Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You.
Speaker 1: Along with my co host Lisa brahma Witz. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. President Trump announced via tweet a
Speaker 1: five percent terrafon all imports from Mexico unless it takes
Speaker 1: quote decisive measures to stem migrants entering the US. To
Speaker 1: get a sense of what this means for the US
Speaker 1: Mexican relationship, returned to Duncan Wood. Duncan is director of
Speaker 1: the Mexico Institute at the Wilson Center based in Washington,
Speaker 1: d C. Duncan, thank you so much for joining us.
Speaker 1: I guess let's start off with just a sense of
Speaker 1: how significant is this move by President Trump to impose
Speaker 1: these tariffs potentially. I think it's hugely significant, um in
Speaker 1: the sense, well in two senses. First of all, what's
Speaker 1: going to mean for the bilateral relationship and for the
Speaker 1: generally positive two relations that have existed so far between
Speaker 1: Trump and President Lopoes or Ador in Mexico. And secondly,
Speaker 1: I think it's hugely significant in terms of domestic politics
Speaker 1: here in the United States. Um, this is going to
Speaker 1: have broad, far reaching and perhaps unpredicted UH consequences for
Speaker 1: for the election in so Duncan. President Trump said that
Speaker 1: if he imposes her up, some Mexico companies will leave
Speaker 1: that country to avoid paying them. Do you agree. I
Speaker 1: actually don't think that that's that's the case, at least
Speaker 1: in the short term. I think that what we're going
Speaker 1: to see is we're going to see a rather vigorous
Speaker 1: response from the Mexican government retaliatory tariffs which will hit
Speaker 1: United States agricultural exporters in particular, and that will bring
Speaker 1: first of all, the the US Senate to pressure the president.
Speaker 1: And secondly, I think the President is going to have
Speaker 1: to accept that this may be in fact counterproductive. But
Speaker 1: you know, one of the things that Exco has going
Speaker 1: for it right now is that Mexico is often seen
Speaker 1: as being an alternative to China in terms of producing
Speaker 1: for export to the United States due to the trade
Speaker 1: tensions that exist between the US and China. Right now,
Speaker 1: Mexico has been benefiting enormously. If these tariffs are applied
Speaker 1: in the you know, not just in a short term way,
Speaker 1: but in the long term as a long term measure,
Speaker 1: then I think we're going to see that that will
Speaker 1: obviously compromise Mexican competitiveness, but to try to delink the
Speaker 1: Mexican and US economies at this point in time, where
Speaker 1: we see a North American manufacturing platform that is highly
Speaker 1: integrated supply chains that have been built up over a
Speaker 1: period of thirty years, it's just unreasonable to think that
Speaker 1: that's going to be the case. And in many areas
Speaker 1: of the of the U S economy, we're going to
Speaker 1: see prices going up for US goods that depend upon
Speaker 1: imports of parts from Mexico. And that's going to compromise
Speaker 1: not just the h the consumers in here in the
Speaker 1: United States who are going to pay more for their goods,
Speaker 1: but it's also going to compromise the competitiveness of American
Speaker 1: firms as they try to compete in the global economy. So, Duncan,
Speaker 1: one of the questions is, you know, for will these
Speaker 1: teriffs move Mexico to act as a president once do
Speaker 1: you think they will be effective? There's a serious problem
Speaker 1: in the logic here, and that is that Mexico could
Speaker 1: do more if it wanted to. Mexico is already doing
Speaker 1: an enormous amount. Between January and March of this year,
Speaker 1: Mexico has been deporting ever increasing numbers of Central Americans.
Speaker 1: So between January and March of this year, they deported
Speaker 1: around twenty two thousand Central Americans from Mexican territory. If
Speaker 1: we look back over the last five years, Mexico has
Speaker 1: deported more Central Americans from Mexican territory than the US
Speaker 1: has from US territory. So Mexico is already doing a lot. Secondly,
Speaker 1: Mexico does not have scare spare resources to apply to
Speaker 1: this these kind of programs, and the United States is
Speaker 1: not offering any and of aid in the past. I mean,
Speaker 1: particularly if we go back to two thousand and fourteen,
Speaker 1: when the United States pressured Mexico to implement something called
Speaker 1: the Plan Fronterra sor or the or their Southern Border Plan.
Speaker 1: The United States provided enormous amounts of financial, um logistical
Speaker 1: and technical aid to enable them to do that. This
Speaker 1: is just a cold demand on the part of of
Speaker 1: President Trump that the Mexicans can do more. Mexico is
Speaker 1: already in um a period of fiscal austerity they called
Speaker 1: actually republican austerity there, and the president is desperately trying
Speaker 1: to to to balance his budget, so there's not a
Speaker 1: lot of spare resources available. So I don't see how
Speaker 1: they could possibly do more. And here's the problem is that,
Speaker 1: in fact, it may result in less willingness on the
Speaker 1: part of the Mexican government to continue collaborating with the
Speaker 1: United States. So, duncan, I'm trying to understand the legality
Speaker 1: of putting these tariffs on goods coming from Mexico given
Speaker 1: the current trade agreement in place, because President Trump is
Speaker 1: not doing it for that, he's saying he's doing it
Speaker 1: because of what he's basically for the immigration issues. Does
Speaker 1: this sort of violate any provisions within the existing agreements?
Speaker 1: So um, the President has powers under under U S
Speaker 1: Law to enact economic measures for reasons of a natural
Speaker 1: national emergency, and so that's really what he's that's the
Speaker 1: justification that he's using here. Mexico will say that this
Speaker 1: is actually a violation of the NAFTA. There's also a
Speaker 1: violation of w t O law, and Mexico will use
Speaker 1: that as their justification for enacting retaliatory tariffs. UM. Now
Speaker 1: the United States will president will say that he is
Speaker 1: justified according to US law. But we've already heard Senator
Speaker 1: Chuck grass Lee come out and say that he believes
Speaker 1: that the President has exceeded his powers here. So this
Speaker 1: will clearly become a congressional fight as well. And that's
Speaker 1: where I see that the President is probably going to
Speaker 1: find that he's on on on week or on firm ground. UM.
Speaker 1: And particularly we see pressure mounting up in rural constituencies,
Speaker 1: amongst amongst farmers in particular, a constituency that he desperately
Speaker 1: needs for his re election bid in twenty duncan Ultimately,
Speaker 1: what do you think this trade issue, these tariff issue,
Speaker 1: what effect will have on this U S m c
Speaker 1: A deal, the greater broader deal. Well, it it muddies
Speaker 1: the waters here in the United States because it's just
Speaker 1: another issue. I mean, we had just got rid of
Speaker 1: Section to thirty two tariffs on aluminum steel that was
Speaker 1: seen as being a major sticking point to getting Canada
Speaker 1: and Mexico to ratify the treaty from their From their end,
Speaker 1: we know that there is enormous tension between the White
Speaker 1: House and Speaker Pelosi, and Speaker Pelosi seems very reluctant
Speaker 1: to move ahead at this point with a ratification process
Speaker 1: here in the United States UM. And now with these measures,
Speaker 1: I think we're just going to see that in Mexico
Speaker 1: the Congress which had begun considering UM the U. S. M.
Speaker 1: C Adrian Agreement there, which is has the status of
Speaker 1: a treaty in Mexico, it is not just an agreement,
Speaker 1: is actually a treaty. They call it the Mexico United
Speaker 1: States Canada Treaty, their t mech UM that requires approval
Speaker 1: by the Mexican Senate. And whilst there was generally a
Speaker 1: positive attitude towards ratification after the repeal of the Section
Speaker 1: two tariffs, now I can see that this is going
Speaker 1: to generate a backlash there and a lot of people
Speaker 1: within the Mexican political system. We're going to say, why
Speaker 1: would we sign a free trade deal with a partner
Speaker 1: that is going to continually find another excuse to punish
Speaker 1: US UM using tariffs for things over which we have
Speaker 1: very little control. Duncan would thank you so much for
Speaker 1: being with us and breaking it down. Duncan Wood, director
Speaker 1: of the Mexico Institute at the Wilson Center in Washington,
Speaker 1: d C. Well, Lisa, I have to admit that I
Speaker 1: was not aware how many cars and car parts we
Speaker 1: import from Mexico. But it's a lot, like a real lot.
Speaker 1: So it al us explained how big it is. We
Speaker 1: welcome Alan Baum. He's a principal, that's a technico cf
Speaker 1: a term. Alan Baun principle from Bauman Associates. He joins
Speaker 1: us from West Bloomfield, Michigan. So I'm sure he knows
Speaker 1: a thing or two about cars. So Alan, just give
Speaker 1: us some history as to why Mexico is such a
Speaker 1: big supplier of autos to the U. S Well. The
Speaker 1: the obvious one, of course is cost, the lower cost
Speaker 1: of labor, but it's also trade, and of course in
Speaker 1: this case it's trade, not the way the President is
Speaker 1: talking about it, but the Mexican trade laws with the
Speaker 1: rest of the world. They have a lot of no
Speaker 1: tariff agreements, and so companies from Japan, from Germany, from Korea,
Speaker 1: uh flock as well as of course the US flock
Speaker 1: to Mexico in order to provide vehicles not just to
Speaker 1: North America but to the world. So one thing I'm
Speaker 1: I'm struggling to understand. Could Forward and General Motors both
Speaker 1: of their shares Downgental Motors four point three percent to
Speaker 1: climb this morning? Could they just shift their supply chains
Speaker 1: out of Mexico, avoid the tariffs, avoid the political fallout, Uh,
Speaker 1: and you know, perhaps increased costs a bit, but immunize
Speaker 1: themselves from these types of trading certainties. And of course
Speaker 1: the answer is no. If they could, that would mean
Speaker 1: they were running extremely inefficient plants, having the capability to
Speaker 1: move from one plant in one country to another. Uh.
Speaker 1: The whole system is, of course tied together. Uh. And
Speaker 1: even that's even true with their suppliers. Even if they said, Okay,
Speaker 1: we're gonna stick with the same suppliers because we know
Speaker 1: those are good companies, but we just want you to
Speaker 1: move to plants outside of Mexico, again, that would be
Speaker 1: very poor management on the part of their supply base. So, Ellen,
Speaker 1: given what you know about these automakers in the current
Speaker 1: competitive landscape, how do you think the automakers if these
Speaker 1: tariffs do go through, and maybe they go through, and
Speaker 1: maybe the highest levels that the president is proposing, to
Speaker 1: what extent do you think they will pass along price
Speaker 1: increases versus you know, trying to eat it in the margin.
Speaker 1: I mean, how do you think they'll react? Well, As
Speaker 1: with any product, it's based upon what the consumer will bear. Uh.
Speaker 1: And so if we're talking about crossovers and and uh
Speaker 1: sport utility vehicles and trucks, which are more popular with consumers,
Speaker 1: perhaps they'll be able to pass some of it along
Speaker 1: with respect to cars that are a harder sell right now,
Speaker 1: they're not selling without the tariffs, they wouldn't sell very
Speaker 1: well with them. UH. So it'll be a case by
Speaker 1: case decision. And it's also a very short term decision.
Speaker 1: You know. The way these tariffs, proposed tariffs are are posited, uh,
Speaker 1: they would go up uh on a monthly basis. So
Speaker 1: what you might do uh and this would be very
Speaker 1: disruptive and very expensive, but you might do it anyway. UH.
Speaker 1: Normally you have a little bit of a pause in
Speaker 1: production uh in the summertime, both for UH for for
Speaker 1: updating your plants. Obviously to give your workers a little
Speaker 1: bit of a break to do some maintenance. Maybe you
Speaker 1: defer all that and you just keep plugging. UH. And
Speaker 1: July and August are oftentimes when when things slow down
Speaker 1: when changes are made. Uh. The the even worse situation
Speaker 1: for general motors. For example, there in the middle of
Speaker 1: a changeover in Mexico for their new pickup trucks. Uh
Speaker 1: and uh so they are a little bit down anyway.
Speaker 1: Uh and they're ramping up. So this couldn't come at
Speaker 1: a worse time. So if both automakers and suppliers said
Speaker 1: we're not going to stop in July, we're not going
Speaker 1: to stop in August. Uh. There are people jumping out
Speaker 1: of windows, I'm sure uh in uh in a number
Speaker 1: of places. Hopefully they're not on a high floor. Um
Speaker 1: to to try to figure that all out. So Ellen,
Speaker 1: does anyone benefit from me? I mean I was thinking
Speaker 1: this morning, perhaps used car values will go up in
Speaker 1: the wake of this. Is there anything? Is there anyone
Speaker 1: who's gonna sort of cash in a little Uh? That's
Speaker 1: certainly possible. Um And for example, Ford H doesn't import
Speaker 1: fully built up F one fifties or or super duties
Speaker 1: from Mexico, whereas f C A and GM do uh
Speaker 1: their own products obviously, uh So so those are those
Speaker 1: are slight differences there. Uh. There are some suppliers that
Speaker 1: perhaps don't have as much of a base in Mexico. Uh.
Speaker 1: Then there are companies like Matulsa, which is a Mexican
Speaker 1: based company that supplies North America. Obviously they've got huge issues.
Speaker 1: I mean, let's let's carry this forward. We're talking three
Speaker 1: point nine million vehicles a year built in Mexico, two
Speaker 1: point six million engines, and one point eight million transmissions.
Speaker 1: So uh, the question becomes, uh, you know, how does
Speaker 1: and and these parts go back and forth? Uh? The
Speaker 1: issue apparently is there's no credit when you export something
Speaker 1: from the US, but when you bring it back as
Speaker 1: a fully assembled product, is it is the tariff on
Speaker 1: the entire thing? Even more, is this even legal? And
Speaker 1: I'm not a lawyer, which means I'm not a trade lawyer.
Speaker 1: But there are side letters in the new U S
Speaker 1: m c A. Some people believe those great those side
Speaker 1: letters are already in effect, and those side letters might
Speaker 1: make these tips illegal. Yeah, obviously we would have to
Speaker 1: go through a court process for that. Alan Baum, thank
Speaker 1: you so much for being with us. Great Great Insight
Speaker 1: Alabama's principle for Baum and Associates, a Michigan based research
Speaker 1: firm focused on automotive industries. We're getting more of a
Speaker 1: sense of how China plans to retaliate against the U
Speaker 1: S when it comes to the escalating trade tensions, Possible
Speaker 1: curbs on rare earth exports to the United States in
Speaker 1: certain key economic areas, and unreliable entities list joining us
Speaker 1: now to discuss what these mean for a potential trade deal,
Speaker 1: is Mike McDonald, chief economist for financial products at Bloomberg
Speaker 1: here in our a greater active broker studios. How likely
Speaker 1: is it, Mike there, we're actually gonna get a trade
Speaker 1: deal at this point? Okay, So it's my view. Uh,
Speaker 1: you know, I had been optimistic previously on this show. Um,
Speaker 1: subsequently my baseline, I don't. I don't think we're going
Speaker 1: to get a deal at this point. Um, I would
Speaker 1: say being optimistic alright, So what changed for you? So?
Speaker 1: I mean I think that you know, when when we
Speaker 1: first heard, you know, three or four weeks ago, and
Speaker 1: we all thought there was going to be a deal,
Speaker 1: we thought that there had been alignment into views, concessions
Speaker 1: hadn't made, there was going to be signing. I think
Speaker 1: what actually happened was there was fundamental differences that weren't
Speaker 1: being aired. Primarily, Uh, you know, I think from the
Speaker 1: Chinese perspective, they came in to negotiate a trade deal,
Speaker 1: and they left the negotiations feeling like they were negotiating
Speaker 1: terms of surrender and not actually a trade deal. And
Speaker 1: it seemed like the two sides were immovable in terms
Speaker 1: of what they were going to agree on. And I
Speaker 1: think some of the core points were, um the Chinese
Speaker 1: that they were going to bend to the will of
Speaker 1: the US negotiators, and once they signed the deal, the
Speaker 1: tariffs that were in place, we're going to remain in
Speaker 1: place until they felt they had accomplished enough to justify
Speaker 1: the removal of their tariffs. And I think that's something
Speaker 1: that they were just unwilling to agree with and sign uh.
Speaker 1: And I don't think the US negotiators were willing to
Speaker 1: change their view on that. Uh. And then if you
Speaker 1: think about I think what happened in Mexico. You know,
Speaker 1: if you were to ask me that probability question yesterday,
Speaker 1: maybe I would have gone a little bit higher. But
Speaker 1: now you have to put yourself in the perspective of
Speaker 1: the Chinese. So even if they did sign a trade deal,
Speaker 1: look at what happened with Mexico. So the Chinese are
Speaker 1: worried that they're going to remain a punching bag of
Speaker 1: Trump's going into the election. So they have a trade deal, tariffs,
Speaker 1: they're gone. All of a sudden, something happens and they
Speaker 1: get a tweet saying, you know, we're putting tariffs on
Speaker 1: for a reason. Why, Oh that is actually unrelated to
Speaker 1: the trade deal that we signed. It's this is punitive
Speaker 1: for some other action that's taking place. I see. So
Speaker 1: I guess then if that's if you're as case at
Speaker 1: this point is that no trade deal will get uh,
Speaker 1: we'll get we'll get done at this point, then play
Speaker 1: out what happens. I mean, the unreliable entities list from China,
Speaker 1: the rare Earth's curves, the you know, walk us through
Speaker 1: what this means. Yeah, I mean, I wrote on Bloomberg Opinion,
Speaker 1: I wrote something over a year ago at this point
Speaker 1: talking about the potential repercussions of targeting Chinese tech companies,
Speaker 1: and the repercussions wouldn't just end at tariffs. Uh, it
Speaker 1: would be China beginning to target US companies that it
Speaker 1: has some control over, either that do business in China
Speaker 1: or have some sort of production in China. So I
Speaker 1: think this is a step in that direction. Right in
Speaker 1: the U S. We you know, there's checks and balances
Speaker 1: and and and certain um processes that have to be
Speaker 1: followed to go after a company. China is much more
Speaker 1: command economy, run out of the center. So if there's
Speaker 1: something they want to pass that restricts a company from
Speaker 1: doing business in that country, it's a lot easier to
Speaker 1: do than it would be here. So they have a
Speaker 1: lot of they can move quicker on that front. UH.
Speaker 1: And as you see the UH trade war escalate outside
Speaker 1: of just tariffs, UH, this is going to continue to progress.
Speaker 1: And now we've seen actually the trade war go beyond
Speaker 1: China to also now move to Mexico, who again you know,
Speaker 1: just had this trade deal agreed with the US, but
Speaker 1: it didn't seem to matter. Alright, So, Mike, it appears
Speaker 1: at President Trump and President She are going to meet
Speaker 1: at the G twenty coming up. Any reason to have
Speaker 1: some optimism that if you just put these two in
Speaker 1: a room, that maybe they can paper over some of
Speaker 1: these bigger issues here. I mean, it's hard to see
Speaker 1: that right now. If if you think back to last year,
Speaker 1: it was a similar meeting that they had in Argentina
Speaker 1: that kind of kicked the can on the problem. But
Speaker 1: the differences seem so fundamental. Without one side um seismically
Speaker 1: changing their beliefs, it's hard to see a deal. So
Speaker 1: maybe there's the the can gets kicked a little bit.
Speaker 1: But I'm not overly optimistic. You know, there's there's a
Speaker 1: chance something could happen, but you know, I factored that
Speaker 1: into my baseline view. Do you think that this is
Speaker 1: going to kick the global economy into recession? Well, I
Speaker 1: think that, you know, the market is certainly justified to
Speaker 1: begin pricing in rate cuts by the Fed, especially now
Speaker 1: with this Mexico x escalation. If you have you know,
Speaker 1: if you combine Mexican in Chinese imports to the US,
Speaker 1: you're talking about something like a third of all imports,
Speaker 1: and you're putting that at a tariff. A lot of
Speaker 1: these are consumer goods, a lot of these are inputs
Speaker 1: to supply chain. So yeah, there's there's a really meaningful
Speaker 1: risk that you could enter at least a mild recession
Speaker 1: if this goes full throttle. And I'm just looking at
Speaker 1: the w I r P function as I do ten
Speaker 1: every day, it seems like but now it's all the
Speaker 1: way up to about a nine chance of a rate
Speaker 1: cut by the year end. Does that seem kind of
Speaker 1: reasonable from your perspective with with the recent escalation. Um, yeah,
Speaker 1: I mean it's if this, if they follow through and
Speaker 1: you know that. The thing is, I think people realize
Speaker 1: that it's not trust rhetoric, there's action being put behind it.
Speaker 1: Now we've seen the tariffs with China, we need to
Speaker 1: see what happens with Mexico. There seems to be a
Speaker 1: big misunderstanding who's actually paying for these tariffs. Obviously was
Speaker 1: paying for these The importers are paying for them. So
Speaker 1: I mean it's it's it's it's a tax. It is
Speaker 1: a tax on importers. I mean there was a point
Speaker 1: in time where there was no income tax in this country.
Speaker 1: The only tax was tariffs. Um, in my time, before
Speaker 1: all of our time. Alright, So alright, well, Mike, we'll
Speaker 1: follow up on this because I'm sure this is a
Speaker 1: story that will just keep developing. Mike McDonagh, chief economist
Speaker 1: for Financial Products for Bloomberg joinius here in our Bloomberg
Speaker 1: eleven three oh studios. Thanks so much. My takeaway is
Speaker 1: a ten chance of trade negotiations between China in the US.
Speaker 1: That's optimistic that's that's optimistic, Mike. Yeah, that's optimistic, Mike. Alright, Mike,
Speaker 1: thanks very much. Potential tariffs on Mexico are also rattling markets.
Speaker 1: Take an additional perspective, we turned to Mark Chandler Marcus,
Speaker 1: I'm managing partner in chief market strategist for Bannockburn Global
Speaker 1: Forex based in New York City. Market so much for
Speaker 1: joining US. How disruptive do you think these new potential
Speaker 1: tariffs on Mexico could be for the U? S economy? Yeah?
Speaker 1: I don't think that the real danger in the short
Speaker 1: run of the US economy per se. It's not good
Speaker 1: in a sense that you know, last year, the US
Speaker 1: economy is doing so well because we got tax cuts,
Speaker 1: and this year were getting tax increases and it's import
Speaker 1: tax increases. But I think that the disruption is I
Speaker 1: think it could affect the UH. You know, we were
Speaker 1: just beginning the legislative process for ratification of the NAFTA
Speaker 1: two point oh deal. I think that puts this at risk.
Speaker 1: And if if you think about the other trade partners
Speaker 1: we have, I mean, what can they take away from this?
Speaker 1: It means that even a pending trade agreement with Mexico
Speaker 1: is not enough to save them from from such a
Speaker 1: surprise and tariffs. And so I think it's a questions.
Speaker 1: I think, uh, other countries willingness to take US negotiations
Speaker 1: seriously if the US can still prepare ups on on
Speaker 1: on Mexico despite having a free trade agreement, their free
Speaker 1: trade agreement in the works, because we still have the
Speaker 1: first and after of course. Yeah, so this of course
Speaker 1: brings us to China, because China and the US have
Speaker 1: been mired and ongoing discussions about how to resolve their
Speaker 1: trade differences in the dispute there. Uh it what doesn't
Speaker 1: mean for emerging markets right now that the prospect of
Speaker 1: a US China trade deal looks increasingly remote. Yeah, I
Speaker 1: thought that Mexico would have been one of the beneficiaries
Speaker 1: some countries, some and we see this right, some companies
Speaker 1: trying to move out of China, recognizing that the US
Speaker 1: and China might be in for sustained economic tension, do
Speaker 1: they want to move production closer to the US. Mexico
Speaker 1: is an obvious choice. In fact, since March Mexican, Uh,
Speaker 1: the US imports more from Mexico and it does from China.
Speaker 1: And so I think that for a lot of emerging markets.
Speaker 1: I mean other emerging markets might stand to benefit. Now,
Speaker 1: maybe those countries in East Asia or maybe some other
Speaker 1: places in South America. Central America could be a beneficiary too.
Speaker 1: If Mexico is sort of like you have to raise
Speaker 1: questions about the tariffts at Mexico can faith So, Mark,
Speaker 1: what does this mean? I guess you know these trade
Speaker 1: tensions with China now Mexico cannot be good for emerging
Speaker 1: market investing. What are your thoughts as you think about
Speaker 1: some of the emerging markets given what's going on. Yeah,
Speaker 1: I think that's the remarkable thing. Really, it's not really
Speaker 1: all emerging markets. Look what's happened. Uh Turkey, the Turkish lawyer,
Speaker 1: I think the strongest currency. I think it's up almost
Speaker 1: six percent since it bottomed in a couple of weeks ago. Uh.
Speaker 1: Indonesia has been upgraded by SMP just last night, and
Speaker 1: with the re election and some political stability. Uh So,
Speaker 1: I think that there are some opportunities and emerging markets.
Speaker 1: I don't I won't think it's across the board as
Speaker 1: a negative, especially with the combination of falling interest rates
Speaker 1: and countries looking for like booster competitiveness. Company they're gonna
Speaker 1: be leading China. So I want to talk also than
Speaker 1: about where the havens are. So perhaps people are looking
Speaker 1: at where if the riskiest spots are in light of
Speaker 1: some of these increasing trade tensions. When it comes to
Speaker 1: haven currency, the yen has been the spot, and yet
Speaker 1: the dollar is getting a bit more of a bid.
Speaker 1: Do you think the yen will retain its position? Really?
Speaker 1: Is the currency of choice? Well, funny they say that.
Speaker 1: I kind of think of how it works two ways.
Speaker 1: I think to like channels. One channel is that a
Speaker 1: lot of institutions will use the yen, and the Swiss
Speaker 1: Frank is a funding currency to buy riskier asset because
Speaker 1: as retailer investors, people want to have the askt that
Speaker 1: they buy go up. But on the institutional level, you're
Speaker 1: only not only playing for the higher asset that you're buying,
Speaker 1: but you're also trying to reduce your funding costs. And
Speaker 1: so the end of the Swiss frank typically funding currencies
Speaker 1: like the dollar, and so an emerging markets call under
Speaker 1: pressure risk assets come under pressure those those structured positions
Speaker 1: have to be unwound at the same time. UH short
Speaker 1: term speculators recognize this kind of pattern, and they also
Speaker 1: pour into a long Ganner long Swiss Frank positions when
Speaker 1: the risk appetites Wayne. So I think that the Yen
Speaker 1: and the Swiss Franks still had that function. But it
Speaker 1: looks like what's happening. You know, the UH was driving
Speaker 1: down the US yield is showing you that the money
Speaker 1: is still coming into the US or in some cases
Speaker 1: staying in the US. When we're talking about our ten
Speaker 1: year bond yield below the lower end of the stead
Speaker 1: funds trading range. The stead funds, you know, their target range.
Speaker 1: And we see this in some other countries too. In Australia,
Speaker 1: the ten year bond yield has found below their cash rage,
Speaker 1: which they might cut as early as next week. So Mark,
Speaker 1: just real quickly, what is your sense about the rest
Speaker 1: of Latin America's what's happening potentially in Mexico that bleed
Speaker 1: over either positively or negatively into some of the other
Speaker 1: Latin American countries. Well, I think that Columbia might be
Speaker 1: interesting alternative for companies who want to locate UH near
Speaker 1: the US, But now we're scared of Mexico UH because
Speaker 1: of the because of these latest things. I think that Colombia,
Speaker 1: Brazil's got its own story. Brazil's kind of interesting, especially
Speaker 1: for those people are looking at those rare earth stories
Speaker 1: that I think Brazil has the second largest reserves of
Speaker 1: those rare earths, but they've got this pension reform issue
Speaker 1: going and so yeah, I I really think that the
Speaker 1: WILL focus is going to be really on these on
Speaker 1: these trade issues, like you say, Mexico and maybe some
Speaker 1: spill over some other countries could benefit, but I think
Speaker 1: that's not really the heart of the issue. Mark Chandler,
Speaker 1: thank you so much for being with us. Mark Chandler,
Speaker 1: Managing partner in chief market strategist at Bannockburn Global for X,
Speaker 1: thanks for listening to the Bloomberg P and L podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
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Speaker 1: Twitter at pt Sweeney. I'm Lisa Bramwoods. I'm on Twitter
Speaker 1: at Lisa bramwo Woods. One before the podcast, you can
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