Bloomberg Surveillance TV: April 2, 2025

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow. Along with Lisa Bromwitz and am Marie Hordern join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six 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 App. Joining us now

Well, good morning, as I'm saying to most of my clients, Happy Liberation.

Day to those who observe, the truth is, we don't know.

When I heard your last guest say that he has said I don't know seventeen times, and I think that's where most advisors are at the moment.

It could be a number of actions. It could be anything from.

Reciprocal tariffs where a series of countries have a number that's assigned to them that represents their tariff and non tariff barriers. It could be a global sweeping tariff, or it could be some mix in between.

Kellyan, what is the goal of these tariffs? What is the president leaning on at the moment? Because we heard that they're supposed to be revenue raisers, and at the same time, in the next breath, we hear people from thedministration say that he wants to cut deals with some trading partners.

Yeah.

From my perspective, I think the president has two primary objectives. So first is to address the long standing trade deficit, that trillion dollar trade deficit that the United States has with a number of countries around the world and predominantly coupled in about fifteen economies. The second goal is really

If that's the goal, and having worked for him and being a trade expert, what do you think is the appropriate prescription we might get from the President today?

Yeah, I think that the President is likely and again I heavily caveat this with nothing is final until the President says it, so I think he is likely to target those countries that are the worst defenders in terms of tariff and non tariff barriers. We may see a more global measure applied to the rest of the economy, but I think he's going to be focused on those handful of countries.

And to my mind, this kicks off a negotiation. This is not the end.

This is not the certainty that I know a number of businesses and the markets are looking for. I think this gives other countries an opportunity to come to the table and say, look, we hear your concerns. We will cut some of these barriers too, and that the United States and those trading partners on a bilateral basis would begin to reciprocally lower their barriers.

Kelly. And one of the questions I got asked on Locked outside the US is how many rounds this is going to be? And at what point do we know that whatever we offer sticks? How should we answer those two questions?

Yeah, I mean, one of the features of President Trump's negotiating strategy and his style is ambiguity, and it is very rare to get that kind of certainty.

But what we did see play out.

During Trump one were a number of deals that were cut and inked, including the NAFTA renegotiation which became the USMCA. We saw the Coorus agreement renegotiated. There was a deal with Japan, there was a deal with China. So I do think that there is precedent for having that certainty at the end of what will be a rocky negotiateation period.

But I do think we're.

Looking at the next several months to next couple of years with some of those trading partners before we actually get there.

Kelly.

And this raises execution risk, and people have talked about this repeatedly that confidence among CEOs CFOs consumers has been falling off a cliff amid the uncertainty that may be a feature and may be prolonged over the next months and years. How concerned are you about this execution risk.

Yeah.

I think two things are happening at the same time, and they're really in opposition to one another. On the one hand, the President is looking to reshape the global trading system, which requires breaking a lot of glass.

And not giving his bottom line.

On the other hand, he's trying to attract investment from businesses around the world, and.

Those two goals really require different strategies.

So the administration is trying to land the plane on both I think in terms of execution, and the administration has an uphill battle. They're trying to do something that's

The Press Secretary said that some of these tarifs will be effective immediately. So do you expect tariffs using AEPA or Section three three eight to come out today and begin tomorrow?

Yeah.

I think there are three types of legal authorities the president can use to impose tariffs effectively immediately. So AIPA is one. Section three three eight of the Trade Act of nineteen thirty is another. And then there's also Section one twenty two of the Trade Act of nineteen seventy four, which is about balance of payments. So he'll certainly have to rely on one of those. I don't know which

Now.

I will be looking to see what the executive order actually says and whether by immediately that means exactly at twelve oh one on April third, or whether there are a couple of days to give importers some grace or even a ship on the water exception, which is what we saw on the fentanyl terraffs.

I just placed the announcement comes after the close now and not the original three pm. The Secretary best and guardedans towards Kelly. I appreciate your time as always the former senior Trump trade advice at Kelly, I'm shure Binky Shadow at Deutsche Bank, writing a credible relents on trade policy is necessary for upside risk to materialized. The clock is ticking. Binky joined this now for more binking of monitor. Good morning's at seven k year end your head.

It's a long ways.

I agree, I great, just love to But if you're still at seven, play.

The record that you know I am not bullish near term.

We expect basically this year end that's nine months out, it's three quarters out. If you think about you know what happens if we have sort of a mild recession, let's say second and the third quarter. You know, the tried and tested equities playbook would tell you that equity's bottom in the middle of the recession. So that would be June first, recoup all of their losses.

And that means at the point you're kidding me, but.

You think this year we could have a recession and still end the year at seven K.

I do believe.

So if it's a mild recession, that's actually what typical playbook would tell you. So where I would say, you know, the pushback in your tone is really, I mean, we're just going to happen two quarter recession. We're going to have a recession.

Somebody who comes out has a seven thousand price target at a time when everyone's downgrading it below fifty five hundred, and you say, well, I'm not bullish.

You know, well, everybody else will look at it.

And say you're pretty bull So we already had fifty six hundred. So we're going to stay here for nine months. The equity market is not good at staying in the same place, though.

I would point out that in Trade War one point oh, the equity market went nowhere and neither up nor down huge moves, but nowhere for eighteen months actually, so we are very well aware of that period, and it does play into how we think about things.

Is this predicated on the idea that some of the soft data is not going to be predictive of hard data, and that potentially you get some resolution in the near term, some clarity on policy, and potentially a federal reserve that helps out.

I would say not quite.

What I would say is, actually there's two distinct sources of basically soft data. I would say, the low consumer confidence is not necessarily very predictive for what consumers spending and the business cycle is going to do.

But consumer confidence is.

Extremely important for presidential job approval ratings. And after an initial honeymoon period, you know, job approval ratings tend to go down to consumer confidence. And you know, the way I would just note or remind is consumer confidence is exactly where it was when President Biden left, and so there's a lot of room for us to go down, and we would go down on bad growth news, bad inflation.

News, political developments.

Now, I would say the other part of the soft data, which is CEO confidence, is extremely important driver off the actual hard corporate data and indicative off it. Now we you know, CEO confidence is Tier two data, so we don't have very regular reporting and the like. But there are some measures that are basically fallen off a cliff from me, and we are now below twenty twenty two levels on the CEO magazine. We are European Financial Crisis

Out very quickly.

So what policies in Washington do you need to see to get to your year end target?

You know that that basically the tariffs are you know, in negotiation, a relent, just as happened in Trade War one.

Point out any they gets wrapped up in nine months.

I think you know, if there is a relent or rationality if you want to call it, that, you know we could get.

There pretty quickly.

So so Binga, I want to take it away from your seven thousand target and.

Also Forcember thirty first at four pm. Yes, yes, yes.

Over the last quarter, the S and P has underperformed zero stocks as hundred by seventeen percentage.

Ones, which is remarkable.

Some people think this is just the beginning that we are going to have a normalization of valuations over the next few quarters. Some of it think it's overdone.

Where are you on this?

We think it's got a long ways to go basically, and really the issue is where the Europe can grow. We have again the cross currents that we've been talking about. We have the tariffs, you know, as the negative. But you know, if I look at ur at our, I mean it's sitting right at one O eight, which is a very reasonable place to sit.

So if you.

Believe growth starts to pick up, and I would say the ingredients for growth to pick up in Europe were already basically there before all of the German developments.

So the German developments, you know.

Are another positive and another reason to believe that growth will come. And if growth comes, we will get the earnings and.

That's all the basic Isn't that a problem for you?

SMP seven thousand? Isn't that a problem that some of the oxygen now gets sucked out by Europe flows are no longer persistently to the US, The US no longer sucks up global capital and you lose a critical technical that has supported your your abolishness about the SP Isn't that an issue for.

You at the margin? Yes?

But I mean you know right now, what I would do is I would be overweight Europe, which is what we are, and I would also overweight the US. I mean remember that we're already down, you know, around eight percent, So it is looking better. And if you look at relative performance tends to form in a channel. We have just moved from the US relative to stock six hundred. We were at the tippy top. We are now exactly the middle. That's why I say, you know, we're just about it.

What are you underway there? So you're overweighting everything? What are you just looking at it?

That was about the S and P relative to the stock six hundred in local currencies, we are right in the middle of the channel. So there is more room for the US to underperform without really changing the trend. And so what has happened so far the seventeen point that that's half of in the middle of the channel, so it can continue without basically upsetting the channel.

But for the channel to continue or for the channel.

To break, you know, it's really about whether European earnings start to grow.

For as long as I've known you, for a long long time, you've been bullish and right, and I've been skeptical and wrong. But this is the most bearish seven K conversation.

In my life. I'm glad you didn't ask me what my twenty twenty six target is so I don't have one.

So wors is the seven K in the United States?

Look, the economy is still in good shape. We are closer to the edge. The risks have grown, There's no question about it, and there's no obvious large, big imbalances outside the US government, I.

Would say, and so it's all very possible.

But yes, we are getting close to the edge and the risks have gone up a lot.

So what would make you t embarish?

No relent on trade?

You know, trade policy continues the way that it is, and you know, just general lack of clarity and policy.

So what I'm saying is if.

Policy stepped out of the way, the equity.

Market and the economy would be just fine. It is policy that is the big negative right now.

Is there a.

Statute of limitations where there needs to be some clarity before which the damage becomes more entrenched and you have to start to model it out.

That's exactly right, Yeah, is it?

What is that statute of limitations?

That statute of limitations is once you know, we get to a point in this slowing that potentially nonlinearities start to kick in. I mean, if you look at late market in the US, it's a pretty delicate balance. I mean, it's been very, very steady, so I'm not sure delicate is the right word, but it is delicate behaviorally.

It's just been stuck there for quite a while.

In terms of hiring rates and firing rates both are at very very level, so it is kind of stuck.

Thank you, you're a good sport.

It's going to hear from minute as always as the catch and over this they get you out of there at Deutsche Bank. Seth Carpenter of Morgan Stanley, writing, our base case remains that the focus of US tarras will be on China, but if trade tensions escalate beyond our base case, the dragon corporate confidence on Capex and the business cycle will intensify.

Seth.

John just now for more, Seth, welcome to the program. It's been too long, my friend. Let's talk about later a four pm Eastern time. And I think, more importantly for a lot of people in this market, how is the Federal Reserve going to navigate this moment?

It's great, great set of questions, Jonathan, and this, I think the set of questions that just about everyone in Marcus is asking. First the uncertainty here is huge. We've heard some more commentary of the way else where. They're clearly still resetting what they're going to do with tariffs, and so I think even inside the administration there's some uncertainty.

So it sounds like you don't really see a FED put in the offing to try to really give a boost to both economic growth and confidence in markets, which raises the question about a policy put on the other side, what is currently being priced in. We were just talking with Mohammadalarian who is here, and he said that he sees it as a fifty to fifty percent chance of a Reagan Thatcher reording of an international trade versus Jimmy Carter on steroids. Market's currently pricing in about eighty twenty.

What do you see?

I mean, I think it's I think it's very hard. When I talk to clients investors around the world, there are as many views there as there are investors that you talk to, and so I think you can see the same acid pricing reflecting multiple different narratives. I think people just don't know, and so I don't think you can take anything for granted from massive pricing right now.

So let me put you on the spot.

If I may on Sunday, one of your competitors came out and they'll had three elements to their new forecast one pc inflation from three to three and a half percent for the year two fourth quarter on fourth quarter growth.

Down to one percent.

Three.

The FED cuts not twice, but three times this year.

What do you agree with?

What do you disagree with on those three elements?

Yeah, so I think the main thing I would disagree with a bit is the timing. So we've got one and a half percent as a baseline growth rate, but boy, lots of room for downside there. And that's a pretty conservative assumption on things like where tariffs go and how much this immigration restriction, which we should have a whole conversation about that. I think it is the most underappreciated

I think that's right.

Our point forecast is a bit below three percent, but I can't rule out the higher number you cited, And for all the same reasons, tariffs could be stronger than we think, we could get more immigration restriction. I think the key difference for US is the FED is in

Do you see the market then as being wrong pricing in three cuts by the end of this year, increasing that chance as a chance of some sort of weakening does seem to rise?

I do think so.

I mean the market has to price things on a probabilistic basis, and so there are lots of different scenarios implied in that price. I would say, if you're relative to a straight reading of where the market is, they don't they have too much priced in in terms of cuts this year, nowhere near enough priced.

In for next year.

Seth Campenter, Seth, appreciate your time. Thanks for making time for us this morning, Seth Carpenter. There of Morgan Stanley, here's a take from Julia Coronado of macro Policy Perspectives, writing a recession has not become the baseline, though investors see the combination of Trump policies as a supply shark that the FED tools may not be able to address. Julia joined us now for more, Julia, you're super dowed into the FOMC. So let's get straight into it.

Just from a cost.

Perspective, By definition, the tarists are paid by the importer. We've got that. How do you think the cost will be shared through the economy.

Well, it's going to.

Be split between profit margin pressure and consumer's loss of purchasing power.

And exactly how that breaks down sort of depends.

We're not in the pandemic, so consumers don't have they're not flush with cash.

They're not just going to accept any price increase.

And we've heard that in some of the comments to the surveys that have come in that you know, businesses are struggling with.

How to pass that on.

How much will consumers bear and how much must they absorb?

But it's going to be a hit in either way.

You know, it's going to be a hit to profit margins, it's going to be a hit to consumer purchasing power, and it will come with a burst of inflation.

And that's the problem for the FED.

They're already above their target, never got back down where they wanted to be, and it looks like it's going to be a while before.

We get there. Julia.

One argument is that this Fed to reserve is very aware of the scarring that takes place what unemployment rises to a certain level, and they want to cater to the economy first, even if inflation does run.

A bit higher.

Do you think that this market right now is misguided in their understanding that the Fed could cut rates by three times and looking through some of those one time inflationary pops.

I think the tension right now in the market pricing, as far as I can see, is it's perfectly reasonable to think that the Fed might lean towards the unemployment mandate.

And cut three times.

But that means the economy has to be really bad. It means that the unemployment rates not just up a tick or two. It means it's risen and is rising beyond.

Four and a half percent.

We're sort of heading into a recession and they need to start ensuring the economy. That is the scenario in which the FED cuts three times, it's a perfectly plausible scenario.

We're sort of leaning in that direction ourselves.

We could see a rising chance that we could see a recession in Q three or Q four of this year.

And it's not just about the terriffs. It's about the combination of policies.

One thing that we don't discuss enough is the disruption from dose cuts and contracts, and disruption to sectors that are usually very stable, like healthcare, like state and local governments that may start feeling the pinch and they've been driving job gains, So we could see a turn for the worst and that could lead the FED to cut. But that doesn't seem to be the sort of sanguine middle road that the market is pricing in terms of equities.

So I'm trying to understand, Julia, how hot are you leaning into Because the dominant view right now, to the extent there is a dominant view, is that the soft patch is in the next few months. By the time you get to the end of the year, you have the regulation kicking in, you have favorable things kicking in. Whereas you said, the risk of recession is highest in the third and fourth quarter, if I heard you correctly, So.

Yeah, I have a very different profile from this idea. We go through a soft patch, what drives growth up.

In the second half.

Tax cuts, that's going to be really that's a high barge because of the extent of the TCJA.

You can play all the budget tricks you want.

The reality of the macro impulse is that you're just not going to get that much fiscal impulse very likely, and in fact, what we're seeing on the dose front is that you're going to get a lot of disruption in fiscal policy. Whether or not those contracts are ultimately paid, Cutting them off and injecting uncertainty across a number of sectors is likely to dampen their enthusiasm or willingness to higher employees. Deregulation we constantly hear this. I can see

Bank regulation or at least a lighter touch. But your where else am I going to see it?

You know, energy, you know already we had massive production, low prices. In fact, prices are too low to get much more production.

Where else?

Tell me the channel that deregulation is going to boost the economy in the second half of the year, What sector benefits from this?

Juliet When it comes to this, holistic approach the Trump administration tariff's deregulation, tax cuts. What you're saying there is that deregulation and the tax cuts, which to your point really are just tax extension of current policy, aren't enough to offset what the investors view as bad policy or less optimistic policy when it comes to the markets of the tariffs exactly.

And then remember we're not just talking about tariffs. It's uncertainty around the tariffs. President Trump likes to hold that uncertainty over over other countries, over.

Essentially the economy. And so it's not going to just go away today.

That today is just another sort of step along a road of an ongoing trade war of.

Tariffs and retaliation.

Then let's layer on the doze disruption to federal contracts. Then let's layer on the very restrictive imagration policy that is so draconian that it is leading a lot of workers, or at least some workers anecdotally, not to show up to work, not to engage in economic activity, for fear of being snatched off the street and deported. And that has been All of these things have been real tailwinds for the macro economy.

The immigration piece is not insignificant.

To go from an abundant environment of labor supply and growing demand to one where it's shrinking is a big shift in the environment, and we haven't yet seen that flow into the hard data, but I think the soft data is starting to pick that up.

I noticed the comments to the Dallas.

Fed service sector survey yesterday. We're very interesting along these lines. They talk about the hit from immigration, they talk about what it's going to do in terms of constraining the construction sector. So you know, that's as we feel, that's very direct. So you know, I think these things are going to come forward and show up in the hard data. And we're just focused on tariffs, but there's a whole range of policies that are not growth friendly, so lots.

To get through.

Julia, appreciate your perspective. Thanks for joining us. Judia Currentada there of macro policy perspectives. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, and geopolitics. 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 app.