Brexit, Markets, China Tariffs (Podcast)

at Bloomberg dot com. Right now, we gotta turn to what's happening in the United Kingdom, given the fact that Boris Johnson is officially playing a game of chicken with his opponents, saying, if you won't back me, let's hold another election and see what happens. Regardless, October thirty one comes, we are leaving the European Union, joining us now. Terese Raphael, Bloomberg opinion editor covering European politics and economics. She joins

us from our London bureau. So Terse, why did Boris Johnson take this gamble to basically UH pose an ultimatum to his even in party opponents. I think the answer to that is very simple. Boris Johnson made a categorical promise to conservatives, to brexiters UH and to leave voters to leave the European Union on October thirty one, do or die, deal or no deal. His prime ministership absolutely rests on him being able to deliver on that promise.

He therefore cannot oblige those in Parliament who want him to seek an extension. So if the negotiations that he says are uh proceeding, although the European Union doesn't seem to be very aware that their negotiations going on, um, but if those don't produce an outcome, he has to be prepared to deliver on on on his promise. So um, he has now faced with a opposition and Tory rebel movement to try to force him to ask for an extension.

And rather than see that play out or get into the messy business of, you know, say, asking the Queen not to approve the legislation, which would uh you know, throw Britain into an even greater constitutional crisis, it's assumed that he's going to try to trigger an early election, but it's not automatic since he needs Parliament's approval for it. All right, So try's give us kind of a sense of next steps. How did how would this unfold? How

does you know a British snap election to actually take place. Right, so the next sort of forty eight seventy two hours are pretty critical. There'll be a vote uh tonight on the bill that to try to force the government to ask for an Article fifty extension. UM. If that goes through, we would expect Boris Johnson to try to trigger a October fourteenth election. Now, then the question becomes what is

the Labor Party's response. They the Labor leader Jeremy Corbyn is indicated he doesn't want an election on Johnson's timetable, he may seek to uh to put some kind of condition on it. Uh. So there's going to be a lot of machinations using parliamentary procedures, and we won't know

yet whether there'll be a snap election. I mean, not everyone agrees with us, but if there is a snap election before October thirty one, it may lower the probability of an o'deal exit because if we assume that there's sort of a fifty fifty chance of Boris coming back with a majority or a say, remain leaning coalition taking over, then you know, you start to see other options, uh,

alternatives to no deal. And I think that's sort of you know why Sterling kind of perked up um after the initial decline on the news of an early election. Theres I want to figure out what the popular feeling is in the United Kingdom if there were to be a snap election. Is the prevailing sentiment that Boris Johnson would win. It really depends on the grounds on which that election is fought. So Theresa May was twenty four points ahead in the polls in twenty seventeen which he

fought an election. Turned out that election was fought on turf that the Labor Party said on domestic policies, and she squandered her parliamentary majority. Now, Boris Johnson does not want this election to be about Europe. He wants it to be about Jeremy Corbin, and he wants it to be about the fear that many voters have of corbin Omics, of a socialist UH candidate in office. So he will try to UH talk about all the spending that his

government will do, not a typical conservative government. They've opened that they want to open. The spendings biggest. He'll make it about a Corbin prime ministership, and he'll of course promise to deliver Brexit if he succeeds on that, and crucially, if the Brexit Party do not field candidates in the same constituencies, that would cannibalize off the Conservative Party vote that he's got, you know, a pretty good chance according

to what polls are telling us right now. What we don't know is whether the remain leading parties, the Labor Party, the Liberal Democrats, the Greens, will strike some kind of a tactical arrangement that will allow them to um, you know, to maximize Ah, the sort of remain vote in elections is very unpredictable. We have four parties that are all

polling fairly well. It since you us wondering if you know, if it weren't bar, if it weren't Corbin, who else could the other side put up to perhaps be more of a remain candidate. Well, if you're talking about a sort of national unity candidate, which has been the subject of a lot of discussion here around the question of a no confidence vote, because then the those voting no

confidence in the government would need to put forward an alternative. Um. You know that that whole that whole discussion was sort of dead on arrival because Corbin is the opposition leader. Absolutely refuses to countenance another candidate. So I think you know, we're looking at Joe Swinton, the Liberal Democratic leader, who's who's quite popular. Her party has been revived off the back of its very strongly pro remain stance, and so she will be expected her party will be expected to

do well in an election. But there's you know, the Corbin is the main opposition leader right now, and that's been a big blessing for Boris Johnson. Yes, it has, tore As Raphael, thank you so much. Tres Rphael, Bloomberg Opinion editor covering European politics and economics, joining us from the London Brewer. You can read more on this and other stories from Bloomberg Opini at Bloomberg dot com, slash Opinion and on the terminal by typing O p I

n Go. Tom String Fellow President, Chief Investment Officer Frost Investment Advisors, based in San Antonio, Texas, but joining us here today in our Bloomberg Interactive Broker studio. Tom, thanks so much for making a trip to our studio again. So much volatility in the marketplace, driven in large part by the ebbs and flows of trade talks. How do you position your portfolio. How do you think about kind of your investment process given some of the folatility that

we have been seeing. It's a great question. It's something that our clients are asking on a continual basis, and we're certainly hearing it in the the media these days. It's so difficult to, you know, trade in an environment like this because the news, as you said, ebbs and flows, in the volatility ebbs and flows. So when we look at how the markets have done year to date, we're still positive across the board, across every major benchmark in

throughoutmost sectors. So we're really cautious on making any extreme moves in this market. But we're always constantly looking for, you know, what is where are the growth opportunities and companies where are's more limited volatility. We want to see earning this visibility, although that's harder and harder to find, and to the extent you can find companies that are actually providing some kind of dividend stream, I think that

just adds to the underlying strength sustainability of the companies. So, Tom, what you're talking about more defensive companies, companies that pay dividends, uh companies that are more immune to business cycles are ones that have been favored by a lot of other investors, leading some to say they're getting two pretty high valuations at this point. What do you say to people who say, you know, I just worry those those companies are too expensive.

And again that's giving another fair point, and because valuations have certainly come off drough levels, but I wouldn't say that across the board, a lot of these good quality companies are trading at excessive premiums. Uh. If I look at you know, over prior periods, you know, we've come into a market environment where I'd say multiples are sustainable, markets are rational, multiples are rational. We don't see anything that is. Those that are trading excessive premiums, those are

ones we do want to shy away from. So if you depend upon how you look at the equity markets SMP, you know, you get glass half full, glass half empty. Whether it's a year to date, you know, good solid dot double digits, but on a trilling twelve month basis kind of flatished down a little bit. What sector has given that kind of odd performance? What sectors are you guys still looking at? Its still maybe offer some opportunities. Well,

some of the groups in technology are still positive. You know, again, if we look at software manufacturers, you know, there's a number of good sectors that are interesting sectors. Uh. In the retail consumer discretionary. You know, we've seen some interesting data on Amazon here recently. You know that ten to be one of the go toos for a lot of investors. The question is how long, how sustainable is it over

the next several years. I just know that the number of Amazon boxes I get at my house increases daily, So that tells me something. Uh, the sectors that I think tend to be a little more over bought and yet to be really cautious of o those that are more brought bond proxies. You know that falls into the you know, the utilities, real estate. There's still good opportunities, but there should be some warning signs there. So I

guess we're talking a lot about US equities. Do you think that US equities will continue to be the outperformer globally near term? I do you know, Europe has you know, some great evaluations. These stays for a lot of obvious reasons. And you know, the one thing that you don't want to do is walk away from the European markets or

the international markets. Just look at a long term period and there are several years where those sectors of the market are some of the top performers, and they occur in almost a heartbeat, So you need to stay with a foothold in them. But I don't think it's a focus of all your investimble dollars. Here in the US. We have visible growth here, we have uncertainty geopolitical there. So we got some I s M data that disappointing manufacturing data out today, again arguably putting more pressure on

the consumer to continue to carry uh this economy. And again we'll have the jobs report out on Friday. Kind of what is your view of the consumer right here and should we be concerned? And great point. You know, if you looked at Friday, the data from the regional of FED offices was was positive today just went counter the I s M turning negative. You know that is probably one of those factors that the Fed's got to

look at him as they're looking at rate cuts. And with that in mind, the consumer hasn't really seemed to care. You know, I'm I'm just amazed at how resilient the confidence surveys are if we can only turn that confidence into actual purchasing power, you know, that may take care of a lot of the ills we have right now. But you know, we've we've seen a bifurcation of the

you know, University of Michigan and the consumer confidence. You know, they've they've kind of uh just separated diverted from one another here recently. But overall, i'd say the consumer is still looking at a positive six months twelve months ahead. We've not seen it in the the business sector, though,

what are your clients ask you right now? Asset allocation is probably one of the key questions these days, because we've tried to, uh, you know, learn with our clients that you know, picking a particular stock isn't going to necessarily be the key to their success. It's staying invested in the question though, is what are the target investments? And that proverbial how much bonds first as cash? And you know, we'll just say cash would always be that

that safety net for investors. Well, fixed income has gotten a little more risky these days as yields have continued to uh to plunge, as dollars are moving into it. I find that so unique in this market the the risk trade is becoming a more risk on trade as investors moving into bonds. We are talking about staying into shorter maturities intermediate to lower duration fixed income. Don't take

chances on longer term That speculative. But staying invested in the right sectors in the equity markets, that's key, and having good quality is key. Anything we need to just stay away from here for ten plus years into this cycle. Well, as have read many times, markets don't die of old age, but they die because of an overly aggressive FED heightening or a sector bubble, or that unexplained unforeseen risk. We have an accommodating central bank globally, we have no real

sectors that I would consider bubble territory. What we don't know is whether or not trade or the UK, or geopolitical with Russia China becomes that unknown. We know about it, so I'm not so convinced that those are the unknowns that worries today. Tom Stringfellow, thank you so much for

being with Thank you. Tom Stringfellows, President and Chief Investment Officer at Frost Investment Advisors, usually based in San Antonio, joining us now Jason Shanker, President of Prestige Economics and a Bloomberg Opinion columnist Jason, I want to get started with why, right, I mean, is this a really a function of people looking around and saying it's unlikely the US and China will come to any kind of trade agreement, or is this people looking around saying the global economy

is slowing period the end? Yeah, I think it's both.

If you look at what's going on with the p m I data, Uh, not only did we have the U S s M Manufacturing Index contract for the first time in a few years, but we've also had uh, the combined Eurozone manufacturing m I out of China and the U S I s M. We combine those and look at all three together, and they're at the lowest levels right now since December of during European sovereign detet crisis and then after and this is the third consecutive months that the some of those three p m I

s is below a break even of one fifty. In other words, of global manufacturing has been contracting for three consecutive months. So, Jason, as you just summarized that, you know, the oil markets really being driven in large part by the slowing demand across the globe. Give us a sense of what the supply situation looks right now. Well, you know, supplies fairly robust. We have the situation with shale barrels

that can be brought relatively quickly to market. You know, we've seen OPAC and I think I'll know we've done radio hits when I've gone to OPEC meetings. I'll be at the one this December. You know, they've worked with non OPAQUE members to try to curtel production, but the US has been going into this year, the risk was that we see between you know, one and a half from two million barrels of showe oil per day added

to the market. And China is the biggest net marginal consumer of oil and they've been contracting and manufacturing terms in five and the last nine months. So you know, there's the supply situation isn't particularly tight and the demand side is not great. And if the U s summer driving season is over, which also you know here we are coming back from Labor Day weekend. The driving season ended on the night mix in the third week of July.

But now it's also physically over, and that means that there was more downside risk oil prices after the driving season ends, because there's this seasonal drop off in what's called shoulder demand. Jason, I've read a number of stories overnight talking about how Hurricane Dorian would affect somehow the demand side of the equation, lowering it in certain regions, certainly in Florida, Etcetera's people hunker down to weather the storm. How much credence is there in that kind of I

guess explanation of today's route. I don't think that's a big chunk of that. I mean, the summer driving season is over. You know, if this is fourth of July weekend, we might be having a very different conversation. But you know, we're past labor day. I don't think that's a really big part of it, because I you know, the summer driving seasons over. And furthermore, as I mentioned it, and it ended on the NIMAX on the twenty two, they think of July when the contract rolled to September. Right,

we're training October crew. If the prompt month, refiners are not as incentivized to hedge at this time. Uh, and so there's just not as big a bid in the market because the downside risk is already greater because demand is off. So Jason, what's the latest, uh, you know

policy or posturing coming out of OPEC these days. Well, you know, I think they're trying to hold together the coalition they have with NANOPEC members and convey the fact that you know, they're they're keeping a tight rain on production to prevent it from getting out of control because when prices really collapsed between what happened was and people talk a lot about shale, but the truth is there was a Traineese manufacturing recession going on at that exact

same thing period and that's what drove down not just oil, but rubber, nickelton, led, zinc, iron ore, copper, you name it. All the medals and industrial commodities took hits. And if you look right now, oil isn't just at risk to the downside, but you know, we've seen aluminum, copper, and almost all industrial medals except for nickel and iron ore. And there are a couple of exception reasons for that. Ones in Indonesian expert band On nickel and iron ore

had some supply disruption issues earlier in the year. Um that that's going to continue to wait forward. But aside from those exceptions, most industrial medals have been absolutely whacked this year. And that isn't the function of the hurricane. And that's the reason that oil prices are under pressure. It's because the global economy is slowing down quite quickly, just quickly. Here. I'm looking right now at crew traded on the IMAX treating at fifty three and sixteen cents.

Where do you think we're going by your end? Well, you know, I think there's there's gonna be some more downside risk from where we are now for w T I. You know, if we lose another five bucks, wouldn't you surprise me? Um? It's going to depend on what happens with the messaging from OPEC in the late in the year. But there there's more downside risk. There's easily I wouldn't be surprised to see a price in dollar range in that time window. Is there anything OPEC could do in

the short term? Do you think to impact supplies? You know, honestly, there's a saying in the commodities world, commodities are bought and not sold. And if the buying slows up, and if we see things go back, if trying to remains under the furniture. As we expect the global economy remains under pressure, those kinds of things could uh, you know, continue to land prices. That's really outside of OPEC control.

All they can do is try to keep inventories from ballooning so that the the downward bearish price pressure doesn't hang over the next few years the way it did after Jason Schanker, thanks so much for joining us. Jason as the president of Prestige Economics, also the chairman the Futurist Institute and a Bloomberg Opinion contributor based in Austin, Texas. Joining us here in our Bloomberg Interactive Broker Studios is Leland Miller, chief executive Officer of the China Beige Book International.

So what actually is going on between the US and China. We had one of the busiest months you can ever imagine, and I think the next month is going to be clawing back some of the damage done over the last four weeks. So if you look back to what happened in the beginning of August, we had the President Trump extend tariffs, if not shooting the gun, then loading, locking and loading the gun for all hundred fifty billion worth of tarriffs on on all five billion of Chinese imports

by December. And since then there's been a bit of damage control because they realized that, well, one, you're not gonna have as much leverage if you shoot all those tariffs. And the second thing is the markets didn't like that

very much. And and and so you've seen a very negative market reaction, and the White House is trying to come to terms with how do you how do you wage the war on China using tariffs at the same time as you manage expectations on a trade war and and and and hope that you are also encouraging businesses to invest and to produce. And of course you're seeing

some of that in the I s M surveys. And so right now the White House is trying to some degree walk back some of the some of the some of the damage done, and they're trying to figure out how to how to make September more productive month. Lean and what is your sense of the likelihood that President Trump has just had enough of this trade thing. He's just going to kick the can down the road and wait till after the election. He kind of suggests it's

a little bit of that in this tweets this more ing. Yeah, I think that that that's that was likely, but I think it's even more likely that the Chinese are done with this. So the weird dynamic that has been sort of coming together since June, when there was still the possibility of a trade deal before before election, is that you've seen both sides come to this de facto stalemate and there's lots of ups and downs. I mean, we saw with August just how big the ups and downs

could be. But neither side really wants to get to the end of this. There's an incentive to state connected through negotiations and to make sure markets aren't falling off a cliff because they think that the trade wars has gone past the point of no return. At the same time, nobody wants to give up ground, nobody wants to make any any real um concessions, and it looks like both sides no longer have any faith whatsoever in each other.

One thing that markets seem to be betting on is that there's a Trump put that if markets sell off enough, President Trump will make nice with China. At what point can President Trump no longer make nice with China even if he wants to He's pretty close to that point. That's why the what happened in August I think was an inflection point for this entire trade war. Before that, you had the possibility that the Chinese things going to

have the indirection. You could have more tariffs, you could have the same level of tariffs which were a lot but not an overwhelming amount, or you really could have some sort of deal, small, one, big one, whatever it might be, and pull the tariffs off. And I think

markets were attuned to that. You're at the point now where you're almost all in, and it's not that you don't have the possibility of a deal, but the Chinese are very much disincentivized from having any type of deal unless they get everything they want at this point, uh, and those would be politically toxic concessions for the president to then make. So you're getting very close to the point where both sides are locking in for the for

the duration. So when these full tariffs on the full billion go into effect, well, let's have a big effect on our economy their economy. Who's more going to feel it more? Do you think it will be more? That? First of all, it's not necessarily so that they're going to go into effect. I mean, you're I think that between now. Here's my guests between now and the end of the year to see tariffs that are announced punted

at least once, probably twice. So I wouldn't be surprised to see the October tariffs punted soon as part of a China concession to China to get them to come to a trade meeting. And I wouldn't at all be surprised if the December tariffs are ultimately punted in return for something or other. So I think that's not that's not set in stone yet. But overall, China is China. This will hurt China much more. This is an overwhelming amount of tariffs. It will hurt them more, but they

also have more staying power over the long run. From a game theory perspective, would China double down and not give any concessions whatsoever in order to basically tank markets and you know, influence the elections. Yeah, so this is this is where the game theory gets really fun, because that was conspiratorial. No, it's not conspiratorial because I think that, I mean, I'm wondering that is how China potentially is thinking. No, No,

it's a weapon in their arsenal. I think what they would like to do at this point is try to step in where possible to make sure things don't get worse. But keep one foot in the door no matter how bad things get, so long as a handful of red lines aren't crossed, like you don't have a true death sentence for Huawei, etcetera. Uh, and and keep their foot

in the door. Because while they don't want to be barraged with all these tariffs that are hitting now and we'll be hitting in the future, there's a lot of other things that the US administration could do to make life miserable for China. You could see more attention is Shinjong and Hong Kong sanctions. There, you could see South China Sea rise in importance. You could see greater coordination with Taiwan, whether it's diplomatic visits or another arm sail uh.

You could of course see all out barraged by Congress on the Chinese tech companies. Both sides are itching to do that. So China's and is weird place where they don't want to do anything, but they also don't want to completely remove themselves from the board because then things will get worse. So this is where you get the stalement. Where does how does Hong Kong fit into this? This

does not see anything going away for the Chinese. Well, it's a horrible headache for she, it's a it's obviously a tragedy for for for the people of Hong Kong and the world. I mean, Hong Kong is being changed in front of our eyes for forever. Uh. This is not going to go back the other way. And I think that the timing of this is uncertain, but there's there's really no way for there to be any other

resolution than one that involves force. Um. The Chinese side, now, that doesn't mean they're gonna have the images that they had in a Channaman like crackdown that Hong Kong doesn't look that way, and the Chinese are much more experience now. So you'll see riot police step in, maybe they're in Hong Kong policeman's uniform or not. Uh and and and ultimately they will step in and restore order. Um. So it will be a very different type of tragedy than

what we saw in the past. But it's it's sad. Nonetheless, I don't see how it can be avoided. Just to sort of tie everything together, I want to just get a gut check on the Chinese economy, since this is what you track so well, where are we in terms of how much the growth is slowing there? Yeah, we just got some some new flashed out a few days ago. Uh and um, you know we're we don't report all of this publicly, but we can't say that it doesn't

look good. And you know we have we have not been on the pessimist train for in fact, we were some of the people who were loudest and saying, look this this narrative that the economy has falling apart, it's nonsense. There's a lot more policy support underneath the service, particularly in Q two, that has kept the economy from falling apart. Well. Q three is feeling some serious strains and and and manufacturers in particular are. So this is gonna be something

to watch next month. Next month when we announced our full third quarter set of data, and we'll have you back to discuss it. Clearly, there's no one better to talk China and China economics, UH and China trade than Leland Miller, CEO of the China Bag Book International. Joining us live here in our Bloomberg Interactive of Brokers Studio. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts

or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa Abram Woyds. One Before the podcast, you can always catch us worldwide on'm Bloomberg Radio