Bloomberg Surveillance TV: May 23, 2025

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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. Jim biancov Bianco Research

Jim, Oh, I think it's probably Europe because it's a bigger market and encompasses more goods. So we're back to tariffs on and terrify on. I think is going to be an interesting way for the market to.

Try and navigate this.

Does that mean that we're going to see weakness because we're going to have higher prices, or is it because we're going to have higher prices? Which one is going to be the dominant factor?

Now?

When we turn it to the Federal Reserve, they usually are focused, I think on more on prices.

And I think that's the thing.

That a lot of people on Wall Street are missing, is that all things being equal, if tariffs are coming back and prices are going up, and that might be weakness.

The Fed's not going to cut rates.

They're not going to cut rates until they see their prices have stabilized, and right now we might be looking at more inflation.

So, Jim, that takes important because I want to take you over to the move of the bond market off the back of this news. Yields are lower across the curve, with down eight basis points at the front end three ninety one. I know we're not breaking down to the new range, the range of the last several months, but still yields are falling back the ten years down by

Well, you know that's a knee jerk response to the stock market falling.

I think what we're seeing right now on this move.

But if you were to back up and go back to you know, when we started talking about tariffs, there's been a trend higher in yields, and.

The trend higher in yields is really.

About as things settle down, we're looking at higher prices. You know, as I'd like to argue, you know, if you look at the tariffs that were collected in April, that was one in three quarters percent increase on the four hundred billion dollars of goods. That's an extra seven and a half billion dollars of tariffs in April, one and three quarter percent on the fourhundred billion dollars of goods that we collect that we imported in April.

Who's paying that? Somebody's got to be paying that now.

The President wants us to believe it's going to be Walmart and Apple eating those tariffs, and maybe the Chinese. But if you look at numbers like true inflation and price stats and stuff, which are these millions of prices that they check on the internet, prices are going up. The prices are going up for the consumer, and I think as that continues to happen, that reality is going to drive the bond market more than a weakness reality.

One thing that we've been talking about throughout the morning Gym is if this is not isolated to the United States when it comes to the yield move and some of these inflation concerns, how much is this applicable in terms of a broader inflation globally in developed markets?

That leads bonds globally.

To be less attractive in the same kind of way as they were traditionally for a price action, albeit more attractive from a yield perspective.

Oh, I think you're right.

It does affect the all bonds worldwide, especially developed markets, because the tariffs are pushing all these markets to do trade deals. You have done a trade deal as well, and so what we're seeing is the opposite of globalization, which I've become aware is now the word is segmentation.

I'm struck by the fact that the bond yield move is not special to the United States. It is something that is global and developed markets. The move, though, in the dollar is distinct, and it is raising a lot of concern that this could be the biggest casualty of some of the trade disagreements. We are seeing a bit of a strengthening in the dollar off the heels of this news with respect to potentially higher tariffs on Europe.

Well, yeah, I do I do think that the weaker dollar would persist for a couple of reasons. One, I think it's what the administration wants it doesn't or it's the least. It's not going to complain about a weeker dollar. And the weeker dollar isn't really bringing around talk about the end of dollar dominance or the reserve currency. It shouldn't because there isn't a alternative to it.

So they want it.

And the second thing is, if you've watched the currency markets long enough, you'll realize that when these things trend, they trend much further and much longer than everybody thinks. Whenever you think the dollar is overbought or over sold, the joke is way. Do you see how or overbought or oversold it's about to get? And right now it

It's that hasn't been working right.

Now, Jim.

I just want to finish on the equity coll the equity market. There is a plainbook here, the president comes out and tries to anchor negotiations with extremes. Come out and say you're going to face a fifty percent tariff on June one. You've not been great to deal with. Just the same playbook that applied to China applied to Europe.

Is this different? Have we exhausted that?

Because there will be a lot of people out there thinking, okay, equity features of Gambler, I'm going to buy that.

I've seen this movie before. Is this different?

I mean it could be.

I mean, you know, the biggest issue I think that Wall Street's been struggling with is our tariff's leverage to get a deal or our tariff's revenue. If they're leveraged, I think most people on Wall Street be fine with that to get a deal, you know, to use them as leverage to lower tariffs, open up trade. But are they a form of attacks on foreigners to try and raise revenue. That has been the bigger issue that we've

Jim, I appreciate your time, sir as always is going to say a Jimpianco, the of Bianco Research, Nati level of ups down grunting US anquities to neutral, writing we see limited upside near term and expend continued volatility as trade in the US fiscal uncertainty remain high. Nadia joins us now for more, Natia, good morning, Good morning. How good does it feel not to defend an overweight gun into the weekend?

You know, it never.

Feels good when markets are down, but you know, this is some of the issues that we were struggling with last week and we were concerned about. As Lisa said, we'll past peak on certainty, but there was still uncertainty still high, and that's why we downgraded US equities last week. Now, we had been attractive view on US equities in April. We took that opportunity right after the ninety day pause, but after being up thirteen percent in a month, we

Obviously, price action, as you know, can condition behavior. I just wonder how many investors have been conditioned by the experience of April big dislocation. Then things suffer and markets rip and you can miss out really quickly, and we saw that early this week we had this small dip of the back of a down grade. Dip gets bought, and I just wondered, from your perspective, whether this dip

Yeah, we are looking for our opportunities to buy dip. You know, one percent two percent down is not much of a dip for us. If we see a five percent down, that's a different conversation. At the same time, we also have equity valuations that have recovered.

We're at twenty one times forward.

Pe, you know, above the five year average, so there's very little room here. And at the end of the day, we know that it's earnings over the longer term that would drive markets, and we think that the consensus earning is still too hot nine percent from consensus this year. We think it needs to come down closer to four percent. So we're also waiting for just more clarity around what

I'm looking at your base case, it's six thousand in terms of year end for SP five hundred, the bull case is sixty seven hundred, the barecase is forty five hundred.

What could get you.

To feel like one or the other is the more likely tail risk?

It depends on what happens, you know, after this ninety day pause or something even children and not obviously now if we see you know, a re escalation and those reciprocal tires get put on even at a higher rate, you know, that is going to have a huge drag on the economy, and that puts us closer to a recessionary scenario that would get us to that forty five hundred. What could get us up to that sixty seven hundred?

Towers who is trading every day, And I asked this because there are so many people who come out with these conspiracy theories. It's the retail trader on the margin that's creating the buy the dip mentality, and everybody else is just following them. It's the hedge funds that are causing the volatility in the bond market. I mean, is there truth to that that there are these technical underpinnings that are just whipsawing everything and that we're the ones here trying to make a narrative.

Out of it.

There is a little bit of that, and there's also systematics as well that are in the market, you know, and you know when you see spiking volatilities, those funds have to also respond to us. So there's some of that. You know, the retail investors have been in and out of the market. I think the retail investors right now is a little bit more hesitant to sort of by the dip, and so that's what that's that's at the end of the day, it's the flows that are driving

In a second and half.

We think that you will see the economy slow close to a one and a half percent, so again not recessionary. But again, although the range of outcome have narrowed, you know, it still can end up to be flat growth or it could be one and a half percent, depending on trade policies and the president's tweets.

Nadia, Just finally, just before you go within that defensive posture you have relative to where you were before, what do you like inequities? What's the favorite sector at the moment?

Look, we still continue to like tech. We've seen a rebound, but I would say tech excluding Apple is in a better place than it was back in February when it was at its high.

Why.

We've seen, you know, the pause on the China Yours tariff. We've seen a rollback of the AI diffusion rule that was supposed to going to affect last week, and so we also see.

A pickup in capex spending.

Look at all the deals that have been announced, you know, around Sovereign's KAPEC spend spending an AI. So we think that the outlook for tech has actually improved than it was just a few weeks ago.

Now, dear, I appreciate your time. You knew what the follow up would be, then't you. Apple Souse the advisory Group down grounding Deck is outdoor to market perform, noting the company's lack of visibility around tariffs A stick with retail Dania TOUSEI wank In on the mixed earning season, writing, a consistent narrative across retailers and brands is that higher costs will be passed on to consumers. Dania joins us now for more. Donnicot Sea, good morning.

Nice to see you, Thank you for having me.

Do you seeing that across the industry? Are there any bright spots where they're able to withstand this shock?

You've seen some companies being able to withstand the shock, whether it's Ralph Lauren and a tapestry. Brand leaders are making the difference with product innovation, but most others the impact of tariffs is uncertain in terms of the magnitude and also the acceptance of price increases. By consumers, because at the end of the day, retail is are going to have to raise prices with these types of teriffs.

We were talking after Walmart or released to earnings and came out saying that because of tariffs they might have to increase prices, and said maybe this gives actually a cart blaunche to other companies to say, we too are getting affected by tariffs, are going to have to raise prices. Are you surprised we haven't seen that more or that companies have been sort of chastened, in your view by what happened subsequently with respect to a response from the president.

I think no company has the scale or the attention of the president like Walmart does. It's the biggest one out there. Most of the other companies are now saying what the impact of tariffs could be or the magnitude of what the cost will be. They're not saying what the price increase will be and how much it will be. But what they are saying is that the second half of the year, we don't know how our customer is

Companies are spending so much time thinking about how to communicate. They're going into NX season almost unbothered by what the numbers look like in the quarter and trying to work out how to communicate what the next quarter might look like, the year ahead. Dual guidance, Cut the guidance, pull the guidance, keep the guidance. Who's approached this in the optimal way? From your standpoint, who would you like to celebrate? Who do you think has done the better job this quarter?

Well, like I said, I mean Ralph Lauren and Tapestry both have done a very good job given they were able to talk about what's happening with their pricing now, what the consumer acceptance is. When you think who else TJX has done a very good job. Also, most companies are talking about how sales are here and now, not just the first quarter, because to your point, it's almost like revenues and business in the first quarter is divorced

See consumers, so they feel terrible, What are they doing?

I think consumers for the most part, depending upon their income level, they're pulling back. They're more discerning on their spend. You're seeing it in terms of some of the data of travel and what they're not looking to do or how they're pulling back. Take a look at luxury brands. Luxury brands, except for those at the super high end, we've seen a slowdown and luxury brands spend too, so they are pulling back on their spending.

Also at restaurants.

You say, depending on their income, what is the big difference right now between low income and high income earners and their spend? And I think what we've been tracking around this table now for years is that high income spenders consumers in this country of how do well. We're trying to work out whether the stress is migrating up. You mentioned some pressure and luxury. Are you seeing signs of that?

Well, we've seen signs of pressure and luxury because of the slowdown in sales. Look at LVMH's sales which are down low single digits. It's different than what you've seen from LVMH in the past. We've seen, for example, look at traffic to some of the different types of centers. We've seen that slow down. We've seen on grocery purchases, more of an increase in some of the private label

Anyone moving production back to the US very hard.

Can't move production back to the US too costly to make. Who has some of the greatest production in the US Back and Body Works around eighty percent of their goods are made in the US.

Did not know that?

Yes, Dinah, thank you, thanks you for the start.

Donna T. Townsei, the Townsea Advice recruit, on.

The Trice situation and what it all means for market someplace to say that Russell Brown Pack have crock Is with us around a table.

Russ a good morning.

Thanks for having me give us the constructive view for the US economy this morning.

Okay, so we have another dose of uncertainty this morning, but it's no different really from the last three years, where we had a historic FED tightening cycle, we had a regional banking crisis that felt scary in the moment. Last year, we had a very acrimonious election, and you had these structural underpinnings in the US economy where in both twenty twenty three and twenty four the economy accelerated

Well, this is your point.

It's really important you believe that we are underestimating America's ability to absorb shocks. I just wonder how you're expressing that in financial markets of the moment.

What are you doing so in our multisector fixed income portfolio is actually you've probably heard Rick creaders say this is the golden age of fixed income.

Actually it's the golden age of income.

And when you have a yield curve that's elevated and flatter than it's been historically, that front to the belly of the curve is this incredible opportunity. And then you can take what is really robust credit quality, put corporate credit, securitize assets together and create a high quality portfolio that yields six and a half to seven percent. Because of where you own your duration, you don't have all that volatility at the back end of the curve. So it's a super high sharp ratio portfolio.

Who is it income for? And I ask this at a time when a lot of people are wondering exactly who the buyer base is going to be for this fixed income given some of the international version to US assets.

So listen, I think the reality is we live in a world where there's too much money and not enough yielding assets. So there's twenty five trillion dollars of cash on the balance sheet of the private sector. That's more than all marketable treasury debt. There's two hundred and twenty trillion dollars of private sector networth, so when you think about the.

Size of the global or the US.

Aggurate index at about fifty trillion, there's a reason credit spreads are as tight as they are. There's a wall of money that needs yield today, and when you think about the demographic trends and the increase in savers, you know, this narrative that we're on the brink of not having enough wherewithal to finance our debt is far from reality.

Okay, But given that, where is this wall of money going at times when you've got bond yields rising, you've got stock selling off, and you've got the dollar weakening.

Okay, So seventy percent of marketable treasury debt comes due in the next five years every point on the yield curve five years, and in trades that negative carry to cash to.

The overnight rate.

So where's the outrage? You know, honestly, that's a picture of more money than there are investable assets today.

So this raises a question going forward, is this a bet that can get carried over its duration? You said that this was something that you were avoiding it basically that you see that as the riskiest pot period right now. The idea of that thirty year or twenty year treasury.

That isn't very predictable. It's really a matter of valuation.

So you know, actually at the long end of the curve, when you've got the long bond at five percent and corporate bonds high called it corporate bonds at six percent, that's a really nice environment. If you're a long duration buyer like an insurance company or a pension fund for US, you don't really get compensated for the implied volatility of being out the curve. So the sweet spot is to be in the front of the belly where you get almost all of that yield without all that implied volatility.

Well, so, looking at this sponge right now between the supposed risk free asset and credit at the moment, it's really tight. We were talking about Michael Haunt at Bank of America this morning about how tight Microsoft was treading to the government bond to treasuries, and in some mature it he's thriving through it at the very front end to the curve. Typically, we'd say that was a lot of confidence about corporate America, that's why it spreads it

Yep.

So I think the risk free curve is in equiliveryment. It's twist deepened since the election. I don't have my terminal in front of me today, but we were four forty four on election day.

I'm guessing we're right about there now.

Front ends, lower back ends, higher curves evolved in a stagflationary outcome.

That makes sense to me.

That's what you think. This is a stagflationary shotgun for the yield curve.

Yeah, a modest one, and that's what's reflected since election day. But as it pertains to spreads, So, yeah, credit spreads are tight. I get asked that in every client meeting I go into today. But there's three reasons. One, credit qualities pristine across investment grade and certainly in the higher part of the high yield market. Second, people don't buy spreads, they buy all in yields. And third you think about

So do you expect spreads to tighten even more as companies refrain from issuing more debt at a time when yields are this high, given the fact that there is uncertainty and some of the capex ex capex plans might be put on hold or M and A and other things that would require them to raise money.

We've seen pretty normal issuance patterns so far this year, and you definitely see a pullback when rates back up, and then they sort of reaccelerate when rates drop. So I see very normal behavior from issuers today.

You said something before that I thought was really interesting that if you wanted to buy long duration bonds, you'd barbel it with stocks. You'd have this sort of barbell approach at a time when both are considered risky for different reasons. Are you believing that in some sort of downturn that US treasurers will ultimately, to John's point, have the same function that they always have in terms of rallying and providing that ballast.

Absolutely one hundred percent.

I mean, when you think about perhaps at this moment, I think the worry is around deficits, which are clearly on an unsustainable path. What is the next move that there were a shock, heaven forbid another pandemic where you needed a multi trillion.

Dollar fiscal package.

The good news is, in this instance, there's hundreds of basis points for the FED to cut and they could start.

QE if they needed to.

So there's lots of ammunition and the front end of the curve would absolutely respond to that easing of policy. And again, if you hone your duration in the front of the belly, the curve's going to steepen and that's going to work for you.

Final question, the point of asset scacety, which runs right the way through this conversation. Does China and Germany have something to say about that? Or Japan and Germany rather have some that to say about that?

Well, I think this no of US exceptionalism being over is a narrative.

I don't buy it.

I mean, I think if you want real equity returns, look at the s and P five hundred has an average return on equity about eighteen percent, even the equal weight to SMP about twelve percent. So even for the equal weight to SMP, you can double your book value over six years. The returns are exceptional.

That's the equity story.

But you were talking about the bond market with regards to our sets scarcity supporting fixed income, and what we see taking place in Japan might uppends some of that. Taking place in Germany years to come might upends some of that.

How is that factor in to your thesis?

So?

I think the ubiquity of US debt and the size and depth and liquidity of US markets are really unparallel.

There is no substitute.

So the US municipal bond market in terms of its capitalization is bigger than the German bond market. I mean there's just not really a whole lot of alternative Russell.

This was great.

I could tell to you all day about this Rick Is band, from this show. From now away, I just want to speak of Russell Brown back at Blackross, No way.

Here right to create the set back in the rags of Black Right.

Don't worry.

I learned everything I know from Rick.

What's the best?

I love Rick too. It just doesn't wake up early enough to come on this program anymore. 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.