Bloomberg Surveillance TV: May 14, 2025

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a 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

Well, there are two potential templates that we can mirror what's happening by now. One is COVID, the pandemic. You switch off and you switch on, But in your case you're saying that you can switch off again and switch on again. But we're talking about kind of being able to switch it back on quite quickly. The other template is Brexit, where you have multiple kind of years of commulative scarring, where you have the economy below trend even today.

When you say we stay risk on, what does that mean in today's market?

It means positive on US equities and corporate in terms of credit over US government bonds. I think what we have seen so far this year, especially this week, is that greater uncertainty doesn't mean greater certainty of a bad outcome. People make false equivalents between the two, but there is

We were able to stay.

Risk on despite elevated uncertainty in terms of policy making. I would also say, you know, we talk about US equity is recovering year today, US aquity is more than recovering the draw down since a pro second, but US government bonds haven't turn Premier went from thirty five basis point on April second to seventy basis point. Dollar hasn't

This is something a number of people have put up talked about the fact that US exceptionalism still lies with US big tech, and it still lies with some of the mega trends as you've put them out there. It doesn't lie necessarily with the dollar and US assets per se, just by virtue of the US's position in the world.

I want to stick with tech.

This has been a bit of yours and sort of structural theme just on a tactical level. Has the rally already taken back all of the bullishness that you feel, and for now it feels like maybe it's going to take a breather. Even with some of these deals going on in the Middle East.

Well tech has taken a blunt of market correction since beginning of the year.

We think that there is more to go.

If you look at their guidance, they have all committed to their previous copex spent, if not increasing. Broadly, companies are guiding down their copex expectations. For hyperscalers, they continue to be all in AI transformation, and multiples now look a bit more attractive compared to beginning well compared to before the cell off, right, So we do think that

Which feaks sort of the divergence between tech exceptionalism and the rest of the universe. And I just wonder how pressure the rest the universal stocks you see as really feeling, especially if you do see potential risk to government bond markets going forward.

Which is why we definitely prefer TAG and financials that have been leading in the latest earning season compared to the rest of the market, compared to small caps for examples. So we see TAG as the drivers of US exceptionalism in terms of US corporates, and maybe the rest of the markets is passengers of US exceptionalism wave. And especially at times like this where we're still talking about higher rates, high for longer central banks not able to come to

What happened to the European trade?

Where is it now while we close the European underway to lean into the European trade, But we're just neutral, not positive.

What's holding your Backstille?

What's holding us back? Well, what we have seen so far if you look at the rally back from the lows posts April second, is that our performance of Europe over US has stopped us started catching up now and if you look at the hoops that mrs has to jump through to get confirmed, there remains risks around implementation of all these ambitious policies and reform targets. So we do want to see more kind of clarity around the ambitious targets for us to be positive across the board.

There's this reason why people are sort of saying pass to Europe, just want to finish up with China. Do you think that there is morcos there given the fact that it seems like there isn't a full scale decoupling, and it does appear to be supported by some fiscal as well.

Well.

We're also selective in China. We're neutral more broadly across the Chinese acoli market, but we like technology in China because of the innovation potential as well as China TAP potentially going a bit more globally. And we also like financials in China because of the national team's support as

So those estimates revised herds are close to the five percent already this week. Why it's going to say, why so why? Thanks for dropping by? Thanks welly, that of.

Black Crock.

Against Notixanta has been varied on the dollars, and writes the following, it's likely that we're at a multi year turning point. I think the dollar should be moving substantially Jensen's and that joins us now for more. Yeah, it's good to see it, sir, and too long. Thanks for dropping by. We've got some time to work through this. You're looking at potentially a system level shark that leads to a strategic reallocation of the US dollar away from

We've really been on a strong dollar trend since the summer of twenty fourteen, right, So we've had this incredible run in US equities, We've had US yields that were generally higher than other places around the world, and investors from Europe to Canada, Australia, Japan have been very comfortable building up really big allocations to the US, unprecedented high locations.

Right.

And now we're coming into this year. A lot of people were expecting, Oh, okay, Trump two is going to smell a bit like Trump one.

People actually added.

Aggressively to their equity exposure into this year, right, and then it has turned out that Trump two was not really anything like Trump one, and a lot of people are rethinking those allocations. And it's not just about the terriffs, right, It's about what's happening with foreign policy, who are allies, what's the natal arrangement going to be. There's a whole

To your point, this has been building for a decade, a decade plus of dollar longs building across all asset classes. What we're trying to understand now is, as we take some of the air out of that trade, what are the policies that you see that make the shift away from the US dollars sustainable, durable, beyond just the chaos of the last month or so. How do you think

Yes?

So the first thing I would say is that we have a list of US polishes sharks, and that list of policy shocks is actually generating polisher sharks elsewhere. Right. So in Europe we've had now a historical change in physical policy where essentially the physical rules have been rewritten.

Right, The rules that underpin.

The euro have now been changed in a way where you can invest more effectively. Right, That's a big change. So that's important for growth out look in Europe. We're just talked about, as you mentioned, right, the NATO budget potentially also totally different. Right, five percent numbers We used to talk about whether we can get to two, right,

That's the other part of the story.

Right. If you look at all ehtfs that are issued in fixed income in the US one point seven trillion, there's only half a percent that has any foreign currency exposure. So it can only go one way from here. That's not going to be quick, but over time it will happen.

There's an important point here. You said that this isn't necessarily the loss of the dollar as being a reserve currency. This is just simply innormalization and diversifying away.

From the dollar.

Some people might say that this is a feature, not a bug, of this administration, that they want a weaker dollar in order to increase exports. And actually we're going to see this increasingly as a part of policy, not just as a potential consequence.

Yeah, I think you're right.

We certainly have.

People within the cabinet Scott Beston included right, that I have a different nuance to dollar policy compared to the past. There's always this focus on okay, how do we insource some manufacturing and a week of dollars certainly would be helpful in that regard.

And you're right.

I think if you look at the price action today, it is influenced by these let's call it Bloomberg headlines about career trade deals so and currency deals. So there's an element of that. So nobody is going to be fighting this trend. If the dollar is going gradually weaker.

How much more weakness is there?

And potentially do you see the euro as the biggest winner.

So again, we've literally been going in one direction for eleven years on a trend basis, right, So we've just started and if we have a big asset location shift, it's something that can play out over a six to nine month horizon and we can easily have, you know, a five percent move down in the dollar index, right, And then then we get to these questions, so, Okay, is it going to be orderly or could there be something that's more dramatic? Right, And what we had in

There's evidence that speaked not only investors, but also the White House in the last month as well.

Yeah, you said yesterday, who's the bigger arbiter, Republicans or the bond market? And I think a lot of people are watching the bond market very.

Closely based on this conversation. It might be the bond market again. It's going to see it. It's been too long. Thanks for dropping by again to not if Alexante Data Retail annings up with Walmart reporting on Thursday, offering another read on the US consumer. The team at Bank for America writing the following, spending momentum remains, though it's moderating. Consumers appear to be pulling bank, particularly on bigger ticket

Well, the consumer appears to be continuing to spend. They're very healthy. And you had the headline they spent in April at a rat of about one percent and that's our credit and debit data, and that was just slightly cooler than they spent in March at one point one percent growth year over year. So they have momentum, but it's moderating a little bit, and I think the driver of that is that they're supported by continued wage growth.

Ollie, and please you broke up the income groups, because we sit on that just for a bat. The low income group have been squeezed for a while. We've seen that in data repeatedly throughout this cycle coming out of the pandemic. Do you see any stress coming up to the upper income cohorts?

No, So the lower income household wage growth, just to give you the numbers picked up by about one point five percent in April, and that was that was stronger than March. So March was one point four percent, So that wage growth in the lower income cohort increased a little bit. And I think that wage growth is continuing to support the consumer and the consumer spending. When you get deeper into the data, some of the credit data, as an example, the lower income households are continuing to

This really raises a question, Holly, about how much we can really count on some of the soft data, which indicated an incredible amount of nervousness and pessimism among consumers in the United States during the month of April, in particular after April second, are you saying you're just not seeing it? But frankly, people can go out and gripe about how concerned they are about the future of the world, but then they go out in a spending spree.

We're not seeing it. And I think we often talk internally about you know, you have to separate what consumers are saying versus what they're doing, what we're seeing in our data, and that data is telling us that they're continuing to spend, although it is moderating. And so we saw in April restaurants good spending there, but we did see a dip down in airline and lodging, leisure travel a little bit. So consumers are adjusting slightly, which leads

Holly, I want to congratulate you. You have basically just received a pretty big promotion. You're running much more of the consumer bank, and you come at a time when there's a real question around how different the scenario is in different parts of the United States, how it's not a monolithic story at all, and how different regions are feeling very different realities depending on what their local economies really

So we obviously have across the country foot and we have thirty seven hundred financial centers in all of these local communities. So you know, our goal is to really deliver for our consumer clients, you know, approximately seventy million of them uniquely to what their situation is, whether that's geographic or that's individual. So you know, we are there to adjust and course correct based on what our clients are telling us and based on what they need.

Ollie, how are the interactions changing between customers? How different are they now and how does that change what you need out of your physical footprint.

So our physical our strategy is all about physical footprints supported by digital and it's really the combination of the boats that I think lead to the power of how we can deliver for the consumer clients. So those thirty seven hundred financial centers in local communities coupled with world class digital capabilities, those digital capabilities continue to grow, they continue to advance, and consumers love them. At the same time, it does not substitute for face to face interaction that

Allie, how much have you been able to expand the physical footprint in part because of the turmoil that happened.

It feels like ten.

Years ago, but not that long ago. I guess March twenty twenty three in terms of some of the regional banking turmoil. How much of this has just accelerated since then as you look to take market share.

So we continue to expand into new markets. We continue to build new financial centers in communities where we need them, so we will continue to advance that agenda across the country new markets. Idaho is a recent new market that we've entered, and we've got more coming. So we will continue to expand in new markets. We'll adjust our footprint

Holly, I was dead wrong about all this. I thought as we changed these interactions, we'd end up with a smaller footprint that it would give banks a reason to cut costs and reduce their physical footprint. Holly, why is that not happening? And it's a space for that to happen in the future.

It Yeah, Now, you're not wrong. It has happened. If you look over the last decade, we started with six thousand financial centers. We are down to thirty seven hundred.

Holly, appreciate the clarity.

As always, it's good to catch up, Holly A they're there, of Bank for America.

It's the latest.

This morning, President Trump calling for the FED to cut interest rates once again, saying it's quote not fed to America after a soft CPR report out just yesterday. Former New York Fed President Bill Dudley right in the following, the Fed has little choice when it doesn't know which way the rescue. It must wait for more information. Right now, any major move would have only a fifty to fifty chance of a positive outcome. Bill joins us now for

Because they don't know where the terrorists are going to land.

Number one too, they don't know what the effects of the terraces are going to be on growth versus inflation, So they're uncertain about two dimensions. So they can't really just sort of flip a coin and say, oh, we're gonna worry about the growth mension because that could turn out to be wrong.

So they have to sit and wait to wait for more information.

I mean, if you were driving a car in a thunderstorm, you want to put the car in an autopilot and hope that you would get through safely. So he pulled it the side of the road until the weather cleared up. And that's what the FED has to do. You know, the FED is going to be criticized for waiting. They have to wait, and because they are waiting, they're probably ultimately going to be late. But it's not the Fed's fault. I would behave exactly the same way in the circumstances.

But what's the definition of light? And what's your definition of light? Because he reflected on the move last summer and he said, in some ways we were a little light, and other people thought he was being preemptive.

What's light to you?

I think, ladies responding only after you've seen a criticizeable increase in the unemploying rate, because at that point it's really hard to avert recession. When I evaluate the risks to inflation versus the risks of growth, here, I guess I worry more about the downside risks of growth. But the FED can't put all their marbles on that side of the equation because inflation has been running above the

Bill, I'm just curious going forward, how much you see the FED unwilling to move even if the unemployment rate rises by half a percentage point, which is sort of the trigger that a lot of people are looking at, if you do see those inflationary pressures coming back.

Well, I think if the unplayer rate rose by above four and a half percent, that would change the FEDS calculus. It would be much more worried about the self reinforcing deterioration the labor market leading to a full blown recession. So I think the unploying rate is really the single most important indicator. If it stays around where it is today, if it's going to just sit and wait. If the unployer rate starts rising quickly, then the Federal Reserve will

If you were still on the FED, and you have been on the FED through crises and through really difficult times where the market was moving faster than the underlying economy. What data would you look at to get a real read on what was going on in the United States.

Well, I think some of the bank banks have actually pretty good, reallytime data in terms of what's happening sort of credit cards, and they're not seeing much of a slowdown at this point.

Initially unploned claims.

It gives you a pretty high frequency look at what's happening to the labor market that doesn't show any deterioration yet of note, So I think you're looking at things at the margin that suggests that weaknesses are starting to accumulate. Now what's interesting is that tariffts are actually starting to bring in revenue, so fiscal policy and right now is actually.

Starting to become tighter.

And I'd also look at low income households because I think that's where the squeeze is going to be the most indicative significant. So if you start to see delinquency rates on subprime all loans really start to hit up, I mean they're already high. If they start to head up even more substantially, that would be also a sign of a growing strain on the growth side.

But at some point the FED will have to update their numbers.

On March nineteenth, they put out these forecasts GDP at one point seven percent for twenty twenty five PCEE at swopoint a unemployment of four point four On June eighteenth, they'll have to deliver an update. When we get that update, Bill, what do you think it will look like relative to March.

I think they'll show somewhat slower growth to reflect the fact that tarifs have gone up more than they anticipated, and somewhat higher inflation to reflect the same consequence. So I think he'll be even a more pessimistic forecast in the sense that the Fed will be missing both of

One missing piece slower growth, somewhat higher inflation. What does the median dot do, Bill, Because I think that implies what their reaction function is, how they respond to that kind of data mix.

Do you think it changes?

I think that you can make the case that the Fed starts to cut rates in September, and maybe we can still get three raycuts this year, which would be consistent with the March set some rate of economic projections. But obviously, as time passes and the Fed doesn't act, the likelihood is the number of median number of rate cuts starts to come down just because there's fewer meetings left.

Bill.

I appreciate your time as always, sir, and enjoy your pieces on Bloomberg dot Com. On Bloomberg Opinion, they form a New York Fed President Bill Dudley. There, they say, It's 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.