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around the meeting between President Trump and Jijingping. Look at the lineup of CEOs that will be attending that meeting with the president, or at least attending the visit alongside him. Look who's missing. Spot the guy who's not on the screen, Jensen of Nvidia.
This comes after Jens Yu Wang said that he would be honored to accompany President Trump on this trip, and it comes with Chips much at the forefront of discussions with China. Is this a signal that maybe the President's trying to distance himself from Jensen Wong? How does this sort of leave some of the chip negotiations that have been incredibly far between this g enation.
You know what, from my perspective, for whatever that's worth this morning, probably not much. But I think it probably doesn't video a favor some of those chips getting into the country through the back door. People questioning the relationship between him and the administration right now, I think it probably doesn't a favor. That is a bit of separation on this visit to China.
Perhaps it also could be hinged in the idea that China has created some chips that are starting to work.
For the deep seek model.
How much is that going to be at the forefront also of these negotiations.
Let's build on some of this conversation. Catherine Tompson at the Cano Institute, writing the volume of rejections and counter proposals between around and the US demonstrates just how far the administration is from winding down this war. Catherine joins us now for more. Catherine, Welcome to the program. The President's been very clear on his objectives. Are you clear on the strategy to achieve them?
No?
Absolutely not, right, especially because right if you look at the president's own national security and national defense strategy, this isn't you know, starting a war with Iran? And and sort of, Iran's nuclear ambitions are not core planks of
the strategy. They are not core elements of America First priorities, and so, you know, I think unfortunately we've we've deviated quite a bit from from the strategy, from the plan, and I think we're now so far down the rungs of the escalation ladder that unfortunately, there aren't too many options left to to save the ceasefire, so to speak, keep it, you know, off of life support, as the President illustrated.
And prevent the resumption of fighting.
Catherine, there is an option to try to get trying to exert leverage over Iran. How much do you expect this to be on the table and what can the US offer as an exchange?
You know, it's hard to predict exactly how much it's going to be on the table, but I think, you know, actually, you know, in terms of the military dynamic between you know, the US and China on Iran and then also on Taiwan, because I think, you know, these pieces kind of fit together. The recent Time magazine cover that included President Trump and President jib with the headline never interrupt your enemy when he's making a mistake. I think is illustrative of how
this conversation could play out. I think, you know, for China, right like, this is the time to put big issues on the table, like Taiwan, because they know that the US is distracted and bogged down in the Middle East. Obviously you know, of course the oil the oil dynamic and the energy dynamic affects the Chinese, and so it's in their interests to you know, have that be part of the conversation, certainly.
But if I was them, you know.
Right now, one of the things that I would be focused on is getting sort of my security agenda on the table. And it looks like, based on what the President was hinting about, you know, in terms of the Taiwan dynamic and arms sales to Taiwan, that it's certainly something they're not shying away from putting on the table.
And I think they understand that the US is significantly distracted in the Middle East, yet again not prioritizing the Indo Pacific as as our defense strategy says, and unfortunately, uh, you know, that dynamic for US puts US I think in a in a bit of a disadvantage at the table across from the Chinese.
That's a there's a coterie of incredible CEOs who are heading over there. I'm just wondering what you think the delivererbals deliverables are going to be on some sort of economic truce or economic negotiation between China and the US, and how much that could still be at the forefront of these negotiations.
I mean, it seems like that's the priority for the president and certainly, you know, his suite of guests that
are attending would seem to indicate that as well. And right, I mean, and this is this is the concern, and this is why I'm watching the Taiwan piece of this so closely, because you know, for the Chinese, the piece on arm sales to Taiwan and potential further conversations about you know, the US role and in deterrence and the Taiwan strait becomes a forefront of the conversation for the Chinese.
For US, it's the economic piece of the equation and getting some sort of walking away with some sort of economic deal. And how those those two pieces on the chessboard interact with each other I think will be incredibly important and will be, you know, one of the most pivotal dynamics to watch. And it's true you can't separate, you know, the military and the strategic dynamic from the economic.
Stay with US mulplindex. Savanna's coming up after this. The big global event over the next twenty four forty hours is this one and the Savannas. This morning, a high stakes macink with President Sheet.
I have a great relationship with the Presidency. We're doing a lot of business, but it's smart business. I think you can see that with the fact that in her moves they get a big percentage, forty percent.
Of their oil from horm moves.
There's been no ships coming in, no nasty ships coming in that we end.
Up in skirmishes with.
There's been. He'd like to see it get and I respect him a lot and hopefully he respects me.
So here's the latest this morning. President Trump traveling to China today for a summit with this Chinese Caunterapageijing Ping. The meeting on Thursday said to be shaped by the ongoing war in Iran. Elizabeth Economy of the Hoover Institution writing, the only channel of communication is economic. That is both where there is the greatest conflict but also the most forward momentum. Elizabeth Johns is now for more. Listen, go to see you.
Thanks great to be here.
What are you expecting to come out of this meeting? Leans to this week?
Look, I think there are basically three big buckets of issues that both sides want to address. The first, and I think most important, is that both sides really want to find some stabilization in the relationship. I think they're
aligned around that. So developing a mechanism so that we're not doing a tit for tad on the tariffs and the export controls and investigations, I think is number one, and that's where I think you're going to get this board of Trade and maybe further down the line, a board of investment.
I think that's really the most important.
Second, of course, and crucial for President Trump for some big wins that he can take home, right, some purchases of soybeans and who knows energy, airplanes, of course, and we see some of the CEOs that are accompanying President Trump that are in these spaces.
I think for.
China, they'd like the US to just treat China as a normal country, right, not to have the highest level export controls, not to have the most investment restrictions, not to have the highest level of terrorists, but to really find a way to do sort of normal trade.
And then third, I think is that.
That bucket of broader security issues Iran, Russia, fentanyl. I think these are other issues, and certainly I should say the Chinese will raise Taiwan. I think these are the other issues that are going to be on the deck for the two leaders.
Point too, aren't they a normal country?
I don't think economically they're a normal country. No, And I think the sort of Chinese economic model is now presenting problems not only for the United States, but for the rest of the world. I think it's useful to note that fifty two countries last year put in place trade defense measures against China. So the way that China does business really poses challenges for not only advanced income but now middle income and emerging economies.
There was a story, there've been a number of stories in a number of the biggest newspapers about how China has a lot more leverage than the United States and about how the economy is in a much better position to propose to pose a real competitive threat to the United States.
Do you agree with that framing?
Well, look, I think it's fair to say that China has an important chokehold on sort of goods that are essential to US economic and national security, like rare earth elements and critical minerals like active pharmaceutical ingredients. So certainly they've developed new leverage, new tools. But I think President Trump has the capacity to move past that in many respects, maybe to put on some virtual reality glasses and create his own world and negotiate from what he believes is
a position of strength. United States doesn't go into this without any tools at its disposal. The tariffs have had some impact on China. It has export controls that just it's been continuing to move forward on export controls around chip making equipment. Just this past week it had, you know, a letter of intent, basically an informed letter, which basically signals to some US companies that they're going to have to put in some new export controls.
Against Chinese companies.
So I think there are tools that we have at our disposal, and the President will go in at least feeling stronger than many many other people may recognize.
If that's the case, what's the signal that you take from Jenson Wang of Nvidia not accompanying President Trump on this trip.
Well, look, I think Jensen's had a lot of attention, you know, paid to in Nvidia, and the President you know, made a move basically on his behalf and on AMD's behalf last year when he allowed the sale of the H two hundreds to go forward, which was something that he did against a lot of opposition both within his own administration and Congress and within the national security community.
Those sales haven't materialized, so I think maybe what would be the point at this point of him going I think if you look at the companies that are accompanying the president in the tech space, many of them are a little bit of problem children. They have issues with the Chinese government right now. Either they're not getting licenses,
they're under investigation, they're concerned about shrinking market share. So I think there will probably be an effort to get some of those very particular issues addressed in the summit.
Can we finish on Taiwan, and maybe a bit of a reality check to the narrative that we hear a lot in these kind of conversations. There is an opening care for them to make a move on Taiwan. The President's distracted, he's broke down in the Middle East. Right now, what's your read and what's actually going to happen.
So I don't think the Chinese are going to make a move, a military move on Taiwan because President she really wants to have a peaceful resolution. I think he's planning to wait until twenty twenty eight when there's an election in Taiwan where he believes that perhaps the opposition party, the KMT, may come to power, and the KMT is more favorably disposed toward Beijing. So I think there's a window here where I think we're not going to see
any military action. That being said, we also don't want to see President Trump give any more space to Beijing on Taiwan. I think, you know, the administration certainly recognizes that Taiwan, you know, basically produces over ninety percent of the most advanced chips that we need both for commercial and military purposes, and it is essential to our national security.
It's part of the first Island chain.
So I think what we don't want is for Taiwan to be central in this meeting or to see any give on the US position.
We hear repeatedly to under this president, the administration of the US is wanting to give up is global leadership role.
Do you say it the same way.
I think the US is redefining its global leadership role under President Trump.
It's not giving up.
I think there's a misperception that President Trump has retreated from of the global stage.
You know, the sort of.
Idea that we're going to have a sphere of influence, policy only be focused on the Western hemisphere. I mean, we are deeply embedded in the Indo Pacific, We're clearly still in the Middle East. See any evidence that we're pulling back from our global positioning In the security realm. I also think what we see is, yes, the President has withdrawn the United States from over five dozen international institutions and arrangements, but at the same time he's creating
new ones. His administration is creating new arrangements like the Shield of Americas and forged around issues where the administration feels they're critical to US sort of security and economic interests, so around you know, critical minerals, around rare earth elements, doing bilateral deals, establishing a new multilateral trade arrangement, so it's not a complete withdrawal, but it's a refocusing around what this particular administration considers to be sort of the
essential US economic and security interests.
Stay with us. Mulplenberg Savannah's coming up after this. I'll give it the breakdown month over month and year over year sat ON coming month over month at zero point six, the estimate zero point six for core on a month over month reading that comes in at zero point four. The media estimate in our survey with zero point three. That takes the year of a year headline and core headline year over a year to three point eight percent.
That's above the three point seven expected core CPI year of a year coming at a two point eight percent above the two point seven expected. Those numbers are hard reading for an incoming FED share who might otherwise have been looking for kind of interest rates.
You can make an argument that three percent is okay, but not four percent. That is a problem child when it comes to inflation. When you look at the pace of increase in year of year core CPI, we're looking at the biggest increase into August of twenty twenty two. Again, we have to talk about not only the fact that inflation is increasing, but the pace of the increase and where it's coming from it is not necessarily those gasoline.
Process That was not a good time. Michael cape And and Morgan Stanley joints around the table for more. Michael, good morning morning. What catches you right looking at this report, Well.
There's some hints of second round effects of higher energy prices on core, So those airline numbers, the food at hone numbers, there's also kind of spillage into headline through food because a lot of food prices are related to transportation costs. So the concern here, the assumption here, I think from the Fed's point of view and ours, is that oil prices tend to give you headline effects but
not core effects. And there's, at least at the moment, given the magnitude of the rise in energy prices, some hints of those second round effects and core. We need to see if those persist. So to me, that's what catches my eyes. The four tenth on core was not a surprise to us. That's where we were And as Michael mentioned, there is some catch up effect here on rents and owners equivalent rent from the government shutdown last fall.
So this number is artificially higher because of that, but you still have kind of a what I'll call a trifecta. Hear you have energy prices pushing the headline. We think we have the last vestiges of tariff passed through on core infla core goods. You saw the apparel number today, and then we had that catch up effect on shelter inside of services. So three forces pushing inflation in this particular, CPI reading higher this month.
If you are looking at the calendar right now, and I say to you the following, can you just circle way you see the peak for inflation this year. We're on the calendar with that full on a year on your rate mayor June mail June.
We think we're at peak pressures now.
If that's the case, then do you think that the FED should look through this with time?
Yes, but there are a number of forces here. This is our fourth major supply shock in recent years, and we've got evidence here of what i'll call a mix. How do you decide if teariff price passed through is ending when you have some of these other second round effects from energy prices. So we think ultimately yes, they will be able to look through it. But I'll say look through it with a long lag, like I think we think the Feds on the sideline for the rest of this year.
What does it say that companies are pretty easily able to pass along the price increases that they're experiencing to consumers. We've seen that in profit margins, we've seen that in earnings, and frankly, we're seeing that in how quickly some of these price increases are transmitted through things like airline tickets.
Yeah, it's not a surprise that energy prices get passed through quickly. That has been the historical record in the US. So seeing airline fares up as much as they wear, we actually thought they'd be higher this month, I'd say that is pretty standard from a historical perspective. The tariff passed through has taken longer. It's taken almost a year.
That said, when we look at some of the granular data, non labor costs reflect those higher tariffs, but firms were able to pass along a greater increase in prices and build in more margin. I think that speaks to price and power still strong underlying demand, but kind of an oligopolistic corporate framework. Right, We've got some very large kind of quasi monopoly type firms and industries. Typically they have better pricing power if you.
Want just joining us, Welcome to the program Slight upside surprise on inflation day to that dropped about eight minutes ago. Equally features recovering just a touch, we're off the lines. We're still down by thirty one percent. Bondyards off the highs. Might be keys standing by with a little bit more detail, Mike, when you have a second and third look at the details, does it bring just a little bit more comfort or not?
It doesn't really bring a lot of comfort. We do see some decline in things that had been tariffed, some of the things that had gone up in price because of tariffs. And we don't know whether it's because the tariffs were thrown out or whether we've just been past the peak here, but appliances are down by four tenths
of eight percent, household furnishings down by half a percent. However, tomatoes, which is one of the things that was tariff by the President coming from Mexico for the winter, up fifteen percent. Coffee prices were up two percent, So we are seeing
some impacts still from tariffs in the overall numbers. But right now the important thing probably and I'll throw this over to Michael as well, as we had a half percent rise in services, and that's the area where people have been looking for a little bit of a break. Give it all a pressure on goods prices and so services coming in a little stronger than anticipated.
Michael Gangkin of Morgan Stanley still with us. Mike, is there some stickiness to all of this?
There is, But I take some positive sign from what Mike just said. I think an order of operations here, the tariff passed through to goods prices should come first, So having some hints of that I think is positive. So if you want to if you want to look forward with some like a positive checklist, you need to see that happen. Core goods prices need to settle down in the next couple of months. Then the headline passed through from gasoline prices and energy should start to fade
after that. The longer story here will be is Mike noted what happens with services, that's where the stickiness has been. Maybe that starts behaving and then twenty twenty seven looks better. There's a lot of ifs mites or butts in that statement, but they all have to hold up in order to get a more favorable inflation outlook.
Given that we're seeing these kinds of numbers. Is there any universe where it makes sense for the Federal Reserve to still have an easy bias.
Probably not. I think they told you in April they very easily could have changed that language. It wasn't discrepancy about doing it. It is more about timing. So I do think all of the inflation data and the solid activity data point to an adjustment in the language in June.
I got some pushback to that a little bit earlier. I'm sure Drew Matis might won't mind me sharing that he was the one who was pushing back against that. There's just one line, in fact, just a couple of words doing a lot of heavy lifting in that statement.
There is, but that's do we move beyond that world? With Kevin Walsh, ultimately, I think he would like to yes. I mean he's obviously said the FED footprint is too large, and that footprint includes communit medication and the FED that he thinks is hyper talkative. So yes, if you're thinking, oh, there's interest rate policy and there's balance sheet policy. But then there's also the forward guidance. That's a tool.
So yes, this is a tool that you can use. So there's only a couple of words in the statement, but it has large.
Implications, some serious power, well does it though, And this is actually my pushback to that. The market's right now pricing in a rate hike, so it might be doing some heavy lifting, but not really because the market's saying we don't believe you, We don't think that you'll be able to hold on based on inflation numbers like this. So at what point does the Fed have to confirm what the market is saying in order to keep prices actually somewhat subdued versus the otherwise would.
Be I'd suggests the descent to the language in the statement was such widespread, and it was following the meeting as well, that it did a lot of the work for cham and power with that, and may even really needed to change a word in that statement.
It opened the door to the potential for a change in the bias. I mean, we're talking around the margins here, not.
Esssarily it's the actual rate hike.
It's mar ridiculous actually putting in pricing in some chance of a rate hike, and does it have to in order to keep inflation at least not flying away at twenty twenty two level.
You talked about all the GIFs and buts that need to take place over the next twelve months to get your cut in twenty seven. I find it so hard to talk about twenty.
Twenty seve No. I know it's way out there, it's.
Crazy, but let's just play that game. Thus for a couple of minutes, what would it take to get a hike from this fed?
So you need this number here on Core? As you were mentioning, Headline is approaching four, but there's an energy story there. Core is at least a more reasonably acceptable two point eight that needs to firm the expectation to be that that is moving above three and maybe even towards three and a half on a spot and forecast basis. If you get that for whatever reason, a long persistent oil price, premium, inflation expectations moving higher, animal spirits on
the demand side, then the narrative changes. If there's this wide gap between Headline and Core, and Core is kind of hanging around three or less than maybe nudging lower, it's a totally different story.
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