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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie 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. So here's the laces
this morning. The President threatening House Republicans taking a stand against his tariff agenda. The President posting on truth Social there will be consequences after six GOP lawmakers cross party lines to reboot the President's levies on Canada. The Republican Congressman French Hill voting against the measure to override President Trump's tariffs, and he joined us now for more. Congressman Hill,
welcome to the program, sir. Your reaction to what happened on the Hill yesterday and why votes to the way you did.
Well. Good morning, Jonathan. Look, I think we should handle the tariff discussion in a more comprehensive way and not take votes every week on the floor that turns the House floor over to the Democratic Party. That's why I believe that standing with the Speaker Mike Johnson on this maintains Republican control of the floor. So this is a very important strategic issue in a parliamentary body like Congress
with a very narrow majority. What we should be doing about trade is urging the President to renew USMCA with Canada and Mexico, which is under review for its five year review this summer. It's a very important trade arrangement for the three countries. Progress is being made in working with the Canadians and the Mexicans, So that's number one. It's not to be connected, in my judgment to the vote last night, which is did the President have the right to put tariffs on Canada under IEPA because of
the fentanyl matter? You get my point. Let's stick with the big picture here, which is growing America's exports and growing America's influence using tariffs as a tool to change trade behavior of other nations. Number one on that list, of course, is China.
Congressman, you mentioned USMCA. I've seen down in Washington. I'm sure you're familiar with the work at josh Wen Grows wrote just yesterday that the President is privately musing about exiting the North American Trade pack That accordings people familiar with the matter. When you read a story like that, do you just consider that part of the negotiation for the upcoming negotiations or does that concern you?
Yeah, no, I do because of the way President Trump is responsible for dramatically improving the North American Free Trade Agreement from the nineteen ninety two to nineteen ninety three timeframe in creating USMCA in his first term, and it worked quite well. But there's more to be done on Canadians on dairy or Canadians on softwood lumber, or how the automotive business works back and forth between the two countries. We're now the role of IA. We live in an
ever changing economy with ever changing priorities. But let's face the reality that thirty percent of GDP in my home state of Arkansas is connected to cross border trade with Mexico and Canada. So the agreement is important. And it's also important for you to note in that comment that President Trumps does not impose additional tariffs on USMCA compliant goods, so we are living by the agreement.
Congressman, there's a trade off here, and I think a lot of people would be sympathetic with the idea of trying to get certain trade partners to change behaviors and thinking particularly of China. On the other hand, there's a real affordability crisis, and this is a real issue for a whole host of representatives who are coming up for
election later this later this year. I just wonder how much influence you think that Republicans on the Hill have over President Trump's negotiations around tariffs to potentially either abstain from putting additional ones on or rolling some of the existing ones back.
Well, what you've seen do is fine tune the efforts with individual countries or regions like the EU, UK, Japan, for example. I want to see the consolidate the wins from those agreements that he has done over this first year in the first place. Secondly, you've seen him roll back some tariffs on commodities that we don't make here in the United States, but we need to use. Whether it's a fruit or vegetable or a coffee for example. Now,
I think that makes sense. You don't want to burden the consumer as you're attempting to change trade policies in other countries or compel them to follow Americans lead on something like transnational drug cartel, countering those drug cartels. But on the affordability side least. I think the most important thing we can do is stay focused on the supply side. The one big beautiful bill last year signed in a law by President Trump will see real wage increases this
year for American families in Arkansas. Expect some ten thousand dollars and benefit to a family of four from the increased child tax credit, the lower taxes on tips, the use of the standard deduction, lower taxes on seniors, Social Security, so on. That's apply side, combined with what we're doing on regulations and the proposal I made for housing in the twenty first Century Housing Act. We got three hundred and ninety votes on the House floor for that.
This week, I personally would like to boost consumption by taking a flight to a number of places in the next week. And I'm just wondering if TSA is going to be an operation. Is the government going to shut down tomorrow night?
Congressman, Oh, Lisa, I hope not. I just I just look, it was so hard on my TSA agency in Little Rock and up in the tower at Little Rock National Airport, the air traffic controllers. That was a bad forty two days. That's not how to run the government. President Trump has used Tom Holman as a leader to consolidate both ICE and CBB operations in Minneapolis. Brain transparency the operations, streamline it, make sure the training is in place, make sure the
operation is consistent with federal law. They're using body cams. Let's take that as the right direction and keep our government funded in homeland security so important to so many people.
Congressman, it just fails Massy down in Washington. But you pointed out the housing for the twenty first Century Act. We can get things done. We can find support on both sides. Congressman, what was actually a chief down in Washington? And how important is that to you?
Well, it's very important, you know, Jonathan. On the properties, I've had to have conservative, center right policy on redirecting regulation and policy for people's investment opportunities, more crowdfunding, more public offerings, community banking, making community banking great again by lowering the regulatory burden on small banks that make sixty percent of the home loans in this country, and now
twenty first century housing. We got three hundred votes for those policies, as we did for our digital assets and crypt to work last year. That shows that Republicans and Democrats when it comes to economic policy, can get on the same page and pass legislation that President Trump should sign into law that will make people's lives better. Costs will be brought down, supply chain, supply side capital, wild advance, and community banking will thrive in this country. And those are all good things.
Final question, Congressman, I've got about twenty seconds. Are you happy you don't have to chair the House Judiciary Committee because that was wild yesterday.
Well, I had a pretty wild hearing last week with my ranking member and mister Bessett's testimony, so I know wild, but it was. But that's what happens on kapin how we bring the public and they're elected representatives together to try to find solutions, and they can get spicy sometimes.
Stay with us. Mult Bloomberg Savannan's coming up after this, Let's talk about European equities climates, fresh record highs the stock six hundred, outperforming the S and P five hundred so far. This shere. Sharon Bell of Goldman Sachs, writing, the search for insulation from AI disruption risk has accelerated the ongoing cyclical rally in the US. We continue to see rising allocations through Europe as a diversifier with reasonable valuation.
Sharon joins US now for more. Sharon, welcome to the program. Let's just build on what you've just written there the idea that Europeans are starting to look at home again. Are Americans looking abroad? Are they participating in this?
I think it's both. In fact, I would say it's more American investors US dollar based investors that are worried that the US market looks expensive. They're very concentrated in their positions in the US dollar. You've got four or five companies which are all big bets and one thing AI. So that may pay off, but you don't know, and it just leaves you with some risks. So people wanting to do US for including US investors, but domestic investors too. Both have been buying Europe this year, Sharon.
Apart from just being European, what is the diversification in Europe.
What does it OLFA, Yeah, offers very different sector exposure. I would say there is a tech sector obviously in Europe. It's much smaller than the sector in the US. You don't have the large hyperscalers not spending as much in the way that it is the hyperscalers are in the US,
So very different from a tech sector perspective. But also, and I think this is more important, Europe offers things like much more exposure to as a share of the index to commutity related areas, materials, industrials, financials, which have all in the last year performed very well.
Yeah, I'm thinking about Glencore for example, or Shell or some of the big banks that have also done pretty well in the region. I just am curious, though, if someone is looking internationally and they're not from Europe, why not go to Asia? What is the DRATA to Europe that has better exposures? It's going to somehow outperform at a time where there's a real kind of question around how much they can break out from some of the crosswinds coming from both the US and China.
Absolutely, and I agree with that. Philosophy has been you want to broaden your exposure and diversify not just into Europe but into Asia, into emerging markets. We've just upped our emerging market targets for example, So and Nactually, Asian emerging markets have seen better earnings performance this year and have performed extremely well, better than Europe and the US dot markets. So I think there's plenty of opportunity globally to diversify, including Europe as part of that as well.
But I do agree there are headwinds for Europe. I mean, economic growth is slower in Europe than elsewhere, although it's still positive and it's been boosted obviously by the fiscal spend in Germany. But yes, there are headwinds such as China competition, although I do think European policymakers are starting to acknowledge this.
Now.
You know, we're talking about the motivation and we talk about the Cell America trade, which has become cliche. It feels like a little bit different than that, and that's
the reason why we keep going back to this. George Serahvellos of Deutsche Bank note or he's talking about the loss of safe haven status for the dollar, not necessarily in the sense that it's going to go to zero, but you're not getting the same diversification feature in terms of the dollar our performing when risk has to sell off. How much do you see that as a driver, not just people wanting to look home or some of the emotions of the moment.
Yeah, I think it's definitely that. There's often when you see a changing trend, there isn't one single driver of it. There's several drivers. I think we talked about the diversification sector exposure. I mentioned valuation differences, but I also think concern about having all your exposure and dollars and wanting to diversify that is also another element of this. And the euro sterling Swiss Frank provides different currency exposure as well.
So I think there's many elements to this desire for global investors to diversify and broaden out their exposures.
There's a lot of anticipation about how much money is going to be spent on AI and the beneficiaries of that shoan. As you know, it's a big thing for the year ahead as well. With six hundred and fifty billion dollars in campex coming from just four companies, which is just absolutely absurd. People are thinking about the minus Sharan in a much bigger way. And when I think about minus, I think about the foot seat and some
of the listings for UK equities. Are you seeing that generate some bigger returns for large camp UK?
Absolutely? FOE one hundred has done extremely well this year. We you know, index targets have generally been raised. I think in honesty, it's an index which will been ignored for ten or fifteen years by global investors and domestic UK investors. Doesn't really have very much tech exposure. It's gone a very different type of exposure, but that's actually doing quite well at the moment. It's also an index
which looks relatively inexpensive. So the UK markets still trades at thirteen and a half times PE, which is not quite half what the S and P trades on but not far off.
Stay with us more Bloomberg Surveillance coming up after this. The Fellow Reserve facing a busy week of data on both sides of the Central banks mandate, the US economy delivering a blowout payrolls report ahead of a fresh read on inflation with cpides tomorrow. Steven a shootout of Miszoo, writing the first half of the year is seeing benefiting from strong individual tax refunds and the second half from
last year's seventy five basis point reduction in the funds. Right, Steve Johns is snaw for more, Steve, and welcome to the show. So always good to can't shut with you, sir. How much weight should we put on that payrolls report? Is it the real deal?
Well?
I think when you when back it up against the claims data that we've been seeing on a regular basis, I ignore last week's numbers. When you look at where claims are, you look at where continuing claims are, and you look at the decline in the exhaustion erate ie people falling off the continuing claims role, you're seeing a healthier labor market environment and you're seeing it actually picking up speed. You see a healthy labor market environment in the nfi B numbers. You saw some healthy data in
the ISM numbers. I think, you know you have to look at all this data and say, well, why is it taking place the way it is? And I think the answer is because the economy is fundamentally healthy, and I think it is going to accelerate as we go forward into twenty twenty six. And I don't worry about the second half of the year, as I wrote in that little piece, because primarily we think the interest rate story comes up to really replace the tax cuts as the driver of the economy as we go into the
second half of the year. Remember in twenty twenty five, we had a real acceleration and growth in the second half of the year after a disappointing first half of the year, and the FED was all worried about the first half growth decline, and that's you know what they used to justify the rate cuts. But at the end of the day, the economy accelerated in the second half as a result of the tax the rate cuts in twenty twenty four, and I think that continues to dominate again this year.
Well, Steve, I want to pick up on that point, the twelve month, like, what is the twelfth month like about? Because for someone just following financial markets, they might sit here and say I might sit here and say, highly financialized economy. It goes through financial markets almost immediately and you can fairly effect straight away. What takes twelve months?
It takes twelve months for people to reassess their situation. And we're really talking about a six month flagg, which I think is the important piece of the equation because you know there's usually this that monetary policy takes anywhere from six months to eighteen months to be reflected in the economy. The long invariable legs the aults you've had Chairman like to talk about. But the reality of the situation is those long invariable legs really depend on the
underlying health of balance sheets. And I know you were talking before about the K shaped economy and the adjustments taking place in the economy, But when you look at where the economy is, you go back, you're looking at five years ago, which was the COVID environment, and we're renormalizing to a pre COVID environment. And that's what you're seeing in a lot of the data when you look at things like delinquency rates relative to balances, balances are
very low, so delinquency rates look high. But when you scale them by income or you scale them by GDP, suddenly delinquency rates don't look to be a problem. This is all the type of normalizing as analysis that I think we've been doing relative to other people that I think is really really driving the point that this economy is on a solid fundamental trajectory, and I disagree completely about the argument that we're going to get inflation coming down.
We've been talking about inflation coming down from three percent for several years now and it isn't happening. How long are we going to continue to wait for goodob that's the real problem, because the Federal Reserve has to wake up and smell the roses, and inflation is stuck at these levels.
We'll get to inflation in just a second. I'm just curious. I'm dealing with whiplash right now. After David Tinsley was just telling us that the middle class is falling into the same type of affordability crisis as the lower income individuals in this country. How do you square that story with this idea that there is stimulus that is working its way through the system.
Well, I think you come out with the fact that the corporate stimulus came last year, the consumer kit stimulus comes this year. A lot of people are just now filing their tax returns, they're just now getting their refund distributions. We're on the real exponential rise in refund check distribution, so we expect to start seeing it showing up in the data in the next couple of weeks. With regard
to the concept of the middle income households. You remember, you just went through the longest government shutdown in history. You went through a very very cold winter early winter environment. You went through the reciprocal tariff adjustments last year. So seeing some disruptions you get developed as a result of that is not surprising. It's where do we go forward that becomes the critical issue. The indicators that he's been looking at basically indication that tells you where we were
and not looking at. Well, if the economy does get the cyclical boost we're expecting, if labor markets do get the cyclical improvement we're expecting, then guess what, you wind up reversing all those trends after being worried about them for so long.
So even going back, you thing to show that's.
Happening, going back to the inflation point that you're making, the pushback that you're hearing across Wall Street, and Tiffany Wilding of PIMCO put this out there that after a period of stubbornly high rental housing inflation, you're actually seeing the opposite, surprisingly low housing related inflation, and this is being born out a whole host of different data. I'm just wondering, where is the inflation going to come from.
Well, you're going to see it in the good side. I mean, we honestly believe that the acceleration and growth in the economy is going to lead to a greater demand pull equation. Think we're going to see it in a lot of those factors that really lead to higher prices. A tighter labor market environment will lead to higher wages. Higher wages will help contribute to stronger demand. Stronger demand will contribute to higher prices in some of the areas
where good price have been declining. This is why CPI is an index. It's not one component. And this is the thing everyone keeps on forgetting about CPI. Remember two years ago, it was all about, oh my god, you got to ignore the rising insurance rates that were driving CPI higher. The reality is you can't ignore it rising insurance rates. You can't ignore all the other components. You
have to look at the aggregate of the index. That's what really matters, is the aggregate, not all these individual components. You look at the number of components that can always find something to hang my hat on. To be boised like people looked at the payroll employment number and they started doing some really apples to oranges comparisons in the birth death model. The reality is it's the best data we have. Stop arguing with the data. The data is the data, except the for what it is. Make your
analysis of the data. Stop looking for arguments within the data to discredit the data.
Steve, don't stop. This was great. Steve's good to see you. I've got twenty seconds. Quick question, Next move, hiker. A cut at the feder Reserve.
Nothing. They do nothing for at least twelve months.
This is the Bloomberg Surveillance 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 app