Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. All right,
Speaker 1: so let's actually get a sense of exactly what we
Speaker 1: are expecting from those tariffs. Andrew Cosgrove joins us. Now
Speaker 1: he's a senior analyst for Energy and Mining with Bloomberg Intelligence. Andrew,
Speaker 1: what are we expecting to hear? Um? I don't think
Speaker 1: anybody really has a clear cut expectation of what we're
Speaker 1: gonna hear? Um. I think if given that Trump is
Speaker 1: acting pretty rogue at the moment and not really tabling
Speaker 1: a lot of opinions given the Commerce Department submissions, but hey,
Speaker 1: if he if he goes tariss on steel, it is
Speaker 1: absolutely off. We will be off to the races. Um.
Speaker 1: Although you know, given that nothing will be signed today, um,
Speaker 1: as far as I'm concerned and as far as I know, UM,
Speaker 1: So it doesn't mean that everything is set in stones,
Speaker 1: so to speak. But it's certainly um will help put
Speaker 1: a floor under some of these stocks steal specifically aluminum less.
Speaker 1: So I think we're a little bit less bush on
Speaker 1: the aluminum decision because the US market is in a
Speaker 1: structural deficit, so we need imports, um to satisfy downstream industry.
Speaker 1: And if those imports or exports the US do not
Speaker 1: have a home in the U s then they just
Speaker 1: sit on the international market and will suppress prices. But
Speaker 1: just take a step back, and why is President Trump
Speaker 1: expected to make some kind of teriff announcement today? Uh?
Speaker 1: And what is the process once he has announced something
Speaker 1: for it to become law? In other words, does he
Speaker 1: make an announcement at at like a stump speech, and
Speaker 1: then it's it's the law of the land. Yeah, there is.
Speaker 1: Congress has already kind of you know, blessed this essentially,
Speaker 1: so um, they would have to pass a law that
Speaker 1: would reverse this, so to speak. So whatever he kind
Speaker 1: of signs at whatever point in time, Again, don't expect
Speaker 1: anything to be signed today. But um, he has until
Speaker 1: the middle of April UM, which was the end of
Speaker 1: the ninety day countdown clock that started in mid January.
Speaker 1: To make a decision given the fact that the Commerce
Speaker 1: Department submitted their findings to him, like I said, in
Speaker 1: the middle of January. So, um, that's kind of the
Speaker 1: timetable which we're at. So we're getting an announcement about
Speaker 1: a month and a half sooner than than the than
Speaker 1: the end game. Well, Dave Wilson, just to get your
Speaker 1: thoughts here, because while you may see an increase or floor,
Speaker 1: as Andrew said, on the stock prices of companies like A.
Speaker 1: K steal and and U S Steal, I'm looking at
Speaker 1: the shares of Caterpillar right now. They're down nine tens
Speaker 1: of a percent. What about all the companies that use
Speaker 1: steal and aluminum. Aren't they going to end up with
Speaker 1: higher input costs? Well, that's the risk that you take
Speaker 1: here in defending the metal producers. You're you are imposing
Speaker 1: more costs on metal consumers, and then you have to
Speaker 1: think about, well, what does it mean in terms of inflation?
Speaker 1: That really does seem to be the buggy man, you
Speaker 1: might say for markets at this point. So the whole
Speaker 1: idea that you would get imported inflation in essence, I mean,
Speaker 1: if US producers are able to raise their prices perhaps
Speaker 1: because of the leeway they have with less competitive imports. Well,
Speaker 1: that is something that may change the inflation picture, maybe
Speaker 1: not in a substantial way, but enough to sort of
Speaker 1: add to the drumbeat on that score. Andrew, you got
Speaker 1: a thought on this, Oh yeah, no, I mean I
Speaker 1: think seven team is all about the uh, the year
Speaker 1: over year price increases that we saw comes around the
Speaker 1: commodity side. Team will be all about those commodity increases
Speaker 1: feeding through into the middle part of the supply chain. Um.
Speaker 1: If you take autos, for example, three to four percent
Speaker 1: of the entire cost to produce a car is comprised
Speaker 1: of steel. UM. So again it's it's not it's not
Speaker 1: the end of the world for US automaker. If prices
Speaker 1: go up, which again let's just think about it this way,
Speaker 1: horiffs on top of what was already there. Now you
Speaker 1: have a lower US dollar UM, which is trending about
Speaker 1: seven percent year on year in and so, and you know,
Speaker 1: prices continue to go up. That's upwards of on a
Speaker 1: on a three to four percent base. So if it
Speaker 1: goes from three to four percent, it goes to maybe
Speaker 1: five percent, it's not the end of the world. But again,
Speaker 1: will the auto companies pass those on. You know. That's
Speaker 1: that's that's up for debate. They'll probably try, but given
Speaker 1: the you know, tightened purse strings of the U. S. Consumer,
Speaker 1: it's it's also tough to argue. Thank you so much.
Speaker 1: Joining us Andrew Cosgrove, senior analyst UH focusing on energy
Speaker 1: and mining for Bloomberg Intelligence, and certainly General Motors Fiat Chrysler.
Speaker 1: They are poised for demand to drop, and they are
Speaker 1: reporting pickup sales drop already today and we'll get details
Speaker 1: on those as we get them. Right now, I want
Speaker 1: to bring in Matt Bosler, Federal Reserve reporter for Bloomberg News.
Speaker 1: We are, of course awaiting the second day of testimony
Speaker 1: from Federal Reserve Chair Jerome Powell. Matt, how much does
Speaker 1: it matter that we got very solid UH personal income
Speaker 1: data as well as jobless claims UH showing that the
Speaker 1: rate has fallen to the lowest for a week in
Speaker 1: almost fifty years. Yeah, not bad, right. I think the
Speaker 1: bottom line is that it's just going to reinforce the
Speaker 1: message that he gave on Tuesday, which is that we've
Speaker 1: seen an improvement in economic data since December, the last
Speaker 1: time the Fed put out rate projections, and so in
Speaker 1: two weeks when they put out new rate projections, Uh,
Speaker 1: there's a chance that you know, those rate projections could
Speaker 1: go up based on that improvement. Nothing we saw this
Speaker 1: morning really knocks them off that path. Interestingly, inflation was
Speaker 1: a little week, but at this point, it definitely looks
Speaker 1: like the Fed is more you know, focused on the
Speaker 1: forward looking growth outlook and the potential impact that's going
Speaker 1: to have on inflation down the road, even if the
Speaker 1: inflation data right now are still looking a little muddy. Matt, Uh,
Speaker 1: he'll be testifying, drum palill be testifying before the US
Speaker 1: Senate Banking Committee, And I'm wondering if you could give
Speaker 1: us any thoughts about whether the questioning coming from Michael Crapo,
Speaker 1: the chairman, Republican from Idaho, as well as Uh Shared
Speaker 1: Brown for the Democrat from Ohio, whether the questioning coming
Speaker 1: from both sides will be any different than what we
Speaker 1: listened into on Tuesday when he testified before the House. Yeah.
Speaker 1: I think that's a really interesting question because what we
Speaker 1: saw on Tuesday was, you know, House Republicans over the
Speaker 1: last several years have been much more critical of the FED.
Speaker 1: They've gone after the Fed on the large balance sheet
Speaker 1: and um, you know monetary policy rules, wanting to bind
Speaker 1: the FED more two rules. Um. And I think there
Speaker 1: was some question about whether that was just because you know,
Speaker 1: we had a more democratic FED leadership in the likes
Speaker 1: of Bernanke and Yelling. Um. Now we have j Powell,
Speaker 1: who's obviously a Republican, but he was not spared from
Speaker 1: those same criticisms that his predecessors got from House Republicans. So, um,
Speaker 1: you know, the Senate tends to be a little friendlier.
Speaker 1: We'll see how that goes for him. Dave, you know
Speaker 1: is notable. Uh. The last time that Federals a chair
Speaker 1: Powell went before Congress members Tuesday, Uh, the market did move,
Speaker 1: He did cause a reaction. Stocks went down. Do you
Speaker 1: think that he will cause a similar reaction today if
Speaker 1: he reaffirms his stand in a solid U S economy? Well,
Speaker 1: I mean, if you think about why you saw the
Speaker 1: reaction that you did on Tuesday, it's all about kind
Speaker 1: of some itchy trigger fingers, you might say, when it
Speaker 1: comes to inflation and the FEDS response to that. You know,
Speaker 1: the idea that you might get for rate increases this
Speaker 1: year instead of three I mean that's sort of emerge
Speaker 1: from his back and forth with the folks in Congress.
Speaker 1: So you know, I mean that's sort of out there
Speaker 1: and it's really a matter at this point. Would he
Speaker 1: say anything to go beyond that in terms of providing
Speaker 1: any uh fodder for those trying to divine the feds
Speaker 1: next moves on policy. Yeah, but he does now have
Speaker 1: the information and the experience based on his Tuesday presentation
Speaker 1: and testimony about how the stock market, how the bond
Speaker 1: market reacts to comments that he makes that he may
Speaker 1: not even really have in trying to alter anybody's perception that,
Speaker 1: in other words, he sees what he what the reaction is,
Speaker 1: and now what do you think that it's possible he'll
Speaker 1: modify any of his responses. Probably not. Um. You know,
Speaker 1: it's interesting because going into that hearing, you know, we
Speaker 1: had had so many weeks of rising interest rates, pricing
Speaker 1: in more and more Fed moves, and so you know,
Speaker 1: for j. Powell coming in at the end of that
Speaker 1: rise in interest rates and saying, well, you know, kind
Speaker 1: of hinting that they might go for instead of three
Speaker 1: times this year, most of that was already priced in,
Speaker 1: so um, it would be even more surprising if he
Speaker 1: reiterates that message today and we see a market reaction.
Speaker 1: Just had priced in even before his testimony. Yeah, it
Speaker 1: was getting more and more priced in, right, I mean,
Speaker 1: you almost had three rate hikes fully priced even before
Speaker 1: his testimony, which obviously indicates a significant probability of doing
Speaker 1: more than that. So if you look at the data now,
Speaker 1: if you go on the work function today, we're at
Speaker 1: about a one in three chance already that we got
Speaker 1: four or more hikes this year. Saying that's what's different, Yeah, no, absolutely, um,
Speaker 1: but but it just you know, given that he endorsed
Speaker 1: that on on Tuesday already, it's hard to see how
Speaker 1: much more he could move the market in that direction.
Speaker 1: At this point, I want to bring some data that
Speaker 1: just came out, economic indications of more strength manufacturing in
Speaker 1: the US expanding at the fastest pace since May two
Speaker 1: thousand and four. This according to figures from the Institute
Speaker 1: for Supply Management that came out just minutes ago. Dave,
Speaker 1: you know, the economic data in the US has been
Speaker 1: really steadily solid and frankly improving. Are we seeing And
Speaker 1: we've talked a lot about earnings coming out or coming
Speaker 1: to the end of this earning season. Uh, is there
Speaker 1: an expectation that this will continue? We're earnings better even
Speaker 1: than this economic data. Well sure, I mean when you
Speaker 1: consider SMP five profit growth is looking like sixteen percent
Speaker 1: at this point, I mean, not's saying something. And you
Speaker 1: know that. Then you add in in terms of this year,
Speaker 1: the effect of the tax cuts that were made. Here
Speaker 1: I'll give you, I'll give you the companies for the
Speaker 1: SMP five have been reporting earnings that are ahead of estimates.
Speaker 1: For the fourth's a little bit higher than we've seen historically, right,
Speaker 1: And that's just to put that into context. More than
Speaker 1: of the companies in the SP already reported their results.
Speaker 1: Well yeah, and you're seeing it on the top line
Speaker 1: as well. I mean, with more companies than usual coming
Speaker 1: out ahead on sales. And that's where you if you
Speaker 1: want to talk about how business is doing and how
Speaker 1: the economy is doing. I mean, focusing on the top
Speaker 1: line makes a whole lot more sense because you know,
Speaker 1: you don't have the issues of stock by backs and
Speaker 1: whatnot that can influence the bottom line. And right now,
Speaker 1: I just to let you know, Vesserserve chaired your own
Speaker 1: Powell is giving his introductory speech. Matt is the FED
Speaker 1: getting behind the curve. I don't think there are really
Speaker 1: any indications that, certainly not in the inflation data. You know, again,
Speaker 1: the inflation data this morning, we're actually pretty weak. And
Speaker 1: you know, sort of these pro cyclical components of inflation
Speaker 1: that we've been talking a lot about, you know, the
Speaker 1: ones that sensibly respond the most too tightening labor markets
Speaker 1: are all going in the wrong direction for the most part.
Speaker 1: So um, you know, there's the key question continues to
Speaker 1: be will the Phillips curve eventually reassert itself. The Phillips
Speaker 1: curve meaning that the lower the unemployment rate goes, typically
Speaker 1: the higher the inflation rate should go. It's an inverse
Speaker 1: correlation between inflation and unemployment rates exactly. So if you
Speaker 1: look at what the FED is saying right now, what
Speaker 1: j Powell is saying, the kind of the whole FED
Speaker 1: story is that, you know, we're getting bigger than expected
Speaker 1: fiscal stimulus. So that's going to lead to faster than
Speaker 1: expected economic growth, which in turn is going to push
Speaker 1: the unemployment rate down faster than we previously thought, which
Speaker 1: should put more upward pressure on inflation. But you know,
Speaker 1: there's nothing new here in terms of the unresolved question
Speaker 1: of whether that sort of Phillips curve relationship is actually
Speaker 1: going to reassert itself. It's just that we now have
Speaker 1: a bigger impulse, you know, if you do believe the
Speaker 1: Phillips curve is still operative, which most of the Fed do,
Speaker 1: and so that is why they are speeding up right now,
Speaker 1: even in the absence of any pickup and inflation. Well,
Speaker 1: one thing just to mention in terms of the economy
Speaker 1: is that there is a shortage of truck drivers. And
Speaker 1: we know that commerce in the United States depends on trucks.
Speaker 1: I believe it's somewhere in the order of about of
Speaker 1: the nation's freight volume by weight moves by truck. And
Speaker 1: if you don't have people to drive those trucks, you're
Speaker 1: going to have to pay those that do more, and
Speaker 1: you're gonna have to pay more for those that may
Speaker 1: want to get those jobs, uh, in order to attract
Speaker 1: them from something else. Well, and Dave to that point,
Speaker 1: I mean, how much are the wage increases that we're seeing,
Speaker 1: even if they're not you know, run away by any means,
Speaker 1: how much of eating into the profitability of some of
Speaker 1: these companies. Not so much at this point. It's a
Speaker 1: question of does it broaden out. I mean bear in mind,
Speaker 1: when a lot of companies talked about what they were
Speaker 1: going to do with their tax cut money, Uh, they
Speaker 1: decided to give bonuses to workers rather than increasing annual wages.
Speaker 1: So it's a one time deal which minimizes the effect
Speaker 1: going forward. I mean that said, the kind of issues
Speaker 1: that PIM has been talking about, given how low the
Speaker 1: unemployment rate is, it's something that's got people's attention. And
Speaker 1: there's no doubt that in some areas of the economy,
Speaker 1: you know, trucking being an example, uh, that you are
Speaker 1: going to see higher wages and in fact that it's
Speaker 1: already started to happen. So Matt, just look going forward,
Speaker 1: what can we what are the sort of keywords that
Speaker 1: were waiting for from J Powell? What are you watching for?
Speaker 1: So I think you know it's going to be it's
Speaker 1: going to continue to be interesting discussion about the fiscal stimulus,
Speaker 1: you know, when they ask him what, uh you know
Speaker 1: that is going to do to to you know, fed
Speaker 1: interest rates. I mean you saw that a little bit
Speaker 1: and we talked about it on Tuesday before beforehand. This
Speaker 1: is really becoming quite politicized. And so you had some
Speaker 1: Democrats UM in the House Financial Services Committee trying to
Speaker 1: push Powell to say, well, doesn't this, you know, like
Speaker 1: ill time tax cut mean you're gonna have to raise
Speaker 1: rates more quickly and that's bad, etcetera, etcetera, trying to
Speaker 1: box him in that way UM, and he he kind
Speaker 1: of avoided that. So I think that is the first thing.
Speaker 1: And then the other thing is, um, do we get
Speaker 1: more of a substitutive discussion about UM the inflation target
Speaker 1: and whether he thinks two percent UM is really an
Speaker 1: adequate target or if they need to move to something
Speaker 1: more robust, like a price level targeting regime. We didn't
Speaker 1: really get into that UM much on Tuesday, but that
Speaker 1: is definitely one of the biggest conversations in FED circles
Speaker 1: right now. Well, just to put in the context about
Speaker 1: the incomes and spending. You know, we got the report
Speaker 1: today right and after tax income chump nine tenths of
Speaker 1: a percent. That's the most in a year. That's according
Speaker 1: to the Commerce Department that's just released this morning. And
Speaker 1: real disposable income increased the most in about five years.
Speaker 1: That's when you strip out different inflation measures. So it
Speaker 1: does seem to be that wages are increasing, but is
Speaker 1: it enough and does it really get completely offset by
Speaker 1: the higher rents and the higher medical costs? Whatever I
Speaker 1: hear disposable income, I have to wonder, you know, is
Speaker 1: it really disposable because some of the same measures that
Speaker 1: we've used in the past perhaps don't work the same.
Speaker 1: J Wilson Bloomberg SAX editor, columnist and blogger at M
Speaker 1: Live go on the Bloomberg. Thank you so much, Matt Bosler.
Speaker 1: We know you have a busy day ahead of you
Speaker 1: of fed, watching FED tea, leave reading Matt Bosler Fed
Speaker 1: to reserve, reporter for a Bloomberg also joining us. Thank
Speaker 1: you so much. Thanks for listening to the Bloomberg P
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Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
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