Economy Is Strong But Beware Of Auto Tariffs: BNY's Levine:

Bloomberg dot com. Paul Sweeney here with Alex Steele sitting in for Lisa A. Bramwits Market Drivers Today is brought to you by Marks Panis l l P Marx Pannet Tax Advisers to help family businesses reach their financial goals. For over one years at Marks Panneth Success is Personal. Learn more at marks pannet dot com slash tax. Also today, Alex's International Women's Day. We're celebrating with an all female cast during the show. I know I am the outline,

the random guy. Thank you for allowing me to be here, to ruin the whole set up here. But obviously a big day today, Job's Day, the twenty thousand job print really taking the market by surprise. Let's dig into that a little bit, along with some other macro issu you is. We're fortunate to have Alicia Levine with us. Alicia is a chief market strategist at b n y Melon Investment Management. She joins us here in a Bloomberg Interactive broker studio. Alicia, welcome,

thanks for coming here. Hi, good morning. Wow. Uh twenty thousand dollar number job number not much impact in a bond market, but certainly equity markets seemed a little rattled. What do you make of it? I think it was a noisy month, and it's the month coming after coming after the shutdown. I don't really take too much stock in one month data, but the interesting thing about the job market is that you can actually get a rapid turn. So if you have to see a second month like this,

then I'd start to worry. I'd like to point out one thing, which is the labor participation rate, which has risen half a percentage point over the last twelve months. This is phenomenal, and since it's International Women's Day, I just want to point out that it's driven by women in the US getting back into the labor force. We have higher wages, we have better jobs, we have such a wonderful job market out there. I think it's terrific that women are getting back into the labor force and

we should celebrate that today. I'd like to see the wage though, on those jobs that they're getting into, which, well, that's an interesting thing. I'll tell you this about different story. So the wage number is actually pretty optimistic because you know, we saw it was up four tenths for the month, and then you're over the year three and three point four percent, which is the best it's been in many,

many years. The interesting thing about where the wage gains are is really at the bottom quintile of the earning spectrum, and the bottom quintile of the earning spend spectrum. Spends its earnings. They don't say they spend because they have needs that needs to be met. So this is actually terrific, and I'm not i suspect that wages are going up everywhere and so women re entering the workforce should be

beneficiaries of that. So is your sense that, okay, so we had generally a good jobs market, Let's take this is a little bit of a one off. Here is your sense that the economy is still generally looking at a two two and a half percent type of range, and your your recession risk is a little bit off the table. At this point, our scition risk is definitely off the table. The economy does look like it's generating two to two and a half percent. I'll say this

about the first quarter. This looks like to be the kitchen sink first quarter. All the bad news is coming out in the first quarter, first quarter g d P print. So we have bad weather, we have the effects of the shutdown. We also have the effects of the equity sell off in the fourth quarter of last year, which I'm sure dampened animal spirits a little bit in the

following quarter. So this is our kitchen sync quarter. It's coming in somewhere between one to one and a half percent, which means the rest of the year really has to make up for that to get to your two to two and a half percent growth rate. We think the economy is pretty strong. So the interesting thing to me

is the market reaction today. So we saw hardly any move in the bond market, a teeny bit in the dollar, but the equity downturn feels sticky, and so that leads me to wonder if it's not about the jobs market at all, Like how much of the market action do you feel like, is the e c B like coming out guns a blazing yesterday and then the worries about China trade data over night versus a US. So I don't think the jobs data is what's rattling the market.

And if you think about the total market since the beginning of two thousand and nineteen, the bond market was telling you a very different story than from what the equity market has been telling you. And it's interesting because as an equity person, I like to say, well, the bond markets always right, and the bond mark was telling you that there just is no lift in the inflation

or a larger bump to growth globally. I think the reason that the markets sold up so much on Mario drags comments yesterday is that Draggy and the ECB has always seemed to be behind the data curve, so responding to terrible data and the fact that he seemed that he came in before the terrible data actually happened, there was some question about whether he knew more than he really really was saying. And perhaps it's worse than we think.

And I'll give you one scenario where really could be worse than we think, and that is nobody is talking about those three oh one tariffs on German automobiles. However, it was quick smy, what is that tariff and how important is it? So the thing about the three ones, the two three two tariffs which were the steel tariffs, and the three oh one tariffs, which were the auto tariffs, are tariffs that are completely controlled by the administration, so Congress has no say in it, and this is an

area where the administration can really drive policy. So they had a study about whether or not the tariffs, whether there have been fair trade practices, and whether there's some national security issue at stake should the administration put tariffs on European automobiles. So the report came out at the end of February, but it was held close to the vest. The law is it must be released within ninety days.

That ninety days is mid to end of May. So I believe that the administration feels that it's implementation of tariffs has been very successful in renegotiating trade deals, and that's why I think we're going to see tariffs on German automobiles. Now that's going to kill the German economy and the European economy. So to that point, Bloomberg Economics at auto tariff on European cars puts thirty billion dollars of European GDP at risk. Wow, that's a number, that's

a big number. Alicia Levin, thank you so much for joining us. Alicia is a chief market strategist for b n y Melon Investment Management. She joined us live here in the Bloomberg Interactive Broker studio. Coming up, we're gonna pivot and take a look at the energy markets. See what's happening in Venezuela, Saudi Aramco. Lots of to do on the energy space as well. It's not just about jobs.

Energy is also critical here going forward. This is Bloomberg. Well, the equity markets aren't the only ones that have experienced extraordinary volatility over the last let's say three or four months. The global oil market also has been quite volatile. When you take a look at the Brent crude for example, it's the good news is it's up about from its December lows, but the bad news is it's still down

about from its October high. So trying to get a sense of where the next move might be for global oil. Let's welcome our next guest, Dr ellen Wald. Dr Wald is the president of Transversal Consulting. She has also the non resident Senior Fellow at the Atlantic Council's Global Energy Centator, and she's also a contributor to Bloomberg Opinion. Dr Wald welcome, um. I wondered if, given the volatility we have seen in global oil over the last several months, what is your

outlook for oil for the remainder of the year. You know, I think that right now we're kind of in a bit of a holding pattern, waiting to see what happens, particularly as we head into April and May, and then also into the summer driving season in the US. A lot right now in terms of where oil is gonna end up depends on political moves, particularly by the White House. The oil sanctions on Venezuela came as kind of a surprise, and now we're we need to see what's going to

happen in May with the Iran sanctions. That could potentially remove another million barrels a day from the market. So if the President decides that they want to zero out iranney and oil exports, then that could have a significant um that could actually provide a significant lift on oil prices, But if they decide not to do that, then it's entirely possible that we could see oil prices trending lower.

Then on the other side of the equation, we've got demand, and we've seen from opaque, from the E I A, from the i A, all of them have been cutting their forecasts for demand growth as we go forward into and into so right now though, we're really waiting to

see whether that actually does pan out. And I think that the summer driving season and gasoline demand and jet fuel demand as well are going to be important indicators for where we're heading in the second half of and into So if you sort of weigh the Venezuela sanctions in IRANNIE sanctions and looking ahead to the waivers and stuff, literally, what's the oil price that President Trumps makes his decision at, Well, that's that's a really good question. He certainly seems to

get kind of antsy when oil prices head upwards. UM I would say maybe in the in the sixteed dollar they all range for w T I and seventy dollar barrel range for Brent. But I do also think that his decision really depends more on gasoline prices and were

we generally see higher gasoline prices in the summer. We produce a slightly more expensive blend of gasoline that we use, And I'm not sure the President is necessarily going to take those variations into account, but he definitely gets gets anxious when prices get, you know, above that that marker. And so I do think that. And it also depends on how long these Venezuela sanctions continue. For I think that the calculus probably was that they would be done

by now. And this problem in Venezuela is really becoming or of a long term rather than a short term issue. And I wouldn't be surprised if we see even greater crackdowns on the financial institutions that India and China are using to facilitate purchases of Venezuelan oil, and that could also play a role and could possibly drive up oil

prices higher as well. So, how what's it like doing business right now in Venezuela, Because when you ask the companies, the standard line is like, we will make sure to cooperate with any kind of sanctions that come through, and we're talking to the U. S. Government like that's what

you're going to hear, right what's the reality. The reality is that things are a lot more complicated, and a lot of it does also depend on the personal relationships between you know, Venezuela, between the manual government and some of these companies up, particularly the Russian ones and the Chinese ones that have lent Venezuela a lot of money. Their concern here is that is not just buying oil, and China isn't just invested in a situation as a

source of petroleum. They've also lent a great deal of money to Venezuela and they want, uh, they want to get that money back, and they want to get the interest payments on that. So they're going to be doing everything they can to make sure that that's facilitated. So Dr Wild, I know you're also the author of a book entitled Saudi Inc. Which kind of looks at the whole Saudi a Ramco issue and the family and so on and so forth. So I need to ask my Ramco I p O question, which question when is it

going to happen? Is it going to happen? When is it going to happen? And kind of what are the drivers here? You know, that's a really great question, especially because we just saw the other day that a Saudi oil minister again made a statement saying the i p O is going to happen in another two years. And right now they're still facilitating or they're still going about their acquisition of the petrochemical giant Sabboc, which is really pushed off any kind of IPO move for for quite

some time. And I do think that the ip O schedule definitely depends on this this acquisition right now. I think what's going into the calculus are can they get the valuation that they want and they may not be able to do that unless the company grows some more, and so I wouldn't be surprised if that two year timetable could become three or four years, depending on how

how fast they can grow. Another calculus here is um what's going on between the Saudi government and the Saudi Oil Ministry and a Ramco, and the Saudi government is looking to basically kind of cash in on this i p O to fund their public investment fund there their sovereign wealth fund, and right now they don't have the amount of money that they're looking for by buying Sabboc from the p I S. However, the sovereign well fund will get more money, and so they may be more

satisfied and willing to UM hold off on the I p O. I feel as the Saudia's always say conditions are optimal. Well, you know, talk about that for a second. Because ip week Saudi Ramco a CEO. He seemed pretty upset. He was definitely like, investors don't buy our industry. They're writing us off for dead, and that's not true. There's going to be a supply gap. To me, that sounds like a CEO that wasn't able to market in IPO. Yeah, they definitely ran into some issues marketing the I p

O and marketing the company. But I do think a lot of that has to do with UM a lot of misunderstandings that are perpetuated about a Ramco and particularly about Saudi Arabia's oil and it's oil reserves, And so I can understand his frustration there. There's a lot of misinformation out there. Dr ellen Wall, thank you so much for joining us. Dr Wald as a President of Transversal Consulting, nonresident Senior Fellow at the Atlantic Council's Global Energy Center

and also contributor to Bloomberg opinions. So what is your sense of this, IPO, Alex, does this happen in our lifetime? Maybe in our lifetime? I don't know. I'm gonna Sarah week next week, I'm talking to twelve Energy CEO, so I'll let you know. I'll get back to you on Wednesday. I'm just I'm just speaking for all the energy investment bankers out there who are waiting for what was going to be a monster pay day for them, and they

still hope. So taking a look at West Texas Intermediate crewed right here, fifty five dollars down a little bit, got about two and a half percent today. This is Bloomberg. Just crossing the Bloomberg terminal right now is news that x Fox executive Bill Shine resigning from the White House out according to uh Sarah Huggaby Sanders. Uh so, that is a relatively short tenure for Mr Shin, as he came to the White House from the news corporation Century Fox.

So just crossing the headlines right now. But thinking about the jobs data, clearly not well received by the equity markets. Continue to be a little bit weak there, but absolutely a complete yawner from the fixed income markets. I'm looking at the ten year Treasury literally unchanged on my Bloomberg screen yielding two point six four percent. So to help us kind to dig into, uh, the bond market, all things fixed income, we welcome back our friend Kathleen Gaffney.

Cathlene is co director of Diversified Fixed Income and EAT and Vancy. Vance has over four billion dollars under management, about eighty billion dollars of which is in fixed income. Cathlene is based in Boston, but she joins us today in our Bloomberg eleven three oh studios in New York. I feel like you're here as often here as you are in in the Boston. I'm sure you've got lots of travels. So what did you make, Kathleen coming out of this job? Number obviously a kind of a strange number,

But what's your takeaway? Yeah, it definitely was a strange number and not something that I would extrapolate. Although clearly the market, especially equities, are thinking more about lower growth. Uh, that's the pattern that we've heard in Europe as well. But it was interesting that wages are increasing and I've got my eyes on what's going on with inflation, and that's what I think bond investors need to be wary of. Was that was the inflation number? Okay, we're not We're

not going too fast, are we. No, we're not going fast enough. But just just the increase in wages. Uh, we know that we've got a tight labor market, so that's going to be some sort of pressure. And there is stimulus out there with the Fed on pause. Uh, that's still accommodative policy. And China is also providing stimulus. So I wouldn't read too much into one one data point. Does the tenure at two point six and the tenure bunule at six basis points? Do those two numbers make

sense to you? They make sense in a world where their inflation is going to remain low for a very long time. But we're hearing and it'll be interesting to hear what Powell has to say. But the Fed is starting to think about how anchored investors expectations are, and that it seems that it is very hard to get anyone to believe that there could be momentum higher, which means they are likely to start using the average inflation

target and let it go a little bit higher. And wages moving up is one piece of that we just have moved up. And I was gonna say that they have moved up here, they've moved up in Europe as well, Paul, in fact, like if you're gonna look at green shoots like that's one of them, even, dare I say in Europe? So Kathleen, that's you know. On the European issue, we had some very dour commentary coming out of marriage draw yesterday in the ECB kind of what what is your

takeaway from what you heard yesterday out of Europe? How concerned are you? I I'm somewhat concerned. UH, and and Europe is definitely UH really slow to react, and that and the ability to get more growth is hampering UH policy, and so they're in a really tough place. UM. But I do think that much of that is due to the uncertainty around the globe UH due to Brexit and also due ton tarns about China. Germany. UH exports a lot to China, and so I think they feel that.

I do think that the uncertainty is going to be resolved with the U S. China relations, and I think with the China stimulus that's coming, I think that's positive, but it probably isn't something that we're going to see until later this year. So for now we're really stuck in the pause mode and limbo mode until we see more positive economic data. But the market keeps flipping from one side to the other without making a whole lot

of progress. Um, focusing on inflation and letting it run will impact the dollar, and a lower dollar helps to get growth going. So here's what I just really struggle to understand is that growth isn't horrible, Like we're not going to recession right yet. I'm gonna point against six basis points for the German tenure BUNO. But then you go into the fact we might have a China trade

deal for example, The dat is not terrible. The markets pricing in like rate cuts this year from the fed ecb rate hike is now out until like now the back half of in terms of the markets telling you so to me, anything is going to be better than what the markets are thinking. Yes, So aren't we going to have to have some kind of showdown here where the markets have to play catch up and then there's gonna be some volatility or some unwind like is that

a thing we're going to have to focus on? Yes, but I just don't know when it's going to happen. It feels like it's not going to happen til later this year. But that is exactly what I would want to be prepared for. That's the biggest that's the biggest risk. And the FED really does want to get rates up, but they just don't have the ability to move. So a weaker dollar is a great way to solve that equation because they don't have to lower and they can

take their time raising. Yeah, at we're looking at the dollar. I've been talking to folks on I just don't see what against which currency it will depreciate. I mean it's just you know, you look around the world. I mean it's just the dollar, you know. I just you don't see it. You have, you know, the weakness obviously in Europe that we heard about. Yes, we have China. We're not really sure where they are. UM. So it's interesting, but I think as a US economy, UM. We've had

a couple of guests on today. One was kind of calling for a recession in one was saying, no any sense of kind of where you think that's going to play out. I do think that the fundamentals are are good enough that we're not close to a point where we're going to be at recession. UM. Leverage has been picking up, but it's still relatively modest. Uh So, I

think a recession is much further out. It is more the volatility that as expectations UM start to get lifted, you'll you'll see the volatility in the credit markets because they've been pulled higher in price, lower in yield because of that appetite for yield. When we're stuck in uh to pause and and limbo. What is your strongest conviction trade right now? Uh e M currency. So to Paul's question, I think that's what the dollar will be weaker against

is China. You are seeing the U want move up there. All signals are that they want stability and consumption. Interesting. Kathleen, thank you so much for joining us. There's always a lot to talk about, particularly after on a on a jobs Friday. Kathleen Gaffney Kathie's co director of diversified fixed income at Eaton Advance. Uh they managed over four un billion dollars and she joins us here in our Bloomberg

eleven three OH studios. Thank you so much. Alex, thank you for joining sitting in today Jeff fun on Radio. It was a pleasure. Yeah, I do. I get to just you do all the heavy lifting. I just hang out here and talk. I mean, it's awesome. It's my husband's nightmare exactly. Alex has founded up to sit in for Lisa Abrahmo Witz. Coming up on Bloomberg Radio is politics, Policy, Power and Law with June Grasso. June, what are you looking at today? Well, we're gonna have a live interview

with Nancy Pelosi. I've course, we're gonna look at the manifort sentencing and the jobs numbers. Excellent, excellent. Looking here at the market. Still down a little bit today on the equity markets, but generally very strong. I'm Paul Sweeney and along with my sit in co host Alex Steele,

this is Bloomberg Now on Bloomberg Markets. US focus on Munis is brought to you by Build America Mutual BAM Green Star Bonds finance projects that protect and restore the environment with more renewable energy and efficient transportation and buildings. Visit build America dot com, slash Green Star, BAM Building America. Well, there is a growing i'll call it chatter within Congress to repeal the ten thousand dollar cap on deductions for

state and local taxes or salt. To use a vernacular to get an update on this and all things muni, let's welcome once again Amanda Albright. Amanda is the a municipal bond reporter for Bloomberg News. She joins us here in our Bloomberg Interactive Brooker Studio Amanda, Welcome again. UM. Is there any chance that this issue with the state

local taxes can get any movement in Congress? So as that story outlines UM by Joe Light, it doesn't look like that there will be any traction made on that proposal. Both Republicans and Democrats have their own reasons for not supporting the um you know, change to that, and for muni investors, UM, they might be looking at all the cash coming in and saying, well, maybe we don't mind the cap on salt deductions because it's led to just tremendous demand for municipal bonds as people you know seek

out tax heavens UM. And so that's something that's really propped up performance this year for the muni market. Have you noticed after sort of a couple of years of dealing with this UM the difference in say state, it's like Connecticut, because I gotta tell you, like so many guys in the industry that I talked to are like, yeah, yeah, yeah, I live in Connecticut and they really don't. Their residents

in Florida, but like they actually live in Connecticut. Right. So, we talked to a financial advisor UM this week about just the salt driven demand for munis and she was saying that UM, she is definitely hearing from more clients who were worried about taxes and just that's becoming more part of the calculus for them. She was basically saying that no one that she works with ever retires to New Jersey. They're retiring from New Jersey and leaving UM.

And she basically says she has clients from all over the US UM that have previously lived in New Jersey and maybe taxes weren't the only reason why they left, but it certainly wasn't something that kept them there. Interesting. Well interesting as a resident of New Jersey, this is near and dear to my heart. But another issue is entering for the state of New Jersey's New Jersey Governor Phil Murphy, who will be on Bloomberg Radio and Television

today in the four o'clock hour. We should mention, but he released the state budgets at thirty eight point six billion dollar budget. In there on the revenue line was taxes supposedly going to come from cannabis legalized weed, uh, something along the order of three hundred or three and fifty million dollars. But they're actually coming in much less.

What's going on there? Right? So Murphy's budget UM only estimated that it could raise sixty million from cannabis taxes, which haven't been legalized yet, I should add, UM, So before he was estimating that this could be something that could raise three hundred million dollars a year. UM. But now it's kind of, you know, a reality check for New Jersey and other states. UM. New York is also talking about legalizing marijuana UM, which you know is a

competitor to any legalized UM marijuana in New Jersey. UM. There's also this issue of the black market and people who already were getting their marijuana from one source, and will they actually go and pay taxes on a source that they weren't you know, previously paying taxes on. It just highlights to me kind of the desperate measures that some states are kind of grappling at. So it's not only you know, taxing pot. I'm gonna say, pot. Is that Okay? Am I doing myself? Okay? Um okay, we

see so um. Then but then it's also the proposal in New York right that if you have a condo and you don't live there and you rent it, that then you gotta get taxed on that. I mean, like, are these investors like these kind of proposals when it comes to the mini market. That's a great point. And I think, um, I would put marijuana taxes up there with like cigarette taxes and gasoline taxes as being these

kind of imperfect revenue sources um various reasons. So cigarette taxes, um, the more that you tax cigarettes, the more consumption decline. So that's kind of an imperfect revenue source. But it's one that states, especially UM states where there's a lot of anti tax sentiment, well they view those as easy to raise because it's a it's a syntax. Um. And then with gas taxes, you know, there's a lot of

talk about electric vehicles, hybrid cars. You know, how reliable is gas tax money going to be in thirty years, which is kind of the time brand that states are working with. So I think for marijuana taxes, it has its own sort of issues. Um, but it is something that you know, like we saw with the m t A last week. Um, it's an easy, you know tax that lawmakers can propose. It's easier to you know, float that than it is to say I'm going to raise

your income taxes by one percent or so. But some other states I'm thinking Colorado and some others that have had legalized marijuana, they had similar tax shortfall issues or they're doing a little bit better. So it's more of like a nice to have for a state like Colorado, which is you know, a really strong credit. There's like tons of people moving in. Um, this is not something that we're seeing any state kind of build their their budget around. It's still a very small percentage of their

overall general fund. Um. You know, they're working with billions of dollars and you know, marijuana tacks money right now just isn't enough to kind of make or break a state credit. Uh. What is the most popular moon mini market right now as an investment? Yeah, UM, I would probably say New York and California. Are up there. Um, maybe even more of an extent New York because the spreads on the state's debt have just tightened so dramatically.

Um during this season of salt demand and all that. Yeah, let's say that supply or demand issue. It's a little bit of both. So there is really really strong demand, but um, supply is not yet you know, outweighing the amount of reinvestment money that we're seeing coming in. We're also seeing lots of cash new cash coming into muni mutual funds and um, even Muni e t F this

week they attracted um, you know money. UM. So it is a supply and demand dynamic, and I think people are kind of worried about what happens if the demand runs out, but no one is actually calling for that to happen. They think this salt dynamic is only gonna get worse after people, you know, finished doing their taxes. Yeah, exactly, tax season. Here we go, Amanda write me this bond reporter for Bloomberg News. Thanks for listening to the Bloomberg

P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio