Bloomberg Surveillance TV: March 10, 2025

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and am Marie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the

It's good to see you, Good morning, Thanks for having me.

Let's talk about those details. Where do you see the weakness? What concerns you at the moment?

Yeah, on the surface, this looked like a jobs report that looks like the last six or seven months, we had the unemployment rate staying that range. It's been in one hundred and fifty thousand jobs. That's fine, but it was really the increase in the unemployment rate, so it's still in the range, but that occurred alongside of decline and participation, so people maybe leaving the labor force. Unemployment rate would have been even higher, something like four point

Which raises this question of how resilient this labor market is in the face potentially of a policy shock that a lot of people.

Are talking about. What's your sense.

I know, you guys have been saying that the economy was weakening. How off sides are people in their expectations at the robustness of the US labor market.

Yeah, we have been seeing this weekening for a while. Primarily this has looked like a very low churn labor market that's low hiring, low quits, low layoffs.

But that low hiring.

Dynamic, I do think it's restrictive rates that got us here, and that means the labor market's not very well positioned to absorb a shock, even if it's coming from from government. Obviously we're tracking the numbers of those layoffs and the direct impact of those might be minimal enough, you know, a couple tenths on the unemployment rate could could get bigger.

It seems like there is a grand plan, and there's sort of this sense that you take your paint up front and then some of the positive and you rejigger the US economy.

And it's moving on a one or two year cycle.

President Trump saying he judges himself in quarters. Can you talk about the timeframe of a labor market that is much slower moving?

Yeah?

Yeah, I mean we've come a long way in terms of the labor market loosening already. Of course, mean we had the increase in the unemployment rate last year, had looked like maybe there was some stability, But I think, you know, we're at that point where in past cycles you see this much sharper increase in the unemployment rate.

That's the layoff.

Stage of this weakening labor market. So it's been slow moving for now. It's been maybe taking a bit longer to get to that last stage than usual, But this could be what pushes us there for sure.

What kind of impact is DOGE having on the labor market?

Yeah, I mean we do track, you know, the outright numbers of layoffs that we've seen so far, Well, we'll start to see that. I think in the March employment report wasn't as you know, showing up in this February data quite yet, but we're, you know, something around forty to sixty k right now.

The bigger numbers would come over the summer.

You know, we have these plans for mass layoffs that are supposed to happen over the summer. Maybe we're looking at something like three hundred thousand maybe more.

Do you think the private sector could absorb these jobs?

I don't think so. Yeah.

I think this is a private sector also that has been weakening for a while, hiring.

Rates very low.

Of course, the private sector is going to feel some of this also. You know, government contractors, just general uncertainty.

Those are going to be people who.

Are not spending in the economy as much. You know, they'll there will be ripple effects.

Isn't that They ultimate goal of the administration though, The ultimate goal it is to rebalance the economy. And your response to that is, I don't think so, you're not finish as possible in.

A nice, orderly rebalancing.

I think no, because I think we had a weaker view of the economy, you know, going into this year already, and I think we've seen that in the data. So yeah, this is a really precarious labor market that maybe can't handle some of these these changes.

Is it a rebalancing the FED needs to support.

I think the FED will be there to support the labor market. Obviously, we do have concerns of inflation, and tariffs are related to that.

But if this is a true, you.

Know, weakening economy, maybe you can't pass on those price increases as much. You can't demand a higher wage, and so you're not actually as worried about the persistent inflation.

From this is what.

Does the FED have to see then in order to actually start cutting rates. Does that sort of avoid a recession or does that mean that we have to see the whites of recession size before they start engaging.

I think they will probably be getting more concerned on the labor market, on the growth side of things. And so if you do see some inflation dat alone that look a bit more favorable, maybe Wednesday's numbers, you'll add to that confidence that inflation is slowing.

Then they can be cutting as soon as May. That's our base.

Case Wednesday for CPI. The following week, FED Powell a news conference and FED decision on March nineteenth. Two things to look for. Veronica's good to see you as always. Thank you, Ronica Clark. There a city. Let's turn back to the tariff agenda. Twenty five percent tariffs on steel and aluminum imports still on deck for Wednesday, the former NEC deputy director Kelly and Shaw writing, the ambiguity of Trump's tariff plans are a feature and not a bug.

Yeah, good morning.

I think what's been really interesting is despite the fact that last week's terrifaction on Canada and Mexico was the single largest terrifaction of any president in modern history, the administration keeps saying, hold your breath and wait till April second.

Kelly, And when it comes to April second, is this just the announcement and then we're going to have a public comment period. How long until we see that tariffs actually take place?

Yeah. The truth is we don't know yet.

We're not clear on how the administration intends to structure this, whether they intend to actually move forward with tariffs under something like AIPA or Section three three eight on April second, as well as some of these sectoral tariffs that they've been talking about or whether they'll announce their plan and then kick those off into investigations, which would take several more months before those tariffs went into effect.

They could pick either path.

If it's a path that they're going to have some more time. Does that mean that Trump is a negotiating mode and he's happy to maybe pull back the tariff threat if he gets something from one of the trading partners.

Well, I think the President has been clear that he is open to negotiations on these reciprocal tariffs. His idea is that we'll charge you what you charge us, and if other countries come to the table and lower their own tariff barriers, then those teriff rates would go down on the US side as well. And I think that is the beauty of this concept of reciprocity. It really is the epitome of fairness from the perspective of the president. So I certainly think their scope for negotiation.

What about Wednesday when it comes to aluminum steel, Do you expect those tariffs to go through?

As Howard Latnix said over the weekend.

Yeah, I do.

I think that this is a redo of what the administration did back in twenty eighteen, and the view that you're hearing coming out from the White House is that there were so many exceptions, so many illusions, that it became a loophole you could drive a truck through.

And so they're starting with the.

Maximalist tariff approach when it comes to steel and aluminum. I do think that there's scope for countries like Australia or maybe Canada and Mexico to get some sort of country exception country exclusion, but for now, I think he's moving forward with.

The full measure.

A number of studies callyan IF and pointing to the fact that actually production might move more quickly out of the United States if the twenty five percent tariffs do continue, particularly.

On Canada and Mexico.

I'm talking about autoparts makers in particular. How much do you think that the president accounts for this type of behavior at a time where a lot of companies are trying to insulate themselves for themselves from headline risk.

Yeah, I think that the President's reaction to pair back some of the Canada and Mexico tariffs and say that for companies that are complying with USMCA rules of origin, that you would be exempted from the measure shows that the President is paying attention to this and that it's not just about production in America but in North America.

Kelly, and what do you make of this theory that this is all by design, that a little bit of pain is kind of the goal here to get interest rates lower to offset some of the tax cuts and just the increasing deficit and increasing interest expense that the US is paying. Do you believe that that could actually be by design.

I'm not sure if that's the objective of the administration.

And there's one place we know where the tariffs are going to stick, and of course that's China. Twenty percent and as of today, China's reciprocal tariffs on the United States, those retaliatory measures have gone into place for a number of agricultural products.

Given you were.

There for Phase one, do you think potentially there's a bigger deal to be had at the end of this when it comes to China, Because I remember twenty eighteen there was billions of dollars of losses from the agricultural sector in the United States and then Trump to actually have a bailout for these farmers.

Yeah, agriculture really is at the tip of the sphere when it comes to trade and tariff policy because they're the first to get retaliated. They are one of the most politically sensitive products in the United States, and every member of Congress has some form of agriculture in their district, which is why it's so attractive for our trading partners to hit them first.

We'll have to see where this goes.

I mean, the President has tweeted and posted on true social about taking care of the farmers, having them sell domestically. I think he is keenly aware that they are getting hit first. But when it comes to China and some sort of trade deal the juries out. We'll have to see what happens and whether China wants to come to

It back down, well, said Keleon, going to say, you wise cleon show that they form any say Deputy Director Barbara rein Hardefouyer Investment Management, writing, it's challenging to have strong views in this turbulent market environment. If the pride Trump administration is guidance ratified, trade policy should be better than feared. Barbara joins, just now for more, Barbara got Mornick, Good morning. Is that playbook even worth looking at anymore?

You know, I think it's the problem is the stopping go nature of the administration's policy seem to really be what's causing a lot of indigestion in the markets.

And that also.

Coupled with softer survey data, Earnings revisions have been marked down a bit at least for the first half of this year, and it's causing a lot of problems. I mean, it was just on February twenty that we hit a new all time high for the S and P five hundred. It feels like it was about a year ago.

Things have changed quickly. The President's not stepping in, He's not changing course certainly days why would he? The channel of the Fed Reserve is not stepping in or changing course, what do you need to see to generate a counter trend rally?

Here happen, markets are very oversold at this point. So we have long term indicators and short term indicators on investor sentiment, and our short term indicators are as oversold as they have been in over three years.

At this point.

You'd have to go back to the twenty twenty two sell off to have this type of short term oversold indicators. I think that you probably need some clarity on tariffs in order to be able to get the market to have put in a sustainable rally. Now, when a counter trend rally comes, what's likely to do well The things that have sold off the most. I mean US small cap stocks, so one of my team pointed this out to me, are down over twenty percent from September or

You said that the over sold indicators were the most going back to twenty twenty two, and yet we're still at some twenty one times earnings. We're still at a pretty elevated valuation, which goes to the structural argument that may maybe money has been flowing into the US disproportionately for so long that now just a normalization, especially back to Europe, makes a little bit of sense. How much credence do you give that idea.

I don't discount it all that. I mean, I give it a lot of credence. However, I would note the following. The fiscal stimulus plans that Germany is planning to put into place is really only for Germany.

At this point.

You still have long term structural issues that have to be solved for Europe. According to the Droggy report, you have demographics that.

Are working against you.

You've got regulation that is very heavy in Europe. Those things have to be addressed and changed dramatically in order for Europe to say, in order to say Europe's going to outperform in.

The US for the next three years.

One difficulty right now is you don't invest in hours, right I assume that you have a longer.

Term arized I mean, I'm investing free timing.

And it's technically forty years.

This is the difficult aspect, right this is a trader's market right now, we're talking about shifts that are incremental when you have to look over the big term and understand what the long term goal is and whether it's feasible for us to get there.

So how you doing that?

Well?

I think the big issue that we're considering now is that the stagflationary scenario is getting a lot of traction in the markets. And if that's the case, no asset class works, not bonds, not stocks, no international nothing. Well maybe cash works for you over the very short term. Now, if you get a little bit less policy uncertainty, you can look a little forward to the US data seems to be softening a bit, at least on the survey side.

Tariffs that you had seen before.

So I think the market is in very much a show me state, and the only way that you get there is clarity on inflation, and clarity on terraffs.

Neither of those seem to be coming now.

Having said all that doom and gloom, potentially see a very good case that the FED has the ability to cut rates in the second half of this year, maybe really kind of like the late third quarter, because if all goes well, if tarists are indeed staved off, it's a one time inflation hit.

To the upside, you.

Should get enough relief from weaker economic data that inflation's coming down, that core PCE is dropping, that the Fed may be able to say we can cut interest rates maybe twice this year. That should give the market enough relief as long as the underlying earnings picture stays pretty much intact.

The narrative is focused on the political economy and all these headlines from Trump, So you're saying that it can shift back to the Fed, and that could be the catalyst for an upswing in US eecrities.

It could be in upswinging equities globally. At that point, I think that you need to see at least some policy certainty from the administration, and don't forget as we get towards the second half of this year, they have to start worrying about the midterm elections in twenty twenty six, So the clock on the very difficult, very uncertain Trump policies that could be growth negative do have somewhat of a time decay associated with them.

We do have some certainty though tariffs have gone into place on China. Are you saying potentially uncertainty on everything else is almost worse than tariffs going into place.

Well, tariffs in place on China is really an old story that's been coming through for a long time. So what happened after the first tariffs went in on China? You had this opportunity set where the rest of the world stepped in.

To be the manufacturer.

Right, so countries in Asia, Japan, excuse me, on Thailand, Malaysia, the Philippines, and also even to Mexico when you're starting to talk about tariffing our two biggest trading partners, that is a whole different story. Those will certainly put Mexico and Canada into a recession, and they account for forty percent of globally traded goods. So it's a very different story to tariff China. And then thinking differently about and with the Mexico and China, and then also potentially Europe.

So you put this all together, it sounds like on the margins, over the past few weeks, you've been shifting out of the US and waiting for the US to sort of get some of those certainties before going into whether it's small caps, mid caps or big tech.

Is at the idea well in our portfolio.

Is what we've done more recently, we bought a little bit more into the emerging markets. We bought something into US midcaps because we want to make sure and have exposure to those parts of the market that are likely going to benefit from the rotation. We've been reticent to buy European equities because they have run.

So far at this point.

You know, every single type of technical indicator that you look at RSIs that you could look at on your Bloomberg terminal, and many of our sentiments surveys say that European equities are indeed overbought, So if you're buying them at this point, you know the potential tide is against you, just because the new has been so positive for Europe. So we would wait for someone to a reprieve before we would think about going out to your p inequities.

The DATS is still up about twenty percent so far here today, even with a one percent move this morning, Bumba, it's good to see you. Thanks for breaking it down. Thank you so much. Baba Royan, had there a voyeur investment management if you are just joining US equities here down by one point four percent. Let's turn to Washington and President Donald Trump refusing to rule out a recession for the United States and the economy, saying the US should expect a period of transition as he rolls out

Well, I think what's important is, while there's a lot of sort of enthusiasm, I guess to kind of lay everything that we're seeing at the feet of the Trump administration, I think the truth is is that things were slowing before they walk through the door. I mean, even February is you know, hard to say that this is all a function of policy uncertainty in tariffs.

And in the three months.

Ending in February, total hours worked have actually contracted. That's pretty rare on a three month basis. So it tells you that, you know, the economy was already slowing and there was a lot of weakness in train and you couldn't make the argument that, you know, trade related policy uncertainty is what's, you know, potentially dimming the outlook.

But the consensus was off.

Sides on the data as it has been coming in for the last several months, and some of that data reflects things that have already happened, right, So you know, I think that's important. You know, incomes are slowing, the housing markets frozen up increasingly.

It looks like the labor markets have been.

Sluggish, you know, and governments, I think, particularly for stay in local governments had been has been getting sliced and diced long before DOSEE came on the scene. So you know, I think these are sort of very interesting.

Things to consider. And one of the things that we're learning is.

Well, number one, I mean, the power put the stripe price on that is lower than we thought, and we learned more about that last week. But also I think the strip price on the Trump put.

Is lower than we thought.

So you have both some BC kind of you know, embracing the labor market even though it's getting worse. That's not necessarily a good place to be for risk appetite.

So Neil, let's use it as a starting point.

And you've been pretty consistent about this for a number of months that you think that the economy is a lot weaker than a lot of people had been pricing in and that you thought the FED would have to respond. It raises a question of the fragility to headline risk, the fragility to the uncertainty that we hear already coming into some of the CEO commentary coming out after earning. Do you think that it is even more susceptible to some of what is happening on the policy front.

Well, I mean, you know, look, it depends.

So for example, last week, you know, we've been seeing the markets kind of get dinged every time there's some kind of a trade announcement, right, but you're not really seeing that relief when the trade announcement is undone. Right, So for example, with Mexico Canada tariffs, I mean, we put twenty five percent tariffs on everything coming in from Canada to Mexico, and then the next day we exclude everything that's under the sort of umbrella of the USMCA.

Almost I get through Neil, but a lot of companies have come out Best Buy, Target talked about how they are probably going to pass along price increases to consumers and expect to sell less as a result of some of these tariffs. We're already hearing about some companies shuttering certain operations to try to deal with some of the ebbs and flows of tariffs that come on and off.

Well, I think it's dramatically over sold.

I mean, it's one of these things where things are going well, it's you know, my growth strategy, and now when things are not going well, it's the uncertainty.

That came out about in the last week and a half.

I mean, it's sort of I think that's kind of amusing to me, but I would just say that you may be. I mean, I thought the comments from Kevin Hassett were interesting where he's basically talking about reciprocity, and you know, remember one of the ways there, they've they've long said that they've they plan to use tariffs is an escalate to.

De escalate situation, Right, So do you get the.

Heat dialed up to dial the heat back down and you get other countries to reduce their tariffs? I mean, how is the stock market going to respond to that?

So?

You know, I think what companies largely deal with is what's right in front of them, and what they're seeing. I think is that demand has been slowing and that's probably prompting additional caution in their outlook. I don't think that they're making whole set. I mean, maybe some of them are, but I don't really think that's that's that's the big story here. To me, The big story is government spending was already getting worse, particularly stay in locals.

Yeah, what's the potential upside?

Though? Not right?

I mean, I guess the question I would have for you is when does it matter, Lisa, when policy uncertainty is high?

Right?

Is it when there's a financial market shock to go along that, because if you look at credit spreads, they're relatively team at the moment, right, So that to me, yeah, they're rising from very very low levels. I mean you need a magnifying glass to see the increase.

But can we talk about the market upside though?

You mentioned because Scott Bessant, you mentioned the Trump put or the FED put.

Scott Bessant last week said there's no put.

He said the Trump call on the upside is if we have good policies and the markets will go up.

When can we see that? And what kind of strike price are you looking at?

Well, I mean, I don't know. It's it's like anything else.

I mean you have to kind of peel back the onion and kind of think about what they're really trying to say here. And what that means is, you know, there may they may be. I mean, the look they're they're playing a game of chicken, both ends of DC

On lower taxes and deregulation.

Again, no distactly what's the threshold for those cuts from the Federals, what they want to see, what they need to say.

It is going to get worse, and inflation is not going to be as strong as they think. I mean, that's really what it is. I mean, you talk about inflation expectations. Mike McKee was talking about how there's going to be inflation expectations coming out this week, you know today and at the end of the week with the humish data. You know, why do we care about inflation expectations because people take those expectations and then try to bid up their wages. Good luck, good luck with that,

I think people are going to be much.

More resistant to higher prices than companies believe. It doesn't Again, so tariffs are the inflationary Yeah, maybe, but I think the bigger issue is the increased costs. So we don't know exactly how much of the in cost increase is going to be passed passed through to consumers.

PSA. On my side, Neil, I just want to say to everyone out there, push, keep asking, No You're worth Neil owns his own company, He's talking his book. No do'ts to appreciate your time. No dotsor of Renmak there one of the best. Thank you said. This is the Bloombergs of podcast, bringing you the best in markets, economics, an GIO politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern.