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I was at a university college, Dublin, coolest campus in Europe. Derek Halpenny with us. He is iconic with MUFG and automy. Clear they're a Japanese bank, it's inappropriate for mister Hallpenny to discuss the executive intervention processes of the bank. But we're thrilled you could join us. Head of Research Global Markets EMA for mu FG. Derek, it's just been way, way too long. Why is the dollar resilient? Is it about the dollar or is it about everybody else?
I think primarily I would point more recently obviously to the shifting expectations about the FED higher for longer, the resilience of the data, which certainly by January febru time
the markets we're not expecting. So this kind of latest leg stronger is more about the US dollar side, but certainly from our perspective in terms of the forecast going forward, I think it's important to remember the broader economic conditions and if you're going to be in a position to sell the US dollar, obviously you have to have currencies to buy, and up until now the global backdrop hasn't
been particularly favorable. But we think that's changing, not dramatically, but enough to limit dollar by And of course the GDP data today in the UK is one small.
Example exactly what is the outcoming? And Governor Bailey mentioned in that yesterday. Jack Halpenny, what does it mean for our listeners and viewers on YouTube if we have a stable dollar? I don't think there's enough talk about this, Paul. What if we get a stable dollar forward?
Well, I think probably most center bankers for a start, would certainly welcome that. And I think you know, stable foreign exchange generally is indicative of relatively reasonable conditions more broadly in the financial markets, and I think FX stability going forward would obviously probably reflect a relatively coordinated monetary policy approach going forward. And again I think for broader financial market conditions, FX stability in that context would would be welcomed.
So Derek, give us just kind of your broad overview what you have seen with the Japanese yen over the last several weeks. Again, we pushed up on that one to sixty level a couple of weeks ago where he caught people by surprise. Here, What do you think is going on at there?
Yeah, I think I think this is really interesting. Like obviously the price action last week, you know, I can say that it certainly looks like there was there was intervention, there's there's that's that's pretty obvious. And I think there's definitely an elevated level of concern politically, at least in
relation to the depreciation of the Japanese yen. That has an impact on household consumption, It has an impact on household sentiment, and there is still a chance that the Kashida administration will push for a general election before the
LDP leadership elections in September. Certainly from Kashida as standpoints, having a general election victory, the measure of victory, of course we can determine and debate that raises his prospects of remaining leader after the leadership election in September, So I wouldn't rule it out. And certainly politically there's definitely an elevated level of concerns. And of course we've had this meeting this week between Governor Ueda and Prime Minister Kashida.
Luida has then come out and the BOJ certainly seems a lot more hawkish now today than there were a week ago, and that certainly raises the prospect of a more active BOJ policy stance going forward from here.
So if the US dollar is maybe stabilized, maybe even if there's a little bit of softness in the US dollar, when you talk to your clients, do they have combetists go ahead and buy anything else that used to be the dollar?
Well, you know, look at Japan and today we've had data on cross border flows, and you know, foreign investor
appetite for Japanese equities remains very, very strong. And again, you know, I think if there's a fundamental, compelling story to tell, investors are interested notwithstanding the high levels of rates, notwithstanding the very high level of the US dollar, that points to potential volatility ahead if there's a real fundamental story that can trump all of that, and I think that's what's going on in Japan at the moment, where clearly corporate Japan is changing, dividend yields are picking up,
share buybacks are picking up, focus on return on equity, and that is a compelling story in terms of Japanese equities at the moment.
So what is your six months out play on yen? Which pair do you take on yen here to make a speculation?
Well, you know, I think in in terms of where we've had probable intervention and given our view in terms of where the rates pricing across G ten is at the moment, and by that I mean there's more pushback on yields to come back down based on our view that the FED is going to cut three times this year, and given the fact that we think the BOJ is going to raise rates in July, possibly on the same day that the FED is cutting, I do think there's scope there for dolly en to move certainly back into
the one forties, for there to be a bigger move than maybe what the markets are expecting.
We're going to get you. That's twenty big figures, are fifteen big figures. We got to get you. Back on Derek Halpennie, thank you so much from MUFG there on foreign exchange. I'm going to break a rule here, folks. Usually because they are always so product product touchy feely with Apple, they go to Dan Ives and they go, you know, should I get the brown one or the red one? You know, I don't do that. I do financials and like can you make money or lose money
in Apple? And all that? Right now, I'm gonna rip up the script with Daniel Ives. He's with web Bush on Apple, Dan Apple Insider, Mark German and the others. They have a lot of paragraphs right now on what AI is going to do for the iPhone? Is it nothing more than a glorified search engine enhancement?
I disagree, And I think this is the start of a game changing strategy at Apple with AI, and I think it's gonna be on AI services as well as on the iPhone. But Tom, they're not putting their new chip to focus on AI. If this is just for enhance search.
Okay, well, what's it for? I mean, right now on a Friday in May, Paul you mentioned the June meeting, is like, you know, Ive goes to that he ws a tuxedo. You should see the color of that tuxedo. Dan, I think there's a mystery here on what AI is going to mean for the public on the toy they all carry around. Do you agree at least that there's a mystery.
Yeah, but I think the mystery in the popcorn moment that's gonna be revealed at WWDC next month by Cook. I think it's going to start what I really view is probably the most important event for Apple in a decade, because it's unveiling AI on services, what I believe is going to be in a new AI app store and the start of it, and then what's going to be built into iPhone sixteen. From an LM perspective.
Hey, Dan and Tom. I bumped into Dan at Newark Airport yesterday. I was going up to Boston. He's getting off the Red Eye from San Francisco.
No idea what's going on middle place? I have no I I mean the web Bush golf stream usually doesn't go down.
I know, I know that he's fine with the people. Hey, Dan, when you talk to investors, what's the biggest challenge here for this stock? I see it down four percent year to date, which for Apple is really really underperformance. Is it China?
Is it Ai?
How do you prioritize kind of what Apple needs to get right over the next you know, one to two to three years.
Yeah, it's a great question. I think it's really it's China because that we're used to seeing that as growth and it's actually been negative. But if you look out over the next six twelve months, the headwind becomes a talent. I mean, China, I think starts to grow next few quarters. June will be its last negative quarter. And that's why right now in New York City, cab drivers barish and Apple.
But you have this pent up upgrade cycle, two into seventy million that have an upgrade, and four plus years plus now AI coming to Cooper Tino with one hundred and ten billion dollar buy back. I mean, that's like going up against Brunt in the playoffs.
Good, good analogy, Mike. The concern in the back of my mind, Dan, and I'm guessing I'm not the only one. Is this growing? I guess cold war between China and the West. That's spilling over into consumer behavior and maybe people on the margin are not going to buy Apple products to the same degree they did in the past because of that. Is that did the numbers show that at all?
I think the doomsday scenarios never really came true this quarter. I mean that's and I think that was that was evident because yeah, they have some geopolitical ahead winds the Huawei issues, but you build the best products in the world like they do. Consumers, whether they're in China, New Jersey or wherever else, they're gonna want iPhones.
All right, So at this developer conference, how do you think it's gonna play out? Because it feels like they're all is important to Apple, They're always important to the stock, but this one because there may be this AI component, what do you what would you like to see happen at this June uh get together?
Yeah, and this and German's talked about this, but this is all focused on developers, yep. So the big thing here is really them unveiling a foundational platform for developers where they're gonna build AI apps within the app store. And what that's really gonna do?
I mean, kings King's.
Talked about this a lot. But the A as AI comes to the consumer, it has to come through Apple till Apple dives into deep of the pool AI and then it could all start.
I feel like I'm doing a lovelte conversation. This is so non time keen Dan Ives and so we're are Google and Apple frenemies right now? I mean, if they need the Google platform to make AI happen, how does that? How forget about the regulation in the litigation? This weekend, they're gonna chit chat over an expensive latte out in Cooper Tino. Are they fre enemies?
Oh? I mean I'd say they're just actually friends and to some extent that that's getting closer and closer because they need each other. You will, Google needs Apple just like Apple needs Google. And that's something when it comes to AI. What's what's made them more BFFs is actually Microsoft. Because this Microsoft has aggressively really wed this. It's actually forced Apple and Google to look in the mirror and realize instead of enemies, they're actually friends.
The great thing about chat with Dan Ives Thomas, you can just go all over the place. So I'm gonna switch gear.
Just tearing them up on the live chat. Everybody wants to know where he got his shirt up. I mean, you know, they don't care about Apple. They just you know, did you get that at Lord and Taylor? That's what they want to know.
Now I got I got this one in this in Milan. It's no, this is It's like it's like a pul special right from Milan.
Can we have Dan luxury for me? Is like ll Beam.
At the thrift store?
Can you see Dana eyes and ll Beam? Now of course they don't.
Hey Dan, I'm looking at our good friends Tesla and stock down thirty percent here? How does that narrative need to change for Elon, you know, over the next several quarters here to get this stock moving.
Yeah.
Look, I mean obviously it's been a dark few quarters, but I think it all started with this last conference call in terms of turning it around. What I've used this up thirty thousand dollars vehicle next year. They've had to make some difficult cost cuts, but now I think growth will start to return in China. That's the key. And then you look at this time ahead it's really full self driving autonomous. That vision now is starting to
become something close to reality. And that's the longer term Tesla story here is that you know they've been through this before. This is not the end of the Tesla growth story. It's still second third in it.
Dan, I gotta get some news out here. I mean, you're in the office, you go back to your house. I understand you're published at any moment. You're out at a two fifty on Apple? Can we make some news here with a price lift? Can you go? Can you give me two seventy here on Bloomberg Serioce?
Well, well, what I will tell you, Tom Will I think the AI story is worth forty to fifty dollars per share to the Apple store, and that is not being factored in here. Sentiments negative and we I think we sit here a year from now and and that's that's gonna be what I've used a game changer. It's the underestimation of Cook and Coopatina with am.
Can I put a headline out ives of Milan?
Yes?
Sure, Apple three hundred dollars a share? Did I hear that? Dan? I've thank you with web Bush's the way the shirt. You know, I don't know what to say that. I've never done that folks. I've never done more touchy pheely with Dan ives on Apple, but I think this AI thing a real mystery and a real debate. David Miracle is one of the toughest PhDs in the land that under Greg Man Q at Harvard with Golden Sacks, David, thank you so much for joining. I want to get
to immigration in a moment. How much algebra was there with Man Q. I mean, I can't fathom the algebra rigger you had to put up with under Greg Man Q.
Well, you do move from algebra to calculus when you stick around millions.
Okay, Well, David, thank you for being with us. Your essay on immigration is the debate of the moment for this nation. With your research at Goldben Sachs, can you say that immigration has moved the needle on our labor economy?
I think it's you know, it's clearly had a mechanic whole impact on things like job growth and GDP growth. That part's pretty easy. More people, more entrance to the workforce, you can put more people to work. GDP can grow a little bit faster. Maybe the more contentious part is what impact all of this had on wage growth and inflation, where you know, we saw a big increase at a time when immigration was extremely low because the borders were
closed and fewer people were coming. Then we saw a big decline in wage growth and inflation when immigration surged, and it naturally raises the question is there's some link there. My take is it probably did play a modest and secondary role as one of several factors. But you know, I don't think it was the main story. Normally. You know, a lot of people I think quickly think of immigrants as well. You have more workers that should help to
rebalance the labor market. Economists is of course going to point out, well, you know, now that they've come to the US, they're consuming in the US as well, not just producing in the US, so you've boosted both supply and demand, and under normal conditions, I'd probably say is I think most people would say that it would be a wash, that it doesn't matter too much that you know, when we economists and markets think about forecasting wage growth and inflation, this is just not something at the top
of our list that we're considering. I do think this recent episode, though, was a little bit different, because if you remember back to the beginning, of the immigration surge, we had probably the tightest peacetime labor market in the history of the United States. So I think under those unique circumstances where you had a huge supply demand imbalance in the labor market, and in particular, the low wage part of the labor market was just red hot, generating
really hot wage growth. Under those unique circumstances, I think it's fair to say that an influx of another million, mostly low wage workers probably helped cool.
So, David, given that backdrop here, how would you characterize the US labor market. We've got, I guess, a headline of three point nine percent unemployment, three point eight percent unemployment. How do you characterized the labor market? How do you think the FED views the US labor market?
Yeah, I think basically we've restored the pre pandemic balance, but things are a little bit more complicated. So if you look at a lot of different measures of how tight the labor market is, the unemployment rate, our jobs workers gap, survey based measures, many other data points, and you just average all of them, the average is basically where it was in twenty nineteen, down a long way from twenty twenty two. I think the FED would say
that's ideal. In twenty nineteen, we kind of had the you know, in retrospect, the best of all possible worlds, abundant job opportunities, low unemployment, but we didn't have an inflation problem. By twenty twenty two, we'd probably overshot. You know, twenty nineteen was one of the tightest labor markets in history. Twenty twenty two was kind of drastically tighter, and I think most FED officials concluded that's not the right place to be, especially when you have a big inflation problem.
At this point, though, I think, you know, we can kind of say now and fact, we could say by last fall that we have restored that pre pandemic balance. The reason I say it's more complicated is that there's more dispersion among these indicators. They tell a less consistent story, and you know, that means you can be a little bit less confident about where we are than if they all told exactly the same story.
Hey, David, I'm looking at your team's note from early April. You talk about GDP forecast a little bit higher than consensus PCE inflation falling pretty significantly, leading maybe the FED to cut maybe as many as three times this year. Is that's still the Goldman Sex call?
We think twice at this point, once in July, once in November. And you know, I'd be the first to acknowledge that that decision is going to be very, very sensitive to very small surprises on the inflation data. With you know, I don't think anyone can be certain about.
Well when you look at the you know, with you and your Hatzia is having to put together a call Peter Oppenheimer over in London, you put together call do you have not certitude? But do you have a confidence in the summer and into the end of the year. Are you basically flying blind till you do your next conference call to figure out what the view is? Well?
There, you know, there's always some interplay between the economic side and the market side. We try to incorporate that through our Financial Conditions index framework, and so it's very helpful to be able to work with our strategists to get some sense of how that impulse from changing financial conditions broadly might matter for our economic forecast.
So where's your nominal GDP call? Now, that's been one of our themes this morning, is a lot of people looking at resilient rates figure in a resilient inflation in that you know, we may not get nominal GDP under four percent or can you can you be more cautious?
Yeah, so we would have it this year at a little bit over five percent, but by the end of twenty twenty five approaching that four percent number you mentioned.
Wow, Wow, interesting.
So David, us about the consumer here? The US consumer?
What's your call here?
I know we're going to hear from Walmart and a bunch of other retailers in the coming week or so when we'll get a better handle on it, But how do you guys think about the US consumer?
Sure?
Look, I think there's been a bit of a disconnect between how we and other people looking at macro data would think about this and how people who have been focused on some of these company reports might think about it. Our take is a little bit more optimistic. I think of this as a pretty simple, straightforward story, basically the
twenty twenty three story, just in water down form. What I mean by that is, you know, there was a lot of gloominess in twenty twenty three too, but we looked at the data and we thought, real income is going to grow at a pretty robust pace. People's spending power is growing robustly because wages are growing faster than inflation.
We're putting a lot of people to work, and there are a couple other sources of income like interest income and some government transfers that we kind of knew were coming. And if your income's rising quickly and household balance sheets are basically the strongest in history than the natural assumption I think is that consumption keeps growing at a healthy pace. Now this year, we're not going to put two hundred and fifty thousand people to work per month. We just
don't have that many workers. So economy's income growth is going to slow. Everything's going to slow, including consumption. But we're at about two and a half percent, a little bit stronger than I think is sustainable in the long run, but not a blowout number.
David got to run, David miracle, Thank you so much for that briefund Gold and Sacks and to me the headline, there is a sprightly nominal GDP even out in to next year. Long ago and far away. You had to read Robert Lacy. I believe it was three or four
books in Saudi Arabia. You had to read various others out of England, and then there was a more modern book by ellen Wald Saudi Inc. And all I know is right now my head is spinning simply because time has moved on, and I'm not sure the Royal Family of Saudi Arabia is the same as the royal family that I think I knew of Saudi Arabia, or at least what David Lean gave us and Lawrence of Arabia. Ellen Wall joins us the book is the one volume
Saudi Yank. She's with the Atlantic Council on Energy. Ellen. Just as simple as I can put it, Who is the new Royal family of Saudi Arabia? And are they our ally?
That's a really good question. I would say, in some ways they're very different, but in other ways they're very much the same. Are they our ally? I think the answer to that is no. I would say they're probably more of a strategic partner. But I think that Saudi Arabia sees America as their ally, and that can complicate things a lot.
So I know there was or there's a deal in the works between the US and Saudi, you know, encompassing a lot of technological issues, a lot of economic issues. Can you summarize kind of what the discussion are between the US and the Saudis right now?
Yeah, this was the really kind of big story earlier in the week that this US Saudi weapons diplomatic economic deal is nearing the finish line. And essentially it seems like the US's goal is really to limit Chinese influence in terms of Saudi technology. So they don't want Saudi Arabia using Chinese technology and their sensitive networks and things like that. So the US is going to provide as they call investments in ai Wantum computing. And yeah, also.
And I don't mean to interrupt, but this is the first thing I dealt with this morning. So basically, we want to tell Saudi Arabia what to do with Chinese technology. Do we want to tell them they can't drive Chinese electric vehicles?
That's a really good question. I think that they probably rather that Saudi's drive Rivian or not sorry, not Rivian out Lucid did vehicles, which the PIF has a big stake in that company. It's really unlikely that people in Saudi Arabia are going to be driving evs, considering the same they drive really long distances.
I even got that right on the A Little World test exactly, all right, So so Ellen's let's talk about it. Brought out to kind of the global energy markets here, we've had both WTI and Brent Crew pull back a little bit from recent highs here. What's your kind of sense of where oil may be heading here and in your future?
Yeah, this is a really good question, and does in some respects depend on on Saudi Arabia. It does seem like there's some economic weaknesses, some indications of economic weaknesses. We're looking at a lot of kind of some weaknesses in diesel and middle dissolates, which can be a troubling economic sign. In the past that has definitely signaled oncoming economic weakness.
But on the other hand, it may not.
We're looking at strong summer demand, though I think that once summer demand and you know, kind of rolls through, it's really quite questionable what we're going to be seeing in the fall. Globally, obviously, China matters a lot, and it's kind of unclear. There are sides of weaknesses, but then again, you never know what the Chinese government is going to do, and there's still importing a lot of oil.
When it comes to kind of oil prices going up and down, I think we're seeing a pullback from a lot of the risk premium that had come on back when it looked like Iran and Israel might kind of destroy each other. I think that traders really thought there was a real possibility of war. But when you look at kind of the facts on the ground, neither of those countries is equipped to fight a war against each
other at all. So I think it was much more likely that we were going to see kind of a cooling of tensions as opposed to continuing escalation.
So Ellen, I guess OPEK next meeting around June.
First.
I'm just not sure how much we should all pay attention to OPEK these days. Are you going to approach it?
That's a good point, especially because when I think when OPEK is doing its job well, we don't really need to pay attention to it because their job is really to keep prices stable, and actually prices have been fairly stable. They've really kept a lid on production. They've managed to,
you know, to kind of keep everyone in line. But I do think that this US Saudi deal could have some impact because there is a sense that if it goes through, the Biden administration is going to be expecting the Saudis to increase production so that oil prices come down by the time November rolls around, and I'm not sure that the Saudis are really prepared or interested in doing that unless they get this full deal. So's it's
going to be quite interesting. I think they might increase production in age two, or at least for one quarter if things are really tight for the summer.
I mean, you don't do you don't do a market call. I get it. We're not doing market economics. You know, we're not trying to game out a barrel of oil. But we've gone ninety to eighty. As you say, do you have in your head a geopolitics a dynamic of supply and demand that gets you to seventy dollars rent? Or dare I say six zero sixty dollars rent?
I think that's really tough in the current inflationary area where we are because a lot we always think of oil prices as causing inflation, but inflation also acts on oil prices. So we're talking about rise and costs in all aspects of oil production. Plus we've now got a very much consolidated US shale industry which is not going to re enter this kind of produce that all costs time.
So I really don't think that unless we see some kind of economic collapse or recession, I don't think that there are the conditions in terms of supply to put us back into that sixty barrel rate.
Just for a moment there, Ellen Walt sounded like Emerita send you know I mean, I mean, it's just great market oil nomics with Ellen. Ellen, thank you so much. We look forward to the next volume of Saudi Ink. It's dude, to say the least with all the changes. Ellen Wald with the Atlantic Council a wonderful book, really can't say enough and also Transversial Consulting founder. This is a Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment,
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