WEBVTT - Tariffs Could Suppress Aluminum Price If Imports Slow: Cosgrove

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<v Speaker 1>Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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<v Speaker 1>Along with my co host Lisa Bramowitz. Each day we

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<v Speaker 1>bring you the most important, noteworthy, and useful interviews for

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<v Speaker 1>you and your money, whether you're at the grocery store

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<v Speaker 1>or the trading floor. Find the Bloomberg p m L

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<v Speaker 1>Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. All right,

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<v Speaker 1>so let's actually get a sense of exactly what we

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<v Speaker 1>are expecting from those tariffs. Andrew Cosgrove joins us. Now

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<v Speaker 1>he's a senior analyst for Energy and Mining with Bloomberg Intelligence. Andrew,

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<v Speaker 1>what are we expecting to hear? Um? I don't think

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<v Speaker 1>anybody really has a clear cut expectation of what we're

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<v Speaker 1>gonna hear? Um. I think if given that Trump is

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<v Speaker 1>acting pretty rogue at the moment and not really tabling

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<v Speaker 1>a lot of opinions given the Commerce Department submissions, but hey,

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<v Speaker 1>if he if he goes tariss on steel, it is

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<v Speaker 1>absolutely off. We will be off to the races. Um.

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<v Speaker 1>Although you know, given that nothing will be signed today, um,

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<v Speaker 1>as far as I'm concerned and as far as I know, UM,

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<v Speaker 1>So it doesn't mean that everything is set in stones,

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<v Speaker 1>so to speak. But it's certainly um will help put

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<v Speaker 1>a floor under some of these stocks steal specifically aluminum less.

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<v Speaker 1>So I think we're a little bit less bush on

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<v Speaker 1>the aluminum decision because the US market is in a

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<v Speaker 1>structural deficit, so we need imports, um to satisfy downstream industry.

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<v Speaker 1>And if those imports or exports the US do not

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<v Speaker 1>have a home in the U s then they just

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<v Speaker 1>sit on the international market and will suppress prices. But

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<v Speaker 1>just take a step back, and why is President Trump

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<v Speaker 1>expected to make some kind of teriff announcement today? Uh?

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<v Speaker 1>And what is the process once he has announced something

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<v Speaker 1>for it to become law? In other words, does he

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<v Speaker 1>make an announcement at at like a stump speech, and

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<v Speaker 1>then it's it's the law of the land. Yeah, there is.

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<v Speaker 1>Congress has already kind of you know, blessed this essentially,

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<v Speaker 1>so um, they would have to pass a law that

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<v Speaker 1>would reverse this, so to speak. So whatever he kind

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<v Speaker 1>of signs at whatever point in time, Again, don't expect

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<v Speaker 1>anything to be signed today. But um, he has until

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<v Speaker 1>the middle of April UM, which was the end of

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<v Speaker 1>the ninety day countdown clock that started in mid January.

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<v Speaker 1>To make a decision given the fact that the Commerce

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<v Speaker 1>Department submitted their findings to him, like I said, in

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<v Speaker 1>the middle of January. So, um, that's kind of the

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<v Speaker 1>timetable which we're at. So we're getting an announcement about

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<v Speaker 1>a month and a half sooner than than the than

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<v Speaker 1>the end game. Well, Dave Wilson, just to get your

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<v Speaker 1>thoughts here, because while you may see an increase or floor,

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<v Speaker 1>as Andrew said, on the stock prices of companies like A.

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<v Speaker 1>K steal and and U S Steal, I'm looking at

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<v Speaker 1>the shares of Caterpillar right now. They're down nine tens

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<v Speaker 1>of a percent. What about all the companies that use

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<v Speaker 1>steal and aluminum. Aren't they going to end up with

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<v Speaker 1>higher input costs? Well, that's the risk that you take

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<v Speaker 1>here in defending the metal producers. You're you are imposing

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<v Speaker 1>more costs on metal consumers, and then you have to

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<v Speaker 1>think about, well, what does it mean in terms of inflation?

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<v Speaker 1>That really does seem to be the buggy man, you

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<v Speaker 1>might say for markets at this point. So the whole

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<v Speaker 1>idea that you would get imported inflation in essence, I mean,

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<v Speaker 1>if US producers are able to raise their prices perhaps

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<v Speaker 1>because of the leeway they have with less competitive imports. Well,

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<v Speaker 1>that is something that may change the inflation picture, maybe

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<v Speaker 1>not in a substantial way, but enough to sort of

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<v Speaker 1>add to the drumbeat on that score. Andrew, you got

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<v Speaker 1>a thought on this, Oh yeah, no, I mean I

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<v Speaker 1>think seven team is all about the uh, the year

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<v Speaker 1>over year price increases that we saw comes around the

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<v Speaker 1>commodity side. Team will be all about those commodity increases

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<v Speaker 1>feeding through into the middle part of the supply chain. Um.

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<v Speaker 1>If you take autos, for example, three to four percent

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<v Speaker 1>of the entire cost to produce a car is comprised

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<v Speaker 1>of steel. UM. So again it's it's not it's not

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<v Speaker 1>the end of the world for US automaker. If prices

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<v Speaker 1>go up, which again let's just think about it this way,

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<v Speaker 1>horiffs on top of what was already there. Now you

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<v Speaker 1>have a lower US dollar UM, which is trending about

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<v Speaker 1>seven percent year on year in and so, and you know,

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<v Speaker 1>prices continue to go up. That's upwards of on a

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<v Speaker 1>on a three to four percent base. So if it

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<v Speaker 1>goes from three to four percent, it goes to maybe

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<v Speaker 1>five percent, it's not the end of the world. But again,

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<v Speaker 1>will the auto companies pass those on. You know. That's

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<v Speaker 1>that's that's up for debate. They'll probably try, but given

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<v Speaker 1>the you know, tightened purse strings of the U. S. Consumer,

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<v Speaker 1>it's it's also tough to argue. Thank you so much.

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<v Speaker 1>Joining us Andrew Cosgrove, senior analyst UH focusing on energy

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<v Speaker 1>and mining for Bloomberg Intelligence, and certainly General Motors Fiat Chrysler.

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<v Speaker 1>They are poised for demand to drop, and they are

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<v Speaker 1>reporting pickup sales drop already today and we'll get details

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<v Speaker 1>on those as we get them. Right now, I want

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<v Speaker 1>to bring in Matt Bosler, Federal Reserve reporter for Bloomberg News.

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<v Speaker 1>We are, of course awaiting the second day of testimony

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<v Speaker 1>from Federal Reserve Chair Jerome Powell. Matt, how much does

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<v Speaker 1>it matter that we got very solid UH personal income

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<v Speaker 1>data as well as jobless claims UH showing that the

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<v Speaker 1>rate has fallen to the lowest for a week in

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<v Speaker 1>almost fifty years. Yeah, not bad, right. I think the

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<v Speaker 1>bottom line is that it's just going to reinforce the

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<v Speaker 1>message that he gave on Tuesday, which is that we've

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<v Speaker 1>seen an improvement in economic data since December, the last

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<v Speaker 1>time the Fed put out rate projections, and so in

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<v Speaker 1>two weeks when they put out new rate projections, Uh,

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<v Speaker 1>there's a chance that you know, those rate projections could

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<v Speaker 1>go up based on that improvement. Nothing we saw this

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<v Speaker 1>morning really knocks them off that path. Interestingly, inflation was

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<v Speaker 1>a little week, but at this point, it definitely looks

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<v Speaker 1>like the Fed is more you know, focused on the

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<v Speaker 1>forward looking growth outlook and the potential impact that's going

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<v Speaker 1>to have on inflation down the road, even if the

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<v Speaker 1>inflation data right now are still looking a little muddy. Matt, Uh,

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<v Speaker 1>he'll be testifying, drum palill be testifying before the US

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<v Speaker 1>Senate Banking Committee, And I'm wondering if you could give

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<v Speaker 1>us any thoughts about whether the questioning coming from Michael Crapo,

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<v Speaker 1>the chairman, Republican from Idaho, as well as Uh Shared

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<v Speaker 1>Brown for the Democrat from Ohio, whether the questioning coming

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<v Speaker 1>from both sides will be any different than what we

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<v Speaker 1>listened into on Tuesday when he testified before the House. Yeah.

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<v Speaker 1>I think that's a really interesting question because what we

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<v Speaker 1>saw on Tuesday was, you know, House Republicans over the

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<v Speaker 1>last several years have been much more critical of the FED.

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<v Speaker 1>They've gone after the Fed on the large balance sheet

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<v Speaker 1>and um, you know monetary policy rules, wanting to bind

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<v Speaker 1>the FED more two rules. Um. And I think there

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<v Speaker 1>was some question about whether that was just because you know,

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<v Speaker 1>we had a more democratic FED leadership in the likes

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<v Speaker 1>of Bernanke and Yelling. Um. Now we have j Powell,

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<v Speaker 1>who's obviously a Republican, but he was not spared from

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<v Speaker 1>those same criticisms that his predecessors got from House Republicans. So, um,

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<v Speaker 1>you know, the Senate tends to be a little friendlier.

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<v Speaker 1>We'll see how that goes for him. Dave, you know

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<v Speaker 1>is notable. Uh. The last time that Federals a chair

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<v Speaker 1>Powell went before Congress members Tuesday, Uh, the market did move,

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<v Speaker 1>He did cause a reaction. Stocks went down. Do you

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<v Speaker 1>think that he will cause a similar reaction today if

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<v Speaker 1>he reaffirms his stand in a solid U S economy? Well,

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<v Speaker 1>I mean, if you think about why you saw the

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<v Speaker 1>reaction that you did on Tuesday, it's all about kind

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<v Speaker 1>of some itchy trigger fingers, you might say, when it

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<v Speaker 1>comes to inflation and the FEDS response to that. You know,

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<v Speaker 1>the idea that you might get for rate increases this

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<v Speaker 1>year instead of three I mean that's sort of emerge

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<v Speaker 1>from his back and forth with the folks in Congress.

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<v Speaker 1>So you know, I mean that's sort of out there

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<v Speaker 1>and it's really a matter at this point. Would he

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<v Speaker 1>say anything to go beyond that in terms of providing

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<v Speaker 1>any uh fodder for those trying to divine the feds

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<v Speaker 1>next moves on policy. Yeah, but he does now have

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<v Speaker 1>the information and the experience based on his Tuesday presentation

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<v Speaker 1>and testimony about how the stock market, how the bond

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<v Speaker 1>market reacts to comments that he makes that he may

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<v Speaker 1>not even really have in trying to alter anybody's perception that,

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<v Speaker 1>in other words, he sees what he what the reaction is,

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<v Speaker 1>and now what do you think that it's possible he'll

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<v Speaker 1>modify any of his responses. Probably not. Um. You know,

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<v Speaker 1>it's interesting because going into that hearing, you know, we

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<v Speaker 1>had had so many weeks of rising interest rates, pricing

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<v Speaker 1>in more and more Fed moves, and so you know,

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<v Speaker 1>for j. Powell coming in at the end of that

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<v Speaker 1>rise in interest rates and saying, well, you know, kind

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<v Speaker 1>of hinting that they might go for instead of three

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<v Speaker 1>times this year, most of that was already priced in,

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<v Speaker 1>so um, it would be even more surprising if he

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<v Speaker 1>reiterates that message today and we see a market reaction.

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<v Speaker 1>Just had priced in even before his testimony. Yeah, it

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<v Speaker 1>was getting more and more priced in, right, I mean,

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<v Speaker 1>you almost had three rate hikes fully priced even before

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<v Speaker 1>his testimony, which obviously indicates a significant probability of doing

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<v Speaker 1>more than that. So if you look at the data now,

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<v Speaker 1>if you go on the work function today, we're at

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<v Speaker 1>about a one in three chance already that we got

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<v Speaker 1>four or more hikes this year. Saying that's what's different, Yeah, no, absolutely, um,

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<v Speaker 1>but but it just you know, given that he endorsed

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<v Speaker 1>that on on Tuesday already, it's hard to see how

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<v Speaker 1>much more he could move the market in that direction.

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<v Speaker 1>At this point, I want to bring some data that

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<v Speaker 1>just came out, economic indications of more strength manufacturing in

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<v Speaker 1>the US expanding at the fastest pace since May two

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<v Speaker 1>thousand and four. This according to figures from the Institute

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<v Speaker 1>for Supply Management that came out just minutes ago. Dave,

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<v Speaker 1>you know, the economic data in the US has been

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<v Speaker 1>really steadily solid and frankly improving. Are we seeing And

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<v Speaker 1>we've talked a lot about earnings coming out or coming

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<v Speaker 1>to the end of this earning season. Uh, is there

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<v Speaker 1>an expectation that this will continue? We're earnings better even

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<v Speaker 1>than this economic data. Well sure, I mean when you

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<v Speaker 1>consider SMP five profit growth is looking like sixteen percent

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<v Speaker 1>at this point, I mean, not's saying something. And you

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<v Speaker 1>know that. Then you add in in terms of this year,

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<v Speaker 1>the effect of the tax cuts that were made. Here

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<v Speaker 1>I'll give you, I'll give you the companies for the

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<v Speaker 1>SMP five have been reporting earnings that are ahead of estimates.

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<v Speaker 1>For the fourth's a little bit higher than we've seen historically, right,

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<v Speaker 1>And that's just to put that into context. More than

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<v Speaker 1>of the companies in the SP already reported their results.

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<v Speaker 1>Well yeah, and you're seeing it on the top line

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<v Speaker 1>as well. I mean, with more companies than usual coming

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<v Speaker 1>out ahead on sales. And that's where you if you

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<v Speaker 1>want to talk about how business is doing and how

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<v Speaker 1>the economy is doing. I mean, focusing on the top

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<v Speaker 1>line makes a whole lot more sense because you know,

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<v Speaker 1>you don't have the issues of stock by backs and

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<v Speaker 1>whatnot that can influence the bottom line. And right now,

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<v Speaker 1>I just to let you know, Vesserserve chaired your own

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<v Speaker 1>Powell is giving his introductory speech. Matt is the FED

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<v Speaker 1>getting behind the curve. I don't think there are really

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<v Speaker 1>any indications that, certainly not in the inflation data. You know, again,

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<v Speaker 1>the inflation data this morning, we're actually pretty weak. And

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<v Speaker 1>you know, sort of these pro cyclical components of inflation

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<v Speaker 1>that we've been talking a lot about, you know, the

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<v Speaker 1>ones that sensibly respond the most too tightening labor markets

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<v Speaker 1>are all going in the wrong direction for the most part.

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<v Speaker 1>So um, you know, there's the key question continues to

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<v Speaker 1>be will the Phillips curve eventually reassert itself. The Phillips

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<v Speaker 1>curve meaning that the lower the unemployment rate goes, typically

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<v Speaker 1>the higher the inflation rate should go. It's an inverse

0:12:34.080 --> 0:12:37.800
<v Speaker 1>correlation between inflation and unemployment rates exactly. So if you

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<v Speaker 1>look at what the FED is saying right now, what

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<v Speaker 1>j Powell is saying, the kind of the whole FED

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<v Speaker 1>story is that, you know, we're getting bigger than expected

0:12:45.600 --> 0:12:48.520
<v Speaker 1>fiscal stimulus. So that's going to lead to faster than

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<v Speaker 1>expected economic growth, which in turn is going to push

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<v Speaker 1>the unemployment rate down faster than we previously thought, which

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<v Speaker 1>should put more upward pressure on inflation. But you know,

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<v Speaker 1>there's nothing new here in terms of the unresolved question

0:13:02.880 --> 0:13:05.680
<v Speaker 1>of whether that sort of Phillips curve relationship is actually

0:13:05.720 --> 0:13:08.360
<v Speaker 1>going to reassert itself. It's just that we now have

0:13:08.480 --> 0:13:11.760
<v Speaker 1>a bigger impulse, you know, if you do believe the

0:13:11.760 --> 0:13:15.160
<v Speaker 1>Phillips curve is still operative, which most of the Fed do,

0:13:15.679 --> 0:13:18.240
<v Speaker 1>and so that is why they are speeding up right now,

0:13:18.360 --> 0:13:22.280
<v Speaker 1>even in the absence of any pickup and inflation. Well,

0:13:22.280 --> 0:13:24.640
<v Speaker 1>one thing just to mention in terms of the economy

0:13:25.200 --> 0:13:29.040
<v Speaker 1>is that there is a shortage of truck drivers. And

0:13:29.160 --> 0:13:32.600
<v Speaker 1>we know that commerce in the United States depends on trucks.

0:13:32.640 --> 0:13:36.160
<v Speaker 1>I believe it's somewhere in the order of about of

0:13:36.240 --> 0:13:39.960
<v Speaker 1>the nation's freight volume by weight moves by truck. And

0:13:40.000 --> 0:13:43.000
<v Speaker 1>if you don't have people to drive those trucks, you're

0:13:43.040 --> 0:13:45.160
<v Speaker 1>going to have to pay those that do more, and

0:13:45.160 --> 0:13:47.720
<v Speaker 1>you're gonna have to pay more for those that may

0:13:47.760 --> 0:13:50.559
<v Speaker 1>want to get those jobs, uh, in order to attract

0:13:50.559 --> 0:13:53.000
<v Speaker 1>them from something else. Well, and Dave to that point,

0:13:53.160 --> 0:13:56.640
<v Speaker 1>I mean, how much are the wage increases that we're seeing,

0:13:56.920 --> 0:13:59.400
<v Speaker 1>even if they're not you know, run away by any means,

0:13:59.559 --> 0:14:01.600
<v Speaker 1>how much of eating into the profitability of some of

0:14:01.600 --> 0:14:05.640
<v Speaker 1>these companies. Not so much at this point. It's a

0:14:05.800 --> 0:14:08.480
<v Speaker 1>question of does it broaden out. I mean bear in mind,

0:14:08.640 --> 0:14:11.000
<v Speaker 1>when a lot of companies talked about what they were

0:14:11.000 --> 0:14:14.400
<v Speaker 1>going to do with their tax cut money, Uh, they

0:14:14.440 --> 0:14:19.440
<v Speaker 1>decided to give bonuses to workers rather than increasing annual wages.

0:14:19.600 --> 0:14:23.200
<v Speaker 1>So it's a one time deal which minimizes the effect

0:14:23.280 --> 0:14:26.040
<v Speaker 1>going forward. I mean that said, the kind of issues

0:14:26.120 --> 0:14:28.600
<v Speaker 1>that PIM has been talking about, given how low the

0:14:29.000 --> 0:14:33.760
<v Speaker 1>unemployment rate is, it's something that's got people's attention. And

0:14:33.920 --> 0:14:37.560
<v Speaker 1>there's no doubt that in some areas of the economy,

0:14:37.800 --> 0:14:41.360
<v Speaker 1>you know, trucking being an example, uh, that you are

0:14:41.480 --> 0:14:44.600
<v Speaker 1>going to see higher wages and in fact that it's

0:14:44.600 --> 0:14:49.920
<v Speaker 1>already started to happen. So Matt, just look going forward,

0:14:50.160 --> 0:14:52.840
<v Speaker 1>what can we what are the sort of keywords that

0:14:52.880 --> 0:14:56.360
<v Speaker 1>were waiting for from J Powell? What are you watching for?

0:14:56.960 --> 0:14:59.040
<v Speaker 1>So I think you know it's going to be it's

0:14:59.040 --> 0:15:03.040
<v Speaker 1>going to continue to be interesting discussion about the fiscal stimulus,

0:15:03.120 --> 0:15:05.840
<v Speaker 1>you know, when they ask him what, uh you know

0:15:05.960 --> 0:15:08.280
<v Speaker 1>that is going to do to to you know, fed

0:15:08.360 --> 0:15:10.080
<v Speaker 1>interest rates. I mean you saw that a little bit

0:15:10.120 --> 0:15:14.000
<v Speaker 1>and we talked about it on Tuesday before beforehand. This

0:15:14.080 --> 0:15:17.120
<v Speaker 1>is really becoming quite politicized. And so you had some

0:15:17.160 --> 0:15:20.680
<v Speaker 1>Democrats UM in the House Financial Services Committee trying to

0:15:20.720 --> 0:15:23.520
<v Speaker 1>push Powell to say, well, doesn't this, you know, like

0:15:23.600 --> 0:15:25.840
<v Speaker 1>ill time tax cut mean you're gonna have to raise

0:15:25.960 --> 0:15:28.800
<v Speaker 1>rates more quickly and that's bad, etcetera, etcetera, trying to

0:15:28.840 --> 0:15:31.240
<v Speaker 1>box him in that way UM, and he he kind

0:15:31.240 --> 0:15:34.320
<v Speaker 1>of avoided that. So I think that is the first thing.

0:15:34.360 --> 0:15:36.720
<v Speaker 1>And then the other thing is, um, do we get

0:15:36.760 --> 0:15:41.000
<v Speaker 1>more of a substitutive discussion about UM the inflation target

0:15:41.040 --> 0:15:43.920
<v Speaker 1>and whether he thinks two percent UM is really an

0:15:43.960 --> 0:15:46.320
<v Speaker 1>adequate target or if they need to move to something

0:15:46.320 --> 0:15:49.160
<v Speaker 1>more robust, like a price level targeting regime. We didn't

0:15:49.200 --> 0:15:51.800
<v Speaker 1>really get into that UM much on Tuesday, but that

0:15:51.920 --> 0:15:55.040
<v Speaker 1>is definitely one of the biggest conversations in FED circles

0:15:55.120 --> 0:15:57.920
<v Speaker 1>right now. Well, just to put in the context about

0:15:57.960 --> 0:16:00.680
<v Speaker 1>the incomes and spending. You know, we got the report

0:16:00.720 --> 0:16:04.560
<v Speaker 1>today right and after tax income chump nine tenths of

0:16:04.560 --> 0:16:06.960
<v Speaker 1>a percent. That's the most in a year. That's according

0:16:06.960 --> 0:16:09.600
<v Speaker 1>to the Commerce Department that's just released this morning. And

0:16:09.720 --> 0:16:13.040
<v Speaker 1>real disposable income increased the most in about five years.

0:16:13.040 --> 0:16:16.400
<v Speaker 1>That's when you strip out different inflation measures. So it

0:16:16.440 --> 0:16:19.760
<v Speaker 1>does seem to be that wages are increasing, but is

0:16:19.800 --> 0:16:24.120
<v Speaker 1>it enough and does it really get completely offset by

0:16:24.240 --> 0:16:27.000
<v Speaker 1>the higher rents and the higher medical costs? Whatever I

0:16:27.080 --> 0:16:30.760
<v Speaker 1>hear disposable income, I have to wonder, you know, is

0:16:30.760 --> 0:16:33.200
<v Speaker 1>it really disposable because some of the same measures that

0:16:33.200 --> 0:16:36.720
<v Speaker 1>we've used in the past perhaps don't work the same.

0:16:38.320 --> 0:16:41.960
<v Speaker 1>J Wilson Bloomberg SAX editor, columnist and blogger at M

0:16:42.120 --> 0:16:45.200
<v Speaker 1>Live go on the Bloomberg. Thank you so much, Matt Bosler.

0:16:45.480 --> 0:16:47.280
<v Speaker 1>We know you have a busy day ahead of you

0:16:47.640 --> 0:16:50.680
<v Speaker 1>of fed, watching FED tea, leave reading Matt Bosler Fed

0:16:50.720 --> 0:16:53.880
<v Speaker 1>to reserve, reporter for a Bloomberg also joining us. Thank

0:16:53.920 --> 0:16:59.080
<v Speaker 1>you so much. Thanks for listening to the Bloomberg P

0:16:59.200 --> 0:17:02.200
<v Speaker 1>and L podcast. You can subscribe and listen to interviews

0:17:02.240 --> 0:17:06.280
<v Speaker 1>at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.

0:17:06.680 --> 0:17:10.280
<v Speaker 1>I'm pim Fox. I'm on Twitter at pim Fox. I'm

0:17:10.280 --> 0:17:13.600
<v Speaker 1>on Twitter at Lisa Abramo. It's one before the podcast.

0:17:13.640 --> 0:22:56.600
<v Speaker 1>You can always catch us worldwide on Bluebirg Radio, M Data,

0:23:00.080 --> 0:23:04.040
<v Speaker 1>The Tea