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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. Junian and Manuel I've
ever caught our sight joined us around the table. Julian, good warning to you. I'm going to use your words to set up the first question. The sentiment shift during February to the type of pessimism more consistent with major bottoms after protracted salofs rather than sold near all time highs is nothing short of extraordinary. We're five percent away from all time highs.
VIE.
Pessimism is falling off the cliff right now. There is literally no confidence at the moment from business leaders, from consumers, from the people we speak to day after day. What gives Eve the sentiment needs to catch out pull the market needs to catch down.
Well, two things, just to highlight how extraordinary it really is. We looked at bear sentiment and at these levels the average draw down from the high is twenty nine percent. When you get these levels, the lowest draw down was thirteen percent, and as you mentioned, less than five percent.
It's really what it is is. You know, again, as you pointed out earlier, there was not an expectation that we were going to get what we've gotten this morning, that the tariffs are actually on and in place, and to be fair, our house view is that they will not last that long because the damage to the economy is too great. But you know, this is classic financial market risk reward, and when you talk to investors, they don't see the potential reward outweighing the risks of being aggressive here.
We started the show saying that people who thought that these tariffs were just a negotiating tool are now saying it's not going to last very long, and they're still just a negotiating tool. At what point does it become irreversible in terms of the effect on markets. The idea that even if they stay on for a prolonged period of time, that requires some sort of response in supply chains, in growth expectations, in frankly, trade relationships globally.
Well, you're certainly starting to see it. And I think the uncertainty is also a function of the geopolitical chess pieces being reconfigured as well. And again that ism data, you know, incredible price is paid, elevated, you know, in terms of precautionary buying of goods, and then of course new orders falling off the cliff because you already bought the goods. There's a psychology aspect to this which is
what is very important. And I think it's also interesting because if you look back the original trade war in twenty eighteen, when the stock market backed off, President Trump's rhetoric backed off. Okay, the danger here is, particularly when you look at fifty seven hundred in our view, is important because that's where the market was on election day twenty twenty four, and he's never had what we'd call an adverse mark to market in either Trump forty five
or obviously Trump forty seven. Does the rhetoric change and the market is not so certain of that, you.
Mean, the test of the Trump put whether that actually still is in effect, if it isn't in effect, what's the downside? I mean, are you becoming actually bearish or are you just saying that there's more heightened uncertainty on both sides.
So we have viewed twenty twenty five as a continuation of the rally, but with the different character of what we call three steps forward, two steps back heightened volatility. So whatever the baseline of volatility was in the Vics last year fourteen fifteen, that number is now more consistent with the long run average of nineteen Could you get to a downside where growth sub two percent and inflation sticky towards three percent without a recession causes a test
of a number like fifty two hundred. It's certainly not outside of the realm of possibility. We'd treat that as a buying opportunity. But when you have this kind of uncertainty, you have to expand how you're thinking about the tales Julian only.
Six weeks into this administration, though, if he was to back off, now that he's a boy who cried wolf for every other date on that calendar.
Yeah, and that's part of the fact that you know, again, what did he learn from the first administration? Is that history tells you, regardless of circumstances, you're likely to lose the majority in the House in twenty eighteen, and we know the way politics works, they'll start running. They'll start running for the twenty twenty six campaign this fall. You've
got to front load everything. So the accumulated uncertainty is in these first few weeks, and it's sort of you know, let the chips fall where they're going to fall.
Would you buy stock?
Say we want to see a little bit more despair quite honestly consistent with that bearish reading. Yes, the market has acted as if it is approaching despair. But to us, when you think about all the catalysts, you think about that speech tonight where clearly he's going to talk tough, no question about it. You think about the potential for the government shut down on March fourteenth, which matters now
because of the reception of Doge. The risk is not quite balanced versus the reward at this point.
Feedle March nineteenth, What does all this change that meeting in a couple of weeks time, two weeks tomorrow.
I don't know that the rhetoric is going to deviate that much. You might see downgrades to their economic forecast a little bit. If you're thinking about market confidence, you might want to see a slight downgrade to the inflation forecast, but you're not likely to see it because we really don't know what the effect of the tariffs are. The bond market's telling you that the inflation problem is not the problem, it's growth, but the statistics don't confirm that yet.
The final question, you're in price target sixty eight hundred, correct. It is for a lot of people looking back to the election in that November they made the argument that the overall policy mix was positive for stocks, pro risk, pro growth. The trade was going to be a tricky part of it, but it was one piece of a much bigger policy platform. Is that still the correct way to look at this country?
It is, but again there has to be an understanding of how the pieces fit and the sensitivity around the fact that words, clearly even before the actions have been implemented, have consequences. And you know, from our point of view, are our guiding light is that earnings growth still looks nine percent to us. We have not moved. We don't anticipate that's going to come off it.
Julian appreciate your time, as always say what a start at the way Julian and Manuel of everco side at Knows of Ryman James Jones just now for more, Ed, welcome to the programs. We said just moments ago that the people who didn't believe this day would come now believe this day won't last very long. And what's your message for them?
My message is, I feel like I've been the Paul Revere of tariffs all this year, kind of the tariffs are coming, the tariffs are coming, and no one has really believed me. I think that there is an element of this that is absolutely about negotiation, absolutely about using the economic strength of the United States to push our allies in many cases to make changes. And I think that's the base case. But I also have told folks here at Raymond James, expect a lot of these tariffs.
If it's not at twenty five percent permanently, does it come in at five or ten percent permanently? Because bucket one is changing policy, Bucket two is having enough revenue to potentially pay for policies like the extension of the tax cuts in a couple of months.
Here, Ed, what kind of timeline are you giving for some of these exemptions or potentially the lowering of the tariff freight.
It's really hard to give a timeline because most, if not all, of this tariff authority is solely within Donald Trump's discretion. He can decide at twelve o'clock today to take it all off, you can decide at twelve oh one to put it all in. When I've talked to Cloueiences at Raymond James, they're expecting there to be exemptions on medical equipment, things for humanitarian aids, things that are going to be specifically important to consumers, like energy. We
do have a lower energy rate here from Canada. Donald Trump very much cares about inflation, but he also wants to be able to show as we have the Joint Session of Congress, I'm not going in at the State of the Union tonight where he is going to push hard and we're going to have reciprocal tariffs come April first, April second, more terrorists. This is a steady drum beat that's going to happen, and Donald Trump turning it on, turning it off is going to be part of the negotiation.
What's driving these tariffs is really the fentanyl deaths. Donald Trump has talked about that. The president as well as officials have spoken to me about that as well. Kelly and Shaw negotiator Trump. One point, I said on Bloomberg Television earlier this morning, this is the new normal. They seem to be swapping what maybe you'd use sanctions for tariffs,
and this is the new real politic. In that sense, then how do you decipher what's negotiation for national security and what's going to be a revenue raiser.
That's up to Donald Trump as well. I mean, I think Amory, you're absolutely right. Donald Trump has been very concerned about fentanyl, and I think with a conversation about China, a conversation about Mexico absolutely part of the conversation and absolutely a huge issue that needs to be dealt with. When I talk to my Canadian clients, they're not, you know, not really understanding why ventanyl is as big of an issue.
There has been shipments across the Canadian border, but it doesn't actually happen all that often, as especially compared to others. Donald Trump is going to use whatever excuse he has to push forward these tariffs trying to get those changes, and it's not quite clear exactly what he asked for. When I talk to a lot of my contacts, foreign leaders are concerned about trying to strike a deal with Donald Trump only to be embarrassed. We'll get the Oval
Office meeting with Zelensky last week. If you are a foreign leader, you say, do I actually respond to these and how aggressively do I respond to these? Or if I get to the White House, I think I have a deal and it just evolves from there. That's a real concern globally.
And has there been a shift in tone from your clients in terms of their belief and just this being sequencing that the hard stuff comes first and that good stuff comes later.
So I'm right now at the Raymond James Institutional Investor Conference. We have over a thousand companies and investors, and every single conversation I had last night was is this going to be worse than we expected? We don't have a lot of conviction. There is a lot of angst out there.
You go company by company, they haven't really disclosed exactly what the impact for them, oftentimes because they did not think this was going to happen, And so that uncertainty is a huge shift in tone, that kind of concerned that this could last. Is a huge shift in tone hopeful that this comes off. And I think the base case is that twenty five percent on Canada in Mexico does not last for very long. But as soon as that gets pulled off, what happens with the Europe, what
happens with the rest of the world. Those concerns which were kind of completely pushed aside Lisa, are our front and center in every conversation I'm having right now at our Raymond James conference, And how.
Much at those dinners were people saying that they just are putting everything on hold. This is just a time to wait and see and any plans of very investment, any plans for deals are just going to have to wait until there is some more clarity.
Yeah, I think for investors, most need to be fully invested, so they are trying to figure out where they can hide, what are the opportunities for them to not get kind of hit by a buzzsaw on transactions and m and A on IPOs that is a lot more frozen or sluggish than expected. And that was a big theme as well in my conversations, like what was expected after November and into December, and that euphoria. People are like, we need to understand where rates go, where terrorifts go, what
tax policy is? The long list of Trump concerns is the new conversation I'm having with clients at Raymond James.
It's a big change from where we were a few months ago. And appreciate your time, sir, Thank you at Millstare of Raymond Change. Let's turn to foreign exchange traders digesting President Trump's twenty five percent tariffs on Mexico and Canada, Kitchens of Soft Gen writes in This This Morning sharka is the Canadian dollar is up despite tariffs arriving. Friday's Canadian jobs numbers might be important as the US wants kit joined US now for more. Kate, welcome to the program.
Let's talk about that muted response, if we can call it that in foreign exchange, kid, what gives well?
I mean, the big response in the sense has been this is bad for growth in states. And you've heard some of that the market's pricing in rate moose that it wasn't or more rate mooves that it was and looking negative. We have seen no shift in consensus forecasts down in the US GDP growth yet and We've seen a series of upward revisions to economists forecasts for this year since September that drove the dollar higher. But what we're seeing is the market is going ahead away from
the economy. It's the strategist to getting negative. The traders, the investors are nervous about what this means. So we have a weeker dollar and that protects the Canadian dollar where we've been talking about the taris for a while and the Canadian dollar has been beaken up. But I do think it means that it puts more of a
focus in a sense on growth in North America. What is the ism service number can look like tomorrow in the States, what a payrol is going to look like on Friday, and what a Canadian job is going to look like on Friday. Because all this betting on more rate cuts faster is going to need some validation reasonably quickly to be able to sustain itself.
K saying that people expected tariffs to be worse for the rest of the world than the United States late last year and early this year, and that that story has shifted and now people are thinking that base and where valuations are. This actually could be a bigger hit to the US economic growth trajectory based on expectations than the rest of the world.
Yeah.
Look, I think we start from the US exceptionalism position, where we've been revising up US growth forecasts for a long time, revising them down everywhere else, talking about how exceptional the US is, expecting higher rates than in other places, and watching the dollar get to extraordinary heights. So we're hyper sensitive, if you like, to anything that suggests that actually the US economy might really be able to slow. Now, whether it's going to slow as fast or as much
as people are contemplating. What you have is a big position adjustment in the market, a growing awareness of the fact that foreigners own sixty five trillion dollars worth of US assets and if they get nervous, that is a problem. And so you know, these stories are beginning to happen. That the reaction in the market looks big relative to the news flow so far, but I guess that's what happens when you're at a turning punt kit.
Right now, I'm looking at the euro that's actually at the strongest level going back to early December versus the dollar. Is this because of concerns about US growth or is this because of optimism of some sort of spending plan is laid out by Ursula V underline today.
I mean it's a little bit of both in the sense if you look at if you look at it, you're a dollar tracks to to year interrastrate differential painfully closely at the moment. And what's happened, Well, we've taken us to your rates down. So that's been the single biggest driver of that over the last few days. There
is some optimism about the program. There would have been much more optimism into the Europe if you had a sweeping win for a party in the German government elections last week last week home how long ago was now that there would have delivered an end to the debt break that hamstrings their fiscal policy and is completely ludicrous that that would be a bigger game changer. Also, we're also we're saying, you know, we spent the last two years in a zero point ninety five one thirteen range,
not a big range. We're just drifting up to the middle of it.
But kit what happens on April second, when potentially we get tariffs on the European Union from the United States, That one oh five. Directionally, where does it go?
Well, I think that I think that that's the sort of thing that can you know, makes me think that a move to one ten looks really unlikely. Unfortunately, it anchors us. That's where we've been for a long time now, is anchored with a very cheap dollar, sorry, very cheap, you'roine a very expensive dollar. We get a focus on the on the tariffs on Europe when we get growth concerns coming through. I think that just keeps US in
a range. If I want euro dollars to go back to that one thirteen level, that it's the highest it's been in two years, I need some signs of growth, helped by easier fiscal policy or help by anything. I just need some growth.
What about a peace agreement? Would that do it?
Yep? That would that a proper preasea agreement is you know, particularly if I've got a peace agreement with an agreement that we're going to do some investing, that we're going to walk back some of this ridiculously type fiscal policy or that that would be a massive game changer. I mean, deregulation in Europe would be another game changer. But so I can see things that could change it. I do not have those yet.
Unfortunately, Kit plenty of headline risk on the horizon. I appreciate your time as always, Kit Jukes there of sof gen Ever Eisenstadt, the former NEC deputy director, writing business must brace for unpredictable and shopping waters over the next
few months as more actions are likely to come. Ever, it joins us now for more, So, Efverett, walk us through what you think happens here, because there are some people a lot of people watching this program right now who don't believe the tariffs that went on overnight will stay on for very long. What's your message for them?
I think they will stay on. The President had an opportunity to delay these tariffs again. He decided not to do that. And so unless there's some see change in how Canada and Mexico are dealing with the fetodol crisis, is satisfied as the President and I don't see immediate a relief in the near term. So I think the tariffs are on for a bit yet effort.
Speaking to some sources this morning, what I hear from them is they want more private sector growth, less public spending, and they want manufacturing back to the United States. But how does that work with a very intricate supply chain when it comes to an auto sector, and already that's under a trade agreement of USMCA.
This is pretty incredible, honestly, I think to see such a rapid change in the market so quickly with two of our largest trading partner, It's going to impact a lot of companies in different ways. And some companies may be able to absorb those tariffs or put them distribute the costs throughout their supply chains. Others may simply not have any choice and may may be forced with actually
thinking about move to the United States. And I think the President has a mindset that he's going to do everything he can to facilitate more manufacturing investment in the United States. So the terriff actions seem to be part of a larger picture of deregulation, investment incentives, and perhaps tax cuts to draw more manufacturing back to the United States.
So this is the first part of a very long story, I'm afraid, but I think we were in for, as I said earlier, some choppy waters in the near term.
I was reminded by another source very early this morning that in Trump one point oh, a few months after some tariffs went on, there were exceptions. Do you expect that to happen this time?
We'll have to see. There are some products that we cannot get in the United States. We simply don't produce them, and so for those I would think it would seem to make sense to include exceptions for those products. There's really no reason not to, but I think we'll see.
Another thing to keep in mind is, on top of the terriffs that went into effect last night, we've got this steel tariffs that are going into effect on March twelfth, and those are going to be broader, They're going to cover more products, they're going to be difficult to administer, and over time, as these begin to resonate throughout the economy, I think there are going to be calls for some exceptions.
Even if we've got exactly what the President wanted, which is to get all manufacturing back to the United States, it simply can't happen overnight. So at a minimum, it would seem that a delay to enable some manufacturing to come back would make sense. Today we're not seeing that, but we'll have to see how these terrorists they resonate throughout the economy, what kind of feedback, you know, members of Congress get and others in the administration about how
they're being implemented. I'll just note that there was, as you might recall, there's a deminimus exception for products coming into the United States duty free, that they're under eight hundred dollars, they're able to enter the United States duty free. The President had taken that dominimus exception away, and then when the com and the Customs tried to administer it, they couldn't do it, so they had to walk back
from that. I don't know if we'll see something similar, but we may see that in certain sectors for certain products.
Hey, Everett've got to leave it there. It's got to catch up. Evera. Eisenstad there, the former NEC Deputy director on the trade effort in Washington, DC. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, and geopolitics. 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,