Bloomberg Audio Studios, Podcasts, radio news.
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.
Hey Moore of City has been cautioning people recently, writing this, we view a nearly newly announced tariffs as a headwind to further equity upside. We are moving to a new phase of policy and trade uncertainty. Kate joins us. Now, Kate, thank you so much for being with us. You've been cautious. You've been cautious for a while. You're still cautious. What makes you hold onto this position even though a lot of people have been It's a pain trade.
Yeah, so, I mean we need to separate this out. I have been cautious, concerned with some of the policy headwinds with some of the challenges that individuals have in terms of making spending decisions. That doesn't mean we've been underweight equities. These two things are not the same. We have been neutral weight equities, but we prefer to express our view, you know, up in quality like a lot of people, and more concentrated in the kind of the
megacaps and the secular growers. So if I felt really, really like we were going to be in an accelerating growth phase, I'd be rotating more into the small caps as something more than a trade and into like a kind of an investment. But that's not it. So my caution expresses itself in more of a neutral weighting and a bias towards high quality and a bias towards large caps.
Although there is this issue of valuation at a time when everybody's hotalating out in this So at what point does that become a concern for you, given the fact that everyone's hiding out in these megacaps and big tech has been the story yet again of the year.
You know, Lisa, I would be a little bit more concerned if the companies didn't put up good numbers in the second quarter, right you know, multiples can stay high for extended periods of time, they can send stay cheap for extended periods of time. And we're in an era where a lot of information gets priced into shares very very quickly. So you know, there's this mispricing that maybe some of us grew up with in earlier stages of
our careers is less likely to persist. And things are expensive because they have secular earnings, because they have an ability to grow through all parts of the economic cycle, because they're in the fastest rivers. You know, this is I think justified for some of these megacaps. Even if I look at some of these numbers and like many people feel a little uncomfortable.
Everyone on the street is talking about how they want to be a buyer of the pullback. Well, oh yeah, when's the pullback?
A fullback? Can we get in that environment? You know, I think that's right. You know, we've looked at you know, seasonality like everyone else and said August and September weeker times, we tend to get some of these air pockets. You know, I have perhaps a little bit more cautious stance on some of the tariffs that hit today, and this is what I would say. Everyone's saying, if we get a five percent pullback or seven percent pullback, you know, they
go all in, they back up the truck. The problem is is that no one's going to wait for those levels. I think these pullbacks are going to be quite shallow, even if we get a decent amount of volatility through what is normally a seasonally weaker period.
They uncertainty around tariffs. On the other side of the coin, you are looking at potentially the incentives for the one big, beautiful bill you're starting to see that now actually take effect.
I don't think corporates really know how to guide us on this one. So I hear a lot of people say, hey, we're only talking about a fifteen percent give or take like effective terriff, Right, it's not that much. Of course, we all know how much it is relative to where we ended twenty twenty four. But the bigger question I have is when people make these assumptions about it not having a large impact, how are they splitting the cost
between the suppliers, the company, and the end consumer. And everyone has a lot of assumptions baked into why it won't be a big deal for XYZ company, companies don't know what to say, They don't know how much they're going to be able to push.
I think a lot of.
What's happened since the April second tarif announcements has been companies have been eating some of this in their margins, or they've been spreading out costs across a variety of different products, or they've been holding off an investment, you know, trying to fund as much of it as possible. But as some of these things get baked in for longer periods of time, there's going to be more durable impact
on both margins and on the consumer. And frankly, I don't know either exactly what that looks like.
Do you think it's going to be worse in the US than the rest of the world.
I think it's going to be worse. I think it's going to be bad in a number of places. I will say that US companies and consumers are going to feel the pain. I think we're at the very beginning stages of seeing some of the teriff impacts on good
price goods prices. Whether or not that changes the consumption, you know, our appetite for like the average household, I'm not sure or whether we see, as we've heard from some of the retailers, spreading out tariff costs across a variety of products that otherwise would not be directly hit in order to make sure that people still I'll come into the store and that we don't see a significant decline in retail sales.
Well, I guess I'm wondering how much of the dollar weakening story is really pegged to this ongoing belief that the United States is going to suffer the brun of any kind of economic slowdown on the keels of tariffs. That's been challenged certainly with some earnings, certainly with some of the rates that we've seen, as well as the
commentary out of central banks. I mean, how much do you lean into that versus pushback against it and say, hold on a second, when you actually look at the corporate earnings, so still have performing in the US totally in a significant way.
Yeah, I mean, I guess you know, the conversation we were having in the beginning part of this year about the end of US exceptionalism was really like, it is really not going to play itself out in the equity market in my view, you know, if we get fewer buyers or fewer marginal buyers of you know, long duration in US bonds or people thinking about their currency exposures.
That's one thing, but we still have to invest, if you're at a global multi asse investor and equity investor, in the highest quality companies that are serving all parts of the world. And unfortunately, for those people that didn't want to own the US much of those, many of those are US companies.
If you think we're in the start of potential to impact of the tariffs on inflation, what does the FED do?
Gosh, I am so glad I'm not a FED policymaker. This is an incredibly difficult time.
What are you baking in kind of impact corporate America.
I think it's very likely that we will see some easing, but I think the FED is in a really difficult place here. You know, if they cut while the labor market is frozen but not deteriorating, right, I think we need to distinguish and inflation is continuing to percolate. You know, people are going to ask themselves, like, you know, if the FED is really anchored to this two percent target or getting to that two percent target, and we've been above that two percent target for four years, and the
labor market is frozen but not deteriorating. You know, can we believe that you think in the frozen now or deterion. Well, we haven't seen huge layoffs at this point, right you know, job recks not failled for sure, and we certainly see a lot of companies talk about slowing down their hiring. But from my perspective, I can't desactgate how much of that is because of tariffs and economic uncertainty, and how much of it is because the technology they're investing in
may displace workers. I mean, these things are all happening concurrently.
Right now. You see a market pricing in fifty basis points of rate cuts. Yeah, if the FED were to cut more this year, does that make you more bearish on longer term treasures?
It makes me cautious, I think on longer term treasuries, you know, we have had a more cautious stance. I think it's very consensus for a lot of us in the multi asset space to have been really anchored to the short duration and we're all waiting for an opportunity to add to duration. I just I'm just not excited about it. In the near term.
Kate Moore, thank you so much for being with us. As always, Kate, more of City. Well, I'm joining us now as former NYC deputy director, Everett Eisenstadt. Everett, thank you so much for being with us. I want to just start with what we know today in terms of the tariffs that have gone on, the details of that and what's to come over the next three weeks.
Well, this is a really big day. You know. The President has been signaling these tariffs on the way for well since he was elected on January twentieth, with his America First Trade agenda, and he's put different measures to kind of tease out the rates in different methodologies, using different statutes, and now we've come to the place where today they're actually going to go into effect, and we know what the teriff rates are going to be on
the reciprocal tariffs for particular countries. You have some of them up there, as you know do They range from fifteen to fifty percent and for different purposes. We also have a number of the sectoral tariffs in place, in addition to investment commitments from some of our trading partners, so there's a lot of the President's trade agenda that is now in place, including the Framework Agreements. Now, the Framework Agreements are going to be a guidepost really about
how to move forward with these economies. They're not perfect, they need continued negotiation, but they do demonstrate directionality. So I think we've got a bit more clarity than we did a few months ago, and we really now see what the President's agenda is going to look like in operation.
When it comes to the President's agenda, though, there's two countries that it does seem like they're still a negotiating mode, India and Switzerland. Do you think we're going to see those rates come down?
I do certainly with Switzerland. I look at the US Swiss relationship and it is so interconnected and we're such important allies. I think the Swiss were a bit shocked, candidly at the rate. I don't know if that was just a botch negotiation or how they ended up in one of the highest rates in the world. Of course, a lot of it has to do with the trade deficit and how the President sees that trade deficit. But there's a lot that we share with with Switzerland, particularly
on intelligence and things of that nature. So I think that one it will come to settlement at some point. In fact, they were in Washington yesterday seeking to find a framework deal. India's a much much more complicated equation that one was noted was started out with such a great dynamic between President Modi and President Trump. It really has deteriorated, and if anything, that become more polarized over time and almost every day.
When it comes to well when it comes to India, is the President basically putting geopolitical priorities in terms of Russia, ahead of some of the economic priorities.
I think it's a combination of both. And if you noted that the secondary sanctions, which are a new concept that the President actually authorized himself to deploy not just against India but other countries yesterday, are being used on India, not China. So I think it's selective, but I think it's a tool that he will use and when he feels like a relationship is not moving in the right direction,
he'll use every tool he can to get leverage. And if it's a geopolitical reason, then that certainly a valid reason to do that. So I think it's a combination of factors. It's going to take some work and time to rebalance that relationship. I don't know that's going to happen soon, but we're definitely going to have to watch.
And of course the secondary sanctions has noted. New tool could have new dynamics for other economies, So that's going to be an important concept that we'll need to keep your eye on.
R Does it sound like something that is going to be used with China? Is that sort of the objective here, not only to pressure Russia, but also to put this on the table ahead of some sort of g Trump meeting to say we could go there too.
It could. I mean, we tried that right the President put prohibitive terrorists on China. It didn't work out so well. It really was incredibly disruptive, and China responded by withholding exports of materials that were needed for manufacturing in the United States. So I'm not sure that we're to go there again that quickly, but the fact that the tool is there is definitely signal, and we'll see how the
relationship between the US and China unfolds. The President wants to get to a place with China where we can have a more productive relationship. I think that's clear. He's moving in that direction, I think putting sanctions on China's secondary sanctions would not lead to that goal, so I don't expect that to happen in the near term. On the other hand, he is meeting with Russia, and so in many ways these sanctions could be as a message to Russia as much as they are to India and China.
But again, new tool. It's unprecedented. President has used tariffs in ways they couldn't have even been imagined really to know, prior to his election. So I'm sure there's a lot more creativity there, and it's something you know that's going to continue to be a factor even though we've got a lot of the central elements of the president's trade in place.
Now I've rediss had a former NEC deputy director. Thank you so much for being with us, Bloomberg Standy Berger joins us now with a special guest, Danny Lisa.
Thank you so much. It is such an important earning season for just that understanding the consumer and their sensitivity to this economy. I'm pleased to say joining us now is someone who understands the consumer very well. It is Mark Hopomasian, the CEO and president of Hyatt. Mark thank you so much for joining this morning. You're out with earnings moments ago. Earlier this year you had to cut earnings because of your outlook on some of the weaker
reservation trends. Going forward, you've mostly held on to that look. So what if anything has changed for the consumer and the demand you're seeing?
Well, Danny, first of all, thanks for having me. You know. The first point that I have to make is that travel is extraordinarily resilient. It's become a necessity for both leisure travelers and for business travelers. The second quarter was a weaker quarter for business travel, but leisure held up really really strongly, and are us orts were up mid single digits for the first half of the year. Europe
was up almost seven percent in leisure. So leisure, especially the luxury segment, in the luxury segments, which luxury has been up about six or seven percent year to date, as well the higher end customer, which is that our core customer base with seventy percent of our portfolio and luxury and full service is alive and well. So I would say a couple of things have happened right now. The first is that our largest corporate customers have told us.
They're not.
They're going to lean in and continue to travel, and they're making more commitments, especially for customer facing events and meetings. The second thing that happened is that we saw bookings for twenty twenty six really improve for big group meetings. And third, the Conference Board and the Business Council released their CEO sentiments surveyed this morning and things have turned now.
Tariffs and volatility have declined to number three on the list from number one, and their outlook with respect to potential recession has dropped dramatically. So I think the attitude and mindset for a lot of CEOs is shifting.
Mark that's very fascinating because the tarff picture is still evolving as we go on. So are there any pockets where you're still seeing those fears of economic anxiety or to your point, is it now confidence restored?
No, we are, And in a word, it's China. The caution and conservatism in China is clear, and a lot of people are uncertain about what a so called tariff war or the tariff picture might do to the economy. Overall, there's an increasing I think body of thought that says that Beijing pays a lot of attention to sentiment, and the sentiment is definitely one of a very significant caution
right now. So I think there's an expectation that sometime in the fall there may be policy shifts that alleviate some of that and bring back a stimulus for growth. So I would say you.
Jump in because I wanted to get to luxury because you mentioned that this is one of the strong suits and really resilient. Of course you've doubled down on the luxury strategy too, but it is a time where there is more competition and maybe that aspirational traveler needs a little bit more convincing that they should be paying up for the one thousand plus a night type of all inclusive resorts. So what do you need to do in terms of strategy to convince them that paying up is worth it.
Well, our awn inclusive business is up six or seven percent year to date, eight percent if you include Europe. It's been wildly resilient. We are the leader in five star luxury all inclusive resorts. I think the certainty of what your vacation will cost you and the experience on property where our college are not thinking about or engaged in how much something costs but rather full on human to human service makes a difference to people, and so the format has really really proven to be very, very
popular and will continue to do so. We just closed on the acquisition of Apply Hotels and Resorts, twenty six hundred new hotel rooms in premier beachfront locations, and we have a deal to sell all the real estate, so we will maintain our assetlite status. It's a great deal and adds sixty five million dollars in new fees to our run rates, so I think we're quite pleased with that. So we're definitely doubling down on luxury, and we're definitely doubling down on all inclusive well mark.
Just to that point, it's been a really hot summer, a really hectic summer. I think a lot of people are looking for inspiration of where to travel right now? Where is the most demands? Where are you seeing most people go to? What's in fashion right now?
Yeah? I would say the US traveler has headed to Europe this summer. We thought we would see a massive decline from last year, be given the Olympics and Taylor Swift, but they're back in Europe and Europeans are staying in Europe, but I would say the diversity of destinations has increased a lot of interest in Central and South America and the Caribbean, and Mexico continues to be in great demand both amongst Europeans, and the Canadian volume into our Mexican
and Caribbean resorts is significantly above last year. A lot of people have talked about the flyover effect where Canadians are heading over the US to get to Mexican and Korean destinations, and we're seeing it significantly.
All right, So Europe staying in Europe, Canadians skipping over the US definitely a trend there. Mark, thank you so much for joining us this morning. Mark Hopplomasian, the CEO of Hyatt Lisa, you are seeing a rebound in business travel, but China remains a weak spot.
Yeah.
That's something that has been a theme for a number of you as companies. Stannyburger, great work. Thank you so much for the.
Joining us.
Now is Ylena Soeteva of the conference board. Yolena, just on that point, how much is this indicating some sort of weakness the idea that it is so difficult for people or more difficult, I should say for people out of the workforce to find their way back in.
Look, the data this morning actually shows the same kind of thing that it's been showing over the next Over the last several months, the in short unemployment rate remained at around one point three percent, and you know that's why it's been over the last several months, so we have seen a little bit of a pickup from the trough. But the idea is that you know, there's not been that much more in the unemployment rate despite the fact that the pace of job creation has slow And that's the point that.
You empowered me.
Kay mor was just talking about the fact that is the labor market frozen or actually deteriorating. What do you think?
I think it's frozen. So a couple of things to mention. So if you look at the data from the employment report last week, you'll see that the increase in the unemployment rate since its through back in twenty twenty three has mainly been driven by people's inability to find a job, so kind of long term unemployment, and not by new layoffs. So that's point number one. Another thing is that this morning we saw a release of CEO Confidence, a report for the third quarter of this year that is in
conjunction with the business Counsel and the conference board. So you know, CEOs are feeling a little bit more optimistic. So confidence among US C suite, you know, actually increased in the third quarter after collapsing in the second quarter. But CEOs are still citing difficulty finding qualified workers. What it means is that they will probably not be laying off people unless it's absolutely necessary. So that's what we
hear from them. One thing is that you know, CEOs mentioned that they may be reducing the labor force and that you know, share of those CEOs exceeded the share of CEOs that were expecting an increased in the labor force, but still the majority of CEOs are expecting no change in the labor force. You know, it still freshened their memory after the COVID recession that when they laid off a lot of workers, they had a huge difficulty hiring
them back. And well, it's the circumstance is a different now. You still have a reduction in the overall availability of labor among immigrations lowdown, so that is creating, you know, an issue for those CEOs.
Well, CEOs are looking to lay off people when it comes to circumstances. Is it because they're dealing with higher teriff rates and they need to make sure that they are basically hoarding some more cash. Or is it because what's going on in AI.
Well, at some point you have to cut costs, right, So labor is the most expensive thing, you know, the highest cost for a company. So when you know when your profit margins shrink and you just faced with the fact that you have to cut costs, that's where you go and look, but I don't think that is actually going to happen in the next few months or so.
Look at unit labor costs, right, So they are decelerating in unit labor because the data another data released this morning, you see some deceleration in that metric, and that tells you that labor is getting well, at least not more expensive in that.
Sense, Elena, One thing that we kept hearing this week, including from Steve and ath a Federated Hermes, was that a lot of the hard data is backward looking, and that actually a lot of companies have more confidence now they have more certainty. The uncertainty was paralyzing. Now that is lifted just a touch and you can see a better path forward that actually you are seeing confidence start to pick back up and that maybe things are turning
in the other direction. Do you see any signs of that from where you said that that's actually what's going on.
Yes, we do talk to a lot of CEOs at the conference board, and again the latest report on CEO confidence is actually telling you just that. So it collapsed. Confidence collapsed in the second quarter of the year, but it recovered substantially in Q three, and that report covers the period of the second half of July essentially, so when we were getting a little bit more certain about
the level and the ultimate size of tariffs. So now we will be pricing out some uncertainty, but also we need to price in the size of tariffs themselves and the impact of teriffs on the economy. We estimate the impact from tariffs on economic growth will be substantial, but at the same time, you know, uncertainty impact was also very, very sizable, and that's not going to be in the
cards anymore, at least not to the same extent. So I think there is a potential for some revival even in you know, in the pace of payrolls going forward. So you know, maybe the latest data reflects some of this uncertainty that we had early in the year, and companies can kind of start planning ahead with a little bit more you know, precision.
And we certainly have seen that in the confidence data just touch higher as people take a look at what the landscape is right now. Jolina Sovietiva of the Conference Board, thank you so much for being with us.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. 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 out