0:11:19.240 Yeah, I think it's a really important point. 0:11:19.520 --> 0:11:23.439 I think the United States miscalculated at the outset when 0:11:23.480 --> 0:11:26.880 it believed that we had so much more economic leverage 0:11:26.920 --> 0:11:30.560 over China, because, as Secretary Bessett said, you know, we 0:11:30.640 --> 0:11:33.080 import five times as much from China as China imports 0:11:33.080 --> 0:11:33.920 from the United States. 0:11:33.920 --> 0:11:35.840 But that ignored I think two things. 0:11:35.920 --> 0:11:38.440 Number one, that China has spent the past eight years 0:11:38.600 --> 0:11:42.600 reducing its economic its trade dependence on the United States. 0:11:42.600 --> 0:11:46.920 You know, since pre COVID levels, the US sorry, the 0:11:46.960 --> 0:11:51.640 share of exports global exports from China to United States 0:11:51.679 --> 0:11:56.400 has reduced from nineteen percent to fourteen percent. And so 0:11:56.440 --> 0:11:59.080 I think That's one important element of it. The second is, 0:11:59.240 --> 0:12:02.320 as you suggest, you know in your discussion earlier, China 0:12:02.360 --> 0:12:06.760 has been routing exports to the United States through third countries, right, 0:12:06.800 --> 0:12:10.120 So it's still seeing, you know, an ability a path 0:12:10.200 --> 0:12:12.000 through to maintain. 0:12:11.640 --> 0:12:14.280 Its exports to the United States. 0:12:14.679 --> 0:12:17.640 And it ignored the fact that we have a greater 0:12:18.360 --> 0:12:22.600 soul source dependency on goods from China than China does 0:12:22.640 --> 0:12:25.640 from US. What that means is that for roughly thirty 0:12:25.679 --> 0:12:28.240 percent of the goods that we import from China, we 0:12:28.280 --> 0:12:32.880 have a seventy percent dependency or more on China. China 0:12:32.920 --> 0:12:36.480 doesn't face that same soul source dependency on a wide 0:12:36.559 --> 0:12:40.079 array of US goods. So I think we miscalculated the outset. 0:12:40.200 --> 0:12:43.280 China has been thinking strategically about how to reduce its 0:12:43.320 --> 0:12:46.120 dependence on the US market, you know, for you know, 0:12:46.160 --> 0:12:48.719 five to eight years really since the first Trump administration, 0:12:49.400 --> 0:12:52.360 and so I think that the leverage has shifted over 0:12:52.400 --> 0:12:54.000 the past five to seven years. 0:12:54.040 --> 0:12:54.880 So that's said Elizabeth. 0:12:54.920 --> 0:12:57.400 Overnight we saw data that showed deflation for a fourth 0:12:57.440 --> 0:12:59.719 straight month in China. You have a price war with 0:12:59.800 --> 0:13:03.040 the d that has gotten the attention of authorities in 0:13:03.120 --> 0:13:06.520 China worried about cannibalization from their own market and this 0:13:06.640 --> 0:13:08.600 idea that there's going to be a race to the 0:13:08.600 --> 0:13:12.000 bottom when it comes to electric vehicles and really sort 0:13:12.040 --> 0:13:16.160 of undermining the perceived quality internationally. How much structurally, though, 0:13:16.200 --> 0:13:18.160 do they have a challenge that forces them to the 0:13:18.160 --> 0:13:20.720 table to ultimately come to some sort of even stopgap 0:13:20.760 --> 0:13:23.480 measure that could last a couple of years with the US. 0:13:24.280 --> 0:13:27.160 I mean, I think China has been facing these challenges 0:13:27.200 --> 0:13:29.720 the ones that you just suggested for a couple of 0:13:29.800 --> 0:13:33.719 years now. This deflation issue is not actually new. The 0:13:33.880 --> 0:13:39.800 sort of incredible competition in many industries just within China 0:13:40.320 --> 0:13:43.120 again is not new. It's part of the process that 0:13:43.160 --> 0:13:48.480 they undergo every time they have this over investment in 0:13:48.520 --> 0:13:51.240 certain industries. We saw it in solar panels and wind turbines, 0:13:51.440 --> 0:13:52.600 now we're seeing in evs. 0:13:52.679 --> 0:13:54.960 We could see it in batteries moving forward. 0:13:55.720 --> 0:13:58.400 I think that's why we see the exports right and 0:13:58.440 --> 0:14:01.920 what China's doing now with the EV is looking not 0:14:02.000 --> 0:14:04.080 just to the United States or to Europe, but they're 0:14:04.080 --> 0:14:07.640 looking to Africa, to Southeast Asia, to Latin America. They 0:14:07.640 --> 0:14:10.440 can export you know, very cheap cars there. They're looking 0:14:10.440 --> 0:14:12.800 to build manufacturing capacity in those countries. 0:14:12.840 --> 0:14:14.479 So China's looking. 0:14:14.120 --> 0:14:19.520 Globally, not simply at the wealthiest market for their goods. 0:14:19.600 --> 0:14:21.160 And I think this is part of a long term 0:14:21.200 --> 0:14:24.040 strategic plan, and I think they're trying to bet that, 0:14:24.120 --> 0:14:27.560 you know, they can endure this short term pain for 0:14:27.640 --> 0:14:30.760 a kind of longer period of you know, strategic and 0:14:30.800 --> 0:14:34.120 economic gain. That being said, they have tried to do 0:14:34.200 --> 0:14:36.320 and take a number of actions over the past year 0:14:36.400 --> 0:14:39.920 to boost consumer confidence. They've had these massive goods trade 0:14:39.920 --> 0:14:43.080 in programs. They've done things in the real estate market 0:14:43.160 --> 0:14:47.400 to encourage people to start buying property again. But overall 0:14:47.440 --> 0:14:50.240 they're not willing to take the steps that are actually necessary, 0:14:50.280 --> 0:14:54.040 which is to move investment right away from you know, 0:14:54.600 --> 0:15:01.000 investment in technology, investment military, into education and health and 0:15:01.040 --> 0:15:04.760 into the pension system, so that people and consumers feel 0:15:04.840 --> 0:15:08.040 confident that they can spend because their other basic needs 0:15:08.040 --> 0:15:09.080 are being taken care of. 0:15:09.360 --> 0:15:10.880 Elizabeth, you are one of the best, and it's going 0:15:10.920 --> 0:15:13.000 to get some time with there this morning. We appreciate it, Elizabeth. 0:15:13.000 --> 0:15:26.240 Economy there of the Hoover Institution, Francisco Blancher playing for 0:15:26.280 --> 0:15:28.480 American Right. In the following the oil market is poised 0:15:28.480 --> 0:15:32.000 to remain oversupplied, and we believe Brent crude may average 0:15:32.040 --> 0:15:34.400 sixty two a barrel for the balance of the year. 0:15:34.720 --> 0:15:38.400 Macro tensions also mean that oil prices could temporarily sink 0:15:38.720 --> 0:15:42.840 to fifty dollars a barrel. Francisco joined us now for more. Francisco, 0:15:42.880 --> 0:15:44.440 good morning, good to see you, Good morning. 0:15:44.480 --> 0:15:44.680 Thanks. 0:15:45.120 --> 0:15:46.920 Start with OPA plus because I think that's been the 0:15:46.960 --> 0:15:49.200 main event for the crude market over the last several months. 0:15:49.520 --> 0:15:52.440 What's policy now and what's the strategy behind it? 0:15:53.520 --> 0:15:55.200 So you could you could make a case that ol 0:15:55.240 --> 0:15:58.560 Perks is trying three things or once right, it's trying 0:15:58.720 --> 0:16:00.240 to increase market share. 0:16:00.280 --> 0:16:01.480 I think it's more of a saliy thing. 0:16:02.200 --> 0:16:04.880 You could argue there's a discipline element to what SUD 0:16:05.000 --> 0:16:07.400 is doing because it's really driven by solid avia. 0:16:07.960 --> 0:16:09.600 And the third bit of it. 0:16:08.880 --> 0:16:13.800 Is well why now, Clearly lower oil prices can help 0:16:13.960 --> 0:16:17.560 upset some of the upset pressure of inflation on USTARTUS. 0:16:17.920 --> 0:16:23.560 So let's say it's a Trump administration pressure to get 0:16:23.640 --> 0:16:25.920 those barrels in. So I think maybe the three of 0:16:25.920 --> 0:16:30.200 them are objectives. But what's important about the strategy is 0:16:30.240 --> 0:16:33.480 that we believe this is not a price warter is 0:16:33.520 --> 0:16:36.960 going to be short and steep. Rather, it's going to 0:16:36.960 --> 0:16:39.360 be a price worter is going to be long and shallow, 0:16:39.680 --> 0:16:41.360 And it's going to be long and shallow for a 0:16:41.360 --> 0:16:43.800 couple different reasons. First, because in twenty twenty four, Saudi 0:16:43.880 --> 0:16:47.520 became a net borrower for a first time, whereas the 0:16:47.520 --> 0:16:50.360 shale patch is actually in pretty rule health from a 0:16:50.440 --> 0:16:54.160 debt perspective, they don't really issue that much that anymore, 0:16:54.680 --> 0:16:57.320 and they can flex their muscle up and down depending 0:16:57.360 --> 0:16:58.560 on where prices are. 0:16:59.880 --> 0:17:01.000 The show pats themselves have. 0:17:01.000 --> 0:17:03.360 Their own issues, right because the higher tariffs are also 0:17:03.440 --> 0:17:07.040 bringing up costs. Remember oil is steel on the ground, 0:17:07.160 --> 0:17:09.600 and steel is fifty more expensive than it was than 0:17:09.640 --> 0:17:12.640 the beginning of the year, So some margins are coming 0:17:12.640 --> 0:17:15.840 in lower oil prices, higher steel costs. We're seeing a 0:17:15.840 --> 0:17:17.960 big drop in the recount and that's exactly what saud 0:17:18.000 --> 0:17:20.000 He's trying to do. They have the lowest market share 0:17:20.119 --> 0:17:22.760 they've had in a very long time, not just against 0:17:23.520 --> 0:17:27.040 non Opic but also even within Opeic Soviet's lost market share. 0:17:27.080 --> 0:17:30.960 They've done this price support already by themselves, were not 0:17:31.000 --> 0:17:35.200 for three plus years, right, having this huge shell response, 0:17:35.359 --> 0:17:38.480 they're done with that they need to get it hasn't 0:17:38.480 --> 0:17:42.119 really worked. Eighty five ninety or oil six million barrels 0:17:42.119 --> 0:17:44.360 a day of exports not working. I mean, you want 0:17:44.400 --> 0:17:47.040 to get maybe lower prices with just more barrels. 0:17:47.240 --> 0:17:48.760 Can we sell on that price for just a little 0:17:48.760 --> 0:17:51.280 bit longer? And they tried this about ten years ago. 0:17:51.320 --> 0:17:54.080 I forget whether it's November fourteen or November fifteenth. You 0:17:54.119 --> 0:17:57.720 remember the text seen fourteen, Okay, Revember twenty fourteen, it's 0:17:57.760 --> 0:18:00.560 there in the memory somewhere. What's different what they did 0:18:00.600 --> 0:18:02.400 then compared to what they're doing now. 0:18:02.920 --> 0:18:06.439 Well, back then, what they were doing, it was a 0:18:06.520 --> 0:18:10.760 much deeper price war, but it ended up lasting organ 0:18:10.880 --> 0:18:11.240 they hoped. 0:18:11.400 --> 0:18:12.160 And part of it is. 0:18:12.119 --> 0:18:16.119 That back then, again, the shale patch was very levered, 0:18:16.720 --> 0:18:18.720 so they had a lot of cash in the bank 0:18:18.800 --> 0:18:22.960 when they started the price war, and it was just 0:18:23.000 --> 0:18:25.479 at the beginning of shale, right. So we still have 0:18:25.560 --> 0:18:27.600 grown rammatically in the last ten years. I mean, the 0:18:27.680 --> 0:18:30.280 US has pretty much added fifty percent plus of the 0:18:30.320 --> 0:18:33.960 incremental oiling as in the world for the last fifteen years, right, 0:18:34.040 --> 0:18:37.720 So I think we are getting towards the end of 0:18:37.840 --> 0:18:42.680 the shale cycle and Tier one acreage is becoming more exhausted, 0:18:42.960 --> 0:18:45.199 and companies are pushing to Tier two acreage, which is 0:18:45.240 --> 0:18:46.440 more expensive. 0:18:46.080 --> 0:18:47.520 And I have this additional costs. 0:18:47.920 --> 0:18:51.879 So I think it's a different moment in time, and 0:18:52.080 --> 0:18:54.639 you know, to be honest, I mean I think, like 0:18:54.680 --> 0:18:56.920 I said, so this supported prices for a long time, 0:18:57.080 --> 0:19:00.679 and they've realized that just keeping them so high only 0:19:01.040 --> 0:19:03.360 means loosing markets shared in the long run. So that's 0:19:03.359 --> 0:19:06.360 what's different. But also their own position is different. They 0:19:06.359 --> 0:19:10.760 want to build out the kingdom and that's very important. 0:19:10.800 --> 0:19:12.840