Bloomberg Surveillance TV: June 4, 2025

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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.

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Writing this, we view the market as exhibiting the relief due to the recent terff roadblogs. However, uncertainty remains in corporate management. Teams will resist large capex and hiring plans until further clarity on trade rules. Kate joins us now with a dose of cold water on the Goldilocks.

Sorry it is so good. Sorry the borage is too cold.

Apparently this morning wondering you know what do you make of all this Goldilocks talk.

I mean, not all this Goldilocks talks so.

Vi the Supermannia which is talking about that, but this feeling companies will adapt it to just and get it through, and that's what we have continued to say.

Yeah, look, I have all of the faith in large cap companies being able to adopt, but we don't know what they're adopting too. And this is the big question mark. Everyone says, Okay, we're going to get past tariffs, or we're going to get past the worst in terms of tariff news, but we know that all of these sectoral tariffs can have much greater to pardon me, impact than

And I think that's a prudent thing to do.

And it is the behavior that these large cap companies have exhibited through many years, over a decade at this point, and really managed their bottom line. It's one of the reasons why we love them and one of the reasons why we want to continue to.

Own There's this larger question, and we were talking about it at the open this idea of how long can this sort of feeling of adapting, adjusting continue without recognizing the structural framework that could be shifting. We just got news that the European Commission is recommending that Bulgaria joins the Euro next year. There is this question about whether the Euro is getting fortified as a viable alternative to the dollar at a time where we have seen the

I think it's too soon for us to call the end of dollar dominance, not just because of trade, but because there is to this point not a viable alternative. But I think all these moves on the margins are

It doesn't need to be a viable alternative. I mean, there's been a lot of talk about this is just kind of kind of rebalancing that equilibrium. And when you look at the currencies that have performed so well over the past few months, you look at the Swiss franc, you look at some of the other European or even

Of the dollar.

What I will say is a lot of our clients, particularly some very large clients, and I'm going to highlight, clients in age specifically have been asking about ways to hedge their dollar exposure. They just want to kind of neutralize that in portfolios, and that makes a ton of sense. So we're seeing this across all segments, but particularly the larger clients who have this outsized dollar position, or if it's we've seen that kind of drift in the dollar

Move, is there though a long term case to be made for a certain level of instability, a certain lack of trust in the US system that had bolstered the dollar for basically the last fifty six years.

I think it's a fair question, honestly, And I think as we go through the discussions around tax and as we watch what happens to the deficit, and we understand that there are going to be some significant challenges to the bond market over the next year or two unless

But Lisa was showing the thirty year yield at four to nine, and I look at four to nine and change over there. Let's just round it up the five. Yeah, that's not attractive. With a ten year at four or five, it's not attractive. If I look at the contours of this tax bill, great, I love the tax cuts. I'm not so great about the fact that they're not making that up in any way, shape or form. So if you're a long term investor, why would you go longer out on the curve right now?

I mean, we certainly aren't like a lot of acid allocators. We've been hiding in the short end, maybe a little bit to the belly, but really being very concentrated there. And we keep on having this debate within the team and across all of the city. You know, at what point do we want to buy duration? And it's not

It also raises questions about what drives that kind of desire to own long duration assets. Is it a good thing, the idea of fiscal responsibility or some sort of sense that maybe you can get compensated with this kind of yield, or is it the idea that we're really going to hit some sort of slow patch. And this is something that was introduced by Savida. At what point are we looking at bond yields going up as a positive thing, as a sign of risk on elsewhere because it's coming with growth.

I mean, can you get your hands around that argument?

You know, I'm not at a place where I think bond yields are reflecting better growth in the future right, and a lot would need to happen. By the way, I thought the economy was slowing even before the introduction of these tariffs, which I think are quite growth growth negative, Even if, as I was saying before, there reciprocal tariffs don't end up coming through and we're just talking about the sectoral tariffs.

This is a headwind. We just need to acknowledge that.

But the consumer and certain segments of the consumer were showing stress at the end of last year in the beginning of this year, even if the aggregate data looks pretty good, and we were starting to see more cautious spending from companies in general after it prolonged economic cycle.

Just to sum up, would you sell this rally?

I would not be adding a lot of equity risk to this rally. But again, I think large caps are going to be the better place within the US market.

Wendy Schiller Brown University joins us. Now, Wendy, wonderful to see you. Thank you so much for being with us.

I want to start with the idea of some of these trade negotiations as part of the three prong stool that President Trump's administration has put out there. What do you make of the progress being made both racing ahead when it comes to trade deals as well as the deficit discussion down in Washington, d C.

Well, Lisa, I think that they are related in the sense that President Trump wants to shore up, particularly in the Senate now Republican support for his big, beautiful tax bill, and to settle the trade environment and not put inflationary pressures on the US economy and also sort of raise consumer fears about future price increases.

That's really important not.

Only for him, but also for members of Congress that have to go back to their town halls and hear all about people's concerns.

First, it was dozed in the budget.

And now will soon be inflation, deficit, spending, bonds, treasuries, all those sorts of indicators of economic health. So it's important for the President to inject I think more stability.

Into his trade negotiation persona.

Or platform because that will also affect Congresses, particularly the Senate's willingness to try to really pass this bill by July fourth, which was supposed to get passed as we would call bi Memorial Day, and that deadline came and went.

When the China's lead negotiated with the United States, Hayloftings says that the nation is ready to discuss all major issues with the US. Does that include Taiwan? I mean, what sort of messaging do you take out of.

That, Damie.

I think it's a I think a treacherous path for the President and his staff to sort of conflate not sort of just conflate tariffs and economic policy with our military stances. He's got a complicated situation with Ukraine, a complicated situation obviously with Israel, Gaza, and the Taiwan issue is something that if it's loaded up onto the plate without really consistent US foreign policy right now, that will

Taiwan is going to.

Be more complicated, and it puts the United States in a position that affects its military stances in other conflicts around the world.

Why the Treasury Secretary vessins on the tape discussing global imbalances and points to China's inability to shift from an export oriented economy to one that's driven by consumption. I mean, this flies in the face of decades of conditioning as Chinese households propensity to save is grounded in overall lack of trust by a beaging themselves. So you know, what do we really hope to accomplish here? You know what comes next? What is a Treasury Besson really trying to accomplish here?

In my just curious, I mean, I think JERGI Besson has seemed to, from what we can tell, exert influence on the president, right, stabilizing the president, getting to back off really huge tariffs, and trying to add more consistency and more justification with the tower policy. So I think his public remarks about China and saying, Okay, you've got an economy that really depends on the United States consumption tendencies, and we want to produce more of our own goods.

You know, I'm curious.

So we've been in an environment where demand for US assets, bonds, equities is sort of imperiled. Do you see Section eight ninety nine, which is this remedy against foreign you know, unfairness and foreign taxes. Do you see that as a big hit to demand for US assets?

Well, and I think it produces me to it produces instability.

I mean, as the.

President could wake up in the morning or in the late early hours of the morning and decide Okay, I'm going to change the rules of the game today, and that just reeks havoc you know on markets, but also on small business people.

And then you know, as they in.

Their own communities get concerned and get worried and think about passing on cost to consumers, then those consumers in those communities start to worry about the economy. And we've seen some real dips in consumer confidence. So I think there are ripple effects to this sort of ping pong or yo yonis of the president's trade positions, and certainly we rely on the rest of the world and internally to buy.

Our treasuries to float our debt.

And that's where the really big debt ceiling increase comes in.

And that's what Run Paul is complaining about. That it's not just deficit spending, it's.

Also creating you know, unsustainable literally unsustainable debt, because sooner or later people will stop buying it. And if they stop buying it, you know, we have no way of floating our expenses.

Wendy Schiller, Brown University, thank you so much for being with us. This is the latest the US thirty year underperforming short term debt year to date. As investors continue to monitor fiscal risk, leading to speculation the Treasury might scale back or even halt auctions of its long bond. Molly Brooks of T Security is writing this, rates have been very focused over the last weeks with passage of one big beautiful bill. However, if we see the macro

What would you like to focus on today for every market.

It seems like, Molly, I want to start with that this question of if we get negative economic data, do you believe in your core that thirty year yields will truly rally substantially and could even potentially outperform.

I think that they would probably rally, however, not as much as the front end. In the last couple of weeks, we have seen kind of the correlation between the two year and the third year declining. So that's showing that the third year isn't being driven right now as much by FED cuts and macro risk. It's being driven more by deficit concerns and concerns of the quality of the long bond.

So I do think.

That while it'll rally on FED, you'll probably see the front end rally a little bit harder than the long end.

There is there a risk though, at those two worlds kind of converging, meaning the concerns about what's going on with the deficit and obviously the macro read through.

Yeah, I mean, at some point, if thirty year yields increase enough and they're high enough, then conditions are going to be tight enough that we might see that feed through to growth, and then that would therefore be feeding through to fed cuts as well. So it's kind of circular in that that you could see that the just the pure level of the long end bond is impacting growth concerns.

Well, what becomes that light? I mean, because I mean we kind of already know what's in the bill. I mean, you can model out the increase in debt servicing costs based on what we know already. So what becomes that light that the market is going to look to as sort of okay, now we finally reach that rubicon?

Is it the labor market? Is it?

As you said, actual economic recession of some sort.

What I would say, they don't really need a recession in order to begin this rally.

Investors might need more of.

A kind of catalyst that is more recessionary for them to actually be able to jump in into longs, just because we've been burnt a lot in recent weeks of just kind of sell offs here. But I do think that if we see any type of weakness in the labor market specific and on Friday specifically the unemployment rate, that's what the FED is going to be looking at.

Molly, I wanted to ask you because I've seen a lot of like ringing of hands and gnashing of teeth ahead of all these auctions in recent weeks. People have been really stressed about it, and of course they've gone really smoothly. You know, if it's not the auctions and they continue to get that bid, what should be watching to really kind of signal a meaningful change in the direction of yields, especially at the long end.

Yeah, I think right now, I would say stay focused on the macro data.

The FED has continued tables. Do you think or at this point.

Yeah, I would say less of the headline, but we're looking more at the unemployment rate just given that it's a little bit more of a clear signal there. So if we see unemployment rate up to four four four five, that's when we think the federal get concerned, and that's probably when we'll see most investors more comfortable to step in.

I'll turn that question back to you.

I mean, how much do you expect this to really turn from supply concerns that have been on the peripheres but really aren't center stage. How much will that shift immediately the second we get some sort of pessimistic print in the data.

Well, I think we have to be very careful around the labor market because this is a place where to this point it's been holding strong, and in fact, we've seen companies continue to hold onto their workforce to not really engage in widespread layoffs.

But when you peel back the surface.

Much like if you're peeling back the labor market report, you do find that there are pockets of companies that have been trimming on the margin or this is something else I've been watching really closely, have been have stopped filling their open requisitions you know, lots of job openings, but whether it's a CEO or the CFO or some HR manager saying you're going to hold off there, I mean that on balance shakes people's confidence in the labor

And that's kind of what I'm watching and.

That's just hard to wrap my head around. And I assume that has to just make your job, Molly, just a lot harder.

Definitely makes it more interesting seeing how does this pass through pass through come through. We saw soft data versus hard data, the whole debate on does soft data turn into hard data. We're seeing kind of weakening in different areas of the labor market to your point, that are maybe not the traditional headline payrolls, and so it's when does this hit these big numbers that then kind of scares the market into rallying a little bit sharper and pricing and more fed cuts.

Mollybrooks of TD Securities, thank you so much for being with us. Volliedbrooks down we give this hour with stocks hire after posting back to back gains. Jim Karen of Morgan Stanley writing this, we have rebalanced by increasing equity exposures, not just in the United States, but also Europe. Our highest conviction overweight. Jim joins us Now, Jim, thank you so much for being here.

Thank you, and good morning to both of you.

Morton, Well, it's a real question here going forward about how much this long Europe trade was just a trade or whether it's something that actually can stick.

You're making the argument, even.

With the recent gains in the US, you would still be a buyer of Europe over what we've seen.

Yeah, it's really about balancing. So it's not that we don't like the US. We just think that Europe has a higher risk adjustice return profile. They've got fiscal stimulus, they've got monetary stimulus, they seem to have their inflation a bit more under control.

Plus a lot of.

The investment and a lot of the money that's being put through through whether it's the defense spending or it's through infrastructure spending. All of this is actually a positive for them. And essentially we also have to recognize that their valuations They're a large ca value area for the markets. People are trying to diversify their portfolios from large cap growth and tech into something like large cap value. Europe

Okay, I want to pick up on that because we've been talking to your colleagues over the past couple of days, and this is the point that I think is fascinating. Morgan Stanley sees everything rallying except for the dollar. This idea that you could see rates rally and even in the US, you could see equities rally, even in the US, but the dollar is going to be the continuing weakest person in the boat.

And I'm just wondering, at what point that.

Really is the entire trade that you're talking about here. It's a currency play more than anything else.

So I would say it's a rebalancing, it's a global rebalancing. So if we look at the Fed's broad nominal trade weighted Dollar Index, the dollar has appreciated in value since twenty ten to the end of twenty twenty four by forty percent four zero percent. So essentially the rest of the world became overweight US assets. They had to buy US dollars in order to do that. Now you have growth coming in other parts of the world. This is the rebalancing what that means. And we're doing it too right.

But do you have conviction that it will last?

I do.

I think this is a long term thing. I mean, look, I mean the dollar rally lasted for about fourteen years in the period that I'm talking about, twenty ten to twenty four. I think this is a multi year process. It's a multi year trade reset, I mean Tarris. We all know this is going on too. This is a trade rebalance and a trade reset. We get these types of cycles every you know, fifteen to twenty years.

We're just starting one right now.

But there's a reason why we kind of had that advantage here in the US because we were the growth story globally. And I get this idea that, Okay, the fiscal constraints in Europe are loosening, just a bit of China and other parts of the world are going to try to sort of fill the void of where the US is pulling back. But at the end of the day, I'm still not seeing a growth story in Europe, or maybe there is one.

Well I think there is one. I mean, Europe doesn't have sectors like large cap tech, right, so you're not going to see, you know, a stock go up like two hundred percent or something like that like we have in our large cap tech spaces. So I think this is more of a This is more of like a slow grinding move. When I look at pees and I look at multiples and valuations, if I look at as much as I can and a like for like companies, say in the financial industry, a big bank in Europe,

It's just going to it's going to be a.

Slower, stable, lower evall, higher sharp ratio, higher qualitility.

And it's going to be more than and it's going to be more than just defense contractors.

Yeah, oh yeah, I think so, because what we have to understand is that an ecosystem gets created. Once Europe decided to spend about close to a trillion euro in stimulus, which they did back in February early March. You start

By the market.

Let's take a step back, because right now we're talking about where is the best place to find value in a ship that is undefined, which is the global economy. And where we are in terms of the US and however we're entering some period of stagflation like behavior, whether we're going to have higher inflation and faster growth or whether we could see an outright recession, and that really matters for all of this in terms of the adjustment of portfolio management.

I just wonder how you're viewing the data.

We're getting the ADP data just coming up about five minutes away, we get the jobs report on Friday. How do you view that within this paradigm of understanding? You know, Okay, should we shift around a little bit more to duration, should we shift a little bit more to risk?

So, you know, the data has been disappointing to the better side of the equation, right, So many people have been focusing on We're going to fall off a cliff.

We're going to fall off a cliff.

We've been talking about this, the markets have been talking about this since twenty twenty three. We're going to have a recession. We're going to have a recession. In twenty four, We're going to have a recession, and it really hasn't happened. So ultimately, what this is really down to is the consumer and the jobs report So if you have a strong labor market, reason strong, and we saw that from the Jold data yesterday, then what you have is a

It's not here yet. The data.

I think the jobs data will get a little bit worse going forward. That's anticipated. I believe that's going to happen. But ultimately, if the confidence in the US in terms of the direction that it's going with the economy, I think that keeps the confidence alive. And remember, it's deregulation, it's tariffs and taxes. We can't focus on any one.

This is the Bloomberg Seventans podcast bringing you the best in markets, economics, an gie politics. You can watch the show live on Bloomberg Tea 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.