April 10, 2025 • 35 mins
- Russ Koesterich, Portfolio Manager at BlackRock
- Dr. Amrita Sen, founder and Director of Research at Energy Aspects
- Erika Najarian, Equity Research Analyst at UBS
- Torsten Slok, Chief Economist at Apollo
Russ Koesterich, Portfolio Manager at BlackRock, discusses the equity rebound following President Trump's tariff reversal and whether the market could continue its climb from here. Dr. Amrita Sen, founder and Director of Research at Energy Aspects, discusses the outlook for crude oil and energy prices as market concerns due to a US-China trade war persist. Erika Najarian with UBS previews big bank earnings and talks about the health of the financial sector. Torsten Slok, Chief Economist at Apollo, talks about the US economic outlook following extreme market gyrations from President Trump's tariff reversal.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and am Marie Hordern. Join us each
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(00:33):
Bloomberg Terminal and the Bloomberg Business app. A wild start
of the week in financial markets, Ross coasterriokat Black Rock
joins us now for more RUSS A big change, and
you turn from the President of the United States. Is
it making more bullish on equities or on bonds?
Speaker 3 (00:47):
I say it right now, it makes us cautious. Good morning, Johnathan.
We've been pulling in risk for a while. Clearly yesterday
was the relief. Market took it as such. But you know,
as I just looking at a fourth this morning, you're
often get these big rallies during periods of turbulence. Our
view is that you're still in an environment where policy
(01:08):
uncertainty is heightened. You're also an environment that whatever you
came into twenty twenty five, whatever your economic assumptions were,
they've got to be lower today. So if we've got
a world of higher uncertainty, probably higher volatility, slower growth,
you've got to adjust the portfolio accordingly Russ.
Speaker 1 (01:28):
In the past, that would mean going to bonds. This
time around, is that still true, Well.
Speaker 3 (01:33):
We have been raising our allocation to bonds. We were underweight,
as you might remember. You know, over the last few
years have been talking about it generally modestly underweight bonds,
particularly on the long end of the curve. We've been
bringing that back closer to benchmark. And I'd say that
is more of a reflection of the economic environment than
trying to make a bet on policy. And now, if
you do have an environment where growth is going to
(01:55):
be slower, it's not crazy that your bond allocation is
going to be closed their home. But by the way,
we've done a similar thing in equities. We brought our
equity allocation down closer to benchmark. So what's happened generally
lowering the risk of the portfolio in this type of environment.
Rather than a strong bed on you want to be
in bonds and equities you want to bring risks down.
Speaker 1 (02:16):
Maybe the larger question is US assets versus XUS assets.
At a time where the source of volatility is the
United States, and this has to do with bonds, but
more broadly with dollar denominated assets, does it make you
rethink some of what you have in your portfolio based
on where the source of volatility has been coming from.
Speaker 3 (02:37):
This is a great question. I think this is actually
a harder question to answer. But what I would say
is I don't think you have a Kneiser reaction to
move away from dollar assets. A couple points. First of all,
we might remember twenty eleven during the debt sealing crisis,
the US gets downgrade and the epicenter of the crisis,
what happens, Treasury bonds go up. The dollar is still
(02:59):
the reserve currency. We can debate what's going to happen
in five or ten years. It is still a safe
haven asset, and I do think that you've got to
be skeptical about calling the end of dollar dominance. The
other point, in the equity side, you know we are
still modestly overweight the US. Now, why would you do
that with all the turbulence. Going on simple answer, we
still find better companies in the US. We think about
(03:23):
what do we want in this environment. We want profitability,
We want companies that can generate consistent earnings. Still find
more of those companies in the US rather than Europe
or Japan. So to my mind, even with the turbulence,
from a bottom up perspective, still in an argument to
be modestly overweight the US.
Speaker 4 (03:40):
Given all the uncertainty, even whether or not Trump decides
to blank walk off the cliff, give these reprieves.
Speaker 5 (03:47):
Do you still like gold?
Speaker 2 (03:49):
We do like gold.
Speaker 3 (03:50):
You know again, they have to trade around it. It's
been a huge move. We like gold back six months ago.
We definitely like it today. A couple of reasons. First
of all, you know m range, as you suggest, still
a asset that works during times of turbulence. You look
at the performance of gold when volatilities rising again. I
think it's safe to say we'll probably in a more
vol environment, generally does very well of over stocks. The
(04:13):
other argument is the long term fiscal picture. One of
the reasons we like gold is you can't print more
of it. It is a store of value. It's still
not obvious that there's going to be a significant improvement
in the fiscal picture. If we are an environment of
these two trillion dollars structural deficits, They're not necessarily going
away having something that can't you can't increase the supply.
(04:37):
It is a store of value of the portfolio. We
think that makes sense over the longer term.
Speaker 2 (04:42):
Russ just wanted to jump in with some news now
to the European Union. The headline just crossing the Bloomberg
terminal that the EU is considering pausing counter tariffs against
the United States for ninety days, in line with that
ninety day pause that the President announced just yesterday. Just
taking the temperature down just a bit more this morning.
Speaker 4 (04:59):
And I also think the European Union is looking around
the room and saying, look what's going on with Japan,
Look what's going on in South Korea. They are pushing
out all of branches. They are saying they want to
do deals with this president. He's come out and said,
you're going to get a ninety day reprieve, So why
should we escalate at this moment? Maybe we should send
a team over and try to de escalate and come
to a trade agreement.
Speaker 2 (05:18):
The lyceis headline from the team here at Bloomberg that
the European Union is considering pausing counter tariff against the
United States on metals for ninety days. Russ. Just to
bring it back into the conversation as we take the
temperature down worldwide, how close did we come to an
accident in this bond market? What did you see developing
in the previous few days coming into the announcement from
the President just yesterday afternoon. Well, I think the.
Speaker 3 (05:40):
Bond market move was definitely something we're paying attention, and
it was not just the treasure market. You'll remember that
during the initial phases of the selloff, credit markets were
remarkably well behaved. That all started to change on Friday.
We saw spreads back up dramatically. I think that gave
a lot of people pause because now it's not just
a matter of growth, it's a matter of liquidity. It's
(06:02):
a matter of what's happening with the availability of credit,
and that was something that definitely unnerved investors. If you
see the bond market calming down, it's definitely development that's
going to give a little bit more comfort to the
equity side of the market.
Speaker 2 (06:17):
Things setting down in the bond market this morning. Ross
appreciate your time. Rouss Costrict of Bland Troup, rita's center
of Energy Aspects, writing, Trump needs higher supplies to lower
oil prices in a manner that can provide a tailwind
(06:38):
for global growth as an offset to his tariff policies. Instead,
tariff will lead to lower oil prices by hurting demand growth.
And Rita joined us now for more and Rita, welcome
to the program. You made some headlines in the past
few days on some very very low numbers in the
crude markets. So what do you expecting now.
Speaker 6 (06:57):
Well, I think the prices, the general trajectory is still lower.
I know there's been a ninety day pause. We saw
a little bit of a bounce, but ultimately, if you
look at the trade weighted tariffs reciprocal tariffs globally on
the second of April, it was actually nineteen point one percent.
Yesterday it was twenty six point two percent despite the pause,
(07:18):
because of just how much the China bit has escalated.
It just tells you that that is ultimately the one
that matters the most when it comes to kind of
global growth. Of course, it's better news for some of
the countries some of those tariffs have been paused, but
like you guys were saying just now as well, there
is there is definitely no certainty that they will remain off.
(07:39):
We are hearing more and more from our clients that
consumer and a particularly business sentiment has completely come to
a stall. Nobody's investing, there's no capex investment, and we're
going to see a pretty big demand hit. We've just
reduced our oil demand number for the second half of
the year by four hundred and fifty thousand barrels per day,
the same for twenty twenty six. So I just don't
(08:00):
see how oil prices are going to start moving higher
anytime soon until we see the supply response.
Speaker 4 (08:05):
How loo are we talking, Amerta, Do you think oil
prices can go?
Speaker 3 (08:10):
So?
Speaker 6 (08:10):
Look, the difference now versus in the past cycles is
that the shale breake events are higher. And when I
was there just last week as well, I would say
my biggest takeaway was that outside of the Permian, all
the other basins you're talking about like in the sixties,
well into the high sixties in some basins which are
now their break events. At the Permian it's in the fifties,
but that is effectively the flaw. The difference is it's
(08:33):
the timing of it.
Speaker 2 (08:35):
Right.
Speaker 6 (08:35):
We need to be here for one whole quarter before
supply response, and the response will be significant this time around.
You are going to lose a few hundred thousand barrels
per day pretty quickly. But it is just that timing
like in that within that timeframe, prices can continue to
go lower. I remember there's positioning driven. A lot of
this is positioning driven, and people are just liquidating positions.
(08:57):
So then it just becomes a number. But ultimately the
floor should be around where we are now, maybe a
couple of dollars lower. But I don't necessarily see sustained
prices in the forties or the fifties, but we can
absolutely test the four handle in the short term.
Speaker 4 (09:12):
I know that opek plus in Saudi Arabia says they
do not target price, but given this environment you're describing,
why did they go further and add even more barrels
to the market.
Speaker 6 (09:24):
Yeah, I mean, look, the timing of it is obviously
left to plenty of rumors about like, you know, were
they doing this on the back of tariffs or to
a peace. President Trump ahead of his visit to the Kingdom.
In reality, OPEK just has its own timelines for doing things.
The Saudi OSB always comes out around the fifth of
the month, so they had to take the decision before that.
So it was an unfortunate timing. But the decision was
(09:47):
entirely to do with internal OPEC dynamics. As we've been saying,
you know, we have seen laggards, a couple of you know,
ops in Middle Eastern countries itself, but it's mainly Kazakhstan.
If you look at Kazakhstan's production, four hundred thousand barrels
bit higher than where they are meant to be, and
they are just not showing any signs of coming off.
And I think that is where I worry even for
(10:08):
next month, regardless of price, because if this is about
getting cohesion and getting the message across that everybody needs
to do their bit, then it will not matter until
Anonilyst Prince Abdilacy sees that compliance number.
Speaker 5 (10:22):
Pick up, let's put.
Speaker 1 (10:24):
That into English. Basically, this is all designed to punish
Kazakhstan with lower oil prices for a margin grab unless
they're into compliance and then there can be some sort
of agreement.
Speaker 6 (10:36):
Yes, I think long story short, that's it, and not
just Kassakhs and the few of the laggods. But yes,
it's to say that cuts need to be equitable. It
can't just be Saudi Arabia that carries the cuts for.
Speaker 5 (10:45):
Everybody at a certain point.
Speaker 1 (10:47):
There's also a knock und effect that this potentially could
become punitive at that kind of level for US jail producers,
for the US oil ex board system. That has been
one of the drivers of a lot of growth that
we've seen in the United States and the GDP here for.
Speaker 2 (11:03):
The past decade.
Speaker 1 (11:04):
I'm just wondering at what point that factors in as well.
Speaker 2 (11:08):
Well.
Speaker 6 (11:08):
That's what I was saying just now. Right, the shale
break events are significantly higher narn, which is why I
was saying that I don't see prices sustainably going below
fifty five to sixty or even sixty five. But in
the short term it could be because even at these
price levels, we are hearing from our shale producer clients
that they have just stopped drilling, or they're planning to
stop drilling. They could even drop rigs. You're going to
(11:31):
see a very significant turned down in shale production very quickly,
and like you said that, and we forget this. We
tend to talk about the US as a consumer nation.
Production and given how much US production is, production is
a huge part of US GDP.
Speaker 2 (11:47):
Right now, I'm Rachel just quickly. We've seen commodities drop
across the board over the past week or so. See
some evidence that particularly with copper, Chinese buyers might be
stepping back in I had of stimulus, so you're seeing
anything like that. With crude, we've.
Speaker 6 (12:00):
Seen a little bit here and there, but I do
think right now there's just a bit more panic because
it's still a moving target. They have come out with
an SBR program as well, saying that we need to
stalk pile, but that's really from July onwards. The biggest
hit is actually going to be on lpg F in
in particular, and propine foods still okay, but the physical
(12:21):
market is actually still very strong, even in the East.
It's you know, stocks are still drawing. But it is
really about the fear of the future.
Speaker 2 (12:28):
Got it, and Racha appreciate the update. Thank you and
Rach to send there of energy aspect Erica and a
Jeron of UBS writing management teams are between a rock
and a hard place, as any outlook seen as quite
bearish could also punish the sector. Erica joins a snapper
(12:51):
more Erica always good to see you get to see.
What do they tell us the Morrow monic? What can
they tell us?
Speaker 7 (12:56):
What can they tell us that will matter? A lot
of investors are thinking that whatever they'll say, which is
actually not so bad, is going to be seen as
backward looking. Now, I think there are really two things
that investors are looking for. Number One, are activity levels
now just permanently impaired from both the corporate side and
the consumer side. So clearly we had this animal spirits
(13:19):
economy that we really wanted to come through.
Speaker 5 (13:22):
And if you're a corporation, how do you make decisions
in this environment?
Speaker 2 (13:27):
Right?
Speaker 7 (13:28):
And so as you think about investment, banking and loan
growth and commercial you would think that has to be
at least delayed.
Speaker 5 (13:35):
Although I wonder.
Speaker 7 (13:36):
If the equity market continues to rally obviously not today,
but I wonder if there's some deals that it's going
to get pushed through the pipeline over the short term.
On the consumer, you know, American Express is not normally
seen as a bell weather report, but given that ten
percent of Americans account for or high end Americans that
make two fifty account for fifty percent of the spend.
(13:58):
All of a sudden, there a bell the report because
if they're slowing down, that's not good for consumer activity
for the rest of the year.
Speaker 2 (14:05):
So the banks are the best data points we have
at the moment. It's the best real time data. We'll
get a lot of people look at payrolls and just
set that old news. When you were in touch with
the management teams over the past few days, you put
together a picture of where things are act currently. What
are they telling you about activity at the moment? If
things slowed down.
Speaker 5 (14:21):
Things are slow.
Speaker 7 (14:22):
If you look at the regulatory data and you catch
up with the banks and commercial activity, it's slow, it's
quite flat. And if you look at the geologic data,
I mean it's depressing. The whole capital markets renaissance is
just not quite happening. But trading, you know, as you
can imagine, given all this volatility.
Speaker 5 (14:41):
Trading could be lights out for this quarter. Okay, hold
on a second.
Speaker 1 (14:45):
I remember when we used to get volatility and it
was good volatility, and then it was bad volatility. And
volatility isn't always a good thing. So is this good
volatility or bad volatility in terms of bank profits?
Speaker 7 (14:53):
So so far again, you know, speaking about backward looking.
If you think about the month of March and think
about the equity market volatility, sell side desks are typically
long volatility, so that could.
Speaker 5 (15:04):
Be good for them.
Speaker 7 (15:05):
Now it makes me nervous, is what's been happening to
the treasury market in terms of dealer capacity. So the
key question for the month of April is, you know,
is there something going to happen? Is there bad volatility
now happening in the fixed income markets? That is not
going to be good news for the second quarter.
Speaker 1 (15:22):
So going forward, what do you think is going to
potentially be the bigger driver? Is it going to be
the trading side of things, or is it going to
be the m and a wave that doesn't come to pass,
or is it going to be deregulation which we've seen
some of but not necessarily the full package.
Speaker 7 (15:36):
So investors just never really value trading earnings.
Speaker 5 (15:41):
Much, right, it's super volatile. It's like throwing a dart
on the board. Who knows in any given quarter, right, I.
Speaker 7 (15:47):
Think what they're really looking for is, you know, honestly,
any signs of credit at this point, because the reaction
of banks up until yesterday really told me that investors
were starting to worry about recession rather than just to
slow down in activity levels. And so how they frame
that in terms of preparedness having the earnings power to
(16:10):
protect their capital.
Speaker 5 (16:12):
Let's say, if credit.
Speaker 7 (16:15):
Costs go up in anticipation of a tougher economy, I
think that's what the market sort of needs to hear
for now. On the deregulatory point, what's gotten lost in
all of this is I feel like the deregulatory momentum
and Trump two point zero is actually much stronger than
Trump one point.
Speaker 8 (16:31):
Oh.
Speaker 5 (16:31):
I mean we went to that lunch.
Speaker 7 (16:33):
I mean he started off Secretary Besson started off with
bank deregulation at this lunch with the Economic Club in
New York, and everybody just wanted to talk about tariffs,
and he started off with bank deg But for now,
until we understand you know that they range of outcomes
for the economy, the macro volatility uncertainty will trump the
(16:53):
deregulatory positive catalyst.
Speaker 4 (16:56):
But do you even believe these CEOs when they come
out and potentially say we're not gonna have a recession
or we Goldman Sachs pulled their call yesterday after Trump
came out and.
Speaker 5 (17:03):
Blanked again Rock in a hard place. Right.
Speaker 7 (17:07):
So, you know, if you think about how banks set
credit costs, they think about the future, they think about
the outlook, and they're saying to themselves, well, I have
no you know, I don't.
Speaker 5 (17:18):
Know what the outlook is.
Speaker 7 (17:19):
So perhaps they're going to build reserves a little bit,
but you don't have an inventory of losses that are
coming down.
Speaker 5 (17:25):
The pipeline.
Speaker 7 (17:26):
Card delinquencies are actually flat to down, and commercial delinquents
or non performing loans are pretty flat and improving.
Speaker 5 (17:34):
And so it's tough.
Speaker 7 (17:35):
But they have to talk defensively or else investors will
think they're baring their head in the sand.
Speaker 4 (17:41):
It's an important point you brought up about Scott Besson
at the Economic cub of New York where we saw
each other last because he wanted to talk about deregulation
and tax cuts, but the entire room wants to talk
about tariffs. At the moment, there was all this unsurgerty
what they were going to.
Speaker 5 (17:52):
Do with trade.
Speaker 4 (17:53):
When you take the entire policies of the Trump administration, deregulation,
tax cuts, and tariffs. How much more constructive is that
for banks towards your end?
Speaker 7 (18:02):
So deregulation is super super constructive, right, particularly as we
start thinking about changes in the stress test, which I
think could be a twenty twenty six catalyst. I know
it's not five minutes from now, as we like, So deregulation.
Speaker 5 (18:17):
I think is a big catalyst.
Speaker 7 (18:19):
You know, tax cuts obviously, the continuation of you know,
the tax cuts and jobs that would be you know,
beneficial for corporate activity, But that's something that's already embedded, right,
It's already baked in the base case. So just extending
that isn't necessarily going to pump up activity, which goes
back to trade. Right, it's like the big overhang that
(18:40):
is overshadowing everything else that's good.
Speaker 5 (18:43):
So did the big.
Speaker 1 (18:44):
Banks benefit the most from deregulation and an uncertain regime
where they consolidate a lot of trading volumes?
Speaker 7 (18:50):
So I think that in a deregulatory environment you get
to unlock a lot of excess capital, and I think
that's great. But if there's not a lot of demand
for that capital other than trade, what good is it
to unlock excess capital?
Speaker 5 (19:03):
Right? And by way.
Speaker 7 (19:04):
Remember, buybacks tend to be very pro cyclical, like if
we're staring down the barrel of what we stared at
last week. You know, I don't feel like bank management
teams are gonna be like, I'm gonna buy.
Speaker 5 (19:15):
Back a ton of stock now, right.
Speaker 7 (19:18):
They tend to be like, well, we're gonna keep the capital.
Speaker 5 (19:20):
You know, tight and excessive for a rainy day.
Speaker 7 (19:23):
So you know, we have this regulatory or deregulatory momentum
to unlock the access capital, but we need somewhere to
put it. And I'm not sure it's going to be
like shoe factories in Binghamton, Right.
Speaker 2 (19:34):
Do you think there's some pressure on them to cut costs?
Speaker 7 (19:36):
Now? Pressure to cut costs? I think it's too early.
I mean, trading is great. No one is giving up
on the outlook yet for investment banking. And you know,
a lot, especially a lot of regional banks have PTSD
from cutting too much in twenty twenty three, and now
like they're you know, lost some A players and now
they're scrambling to hire even like a B plus player, right,
(20:00):
So I'm saying, so there might be.
Speaker 5 (20:02):
Some durability in costs. It's too late to use that
as a lever, so sorry so early.
Speaker 2 (20:08):
Rather looking across the companies that you cover at the moment,
just identify a couple that you do like in a
moment like this one. Because this sounds tremendously parish at
the moment, but I'm sure there's sometimes you like do
you like at the moment?
Speaker 7 (20:19):
Counter to everything that I said, I am obsessed with
Capital One. I think that like so here here's the tagline.
Cycles are temporary, but networks are forever and buried under
all of the Liberation Day chaos. And Thursday was the
New York Times headline that the DOJ is okay with
the deal, right, and this is a once in a
(20:40):
lifetime deal for Capital One to own a debit network
and a credit network. So in an environment like this,
I have no idea what the macrost or else, I
wouldn't be sitting here, I'd be on the beach, right.
But in that case, what investors want will support and
like our stories where they can self start, like you know,
they can you know, grow earnings power in a different
(21:02):
way that's completely exclusive of the macro. And that's what happened,
That's what's happening with this discovery deal.
Speaker 2 (21:07):
We all want to come to the beach with you. Eric,
is good to see it, Nanks for dropping by, Thanks
for your time, Eric, and the Jerry in the VPS
looking ahead. So those pancanics they dropped tomorrow morning. Susan's
slock of Apollo joints is surround the table, Sustin. Good morning, sir,
(21:28):
It's good to see you morning. Can I ignore all that?
Speaker 9 (21:31):
Well, this is a golden lug starting point for the FED,
at least, I mean the dual mandate it says inflation
should be too. We moved a little bit more in
that direction, better than expected, and on jobless claims, we
also had a label market that still is reasonably strong.
So from that perspective, this is absolutely good news for
the FED that we did not get yet any inflation
surprise to the offside. But obviously we still have terriffs
in the pipeline, and what's left on the tariff front
(21:54):
could still add as much as one percentage point to
tariffs over the next I'm sorry to inflation over the
next twelve months. So in that sense, this is backward looking.
As Mike is saying. The risks are of course that
there's now more upside coming to inflation.
Speaker 2 (22:05):
So this is the issue, and it's a sequencing gissue
and I'd love to get your thoughts on it. So
sentiments collapsed basically created over the past few months. What
we started to see with CPI, it's just a bit
of softness that's encouraging. How long before we see the
weakness in the output data before we then see the
higher prices in months to come? What comes before the other.
Speaker 9 (22:23):
Well, let's think about how companies might respond to this.
So now you know tariffs are coming. For example, if
you think about Amazon, of this sellers on Amazon seventy
one percent they source their goods in China. So one
very important aspect is that it will be visible for everyone.
The prices are going up on things that are imported,
of course from China. So the conclusion to your question
is how do you respond to that? Do you take
(22:44):
your existing inventory and sell that at the old prices?
Do you take your existing inventory and raise the price immediately?
That profile will probably be individual for different companies, depending
on the competitive situation which sets are there in how
sensitive they are to tariffs. So we just don't know
yet what the impact will be and how quickly this
will feed through. But we do know that higher prices
(23:04):
are coming as a result of goods coming from China
becoming significantly more expensive. So even if companies decide to
sell the existing inventory at the old price, we will
over time see some outware pressure on goods inflation coming
from this source.
Speaker 1 (23:18):
Is there a risk that we ignore this data at
our own peril? The idea that actually lower energy prices
are giving more disposable income to consumers to potentially go
out there and buy, and that, oh yeah, it's also
an offset for a lot of potential producers in the US.
Speaker 9 (23:33):
Absolutely, low energy prices is very, very helpful for the consumer.
But the other thing, of course, is that the whole
surrounding sentiment around what's being going on is that we
literally went from the last few days from nuclear winter,
so now back to talking about stackflation and staflation. Has
these risks of course, that you have hit winds from
consumer sentiment being weak, corporate sentimenting weak. If you look
at the fit survey for CAPEX planning, they are really
(23:55):
beginning to turn south. So companies are beginning to pull
back more likely because of the unscore cercy. And let's
not forget we still have a five trillion dollar net
wealth effect on consumers from the stock market going down.
So if I add this whole list together of week
A corporate centiment, week A consumer centiment, tariffs coming, and
a negative wealth effect, and on top of that also
retaliation from foreigners who might be doing things to us
(24:17):
simply because of the trade wall, that brings you a
fairly long list of downside risk to the outlooker world.
Speaker 1 (24:23):
Which raises this issue of how we even game out
the idea of inflation.
Speaker 5 (24:28):
Why potentially are we.
Speaker 1 (24:29):
Not talking about deflation or disinflation? And I say this
given the fact that we see Walmart, for example, saying
that they are going to invest in price competitiveness, basically
they're going to absorb all of the costs from tariffs.
At what point could potentially the lack of demand be
the main story more than inflation.
Speaker 9 (24:46):
And that's why the key issue here is who is
going to absorb the increase in tariffs? Who's going to
absorb the price increase in goods that are coming here,
in particular from China.
Speaker 2 (24:55):
Is it going to be.
Speaker 9 (24:56):
Consumers that will face higher prices or is it going
to be taking out of margins will the E in
the PE ratio go down as a result of this
as companies such as Walmart, Costco, and of course Amazon
begins to say, well, maybe we are going to absorb
some of this, and that remains to be seen exactly.
Maybe it's going to be split across corporates and across consumers.
But the bottom line still is that someone has to
foot the bill when tariffs are going up.
Speaker 4 (25:18):
Wall Street Journal has this morning that the President privately
acknowledged that his trained policies could potentially lead to a
trigger recession, but he said he wanted to make sure
it didn't cause a depression. Where are you now in
terms of potentially having a recession this year?
Speaker 9 (25:33):
So, of course the last few days, it was pretty
clear that there would be a certain stop in the
economy where prices would go up significantly, literally on all
trading partners and everything coming in. So that was a
scenario where a recession was very likely, almost at one
hundred percent where we came from. Today, the recessiont probability
is probably fifty to fifty percent, meaning we think that
there is still a likelihood we will have a slow down,
but the risk is we just don't know what the
(25:54):
response is going to be from consumers, corporates, how much
markets go down further, in particular this wealth effect his own,
think about how we normally talk about when the stock
market's going down, we go back to the spreadsheets and say,
what's the mardule protenzeses to consume? How does consumers react
when the stock market goes down? Here on his own,
the stock market down now five trillion so far, and
of course now it's rebounding and then coming a little
(26:14):
bit back again. That's, on his own, a fairly significant
hit to consumers and the wealth effect for the consumer outlook.
Speaker 2 (26:20):
And we still don't know what the policy will be
in a few months time, including the tax code. This
came from the President just moments ago a social media
post saying, great news, the big beautiful bill is coming
along really well. Republicans are working together nicely. The biggest
tax cuts in US history getting close.
Speaker 4 (26:35):
Well, it's because yesterday they had to pull a vote
to vote on the budget resolution from the Senate in
the House because fiscal hawks are saying that Senate bill
doesn't do enough to for cut. So what's happening this morning?
Speaker Johnson? Leader soon are having a press conference later
this hour to outline a plan to get Trump's tax
cuts through. The President sees this and he says, oh, look,
they're working together now this morning. They weren't working together
(26:58):
last night.
Speaker 2 (26:58):
Can they change the conversation We just had CPI TA,
So let's bring my the key back in for an update?
Might you find a second love? What stands out well?
Speaker 10 (27:05):
A couple of things, John, We talked about grocery prices
and meat prices were up one point one percent. Chicken
prices were up, pork prices were up, so people will
really be noticing it at the meat counters in their stores.
More bad news for the president. He'd been bragging about
the price of eggs coming down, but they rise by
five point nine percent of the month, which puts them
(27:25):
up sixty point four percent for the year. Last month
it was fifty eight percent. So egg prices are going
back up now. The China impact perhaps, we saw furniture
prices rise on the month, and that is something we
get a lot of from China, up six tenths, bedroom
furniture up two point seven percent, Apparel up four tenths
(27:47):
after a six tenths rise the month before.
Speaker 2 (27:49):
Also something we do.
Speaker 10 (27:51):
Get a lot of from China. Toy prices went down,
though maybe that's because Christmas and Hanukkah are behind us.
Smartphone prices prizingly go down by one percent, so maybe
that's an inflation number that is coming but is not
there yet. The big market, well, let me do housing,
because everybody follows that owner's equivalent read up four tents.
Speaker 2 (28:13):
That's a rise of a tenth of a percent.
Speaker 10 (28:16):
So I was going to say the big thing that
people are going to be watching going forward is energy prices,
which were down six point three percent for gasoline. If
that continues, it takes some of the edge off the
food prices and it does help the administration's case.
Speaker 5 (28:31):
A little bit.
Speaker 10 (28:32):
But all in all, this is sort of a mixed report.
The things that we thought would go down airfares were
down five point four percent did go down. Some of
the things we got from China did go up, and
that's something that could continue with the big tariffs that
they now have.
Speaker 2 (28:48):
Thank you for the update, Mi mckaytha following inflation dates
for about ten minutes ago. David Kety, hp Mouk and
Ascent Management joins us now for more. David welcome to
the program. How encouraging is that data this morning? I
don't agree that changes anarrative much.
Speaker 8 (29:01):
I think, you know, Mike m keey was pointing out
that airfares are down five point four percent. Actually lodging
hotels and motels and so forth was down four point
three percent. So I think what we're seeing is a
lot of softness in the travel industry, which I think
is going to get worse over the course of this year.
It is a calm before the inflation storm. We're going
to get some higher inflation out of the tariffs. I mean,
(29:23):
remember we left the ten percent universal tariff in place.
That's a lot higher than anything we've seen really for decades,
so that's high. And then of course there's enormous tariff
on China which is going to clog supply chains and
push up prices too. So I think we will get
some inflation there.
Speaker 2 (29:37):
But what I actually see.
Speaker 8 (29:38):
In the data looking to get the travel numbers is
a sort of a deflationary tinge to the economy or
or or slow down tinge to the economy already. So
you know, you know, I'm glad that the market rallied
yesterday and say I'm glad that we've got rid of
the worst of the reciprocal tariffs apart from on China,
but I think that we are far from out of
the woods here. I think that these data do sort
(29:58):
of still suggest that they're is a slowdown coming in
the economy.
Speaker 1 (30:01):
So the slowdown is what worries you more than the inflation. David,
if I'm hearing you correctly, at a time or CPI
just came in, when you strip out energy and food
at the lowest level going back to twenty twenty one,
are you saying that that's really what markets ought to
be focused on, both bond and stock.
Speaker 8 (30:16):
Yes, because people talk about stagflation all the time, but
really it's always flation stag You get the inflation first,
and then you get the stagnation. And the problem is that,
you know, with labor for the labor supply falling away,
with these impediments to trade, with cutbacks in government spending,
government grants and so forth, with a lot of fiscal
drag this year, I can see a lot of things
(30:37):
that are going to slow the economy down. You know,
we'll get a temporary surge and inflation from this, but
I think we're going to be left with a pretty
stagnant economy afterwards. And the real question is, you know,
does that revolt in the House yesterday in terms of
House members who are fiscal hooks, is that really something
or not? Are we going to have a bigger deficit
in fiscal stimulus next year or not. If we have
(30:58):
fiscal stimulus, then I start working about inflation again. But
in the absence of major fiscal stimulus, I think that
people need to worry about recession more than inflation.
Speaker 1 (31:06):
Here, our bond's still the best bet us treasure is.
In that type of scenario, recession comes very much back
on the table.
Speaker 8 (31:14):
Well, yes, I mean I think this first of all,
I think, you know, long term interest rates at four
point three percent, four point two percent on a ten
year treasury, I think that's fine, and I think people need,
you know, i'd be level weight and fixed income. I
realize that we may have a mild recession here, but
you know, longer term, whatever recession we have, we'll we'll
pull out of it again. And these bond deals are
(31:36):
reasonable for the long run. I don't expect inflation to
hang around the long run, because you know, we'll get
these tariffs and then then you know, tarffs just don't work,
and eventually we'll pull back from them and that'll actually
have a deflationary impulse in the economy. So long term,
I'm not that worried about inflation. I am worried that
there won't be much dynamism about the economy overall.
Speaker 2 (31:53):
David, appreciate the update. I know you're basically this morning,
so thanks for making time for a staved Kelly. There
of JP Morgan Asset Management, if you want to joining
us downside surprise on CPI market just kind of looks
through it. I could he still session loads with down
by two percent on the S and P five hundred.
There is a bit at the front end of the curve.
You ce year's falling back by eight basis points at
three eighty three on a ten year and in the
(32:13):
effects market that unlocks further dollar weakness. You wrote dollar
through one eleven rote one eleven fifteen. Torson' slock of
Apollo is still with us. Torston, David Kelly, come before
the storm focus on a growth story more than inflation.
Do you agree with some of that?
Speaker 5 (32:25):
Well, I'm not so sure.
Speaker 9 (32:27):
I mean, in the last few days the FED has
made very clear that they will also be focusing on inflation.
So the real big question for them here is do
they want their legacy to be Arthur parents or do they
want their legacy to be Paul Volka Because if they
walk out the door and have allowed inflation to be
a lot higher and then of course they will have
a serious risk. So I do think that this becomes
a very very important debate inside the FIT in terms
(32:48):
of what weight should they put on the dual mandate
When one side of the doual mandate says the fair
should be cutting, namely growth, and the other side of
the doal mandate inflation says they should be hiking.
Speaker 2 (32:56):
It difficult to read minds, but based on the communication
of the past week or so, would you get the
feeling the weight of history is on.
Speaker 9 (33:02):
Their shelters because I do see some final nuances between
what's being said in particular comparitives or with your power
lust Friday. Very importantly, can they get away with just saying, oh,
we're going to cut because long term inflation expectations in
markets are very well anchored, because survey expectations aren't going
up quite significantly. Both in the short term and in
the long term. So it really becomes a matter of
where do they put their weight when it comes to inflation.
(33:24):
Is it on actual incoming inflation or is it on
some measures of inflation expectations which are well anchored.
Speaker 4 (33:30):
But Torsan, you said it earlier. You have tariff still
in the pipeline. Can they do anything until they actually
understand the rules.
Speaker 5 (33:37):
Of the road.
Speaker 9 (33:38):
I think they do the same calculations, of course, that
this read is doing in terms of the impact on
inflation is between half and a full percentage point higher
over the next twelve months. Then I do think that
they come to the conclusion that the forecast is saying
inflation is going up, and therefore it's going to be
difficult for them to signal a lot of rate cuts.
So that's why the market currently pricing three cuts. It
does make sense that we have a modest amount of cuts,
(33:59):
but not more than that, even if growth does last
to slow down more meaningfully.
Speaker 1 (34:03):
Do you have the sense of how close they were
intervening with the treasury market yesterday.
Speaker 9 (34:07):
I don't know the answers to that, but I do
know that they bought one hundred billion dollars during COVID
of course in March of twenty twenty every single day
in the treasury market, and I do guess that they
were probably worried that they would have to take out
some of the same tools if this were allowed to continue. So,
if both it was the cause by Japanese sellers, if
the sellof in rates was caused by risk reduction in
(34:27):
asset managers, and if it also was caused by the
basis trade on winding, that combination and the fact that
we don't even know which of these things were most powerful,
just still created a significant amount of risks to financial
stability if this were allowed to continue.
Speaker 2 (34:40):
Do you think people are trying to drift away from
dollar assets? Do you see that building in the past week.
Speaker 9 (34:45):
I don't see that, because the dollar would have gone
down a lot more in the last few days than
it actually did. So there are some discussions around maybe
China others were selling in custody holdings and just kept
the money in dollars and didn't sell it and took
it back home. But nevertheless, the fact that the dollar
index just moved relatively sideways the yen did appreciate, suggesting
that it's correct that there might have been some Japanese sellers,
(35:06):
but broadly speaking of that, the xy index onl Bloomberg
screen was relatively flat for the last few days, suggesting
that this was not a questioning about US exceptionalism. I
still think the US is exceptional, still the most dynamic economy,
is still the biggest financial market. We still have, of course,
a lot of investors that are looking here to come
and invest, and that does make sense. We just have
at the moment some turbulence, of course, that people are
(35:26):
thinking about that. This is probably mainly viewed as a
short term equippled in markets.
Speaker 2 (35:31):
I hope you're right, Sustein. We said it's going to
see you as always, toson slock there as Apollo. This
is the Bloomberg Sevenants podcast, bringing you the best in markets, economics,
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Subscribe to the podcast on Apple, Spotify or anywhere else
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(35:52):
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Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and am Marie Hordern. Join us each
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(00:33):
Bloomberg Terminal and the Bloomberg Business app. A wild start
of the week in financial markets, Ross coasterriokat Black Rock
joins us now for more RUSS A big change, and
you turn from the President of the United States. Is
it making more bullish on equities or on bonds?
Speaker 3 (00:47):
I say it right now, it makes us cautious. Good morning, Johnathan.
We've been pulling in risk for a while. Clearly yesterday
was the relief. Market took it as such. But you know,
as I just looking at a fourth this morning, you're
often get these big rallies during periods of turbulence. Our
view is that you're still in an environment where policy
(01:08):
uncertainty is heightened. You're also an environment that whatever you
came into twenty twenty five, whatever your economic assumptions were,
they've got to be lower today. So if we've got
a world of higher uncertainty, probably higher volatility, slower growth,
you've got to adjust the portfolio accordingly Russ.
Speaker 1 (01:28):
In the past, that would mean going to bonds. This
time around, is that still true, Well.
Speaker 3 (01:33):
We have been raising our allocation to bonds. We were underweight,
as you might remember. You know, over the last few
years have been talking about it generally modestly underweight bonds,
particularly on the long end of the curve. We've been
bringing that back closer to benchmark. And I'd say that
is more of a reflection of the economic environment than
trying to make a bet on policy. And now, if
you do have an environment where growth is going to
(01:55):
be slower, it's not crazy that your bond allocation is
going to be closed their home. But by the way,
we've done a similar thing in equities. We brought our
equity allocation down closer to benchmark. So what's happened generally
lowering the risk of the portfolio in this type of environment.
Rather than a strong bed on you want to be
in bonds and equities you want to bring risks down.
Speaker 1 (02:16):
Maybe the larger question is US assets versus XUS assets.
At a time where the source of volatility is the
United States, and this has to do with bonds, but
more broadly with dollar denominated assets, does it make you
rethink some of what you have in your portfolio based
on where the source of volatility has been coming from.
Speaker 3 (02:37):
This is a great question. I think this is actually
a harder question to answer. But what I would say
is I don't think you have a Kneiser reaction to
move away from dollar assets. A couple points. First of all,
we might remember twenty eleven during the debt sealing crisis,
the US gets downgrade and the epicenter of the crisis,
what happens, Treasury bonds go up. The dollar is still
(02:59):
the reserve currency. We can debate what's going to happen
in five or ten years. It is still a safe
haven asset, and I do think that you've got to
be skeptical about calling the end of dollar dominance. The
other point, in the equity side, you know we are
still modestly overweight the US. Now, why would you do
that with all the turbulence. Going on simple answer, we
still find better companies in the US. We think about
(03:23):
what do we want in this environment. We want profitability,
We want companies that can generate consistent earnings. Still find
more of those companies in the US rather than Europe
or Japan. So to my mind, even with the turbulence,
from a bottom up perspective, still in an argument to
be modestly overweight the US.
Speaker 4 (03:40):
Given all the uncertainty, even whether or not Trump decides
to blank walk off the cliff, give these reprieves.
Speaker 5 (03:47):
Do you still like gold?
Speaker 2 (03:49):
We do like gold.
Speaker 3 (03:50):
You know again, they have to trade around it. It's
been a huge move. We like gold back six months ago.
We definitely like it today. A couple of reasons. First
of all, you know m range, as you suggest, still
a asset that works during times of turbulence. You look
at the performance of gold when volatilities rising again. I
think it's safe to say we'll probably in a more
vol environment, generally does very well of over stocks. The
(04:13):
other argument is the long term fiscal picture. One of
the reasons we like gold is you can't print more
of it. It is a store of value. It's still
not obvious that there's going to be a significant improvement
in the fiscal picture. If we are an environment of
these two trillion dollars structural deficits, They're not necessarily going
away having something that can't you can't increase the supply.
(04:37):
It is a store of value of the portfolio. We
think that makes sense over the longer term.
Speaker 2 (04:42):
Russ just wanted to jump in with some news now
to the European Union. The headline just crossing the Bloomberg
terminal that the EU is considering pausing counter tariffs against
the United States for ninety days, in line with that
ninety day pause that the President announced just yesterday. Just
taking the temperature down just a bit more this morning.
Speaker 4 (04:59):
And I also think the European Union is looking around
the room and saying, look what's going on with Japan,
Look what's going on in South Korea. They are pushing
out all of branches. They are saying they want to
do deals with this president. He's come out and said,
you're going to get a ninety day reprieve, So why
should we escalate at this moment? Maybe we should send
a team over and try to de escalate and come
to a trade agreement.
Speaker 2 (05:18):
The lyceis headline from the team here at Bloomberg that
the European Union is considering pausing counter tariff against the
United States on metals for ninety days. Russ. Just to
bring it back into the conversation as we take the
temperature down worldwide, how close did we come to an
accident in this bond market? What did you see developing
in the previous few days coming into the announcement from
the President just yesterday afternoon. Well, I think the.
Speaker 3 (05:40):
Bond market move was definitely something we're paying attention, and
it was not just the treasure market. You'll remember that
during the initial phases of the selloff, credit markets were
remarkably well behaved. That all started to change on Friday.
We saw spreads back up dramatically. I think that gave
a lot of people pause because now it's not just
a matter of growth, it's a matter of liquidity. It's
(06:02):
a matter of what's happening with the availability of credit,
and that was something that definitely unnerved investors. If you
see the bond market calming down, it's definitely development that's
going to give a little bit more comfort to the
equity side of the market.
Speaker 2 (06:17):
Things setting down in the bond market this morning. Ross
appreciate your time. Rouss Costrict of Bland Troup, rita's center
of Energy Aspects, writing, Trump needs higher supplies to lower
oil prices in a manner that can provide a tailwind
(06:38):
for global growth as an offset to his tariff policies. Instead,
tariff will lead to lower oil prices by hurting demand growth.
And Rita joined us now for more and Rita, welcome
to the program. You made some headlines in the past
few days on some very very low numbers in the
crude markets. So what do you expecting now.
Speaker 6 (06:57):
Well, I think the prices, the general trajectory is still lower.
I know there's been a ninety day pause. We saw
a little bit of a bounce, but ultimately, if you
look at the trade weighted tariffs reciprocal tariffs globally on
the second of April, it was actually nineteen point one percent.
Yesterday it was twenty six point two percent despite the pause,
(07:18):
because of just how much the China bit has escalated.
It just tells you that that is ultimately the one
that matters the most when it comes to kind of
global growth. Of course, it's better news for some of
the countries some of those tariffs have been paused, but
like you guys were saying just now as well, there
is there is definitely no certainty that they will remain off.
(07:39):
We are hearing more and more from our clients that
consumer and a particularly business sentiment has completely come to
a stall. Nobody's investing, there's no capex investment, and we're
going to see a pretty big demand hit. We've just
reduced our oil demand number for the second half of
the year by four hundred and fifty thousand barrels per day,
the same for twenty twenty six. So I just don't
(08:00):
see how oil prices are going to start moving higher
anytime soon until we see the supply response.
Speaker 4 (08:05):
How loo are we talking, Amerta, Do you think oil
prices can go?
Speaker 3 (08:10):
So?
Speaker 6 (08:10):
Look, the difference now versus in the past cycles is
that the shale breake events are higher. And when I
was there just last week as well, I would say
my biggest takeaway was that outside of the Permian, all
the other basins you're talking about like in the sixties,
well into the high sixties in some basins which are
now their break events. At the Permian it's in the fifties,
but that is effectively the flaw. The difference is it's
(08:33):
the timing of it.
Speaker 2 (08:35):
Right.
Speaker 6 (08:35):
We need to be here for one whole quarter before
supply response, and the response will be significant this time around.
You are going to lose a few hundred thousand barrels
per day pretty quickly. But it is just that timing
like in that within that timeframe, prices can continue to
go lower. I remember there's positioning driven. A lot of
this is positioning driven, and people are just liquidating positions.
(08:57):
So then it just becomes a number. But ultimately the
floor should be around where we are now, maybe a
couple of dollars lower. But I don't necessarily see sustained
prices in the forties or the fifties, but we can
absolutely test the four handle in the short term.
Speaker 4 (09:12):
I know that opek plus in Saudi Arabia says they
do not target price, but given this environment you're describing,
why did they go further and add even more barrels
to the market.
Speaker 6 (09:24):
Yeah, I mean, look, the timing of it is obviously
left to plenty of rumors about like, you know, were
they doing this on the back of tariffs or to
a peace. President Trump ahead of his visit to the Kingdom.
In reality, OPEK just has its own timelines for doing things.
The Saudi OSB always comes out around the fifth of
the month, so they had to take the decision before that.
So it was an unfortunate timing. But the decision was
(09:47):
entirely to do with internal OPEC dynamics. As we've been saying,
you know, we have seen laggards, a couple of you know,
ops in Middle Eastern countries itself, but it's mainly Kazakhstan.
If you look at Kazakhstan's production, four hundred thousand barrels
bit higher than where they are meant to be, and
they are just not showing any signs of coming off.
And I think that is where I worry even for
(10:08):
next month, regardless of price, because if this is about
getting cohesion and getting the message across that everybody needs
to do their bit, then it will not matter until
Anonilyst Prince Abdilacy sees that compliance number.
Speaker 5 (10:22):
Pick up, let's put.
Speaker 1 (10:24):
That into English. Basically, this is all designed to punish
Kazakhstan with lower oil prices for a margin grab unless
they're into compliance and then there can be some sort
of agreement.
Speaker 6 (10:36):
Yes, I think long story short, that's it, and not
just Kassakhs and the few of the laggods. But yes,
it's to say that cuts need to be equitable. It
can't just be Saudi Arabia that carries the cuts for.
Speaker 5 (10:45):
Everybody at a certain point.
Speaker 1 (10:47):
There's also a knock und effect that this potentially could
become punitive at that kind of level for US jail producers,
for the US oil ex board system. That has been
one of the drivers of a lot of growth that
we've seen in the United States and the GDP here for.
Speaker 2 (11:03):
The past decade.
Speaker 1 (11:04):
I'm just wondering at what point that factors in as well.
Speaker 2 (11:08):
Well.
Speaker 6 (11:08):
That's what I was saying just now. Right, the shale
break events are significantly higher narn, which is why I
was saying that I don't see prices sustainably going below
fifty five to sixty or even sixty five. But in
the short term it could be because even at these
price levels, we are hearing from our shale producer clients
that they have just stopped drilling, or they're planning to
stop drilling. They could even drop rigs. You're going to
(11:31):
see a very significant turned down in shale production very quickly,
and like you said that, and we forget this. We
tend to talk about the US as a consumer nation.
Production and given how much US production is, production is
a huge part of US GDP.
Speaker 2 (11:47):
Right now, I'm Rachel just quickly. We've seen commodities drop
across the board over the past week or so. See
some evidence that particularly with copper, Chinese buyers might be
stepping back in I had of stimulus, so you're seeing
anything like that. With crude, we've.
Speaker 6 (12:00):
Seen a little bit here and there, but I do
think right now there's just a bit more panic because
it's still a moving target. They have come out with
an SBR program as well, saying that we need to
stalk pile, but that's really from July onwards. The biggest
hit is actually going to be on lpg F in
in particular, and propine foods still okay, but the physical
(12:21):
market is actually still very strong, even in the East.
It's you know, stocks are still drawing. But it is
really about the fear of the future.
Speaker 2 (12:28):
Got it, and Racha appreciate the update. Thank you and
Rach to send there of energy aspect Erica and a
Jeron of UBS writing management teams are between a rock
and a hard place, as any outlook seen as quite
bearish could also punish the sector. Erica joins a snapper
(12:51):
more Erica always good to see you get to see.
What do they tell us the Morrow monic? What can
they tell us?
Speaker 7 (12:56):
What can they tell us that will matter? A lot
of investors are thinking that whatever they'll say, which is
actually not so bad, is going to be seen as
backward looking. Now, I think there are really two things
that investors are looking for. Number One, are activity levels
now just permanently impaired from both the corporate side and
the consumer side. So clearly we had this animal spirits
(13:19):
economy that we really wanted to come through.
Speaker 5 (13:22):
And if you're a corporation, how do you make decisions
in this environment?
Speaker 2 (13:27):
Right?
Speaker 7 (13:28):
And so as you think about investment, banking and loan
growth and commercial you would think that has to be
at least delayed.
Speaker 5 (13:35):
Although I wonder.
Speaker 7 (13:36):
If the equity market continues to rally obviously not today,
but I wonder if there's some deals that it's going
to get pushed through the pipeline over the short term.
On the consumer, you know, American Express is not normally
seen as a bell weather report, but given that ten
percent of Americans account for or high end Americans that
make two fifty account for fifty percent of the spend.
(13:58):
All of a sudden, there a bell the report because
if they're slowing down, that's not good for consumer activity
for the rest of the year.
Speaker 2 (14:05):
So the banks are the best data points we have
at the moment. It's the best real time data. We'll
get a lot of people look at payrolls and just
set that old news. When you were in touch with
the management teams over the past few days, you put
together a picture of where things are act currently. What
are they telling you about activity at the moment? If
things slowed down.
Speaker 5 (14:21):
Things are slow.
Speaker 7 (14:22):
If you look at the regulatory data and you catch
up with the banks and commercial activity, it's slow, it's
quite flat. And if you look at the geologic data,
I mean it's depressing. The whole capital markets renaissance is
just not quite happening. But trading, you know, as you
can imagine, given all this volatility.
Speaker 5 (14:41):
Trading could be lights out for this quarter. Okay, hold
on a second.
Speaker 1 (14:45):
I remember when we used to get volatility and it
was good volatility, and then it was bad volatility. And
volatility isn't always a good thing. So is this good
volatility or bad volatility in terms of bank profits?
Speaker 7 (14:53):
So so far again, you know, speaking about backward looking.
If you think about the month of March and think
about the equity market volatility, sell side desks are typically
long volatility, so that could.
Speaker 5 (15:04):
Be good for them.
Speaker 7 (15:05):
Now it makes me nervous, is what's been happening to
the treasury market in terms of dealer capacity. So the
key question for the month of April is, you know,
is there something going to happen? Is there bad volatility
now happening in the fixed income markets? That is not
going to be good news for the second quarter.
Speaker 1 (15:22):
So going forward, what do you think is going to
potentially be the bigger driver? Is it going to be
the trading side of things, or is it going to
be the m and a wave that doesn't come to pass,
or is it going to be deregulation which we've seen
some of but not necessarily the full package.
Speaker 7 (15:36):
So investors just never really value trading earnings.
Speaker 5 (15:41):
Much, right, it's super volatile. It's like throwing a dart
on the board. Who knows in any given quarter, right, I.
Speaker 7 (15:47):
Think what they're really looking for is, you know, honestly,
any signs of credit at this point, because the reaction
of banks up until yesterday really told me that investors
were starting to worry about recession rather than just to
slow down in activity levels. And so how they frame
that in terms of preparedness having the earnings power to
(16:10):
protect their capital.
Speaker 5 (16:12):
Let's say, if credit.
Speaker 7 (16:15):
Costs go up in anticipation of a tougher economy, I
think that's what the market sort of needs to hear
for now. On the deregulatory point, what's gotten lost in
all of this is I feel like the deregulatory momentum
and Trump two point zero is actually much stronger than
Trump one point.
Speaker 8 (16:31):
Oh.
Speaker 5 (16:31):
I mean we went to that lunch.
Speaker 7 (16:33):
I mean he started off Secretary Besson started off with
bank deregulation at this lunch with the Economic Club in
New York, and everybody just wanted to talk about tariffs,
and he started off with bank deg But for now,
until we understand you know that they range of outcomes
for the economy, the macro volatility uncertainty will trump the
(16:53):
deregulatory positive catalyst.
Speaker 4 (16:56):
But do you even believe these CEOs when they come
out and potentially say we're not gonna have a recession
or we Goldman Sachs pulled their call yesterday after Trump
came out and.
Speaker 5 (17:03):
Blanked again Rock in a hard place. Right.
Speaker 7 (17:07):
So, you know, if you think about how banks set
credit costs, they think about the future, they think about
the outlook, and they're saying to themselves, well, I have
no you know, I don't.
Speaker 5 (17:18):
Know what the outlook is.
Speaker 7 (17:19):
So perhaps they're going to build reserves a little bit,
but you don't have an inventory of losses that are
coming down.
Speaker 5 (17:25):
The pipeline.
Speaker 7 (17:26):
Card delinquencies are actually flat to down, and commercial delinquents
or non performing loans are pretty flat and improving.
Speaker 5 (17:34):
And so it's tough.
Speaker 7 (17:35):
But they have to talk defensively or else investors will
think they're baring their head in the sand.
Speaker 4 (17:41):
It's an important point you brought up about Scott Besson
at the Economic cub of New York where we saw
each other last because he wanted to talk about deregulation
and tax cuts, but the entire room wants to talk
about tariffs. At the moment, there was all this unsurgerty
what they were going to.
Speaker 5 (17:52):
Do with trade.
Speaker 4 (17:53):
When you take the entire policies of the Trump administration, deregulation,
tax cuts, and tariffs. How much more constructive is that
for banks towards your end?
Speaker 7 (18:02):
So deregulation is super super constructive, right, particularly as we
start thinking about changes in the stress test, which I
think could be a twenty twenty six catalyst. I know
it's not five minutes from now, as we like, So deregulation.
Speaker 5 (18:17):
I think is a big catalyst.
Speaker 7 (18:19):
You know, tax cuts obviously, the continuation of you know,
the tax cuts and jobs that would be you know,
beneficial for corporate activity, But that's something that's already embedded, right,
It's already baked in the base case. So just extending
that isn't necessarily going to pump up activity, which goes
back to trade. Right, it's like the big overhang that
(18:40):
is overshadowing everything else that's good.
Speaker 5 (18:43):
So did the big.
Speaker 1 (18:44):
Banks benefit the most from deregulation and an uncertain regime
where they consolidate a lot of trading volumes?
Speaker 7 (18:50):
So I think that in a deregulatory environment you get
to unlock a lot of excess capital, and I think
that's great. But if there's not a lot of demand
for that capital other than trade, what good is it
to unlock excess capital?
Speaker 5 (19:03):
Right? And by way.
Speaker 7 (19:04):
Remember, buybacks tend to be very pro cyclical, like if
we're staring down the barrel of what we stared at
last week. You know, I don't feel like bank management
teams are gonna be like, I'm gonna buy.
Speaker 5 (19:15):
Back a ton of stock now, right.
Speaker 7 (19:18):
They tend to be like, well, we're gonna keep the capital.
Speaker 5 (19:20):
You know, tight and excessive for a rainy day.
Speaker 7 (19:23):
So you know, we have this regulatory or deregulatory momentum
to unlock the access capital, but we need somewhere to
put it. And I'm not sure it's going to be
like shoe factories in Binghamton, Right.
Speaker 2 (19:34):
Do you think there's some pressure on them to cut costs?
Speaker 7 (19:36):
Now? Pressure to cut costs? I think it's too early.
I mean, trading is great. No one is giving up
on the outlook yet for investment banking. And you know,
a lot, especially a lot of regional banks have PTSD
from cutting too much in twenty twenty three, and now
like they're you know, lost some A players and now
they're scrambling to hire even like a B plus player, right,
(20:00):
So I'm saying, so there might be.
Speaker 5 (20:02):
Some durability in costs. It's too late to use that
as a lever, so sorry so early.
Speaker 2 (20:08):
Rather looking across the companies that you cover at the moment,
just identify a couple that you do like in a
moment like this one. Because this sounds tremendously parish at
the moment, but I'm sure there's sometimes you like do
you like at the moment?
Speaker 7 (20:19):
Counter to everything that I said, I am obsessed with
Capital One. I think that like so here here's the tagline.
Cycles are temporary, but networks are forever and buried under
all of the Liberation Day chaos. And Thursday was the
New York Times headline that the DOJ is okay with
the deal, right, and this is a once in a
(20:40):
lifetime deal for Capital One to own a debit network
and a credit network. So in an environment like this,
I have no idea what the macrost or else, I
wouldn't be sitting here, I'd be on the beach, right.
But in that case, what investors want will support and
like our stories where they can self start, like you know,
they can you know, grow earnings power in a different
(21:02):
way that's completely exclusive of the macro. And that's what happened,
That's what's happening with this discovery deal.
Speaker 2 (21:07):
We all want to come to the beach with you. Eric,
is good to see it, Nanks for dropping by, Thanks
for your time, Eric, and the Jerry in the VPS
looking ahead. So those pancanics they dropped tomorrow morning. Susan's
slock of Apollo joints is surround the table, Sustin. Good morning, sir,
(21:28):
It's good to see you morning. Can I ignore all that?
Speaker 9 (21:31):
Well, this is a golden lug starting point for the FED,
at least, I mean the dual mandate it says inflation
should be too. We moved a little bit more in
that direction, better than expected, and on jobless claims, we
also had a label market that still is reasonably strong.
So from that perspective, this is absolutely good news for
the FED that we did not get yet any inflation
surprise to the offside. But obviously we still have terriffs
in the pipeline, and what's left on the tariff front
(21:54):
could still add as much as one percentage point to
tariffs over the next I'm sorry to inflation over the
next twelve months. So in that sense, this is backward looking.
As Mike is saying. The risks are of course that
there's now more upside coming to inflation.
Speaker 2 (22:05):
So this is the issue, and it's a sequencing gissue
and I'd love to get your thoughts on it. So
sentiments collapsed basically created over the past few months. What
we started to see with CPI, it's just a bit
of softness that's encouraging. How long before we see the
weakness in the output data before we then see the
higher prices in months to come? What comes before the other.
Speaker 9 (22:23):
Well, let's think about how companies might respond to this.
So now you know tariffs are coming. For example, if
you think about Amazon, of this sellers on Amazon seventy
one percent they source their goods in China. So one
very important aspect is that it will be visible for everyone.
The prices are going up on things that are imported,
of course from China. So the conclusion to your question
is how do you respond to that? Do you take
(22:44):
your existing inventory and sell that at the old prices?
Do you take your existing inventory and raise the price immediately?
That profile will probably be individual for different companies, depending
on the competitive situation which sets are there in how
sensitive they are to tariffs. So we just don't know
yet what the impact will be and how quickly this
will feed through. But we do know that higher prices
(23:04):
are coming as a result of goods coming from China
becoming significantly more expensive. So even if companies decide to
sell the existing inventory at the old price, we will
over time see some outware pressure on goods inflation coming
from this source.
Speaker 1 (23:18):
Is there a risk that we ignore this data at
our own peril? The idea that actually lower energy prices
are giving more disposable income to consumers to potentially go
out there and buy, and that, oh yeah, it's also
an offset for a lot of potential producers in the US.
Speaker 9 (23:33):
Absolutely, low energy prices is very, very helpful for the consumer.
But the other thing, of course, is that the whole
surrounding sentiment around what's being going on is that we
literally went from the last few days from nuclear winter,
so now back to talking about stackflation and staflation. Has
these risks of course, that you have hit winds from
consumer sentiment being weak, corporate sentimenting weak. If you look
at the fit survey for CAPEX planning, they are really
(23:55):
beginning to turn south. So companies are beginning to pull
back more likely because of the unscore cercy. And let's
not forget we still have a five trillion dollar net
wealth effect on consumers from the stock market going down.
So if I add this whole list together of week
A corporate centiment, week A consumer centiment, tariffs coming, and
a negative wealth effect, and on top of that also
retaliation from foreigners who might be doing things to us
(24:17):
simply because of the trade wall, that brings you a
fairly long list of downside risk to the outlooker world.
Speaker 1 (24:23):
Which raises this issue of how we even game out
the idea of inflation.
Speaker 5 (24:28):
Why potentially are we.
Speaker 1 (24:29):
Not talking about deflation or disinflation? And I say this
given the fact that we see Walmart, for example, saying
that they are going to invest in price competitiveness, basically
they're going to absorb all of the costs from tariffs.
At what point could potentially the lack of demand be
the main story more than inflation.
Speaker 9 (24:46):
And that's why the key issue here is who is
going to absorb the increase in tariffs? Who's going to
absorb the price increase in goods that are coming here,
in particular from China.
Speaker 2 (24:55):
Is it going to be.
Speaker 9 (24:56):
Consumers that will face higher prices or is it going
to be taking out of margins will the E in
the PE ratio go down as a result of this
as companies such as Walmart, Costco, and of course Amazon
begins to say, well, maybe we are going to absorb
some of this, and that remains to be seen exactly.
Maybe it's going to be split across corporates and across consumers.
But the bottom line still is that someone has to
foot the bill when tariffs are going up.
Speaker 4 (25:18):
Wall Street Journal has this morning that the President privately
acknowledged that his trained policies could potentially lead to a
trigger recession, but he said he wanted to make sure
it didn't cause a depression. Where are you now in
terms of potentially having a recession this year?
Speaker 9 (25:33):
So, of course the last few days, it was pretty
clear that there would be a certain stop in the
economy where prices would go up significantly, literally on all
trading partners and everything coming in. So that was a
scenario where a recession was very likely, almost at one
hundred percent where we came from. Today, the recessiont probability
is probably fifty to fifty percent, meaning we think that
there is still a likelihood we will have a slow down,
but the risk is we just don't know what the
(25:54):
response is going to be from consumers, corporates, how much
markets go down further, in particular this wealth effect his own,
think about how we normally talk about when the stock
market's going down, we go back to the spreadsheets and say,
what's the mardule protenzeses to consume? How does consumers react
when the stock market goes down? Here on his own,
the stock market down now five trillion so far, and
of course now it's rebounding and then coming a little
(26:14):
bit back again. That's, on his own, a fairly significant
hit to consumers and the wealth effect for the consumer outlook.
Speaker 2 (26:20):
And we still don't know what the policy will be
in a few months time, including the tax code. This
came from the President just moments ago a social media
post saying, great news, the big beautiful bill is coming
along really well. Republicans are working together nicely. The biggest
tax cuts in US history getting close.
Speaker 4 (26:35):
Well, it's because yesterday they had to pull a vote
to vote on the budget resolution from the Senate in
the House because fiscal hawks are saying that Senate bill
doesn't do enough to for cut. So what's happening this morning?
Speaker Johnson? Leader soon are having a press conference later
this hour to outline a plan to get Trump's tax
cuts through. The President sees this and he says, oh, look,
they're working together now this morning. They weren't working together
(26:58):
last night.
Speaker 2 (26:58):
Can they change the conversation We just had CPI TA,
So let's bring my the key back in for an update?
Might you find a second love? What stands out well?
Speaker 10 (27:05):
A couple of things, John, We talked about grocery prices
and meat prices were up one point one percent. Chicken
prices were up, pork prices were up, so people will
really be noticing it at the meat counters in their stores.
More bad news for the president. He'd been bragging about
the price of eggs coming down, but they rise by
five point nine percent of the month, which puts them
(27:25):
up sixty point four percent for the year. Last month
it was fifty eight percent. So egg prices are going
back up now. The China impact perhaps, we saw furniture
prices rise on the month, and that is something we
get a lot of from China, up six tenths, bedroom
furniture up two point seven percent, Apparel up four tenths
(27:47):
after a six tenths rise the month before.
Speaker 2 (27:49):
Also something we do.
Speaker 10 (27:51):
Get a lot of from China. Toy prices went down,
though maybe that's because Christmas and Hanukkah are behind us.
Smartphone prices prizingly go down by one percent, so maybe
that's an inflation number that is coming but is not
there yet. The big market, well, let me do housing,
because everybody follows that owner's equivalent read up four tents.
Speaker 2 (28:13):
That's a rise of a tenth of a percent.
Speaker 10 (28:16):
So I was going to say the big thing that
people are going to be watching going forward is energy prices,
which were down six point three percent for gasoline. If
that continues, it takes some of the edge off the
food prices and it does help the administration's case.
Speaker 5 (28:31):
A little bit.
Speaker 10 (28:32):
But all in all, this is sort of a mixed report.
The things that we thought would go down airfares were
down five point four percent did go down. Some of
the things we got from China did go up, and
that's something that could continue with the big tariffs that
they now have.
Speaker 2 (28:48):
Thank you for the update, Mi mckaytha following inflation dates
for about ten minutes ago. David Kety, hp Mouk and
Ascent Management joins us now for more. David welcome to
the program. How encouraging is that data this morning? I
don't agree that changes anarrative much.
Speaker 8 (29:01):
I think, you know, Mike m keey was pointing out
that airfares are down five point four percent. Actually lodging
hotels and motels and so forth was down four point
three percent. So I think what we're seeing is a
lot of softness in the travel industry, which I think
is going to get worse over the course of this year.
It is a calm before the inflation storm. We're going
to get some higher inflation out of the tariffs. I mean,
(29:23):
remember we left the ten percent universal tariff in place.
That's a lot higher than anything we've seen really for decades,
so that's high. And then of course there's enormous tariff
on China which is going to clog supply chains and
push up prices too. So I think we will get
some inflation there.
Speaker 2 (29:37):
But what I actually see.
Speaker 8 (29:38):
In the data looking to get the travel numbers is
a sort of a deflationary tinge to the economy or
or or slow down tinge to the economy already. So
you know, you know, I'm glad that the market rallied
yesterday and say I'm glad that we've got rid of
the worst of the reciprocal tariffs apart from on China,
but I think that we are far from out of
the woods here. I think that these data do sort
(29:58):
of still suggest that they're is a slowdown coming in
the economy.
Speaker 1 (30:01):
So the slowdown is what worries you more than the inflation. David,
if I'm hearing you correctly, at a time or CPI
just came in, when you strip out energy and food
at the lowest level going back to twenty twenty one,
are you saying that that's really what markets ought to
be focused on, both bond and stock.
Speaker 8 (30:16):
Yes, because people talk about stagflation all the time, but
really it's always flation stag You get the inflation first,
and then you get the stagnation. And the problem is that,
you know, with labor for the labor supply falling away,
with these impediments to trade, with cutbacks in government spending,
government grants and so forth, with a lot of fiscal
drag this year, I can see a lot of things
(30:37):
that are going to slow the economy down. You know,
we'll get a temporary surge and inflation from this, but
I think we're going to be left with a pretty
stagnant economy afterwards. And the real question is, you know,
does that revolt in the House yesterday in terms of
House members who are fiscal hooks, is that really something
or not? Are we going to have a bigger deficit
in fiscal stimulus next year or not. If we have
(30:58):
fiscal stimulus, then I start working about inflation again. But
in the absence of major fiscal stimulus, I think that
people need to worry about recession more than inflation.
Speaker 1 (31:06):
Here, our bond's still the best bet us treasure is.
In that type of scenario, recession comes very much back
on the table.
Speaker 8 (31:14):
Well, yes, I mean I think this first of all,
I think, you know, long term interest rates at four
point three percent, four point two percent on a ten
year treasury, I think that's fine, and I think people need,
you know, i'd be level weight and fixed income. I
realize that we may have a mild recession here, but
you know, longer term, whatever recession we have, we'll we'll
pull out of it again. And these bond deals are
(31:36):
reasonable for the long run. I don't expect inflation to
hang around the long run, because you know, we'll get
these tariffs and then then you know, tarffs just don't work,
and eventually we'll pull back from them and that'll actually
have a deflationary impulse in the economy. So long term,
I'm not that worried about inflation. I am worried that
there won't be much dynamism about the economy overall.
Speaker 2 (31:53):
David, appreciate the update. I know you're basically this morning,
so thanks for making time for a staved Kelly. There
of JP Morgan Asset Management, if you want to joining
us downside surprise on CPI market just kind of looks
through it. I could he still session loads with down
by two percent on the S and P five hundred.
There is a bit at the front end of the curve.
You ce year's falling back by eight basis points at
three eighty three on a ten year and in the
(32:13):
effects market that unlocks further dollar weakness. You wrote dollar
through one eleven rote one eleven fifteen. Torson' slock of
Apollo is still with us. Torston, David Kelly, come before
the storm focus on a growth story more than inflation.
Do you agree with some of that?
Speaker 5 (32:25):
Well, I'm not so sure.
Speaker 9 (32:27):
I mean, in the last few days the FED has
made very clear that they will also be focusing on inflation.
So the real big question for them here is do
they want their legacy to be Arthur parents or do they
want their legacy to be Paul Volka Because if they
walk out the door and have allowed inflation to be
a lot higher and then of course they will have
a serious risk. So I do think that this becomes
a very very important debate inside the FIT in terms
(32:48):
of what weight should they put on the dual mandate
When one side of the doual mandate says the fair
should be cutting, namely growth, and the other side of
the doal mandate inflation says they should be hiking.
Speaker 2 (32:56):
It difficult to read minds, but based on the communication
of the past week or so, would you get the
feeling the weight of history is on.
Speaker 9 (33:02):
Their shelters because I do see some final nuances between
what's being said in particular comparitives or with your power
lust Friday. Very importantly, can they get away with just saying, oh,
we're going to cut because long term inflation expectations in
markets are very well anchored, because survey expectations aren't going
up quite significantly. Both in the short term and in
the long term. So it really becomes a matter of
where do they put their weight when it comes to inflation.
(33:24):
Is it on actual incoming inflation or is it on
some measures of inflation expectations which are well anchored.
Speaker 4 (33:30):
But Torsan, you said it earlier. You have tariff still
in the pipeline. Can they do anything until they actually
understand the rules.
Speaker 5 (33:37):
Of the road.
Speaker 9 (33:38):
I think they do the same calculations, of course, that
this read is doing in terms of the impact on
inflation is between half and a full percentage point higher
over the next twelve months. Then I do think that
they come to the conclusion that the forecast is saying
inflation is going up, and therefore it's going to be
difficult for them to signal a lot of rate cuts.
So that's why the market currently pricing three cuts. It
does make sense that we have a modest amount of cuts,
(33:59):
but not more than that, even if growth does last
to slow down more meaningfully.
Speaker 1 (34:03):
Do you have the sense of how close they were
intervening with the treasury market yesterday.
Speaker 9 (34:07):
I don't know the answers to that, but I do
know that they bought one hundred billion dollars during COVID
of course in March of twenty twenty every single day
in the treasury market, and I do guess that they
were probably worried that they would have to take out
some of the same tools if this were allowed to continue. So,
if both it was the cause by Japanese sellers, if
the sellof in rates was caused by risk reduction in
(34:27):
asset managers, and if it also was caused by the
basis trade on winding, that combination and the fact that
we don't even know which of these things were most powerful,
just still created a significant amount of risks to financial
stability if this were allowed to continue.
Speaker 2 (34:40):
Do you think people are trying to drift away from
dollar assets? Do you see that building in the past week.
Speaker 9 (34:45):
I don't see that, because the dollar would have gone
down a lot more in the last few days than
it actually did. So there are some discussions around maybe
China others were selling in custody holdings and just kept
the money in dollars and didn't sell it and took
it back home. But nevertheless, the fact that the dollar
index just moved relatively sideways the yen did appreciate, suggesting
that it's correct that there might have been some Japanese sellers,
(35:06):
but broadly speaking of that, the xy index onl Bloomberg
screen was relatively flat for the last few days, suggesting
that this was not a questioning about US exceptionalism. I
still think the US is exceptional, still the most dynamic economy,
is still the biggest financial market. We still have, of course,
a lot of investors that are looking here to come
and invest, and that does make sense. We just have
at the moment some turbulence, of course, that people are
(35:26):
thinking about that. This is probably mainly viewed as a
short term equippled in markets.
Speaker 2 (35:31):
I hope you're right, Sustein. We said it's going to
see you as always, toson slock there as Apollo. This
is the Bloomberg Sevenants podcast, bringing you the best in markets, economics,
antient politics. You can watch the show live on Bloomberg
TV weekday mornings from six am to nine am Eastern.
Subscribe to the podcast on Apple, Spotify or anywhere else
you listen, and as always on the Bloomberg Terminal and
(35:52):
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On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!