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Bloomberg Terminal and the Bloomberg Business App. Nita Richardson of ADP Research noting the positivity in the US jobs market as saying, quote the strength of these headline numbers mass sector level weakness. Nita joins us now for more, Nither, It's good to see you. Let's go back to Friday's data. And before we get to Friday eight thirty am and the payrolls report, I want to talk about new metch
that came out a little bit later. How concerns should the Federal Reserve be about that hotter than expected inflation read in that search in a.
Word, very I mean to see a percentage point increase in expectations for the year ahead inflation outlook is concerning. It shows how quickly consumers can change their views of inflation. And remember, expectations are a key input that we don't talk about on inflation and triggering it higher. So I would be very concerned about keeping inflation expectations anchored anchored, not at the four point three percent, which is what the Michigan survey said, but at the two percent target.
That's where around where consumers anchored their inflation before the pandemic for two years leading into the pandemic. Now to see it rise higher, after their well deserved battle to reduce inflation, to see it edge higher is a concern.
At the same time, I got a number of notes to saying ignore, please disregard. This is a completely political instrument at this point that basically just measures how much Democrats are displeased with the Trumpet presidency. A Republican seemed to be just fout. Other people pointed out that there was a slight deterioration among Republicans who were polled in
the University of Michigan sent to a survey. Do you think it is valid to discount the University of Michigan because of the small sample size and the political leanings that it tends to represent.
What I think it's valid is to look at another source, and we're going to get an expectations data from the New York Fed that could coroborate this existing So I don't throw away any data points at this point. I think they're all well worth considering, but not in isolation. So if you have the New York Fed coroborating the UMISH survey, then there's some teeth to what we're seeing in that survey.
It's going back to the labor market. You said that even though there is a lot of strength, especially with the revisions that we saw that were lower than people expected in terms of removing jobs from last year's tyley, do you see something happening specifically in real time that's making you more concerned about the health of the labor market.
Absolutely, and I've said this before, lopsided hiring market right now. You know there's a lot of strength. So let's step back a little bit to the three month averages, both for the ADP numbers and for the BLS numbers. You're seeing private sector hiring over the last three months average
around two hundred thousand. That is a strong labor market, but it's all basically focused on consumer facing industries, whether you're looking at leisure and hospitality, so short term restaurants, hotels, vacations, or longer term healthcare needs and healthcare industry seeing those gains. What you're not seeing gains is in manufacturing in the good sector, in construction. That's a concern, especially if you're
looking at possibly more tariffs in the future. So where are we going to get the hiring in the good sector. That's what we're watching.
A cause from a cause for concern for the Trump administration. We spoke to Kevin Hassett on Friday. He said the benchmark from last year, it was the biggest downward revision since two thousand and nine. Was the Biden jobs growth not as good. Is Trump inheriting a worse labor market than many were predicting.
Yes, so we January is a special month because all of these numbers get rebnchmarked to something called the Quarterly Census of Employment in Wages And not to bore your listeners with the details of that, but it causes revisions and this time, as you know and Mary it it did revise down that bench from mark hiring rate from last year, but not as much as the BLS had told us that it would. It is a softer labor market than the first print, but overall it's still very solid,
especially in the fourth quarter. So my contention is still that the labor market is solid. You saw the unemployment rate edge down last month. However, there is pockets of weakness that could overwhelm the pockets of strength if the consumer proves to be less resilient than it was last year.
When it comes to BLS, everyone is concerned that these numbers are just not accurate. How do you make up for that? What else do you look at? I know obviously you look at ADP, but how else do you get a better picture of where we are right now in the economy.
First of all, I think jobs are important. Jobs creation are important. Where the jobs are coming from is so important as well. So one data point one month is not going to tell you the whole story. You have to look at the trend. And you can look at the trend in the BLS or the ADP numbers in the private sector as that the goods sector is weak. That is a consistent trend. You don't have to be
a true believer of a government data to understand that trend. Also, I look at wages, and you saw an increase in average hourly earnings in January. We still see that stickiness in wages in the ADP number looking at real paychecks administrative data. That is a concern for inflation because if wages are sticky, maybe that's good for the consumer, but only if inflation continues to go down. And wages are
one of the firm's highest in put prices. So if you're looking at tariffs and higher labor costs, that puts especially small firms kind of behind the will going into the slabor market.
Double dice of Chaman pound this week in front of the Senate tomorrow and then the House on Wednesday. If there's some sentences listening this morning, some congressmen, I imagine there are, what would your device be? What should they ask like to this week.
Him in Powell? I think they should ask how Powell is thinking about the labor market in terms of verticals, not just overall, not just the solid hiring that he's seeing, but also how different parts of the economy are working. How is manufacturing producers versus small firms and large firms. We need to get into the nitty gritty because that's where policy action is going to take place. The headline looks good, it's underneath the surface where all the questions are.
I'm reluctant to build this up too much.
As is often the case, we build it up big, dridden on Capitol Hill. What happens, nothing bag on Capitol Hill across two days. By the time we get to day two, I'm exhausted. I don't want to watch the thing anymore.
Have you watched it ever? The full thing? Yes? How sansinicret, Yes you have? Yes, Wow, I'm impressed.
There is one question that I actually I am very curious about how much they're modeling and immigration into some of their inflation forecasts. How much of a variable some of their parameters are depending on how much immigration is limited or with deportations, because to me, a lot of people talk about that as being the bigger potential economic impact than even tariffs NATA.
It's going to see it as always.
Tyber Marcus Wolf research, writing and posing a schedule of reciprocal teriffs would be much more operationally complex than the across the board tariffs Trump imposed on China last week and threatening against Mexico and Canada. Typin joins US now for more So, Tobin, we should probably start there just what is a reciprocal tariff? Do you take average way to tariff fork one place and basically just level it.
Do you go product by product? What which sense the approach will be from this administration.
So it's a little bit ambiguous whether or not the reciprocity is supposed to apply to the weighted average tariff for the entire country or the teriffs that they apply on US imports and any particular product category. For what it's worth, the main legislative proposal on this topic from House Republicans that's been around for a few years, initially co sponsored by Sean daf us Now in Trump's cabinet, would take the lot of approach.
It would go product by product.
So if that's the case, I think this is going to be something that requires some real elbow grease from usdr in commerce rather than being something that you can just implement with the stroke of a pen and have take effect right away. And so my guess would be what we see this week as an announcement directives to the agencies to work this out with a subsequently delayed detectivety.
Well tobyin didn't the President already do that with his memorandum to look at reciprocity when it comes to trading partners by April first? What's the difference between that and when he plans to an now this week.
Well, studying and telling them to actually implement it are somewhat different.
You know, there's an indication of interest.
You're absolutely right, and he's day one memo on America First trade policy, but that memo didn't actually tell the agencies to go ahead and start implementing any of the policies that we're looking at, whether it be on that or currency.
Manipulation or anything else.
So, you know, at his word, based on how he's talked about it, this could be a directive to actually.
Say we are doing this.
This is now the policy of the United States, and you know USDR and converse need to come back with the actual implementation details, you know, a month, two months down the line.
If he's looking for reciprocity, is this a negotiating tool potentially giving a grace period for some of these countries to come back and say, let's do a deal.
So yeah, I mean, if it applies globally or even if not, it certainly is a negotiating tool implicitly because there's an obvious way to lower the reciprocal teriffrate that you would face if you just lower the rates that you're charging.
On the US.
Whether or not that would mean a grace period is
less obvious, you know. I think these tariffs, unlike, for example, the twenty five percent across the board on Canada and Mexico, are not necessarily going to be so drastic that I think the administration is going to be all that wary about having a temporary period where they're in effect, so, you know, having this threat out there, having it actually be implemented once they're ready to do that implementation, and then offering countries to prospect of relief if they subsequently
bring the raids down.
I think it's pretty possible, Tobin.
When you zoom out, there's a real question of why these tariffs are being threatened in the first place. Michael zisis over a. Morgan Stanley, in a note over the weekend, said this that right now, tariffs remain a tool of US public policy. Simply put, tariffs are a bargaining CHIP not a policy goal.
Do agree.
I think there are different kinds of tariff threats and tariff policy goals being contemplated in this administration, and Secretary Bestn't you know, sort of distinguished between these different categories of tariffs and his confirmation hearing a few weeks ago, you know, there was one category that very much is negotiating CHIP.
I think that's certainly what we saw in the Canada and Mexico case.
But they've also talked about tariffs as a revenue source, as addressed for unfair trade practices, as sort of a structural force you put in place to try and address the trade deficit and protect certain industries in the US. So you know, at some level, any of these things could be bargained off based on some set of both trade and non trade concessions, But I don't think that's the goal first and foremost in every single case.
Do you have a sense, Tobin, that the Trump's administration is trying to get tariffs and some of the more restrictive growth policies out of the way before going to tax cuts and some of the more pro growth policies.
I don't think there's sequencing that in that way intentionally, although it certainly is working out that way. I think the sequencing that we're seeing is largely based on what the president has the authority to do quickly versus what he needs Congressional cooperation on, which then inevitably moves slower. If you could do tax cuts right away, if he could have done an executive order implementing tax cuts the same way that he has on immigration or tariffs, I
think we would have seen that already. But the reality is Congress moves a lot slower in the executive branch, and so we're seeing him move quickly in the areas where he has the authority.
Tobin, we'd love your thoughts on European taxes. We keep hearing from the administration that they're unhappy about how American products are taxed across the continent in the European Union.
We had from Kevin.
Hasset as well, the director of the National Economic Council, on Friday, when he spoke to us about the same thing, American products getting tax more than we tax, say, European products here within the United States. Tobin, how'd you address an issue like that? How are they going to do this?
Yeah?
I think the EU has been, in my mind, the most significant target for possible bilateral t earrafs other than China. I mean, we've seen those threats obviously in the Canada and Mexico case as well, although I've always been inclined to look at those again a little bit more as negotiating tactics.
But I think the EU along.
With China are the two kind of major trading blocks where I think there are sort of significant, serious grievances about bilateral trade practices.
And the way the trade will relationship looks.
And I could absolutely see higher tariffs on a variety of product categories, with auto as being one of the most obvious.
Otto is definitely being obvious because that gap is so large, but Toba. When it comes to taxes, for this to be successful for the Trump administration, do they need to get that corporate tax rate down for companies that are willing to produce more in the United States.
I think that getting the corporate rate down to fifteen percent, specifically for domestic production, as President Trump has talked about a lot, I think that's quite likely to happen. I think that's a relatively affordable policy to fit into this tax bill, much more so than some of the things he's been reiterating his support for recently, like the tax exclusions for overtime and so security.
So I think they probably will manage to get that done.
I don't know that it's that critical for competitiveness, just because the base of that's probably going to be fairly narrow, and the US has a variety of other advantages as a sort of target for investment beyond just our tax rates.
But certainly that is on the menu.
Hi, Tabin, I appreciate you time.
Thank you, sir, smile as always, type and malcus that of wolf rasearch. Let's stick with tarists, President Trump saying he'll impose twenty five percent levies on steel and aluminum imports from all countries. Francisco Blanche of Bank of America writing, the rationale for the use of tariffs has expanded from a response to an unfair subsidy or advantage to the pursuit of political objectives. Trade war is now the continuation of politics by other means.
Francisco joins us now for more.
Francisco, that's quite a statement, and a lot of people might agree with you as well. The situation. I'll put it this way, feels fluid. I'm being diplomatic. What does it mean for some parts of the commodity market versus say others.
Well, John, thanks for having me again in the program. I'll tell you it's very confusing. We've seen a big impact on the prices of regional commodity differentials. We saw it last week prices of Canadian gas versus US gas, and crude oil versus US crude oil. We are seeing it today with the prices of regional aluminum and steel
premium and in the US. And but also we are seeing the effects on the term structure commority markets because as these starts get applied, you don't know exactly when they're going to be applied, so people are trying to rush the commodity in. So you're getting that that if you like that mini spike up the front, hoping that maybe you can swiez a more product in before.
The type hits.
So it's impacting really regional differancials. Is impact in the term structure of the price spot verse forward and and and of course some of these measures are being announced in the morning and taken back in the evening, so we are we are a little concerned that that that might end up being some negative economic effect because of
all this uncertainty. But certainly, as I pointed out, I mean, this is really an negotiation tactic, and that's a thing well the market beliefs, but also as you point out, some of the startus they get put on and they just stick around for a while.
They stick around for a while, which means what potentially could happen to trade flows? Are you already seeing trade flows around the world start to shift.
Well, the reacity of the matter is in the last three where we had in.
Twenty eighteen nineteen, we ended up seeing some damage to global pms right, and ultimately, of course we ended up with COVID in twenty twenty, so everything became very distortive.
But we had a.
Pretty strong cyclical backdrop in seventeen eighteen when when all these started, all the starts started with trade war started, So we are a little concerned about the negative effects. I remember, at the end of the day, a tariff is a tax, and we put a tax that tax, mister, the split between the importer and the clients of the importer, and maybe some of it gets gets washed out in the fax but I mean to give you an example.
If you're a US industrial that's buying aluminum, well, you're gonna you're gonna have to find a way to pass that through and most likely that's can to impact your margins as an industry producer in America, you know, buy some raw materials, but also produces advanced manufacturing. And and now the question is how how deep does the supply chain go? Do you have the tires just on the
aluminum or also on the aluminum product. And remember last week, some of the most vocal voices against tariffs came from the US refining industry. I said, we buy all this cheap Canadian cool oil, cheap natural gas from Canada, and we turned into amazing products like gasoline and diesels. Are you know, top of the line and and and that's one of the reasons the US refining sector is so competitive. The tyrants would have really heard that, right, So, so
actually careful. You never know where things are going to are going to come from.
And it's really one of the challenges that we are seeing across the board.
I'm glad you brought up twenty eighteen because that's when the US hit nearly seven billion dollars of European steel on aluminum exports with duties. This was under Trump's first administration, and then of course we had this retaliation from Europe on things like Harley Davison motorcycles. What kind of retaliation can we expect this time around.
Well, I think I think one of the one of the big challenges that that Europe hass is.
Obviously Europe, to.
Your point, has has a trade circles with the US, but there's also a large services deficit on many areas, right, So we just sort of talk about tech potentially being involved as as a retaliatory psycho some retaliation. But I think, I think importantly the European industry is not in great shape. You're looking at very high domestic energy prices as a result of the Russia Ukraine War cutting off supplies of energy,
pipeline energy, pipeline gas into Europe. You're seeing also weak demand for European products in China, which of course has a domestic demand problem that's fed on into the European industry. So I'm not sure Europe is in a great position from the industrial standpoint to cope with rising ties from the US. So it's a frail moment for Europe. Growth
is very you know, scratching one percent. Germany has been in pretty much recession for three years running and now we're seeing natural gas prices spiking again in the past few days, right, So it's a tough combination.
I think Europe is a tough spot.
But of course the rush of the Ukraine war ends, I think things will ease, right, So that's that's perhaps the big hope is that we're going to see the end of the rush of the ukroin war.
Francisco, that's a moddel of uncertainty.
What's your highest conviction. I've been a muddle of.
Uncertainty at a time where one of these tariffs that they go through could be inflationary or deflationary if it really surprises growth.
Well.
So for US, one clear one per winning area has been the precious metals complex.
So we've been very polished on gold and silver.
We have three thousand dollar target for gold, which you know we're today we scratched twenty nine hundred. Silver we believe goes thirty five for US and owns, and so we see that as a winning area within the commodity space. Continued diversification from central banks, so also investor portfolios oil a lot more range FOWND.
You know, difficult to call here between this.
Barash of tarists, but also sanctions right sanctions on Russian energy on the way out by circular Yellen, and then there is a discussion around Iran.
We'll have us to be run so to us.
The cyclical commodity complex is really on the edge with BMIs around fifty, and so the clear trends are, like I said, in the precious metals and perhaps in some of the some of the softs and the meats. The grains market also complicated to call here, with forecasts shifting quickly and suddenly adding two upside pressures on a market that was on an hour trend for a while.
Francisco, can we finish on energy?
I think we're used to historically, people like me at least being along the whole complex. At the same time, within energy, you're starting to notice dispersion, reasons to be bullished some parts and parish others.
Right now we do, and and certainly I think we've been we've been more very crul oil this year. It hasn't played out that way. I think the types of Russia were sorry. The sanctions in Russa were quite unexpected. They distorted some of the volumes and therefore created tightness in the market that probably reduced these surplus that we were projecting.
So now we're more neutral.
We think oil is going to be averaging brents and were averaging seventy five and seventy one two for wt I, so we see a more and more rangeball market. But but yeah, the energy complex is vulnerable to cyclely called demand conditions, and it's also frankly vulnerable to Opik restarting or bringing production back in April, right, so we'll see
if Opek does that. But at the same time, you got other factors like I mentioned on Russia sanctions, and potentially you run maximum pressure, which is in shelf for now but could come back.
Right. So energy is a lot more complex.
There is plenty of spare capacity, so people are not truly worried, but at the same time there's a lot inventories and that keeps the market in a range in that kind of seventy eighty or range environment with a curve in baquidation. So that's the backdroping energy. Naturally, gas more complicated, we see strong demand for power driving gas in the US, in Europe elsewhere, and we have a type market for power.
So it's electrons versus molecules here.
A lot of competing forces, that's for sure. Francisco, appreciate your time, sir. Thank you, Francisco Blanche to have Bank for America. Aaron brand of Pincot right in the following. Recent macro data and earnings reports indicate a US economy that continues to outpace other developed markets. We maintain an equity overweight concentrated in the United States. Aeron Jo understand
for more. Aaron, welcome to the program. Let's start with that, and let's start more broadly as well, with just some of the consensus positions coming into twenty five.
We've uphanded a.
Series of them, US versus Euro for the dollar bills, for the bond bears, There's been plenty to think about. Do you think that just position squeezing or something else, something more.
I do?
I mean I think that, you know, coming into this year, the markers were broadly speaking, pretty long dollar, short bonds, and long equities, but long probably US equities over the rest of the world, and really none of those trades have panned out Europe has outperformed the US bonds have basically gone nowhere, and similarly with the dollar, I think a lot of that is just a little bit of position squeezes going into what was you know, fairly crowded
positioning in the beginning of the year. But when you step back, you know, I see very little reason for the rest of the world to outperform the US, particularly under the Trump administration's policies that they're pursuing. But also if you just look at growth dynamics and inflation dynamics across the world, the US is clearly continuing to outpace and outperform the rest of the world, which you know, really would give way to the US equity market outperforming
the rest of the world as well. And you know, while certainly the fedes pause relative to other central banks, what you're seeing now is probably more fiscal out of the US well, ultimately is what is going to drive the economy more so than central bank rate cuts at this point, you know, at this point of where we are, so I think that the US is still you know, front and center the main outperformer within US equity markets, and I think that US domestics particularly are what's going
to outperform this year.
So miss lavmatake care over a JP Morgan and Europe and made a similar point that for this trade to work the way it has been working over the past few weeks, you need to close growth differentials, and there's no sign of that happening just yet, which takes us back to the US and your call. So let's sit on the US equity market and think about what's working banks, what's not certain parts of tech, what do you think will work in the year ahead, and why so.
I think saying as domestic as possible is going to work. So financials I think are going to continue to be an olperformer this year. Also, you know, the power utility names, particularly those that are leveraged to the AI trade, I think those names still work, clearly. They took a little bit of a breather in the beginning of the year in late last year, but I think that that position
is actually really attractive to re enter right now. I also think that some US cyclicals consumer cyclicals will work, but I you know, really stay away from any cyclicals that have international exposure. Energy sector I also think is going to do quite well this year.
What won't work.
Industrials continue to forestall any type of CAPEX investment. They've now pushed it out another two quarters to the end of this year. Business capex is underperforming relative to or business sentiment rather than underperforming relative to consumer sentiment. And so I think that, you know what, anything with international exposure that is going to be front and center with
respect to tariffs is likely going to underperform. And some of the more deep cyclical materials mining industrial sectors are likely in that bucket, whereas the ones that are more leveraged to the consumer are likely the ones that are going to outperform this year.
Aaron, there's a tension here. If the risk is actually an outperformance in the US economy to people's relative expectations right now, then doesn't that challenge the idea of rates remaining where they are going significantly lower on the long end, which is almost necessary for some of the more domestically focused smaller companies to do better.
Well. I wouldn't go so far down the line as investing in small caps. I'm not making a call that small cops are going to outperform relative to large caps. I still think large to mid caps are really where you want to invest. That said, rates are still restrictive. Absolutely, they've come down you know, meaningfully since the third quarter
of last year, but they're still in restrictive territory. We think that the FED is likely not done with its rate cutting path in this cycle, so there still are more rate cuts to come, but they've probably been pushed out into the back half of the year and into twenty twenty six, and we're likely to see the FED you know, take a little bit of a breather here and wait to see the impact of first the rate tariffs, the rate cuts that are already transpired, and second the
impact of tariffs and some of the other executive orders that you've mentioned. So I think that the FED right now is in a wait and see mode, but they're not at the end of the rate cutting cycle. There's still more to come. That said, in order for those small caps to really meaningfully outperform, I think you're right. I think we do need to see rates you know,
significantly lower from here. We're likely not going to get that, you know, at least in the first half of this year, which means that the large and the midcaps will likely continue to outperform.
At the same time, the large and the mid caps tend to be most pressured by a strong dollar. I'm just thinking about all of these sort of America First stories and how they trickle out different NASA classes and how it really rebounds back to corporate fundamentals. How much is that a headwind that's been priced in versus something that still is going to be felt through as we get earnings.
Well, with respect to FX, you're already seeing, you know, fairly significant impacts on the FX side some of the consumer staples names, and we still have a number of consumers left staples names left to report, but they're seeing headway winds anywhere from three to ten percent in terms of the FX hit. You know, that's a sector that we're a little bit more cautious on right now because
of it. And you know, if you see the impact of tariffs also, you know, having a double you know whammy in terms of the hits that's also going to you know, hurt. I think that sector, which is why I think, you know, any sectors with significant international exposure are ones that you likely want to stay away from, or companies with significant international exposure or ones that you
want to stay away from. There CONSUS consumer as a standalone is very strong right now now, and of anything, what we're hearing out of some of the consumer companies coming out of the fourth quarter is that they saw strengthening into the fourth quarter and at the end of the year, you know, at sort of recent cyclical highs
in terms of the consumer dynamics and behavior that they're seeing. So, you know, I think ultimately fundamentals trump what you're seeing in some of the noise in Washington, and ultimately investors are going to go back to fundamentals and go back to what's working. And I think that you've seen, you know, several themes emerge in the last you know, three months or so that are likely going to continue into the rest of twenty twenty five.
Eron I appreciate it. Aaron Brown there of PIMCO, A bit of a clinics there on Trump one O one. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, angiot 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 out Mm hmm