Bloomberg Surveillance TV: March 5, 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

Oh thanks so much.

It wasn't last night's speech amazing. I really I could have been more proud of President Trump.

We'll get into the niceties on that in just a moment. Let's kick it off, sir, with a question about your comments yesterday when you suggested that maybe they could be a compromise on trade between the United States and Mexico and Canada and maybe we'ld hear more about that today. Has the President confirmed that is that still the plan?

Well, I think what happened is you have the trade ministers and all the people from Canada really working hard with our homeland security people.

Remember, this is not a trade war. This is a drug war.

We've got fentanyls still pouring into the country and it's got to stop.

So what's happened is they're showing us even more.

Ways to try to stop the floor of fentanyl and if they can stop the floor of fenyl.

The President is open minded. There are going to be tariffs, let's.

Be clear, But what he is thinking about is which sections of the market that can maybe he'll consider giving them relief until we get to of course, April second, but I don't want anybody to forget.

April second is the day that we announced our.

Reciprocal tarraffs around the world, and so April second is coming.

But this is about fetnel this month.

Got that. Just want additional clarity, just to be very clear on this. Yesterday when you said I think the President's going to figure out you do more and I meet you in the middle we're probably going to announce that tomorrow as in today. Can we no longer respect that announcement?

No, no, no, no, I didn't say that. I said the President is.

Listening, uh to the offers from Mexico and Canada. He's thinking about trying to do something in the middle. He's thinking about it. We're talking about it. We're going to what I leave here, I'm going to go talk about it with him, and I think early this afternoon or

When you say somewhere in the middle, do you mean somewhere in the middle on tariffs, as in somewhere between zero and twenty five or do you mean that certain groups, certain industries will just get a carve out, And would that carve out be say the autos, Because the President mentioned last night he'd spoken to the auto's CEOs, the carve outs we should be thinking about.

Here, Yeah, I think I think it's by product and by regent. Remember the us MCA, right, the United States, Mexico and Canada agreement set up some policies that said you've got to have a certain amount of US content in your products to be USMCA compliant.

So I think he's thinking.

About those categories, the us MCA compliant and does not make sense to you, Right, if you complied with the agreement, then.

Maybe you avoid tariffs. And if you.

Didn't comply with the agreement, well you did sue at your own risk. You knew you weren't complying, and therefore it seems likely that's a place where the president will go.

Again, the president gets to make the decision.

I'm there talking with him about it, and so is the team. But our expectation is that it'll be categories. It will be twenty five percent, but it'll be there will be some categories left out. It could well be autos, could be others as well. USMCA go look at that.

That was the agreement we made with.

US Mexico and Canada saying those products are exempt. Everyone who didn't live under those terms and did so at their own risk and knew they were doing it at their own risk always.

Secretary Latna, good morning.

Would you say right now that you think that US autos like GM and Ford are compliant under USMCA.

That is my understanding is the Big Three say they produce cars that are compliant under USMCA, which means they have sufficient US content in them to be part of the USMCA agreement. So I think that's part of our discussion and the President's really thinking about that.

So it's fair to assume, then, especially given the constituencies of autoworkers that the President was able to pick up in this past election, that it is the auto industry that can potentially get that exemption later this afternoon.

It's not really the decemption, remember, it's it's we're trying to end fentanyl coming into the country. So we're trying to send a message that fetanyl has got to end coming in from Mexico and Canada.

It just has to end.

And they've done a reasonable job on the border, and they're going to do a better job on the border. But this is memory, it's a key about fentanyl for this month April tewcond We could talk about the rest, but this month it's about fentanyl, and the President's trying to give Mexico and Canada some statement, some move forward because they are doing they are trying their hardest, and

Depths of ferialisms were in America.

Many families will sympathize with this, remarks me myself, I know families who have been at the end of the suffering when it comes to fentanyl. But yesterday though, the President questioned the fairness of Canadian banks, So what is it about. Is it about Canada's banking system or is it really about fentanyl?

So this month, right now is about fentanyl. When we talk about April second, we will talk about the bigger trade picture between our trading partners Canada and our trading partners of Mexico. So April second, I'll be happy to come on and talk to you about our thinking and our thoughts about a broad trading model. But right now it's about fentanyl. This is a drug related issue. Drugs coming into the United States of America have got to stop.

The border. It's got to remain closed.

That's the key of how you treat your great trading partner. You treat your great trading partner with respect, and you stop letting sentinel.

Into the country.

So my view is the President is thinking about it, he's thinking about autos, he's thinking about USMCA. He's going to come up with a plan. This afternoon. We're going to announce that plan. I think it's going to be in the middle somewhere. There's going to be twenty five percent tariffs. It's not the middle as in a number.

I think it's in middle in terms of USMCA, not USMCA.

But the President will decide that this afternoon and then we'll go on from there. But think about that, if you were compliant with USMCA, you did what President Trump asked in his last term.

And if you weren't compliant, you did that at your own risk.

Secretary Latnik, I just want to make sure that I understand this correctly. You're talking about the idea that this all has to do with the drug wars, and at the same time, some people have speculated that this could lead to a renegotiation of USMCA that.

Would lead all around to even lower tariffs than before. Are you saying that's off the table.

The tariffs are still part of this at the twenty five five percent level.

Well, remember April second, we begin our reciprocity model, which is how you treat us as how we treat you, and that is going to be part of his exemption, part of his tier policy. And then he's got industries, autos, semiconductors, pharmaceuticals, steel and aluminum.

And copper lumber. These issues need to come home.

We need to help our domestic industries grow and flourish, and so we called out those product sets for extra focus.

But that's April second.

So on April second, our reciprocal trade policy will come out. In twenty twenty six, we renegotiate USMCA with Canada and Mexico, and we're going to have really clear analysis and clear focus on how that changes.

But right today, let's be clear, today is about Fentanel.

We heard from last night the President.

He said that he was fine with a little disturbance, but going forward, there will be all of these gains realized.

Secretary Lutnik.

Are you concerned about the level of uncertainty express not just in markets, but just even from people who you used to work with, where they're saying, we don't have a clear sense of what the goal is. And I understand you're saying it'll come on April second, But in the meantime people are just putting all plans on hold.

Well, I'm not seeing all plants at all. In fact, I'm seeing the opposite.

Right.

We saw Apple commit to five hundred billion dollars. We saw open Ai an Oracle commit to five hundred billion dollars of investments.

TSMC just the.

Other day saying one hundred billion dollar investment in America. Saw Bank two hundred billion dollar investment in America. So a trillion, three hundred billion dollars. And you think people are waiting on the sidelines. We feel it every day. All these companies are coming, they're building in America, they're committing to America.

We agree a April second is coming.

We have to do our work before we announce our plans on April second. Of course, we have to do our work and do it properly and do it thoughtfully. But in this period of time, America needs a president to protect people from fentanyl that shouldn't be killing people in our country. China still has fentanyl as a highest list of subsidies.

Subsidies.

They subsidize the production of precursors, the ingredients to fentanyl. They send it to Mexico and Canada and into the country it comes. So our president has said enough already, enough already, and that's why he's come up with this tariff plan today. April second will be a fairness plan. And fairness plan is not that hard to figure out.

If you have a vet look it.

Can I jump in there on the on the fairness plan? Is that an initial, partial assessment and response or will tariffs actually hit on April second?

Well, there are a whole variety of laws in the United States of America that we will follow with precision. Some tariffs will come on right away, and then some tariffs will go be registered and they will take three weeks or four weeks, and they will come on in due course.

So there's a process for tariffs in America.

But we will announce them and we will be negotiating with all these countries thereafter, and then they go into effect over a period of months, so basically.

April six, as you know, we will announce them and then they come.

In because there's months of studies, massive report, public opinion.

This can take a very long time.

So legally there's no law that's short enough really to put tariffs in place.

On the second.

So how long between April second till the tariffs actually hit do you think we'll see?

As I said there, we launched our studies on January twentieth, so April second of.

Studies are done.

Some tariffs can come straight away, some can come weeks later, some can come some can take over a month or two to come online.

But it will be very, very.

Thoughtful, very organized, and we begin on April second. We've announced it from January twentieth, that April second was the day.

We're sticking with our day.

We're sticking with reciprocity at this time for America to be treated fairly.

And that's what the President Trump is going to do. He's going to.

Make sure we are treated fairly. He's talked about it last night. He's made this clear. So Mexico and Canada is about fentanyl today for the month of March, but on April second, it's about fairness. And yes, that is a process that comes in that is strictly specific to the laws, but it'll take over a month or two months to come in. But once it's in, they will stick which is treat us fairly, treat us properly, or don't trade with us.

Missus Secretary, I was a man of my word. I am a man of my word, and I promise would come back the address last night, So let's finish there. The President of the United States talked about a big, beautiful job in interest rates. A lot of people in this market are curious whether the President is no longer sensitive to the deadly gyrations of the equity market, that the focus, the emphasis now is on the bond market. Is that the shift is that the way to understand things.

All.

I think that is too specific. I mean, let's face it, if we balance the budget of the United States of America, interest rates are going to come smashing down. And I don't mean ten basis points, I mean one hundred and fifty basis points. You're going to have an explosion in the housing market.

You're going to have an explosion in the equity markets.

Because this is not a manufactured cut in the interest rates like you saw last time with this huge money supply which created the vast inflation.

This is the right way to do it.

You stop printing money, you stop running deficits, you balance the budget of the United States of America. You smash interest rates down, produce enormous amounts of energy, drive those prices down, and you will see the greatest equity market and the greatest.

Economy in the United States of America.

Now, remember this president is worried about the United States of America. Sometimes I get asked questions about am I worried about Canadam I worried about Mexican And am I worried about Peu? My president is worried about the United States of America. And you are going to see the greatest equity market and bond markets under President Trump.

Well, let's want to be apparently American data right now, because equities have rolled over just a little bit, you know the market. Well, I won't make a big deal of it. We're just a bit software at the back of this data from ADP, which is a downside surprise at seventy seven K the estimate was one forty so with sub one hundred we'll see what we get on the m later on this morning and on payrolls on Friday. But as you know, mister Secretary, the data over the

No way.

I mean, the President spoke about him last night. He said Biden left him a pile of poop. Okay, he left him a louse of the economy that he's trying to fix.

You're looking at data that's Biden data.

Do not try to besmirch my President Trump with Biden's nonsense.

Do you think the manufacturing number is Biden date? So I just want to be very clear, that's your opinion. You're entitled to it. You think that's his dates.

My opinion, Okay, what possible could change? Seriously, we are in early March. My president took over January twentieth.

You think economic data coming out in early March is Donald Trump related data monthly surveys.

I'm to be kidd mister Secretary, are you suggesting about it? You suggesting so when Bonyard's drop in a market that's worth trillions of dollars and investors place bets off the back of that economic data, that that data doesn't count front of thing, that that data somehow misleading.

I think that.

Data is leading you to understand if Joe Biden was still in charge, you'd be in trouble.

But you have a new president. There's a new sheriff in town.

And I would bet, I would bet on the economic growth that is coming from Donald Trump.

You see the investments. You see it already.

There's trillions of dollars of manufacturing moving to America.

It's moving to America. That means the cavalry is coming. For every trillion.

Dollars that invests in the United States of America that produces one percent of GDP growth, imagine that you have a president bringing GDP growth directly to his economy.

That's amazing.

It's the Secretary, We appreciate your time and your opinion as always. The US Commerce Secretary Howard love Nick there on the economic data, financial markets, and what's going to happen with trade, joining us now to discuss JP Morgan Act managements. But Michael Bob, good morning, good morning. We've got a lot to get through. We're getting Europe quickly,

It does to some extent. I think bond investors are going to go through a period of discomfort, to borrow a phrase from the President, where probably yields have gotten a little ahead of themselves. So you know, any kind of backup to the mid fours looks like a good level for us to get in.

So you're not a buyer here, not right now, you're a buyer of buns here. Can we bring up the curve. Let's get back to the German curve two year, ten year, thirty year, double digit move we're seeing over in Germany off the back of the prospect of a lot more supply. The ten Europe by twenty basis points. Where do you stand on Europe?

Now I think you're looking at steeper curves in Europe. I think you're going to see a lot of issuance. They've thrown fiscal austerity to the side. They've looked at what's going on in China and the US and they want to join the party and they're going to I still see the ECB bringing rates down towards two percent, but I think with the amount of supply that's potentially coming in Germany, you're going to drift up towards three percent.

There's a fantastic bond market for investors, and they're fantastic bond markets for traders. A fantastic bond market for investors is one where there's actual coupon, there's actual yield. A fantastic bond for traders. Bond market for traders is when yield.

Are going down. Is that move over?

Is it not any longer a fantastic market for traders.

I think there's potential for a yield to go down in the front end of curves. I think central banks, whether it's the ECBER, the FED, or looking for that opportunity to bring yields down a little bit get closer to what they perceive is neutral. But I think the long end is going to stay about where it is. We're having conversations every day with plan sponsors who want to get into this bond market. They're looking at it

You said this bond market.

Are you talking about the United States or develop markets more broadly? At a time where we were just talking with a number of guests, Peter Share among them saying maybe Europe is going to draw capital away from the United States, I think it's all bond markets.

I think when you look at what equities have done, they've become lopsided in terms of portfolio allocations. The plans that we're talking to are looking to do some rebalancing and they're embracing yields where they are I met as I said, I met with a plan yesterday. I met with them. Five years ago, the aggregate bond market was yielding two two and a quarter percent. They didn't invest. Now today they've won. Yields have doubled from where they are.

You said that you think that yields on the long end are probably where they're going to stay, at least in the United States. They're not going to go significantly lower. Do you see them going significantly higher now?

I think you're stuck in the force. We're probably a buyer in the mid forest because with another round of tariffs coming and the blizzard of policies that come out of Washington, there's going to be a lot of volatility, and there may be a period where people run to trades and you get down towards three ninety or four percent. But I think we're going to look back on twenty twenty five and they're going to have spent almost all of their time either side of four and a half percent.

A period when we run to treasuries. Let's build on that. Could we be going to get to a period where we run away from dollar denominated assets. Certainly not my view, but of you that is out there, people who believe that maybe the policy mix of the United States at the moment pushes capital away. We've had that a few times already this morning. What do you stand on that call?

It should be your view, John. I think dollar exceptional lensum has ended this week. We've done a lot of work. We've gone back and we've looked at Trump version one, and we see a similar path where the dollar peaks early a couple months into the term and then tends to come off. We've talked about the dollar being overvalued for a year or so now, and I think now you're looking at fiscal spend in China, you're looking at fiscal spend across Europe, and we're looking looking at we

When you say a period of dollar exceptionalism is over, do you mean for the currency specifically, or do you mean the dollar long that we've built up over the last decade in dollar denominated assets across fixed income and equities alike. Would you go that far?

I think yes, I would go that far. I think everyone has talked about how expensive US markets have gotten relative to non US markets, but nobody wanted to step in front of the steam roller. And now the steam rollers rolling the other way. And I think you're going to see this flow out of dollar denominated assets, and I think the dollar comes off from where it is.

I think that process is underway substantially, if you're correct at leasta, these are huge changes potentially for financial markets worldwide.

I just wonder how much it reduces some of the flows into US risk markets, and I wonder how much that gives more fuel to what we've already seen, particularly with some of the most consensus bests, which is the technology firms.

All these things we've been asking for for such a long time. China needs to do more deficit spending headline overnight, You're going to get it. Germany needs to invest more in infrastructure, in defense headlines in the last twenty four hours, You're going to get it. Deutsche Banks George Soravellos talked about it about twenty minutes ago. Put it perfectly. You cannot overstate the changes we're seeing in the global economy.

This is the time, and this is something Jim Reid says every morning that years happen in the period of days. And we've seen that again and again, reshifting expectations. There's a lot to be determined. But my big question is how much how far does this go in rearranging tradelines kind of.

What Donald Trump wanted. So this is the new world.

Payroll still important. Friday, eight thirty Eastern time, right, don't forget payroll. So take that back. But Michael a JP Organ Asset Management, Bob some big calls. I appreciate your time, sir. Thank you. George Saravellas of Deutsche Bank writing it is hard to overestimate the scale of change taking place in global economic and geopolitical relations in just a matter of days. George joins us now for more. George, welcome to the program.

So there's really two key components, John.

The first one is.

Very much this shift coming out of Germany, which I would call generational.

We have been.

Expecting some sort of shift over the last two weeks. As soon as the election was over. It looked like the ingredients were building.

But even we and we've been on the.

Optimistic end, were very surprised with the magnitude of the fiscal shift that was announced. From my perspective, it's the biggest shift in fiscal po I've seen in my career, both in terms of magnitude and pace, and this has huge consequences for both growth, the ECB and even Europe's strategic.

Autonomy versus the US.

So that is one component, and I would say that policy is increasing shifting to be cyclically relevant even in coming quarters, rather than just structurally relevant. And then on the flip side, you have a situation in the US where tariff policy is taking place in such a haphazard way it ends up creating self inflicted damage to the US economy. I think that is one reason why FED expectations and US heels are coming down and the broader fiscal picture remains very murky.

So we have a situation which is the complete.

Opposite from what I personally would have expected at the start of the year. But when the facts change, we change our minds, and that's what's happened over the last few weeks.

So George, let's talk about a couple of things. Let's talk about this first on Wall Street. As you know, there are certain phrases the scare people. One of them is this time is different. George, why is this time so different? Why should we really believe this is hamnik?

I think the first reason is it's now been announced, it has cross party support. What I found the most interesting in Murcher's statements yesterday is he used.

The phrase whatever it takes.

But take note it wasn't used in German, it was in English, and it was also posted on x on his feed. And this is a very conscious message by the Chancellor in waiting of wanting to reflect on what Dragie did and sending the same message for Germany. So it does have to go through parliamentary approval. We have a fairly high degree of confidence that it will, and once it does, we are speaking of immense amounts in

I would also add they're.

Going to reform the debt break to allow a greater degree of fiscal spend at the state level, which provides cyclical steamulus as well.

So if you add all of these.

Things up, they are going to have a very material economic impact on Germany and by extension, I think the whole of Europe.

George, if you had so much conviction, why is your euro usd target one ten?

Why isn't it higher?

That's a great question. I would say, one step at a time.

Every day we're seeing newsflow that would usually take years or even decades to potentially feed through.

So I would say what we need to.

Argue for an even weaker dollar is for persistent economic weakness in the US. That's going to be a function of what happens from the administration overcoming weeks. Do we see a reversal in the tariff policy? So I think there's still a tremendous degree of uncertainty on the US side, and how much the recent weekends continues. It is a function of fiscal in the US and tariff and then there is some execution.

Risk as we discussed around Europe.

But it is the first step one ten, and we're very open minded in terms of how we think about the outlook.

I think they've got to be up and minded about everything right now, George, including the United States. So let's finish on the US. You mentioned the US side of things, a question we've gone back to repeatedly on this program ever since the election. Do you see a policy mix that attracts capital to the United States or a policy makes that pushes it away. I asked that question earlier this morning. George. What's your call on that now and has it changed?

Well?

I think it's becoming a bit more ambivalent over the last couple of months, And I would say there's two drivers around that.

One just relates to the policy mix itself.

That is, it's less about the specifics and it's almost about the lack of specifics and the uncertainty around the reaction function. Now, if you're putting twenty twenty five percent tariffs on half of your imports and you don't know are they going to be there the next day, are they going to be removed? That is naturally going to be creating economic uncertainty and I think we're seeing that materialize and that is why US risk markets are underperforming.

So that's one aspect.

The second one is broader, and you could even call it a positive but to the extent that President Trump is encouraging other countries to build strategic autonomy and is encouraging other countries to spend all of a sudden, you have an investment thesis potentially for Europe.

Now that's the more positive angle. The more negative angle is.

The policy uncertainty in the US itself, which I think deshually needs a bit more clarity.

Hey, George, appreciate your time. Joe Saravella staf toutsche Bank looking for one ten on EU Rotllar. Monica Querra of Morgan Stanley writing the market could be undercounting the long term impact of tariffs because of policy uncertainty. Monica joined US now for more Monica and Mornic, good morning. I'm so pleased you went there because I think this is so important, whether the tariffs at twenty five, twenty fifteen,

The policy itself, I think could you know, have significant implications depending on the different industries that it's impacting.

When we're thinking.

About the policy uncertainty piece not under essentially undercounting potential impacts.

It's what happens next, you know. Now with.

Mexico and Canada, we spoke last week. We thought that something like this might happen, right that the tariffs could be implemented, they could be renegotiated. You have USMCA potentially pulled forward into twenty twenty five. That situation, our relationship with our neighbors is incredibly dynamic. It's what happens in April, and I think that staying on top of potential tariff risk is important.

There's a question about who President Trump is speaking to, because Marcus had just expected heading into this year that he would be catering to them on some level, that he'd be looking for market approval. Seems like that's not the case. With a little bit of disturbance being just fine, do we have a sense of where President Trump is looking to sort of get that approval?

So the little bit of disturbance piece I think is key because the selloff we saw was you know, just in the you know, the range of two five or on the day on the second right when the tariffs were implemented, you saw you know, the biggest hits right to tech and energy given the types of tariffs that were being you know, proposed. Now, what's important here is that that's not this big market downturn. If you had a greater correction on that that was prolonged, that I

Markets are rebounding.

They're looking to the potential of his negotiating tax tactics long term.

You aren't seeing the deals being announced, you actually saw them and a volumes fall pretty significantly in February. We've talked to a number of executives saying we just don't have the certainty and to John's point, that uncertainty drags on growth and you're starting to see that some of the data in your conversations with people in Washington, DC. Is President Trump and his cabinet concerned about that level of uncertainty and some of the soft data rolling over now.

I don't think they're concerned.

Now what we've seen as far as their strategy and Trump one point zero it.

Was the growth policies for first and then teariff second. This is the reverse.

They're intentionally doing this. They're coming in at a point of extreme geopolitical tension and conflicts, so they're looking to address that, essentially reinforce the America First agenda, and then hoping that off the back of that, the growth policies pick up. So when you're thinking about this is where budget and.

Tax come in.

That if you get the cuts, if you get additional cuts to corporates, they're hoping that that's going to create tailwinds through twenty twenty six succe that's when they go into effect. So twenty twenty five is a restaging, resetting.

Resizing year. It's going to be choppy.

This is something we talk to our clients about regularly, that this is a bumpy year that.

You have to see through it.

And that's what I think the Trump administration is they're looking at, too, is what happens in twenty twenty six and then legacy going forward.

At LISTA mentioned this earlier. I think is an important point regarding taxes twenty seventeen, we've been talking about text cuts twenty twenty five into twenty six, we're talking about the extension of tax cuts. How different is that? What we get additional cuts beyond just the extension of what we did back in seventeen eighteen.

So they are different.

If you're looking at it from a budgeting perspective, you have to start from where we are now what would be the impact long term? So if you extend the tax cuts as is, that would add four.

Trillion just off the bat to the deficit.

Now, if you get additional cuts, it's likely to be you know, to social Security, to you know, no tax on tips, those types of giveback to the individual. But more importantly, on the corporate side, Trump has said he wants corporate income tax top line as low as fifteen percent, So that is, you know, significantly stimulative in the long run when you're thinking about corporate America.

Once fifteen with a US production element attached to it. Yes, so we really understand what that's going to look like and how it works.

I don't, especially because I think that There is a component here that people are missing is that you have to pay for those tax cuts somehow.

Tariffs is one way.

That they're looking to do that through that external revenue service passing through funding right through an accounting adjustment. The other thing that people aren't looking at is the potential for increased corporate taxes on foreign revenues. So this is something they did in twenty seventeen. It's i would say, an easy, low hanging fruit if they're looking to raise taxes because it speaks to and only trying to reincentivize

And you need the tax paych it to ready fully understand the overall effort alongside the trade effort.

So if for example, some of the auto manufacturers had to pay twenty five percent tax on parts from Mexico and Canada, it would be offset with a fifteen percent tax rate top line tax rate that would come later on.

It's in theory.

Yeah, that's how it comes.

To right, but then sequencing doesn't matter.

Monitor matters. Yes, we've got to go. I appreciate your time as always, Thank you, Monica Quera there of Morgan Stanley.

This is the.

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