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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?
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 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.
In the past, that would mean going to bonds. This time around, is that still true, Well.
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 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.
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.
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 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 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.
Given all the uncertainty, even whether or not Trump decides to blank walk off the cliff, give these reprieves.
Do you still like gold?
We do like gold.
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
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. It is a store of value of the portfolio. We think that makes sense over the longer term.
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.
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.
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.
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 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.
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 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.
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, 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. 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 see how oil prices are going to start moving higher anytime soon until we see the supply response.
How loo are we talking, Amerta, Do you think oil prices can go?
So?
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 the timing of it.
Right.
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.
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.
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.
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
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 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.
Pick up, let's put.
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.
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.
Everybody at a certain point.
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.
The past decade.
I'm just wondering at what point that factors in as well.
Well.
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 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.
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.
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 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.
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 more Erica always good to see you get to see. What do they tell us the Morrow monic? What can they tell us?
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 economy that we really wanted to come through.
And if you're a corporation, how do you make decisions in this environment?
Right?
And so as you think about investment, banking and loan growth and commercial you would think that has to be at least delayed.
Although I wonder.
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.
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.
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.
Things are slow.
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.
Trading could be lights out for this quarter. Okay, hold on a second.
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?
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.
Be good for them.
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.
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.
So investors just never really value trading earnings.
Much, right, it's super volatile. It's like throwing a dart on the board. Who knows in any given quarter, right, I.
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 protect their capital.
Let's say, if credit.
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.
Oh.
I mean we went to that lunch.
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 deregulatory positive catalyst.
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.
Blanked again Rock in a hard place. Right.
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.
Know what the outlook is.
So perhaps they're going to build reserves a little bit, but you don't have an inventory of losses that are coming down.
The pipeline.
Card delinquencies are actually flat to down, and commercial delinquents or non performing loans are pretty flat and improving.
And so it's tough.
But they have to talk defensively or else investors will think they're baring their head in the sand.
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.
Do with trade.
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?
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.
I think is a big catalyst.
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 is overshadowing everything else that's good.
So did the big.
Banks benefit the most from deregulation and an uncertain regime where they consolidate a lot of trading volumes?
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?
Right? And by way.
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.
Back a ton of stock now, right.
They tend to be like, well, we're gonna keep the capital.
You know, tight and excessive for a rainy day.
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.
Do you think there's some pressure on them to cut costs?
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, So I'm saying, so there might be.
Some durability in costs. It's too late to use that as a lever, so sorry so early.
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?
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 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 way that's completely exclusive of the macro. And that's what happened, That's what's happening with this discovery deal.
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, It's good to see you morning. Can I ignore all that?
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 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.
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.
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 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 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.
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.
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
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 simply because of the trade wall, that brings you a fairly long list of downside risk to the outlooker world.
Which raises this issue of how we even game out the idea of inflation.
Why potentially are we.
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.
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.
Is it going to be.
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.
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?
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 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 bit back again. That's, on his own, a fairly significant hit to consumers and the wealth effect for the consumer outlook.
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.
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 last night.
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?
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 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 after a six tenths rise the month before.
Also something we do.
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.
That's a rise of a tenth of a percent.
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.
A little bit.
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.
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.
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, 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.
But what I actually see.
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 of still suggest that they're is a slowdown coming in the economy.
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.
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
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
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.
Here, our bond's still the best bet us treasure is. In that type of scenario, recession comes very much back on the table.
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
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.
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
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?
Well, I'm not so sure.
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 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.
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.
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.
Is it on actual incoming inflation or is it on some measures of inflation expectations which are well anchored.
But Torsan, you said it earlier. You have tariff still in the pipeline. Can they do anything until they actually understand the rules.
Of the road.
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, but not more than that, even if growth does last to slow down more meaningfully.
Do you have the sense of how close they were intervening with the treasury market yesterday.
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 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.
Do you think people are trying to drift away from dollar assets? Do you see that building in the past week.
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, 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 thinking about that. This is probably mainly viewed as a short term equippled in markets.
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 the Bloomberg Business Amp.