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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie 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. Stocks bouncing back as
President Donald Trump temper's his trade stance on China. Seema Shah of Principal Asset Management Rights in the following Even after the strong performance of the past six months with the S and P five hundred thirty five percent from its liberation day trough, equity markets have further room to run. Seema joins us now for more. Sema, welcome to the program. Will you get a helping hand from earning season and from bank earnings this week?
Hey John, Yeah, I think that that is definitely on the cards. You know, when we're looking across at the macro outlook, we're still feeling pretty positive. Of course, there are some signs that slow down within the labor market, but we're not talking about recessionary area, and typically in this kind of environment we can see continued performance from financials.
So along with those tech stocks which continue to drive the market, we would think that financials can join in with that rally and help push the act market a little bit further.
The same it's not just bank earnings on the calendar, also a meeting potentially between the two leaders from China from the US President Trump and leadership. How big a factor will there be in your routelook the trade negotiations, the friction, the tension between China and the United States.
Yeah, it's a great question because you know, in the last couple of weeks, it's completely fadden out of the headlines. You know, nobody really talking about the risk associated with it. So the news on Friday, I think did come as a clearly did job the market.
It has the potential to have very very serious.
Impact on the economy, both from a growth side and from an inflation side, so we obviously have to keep
a close eye on that at the moment. From our perspective, we're going to go along the assumption that things eventually kind of work themselves out simply because the risk is so big, but it does clearly have the potential and so investors and I think the key thing is that there has been so much complacency within the market about what could happen to have much further the equity market could run that this has been a good reminder that there are still risks on the horizon.
Risks of re escalation between the US and China.
How much does it also reiterate the risk.
That this is now just a one time price shock, but it's an ongoing process of terroriffs that come on in different waves and price effects that happen over time, kind of like what we saw from Levi's last week.
Yeah, and you know, at least I mean, I think this is one of the things that we've been considering is that from the tariff perspective, this is an ongoing story. We know that tariffs are going to be used continuously as a geopolitical time and for any other kind of negotiations that the US is looking to do. We're also expecting even before Friday that tariffs would continue to move a little bit higher. They change in focus sectors, more
company focus. So I think this is still in built, but we have seen time and time again that from a market perspective, these kind of headlines, they do start to move back and back and back in people's mindsets, especially as companies do start to kind of navigate their way through.
So it's not to say that there won't be any impact.
There will be.
It is contributing to an economic slowdown, but we're not looking at something which is recession, like provided the US China negotiations do move in the right direction over the coming weeks.
So if there isn't really that gread of a chance of recession, which is what I'm hearing from you, do you buy any dip or was always have on Friday something that you want to welcome usher in and dive into.
I do think, and I think any kind of noise, either with regards to their shutdown or even with the trade engines, these are opportunities because we're trying to look beyond the noise. And you know this has been a really good learning for this year is back in April when everyone was really worried about recession. They're worried about how there was going to be a very significant market correction.
We are very very significantly from those moments and the market has matched to look through, so we would assume that this is going to be a continuation. Evaluations are that much higher. The economic BACKDOB is a little bit slower, so you know, we're not going to be expecting to see gains as significant as we've had in the last couple of months. But to our mind, this is still a positive setup for equities.
The issue though, with what's going on with trade is that JD. Vance is talking about the fact that it's up to Beijing to choose the path of reason. Does it not feel different this time than it did in the spring?
There are definitely differences, and I think the key thing is that, you know, China is showing that it has a lot of power in this. You know, it's got a very very strong negotiating tool. So it's very much sitting in I guess, in the area and you know, what is the US going to do to to kind
of bring down the tensions. So there is a difference, But I think at the end of the day, because the impact could be so serious, it's almost that too big to fail situation, which we would assume is is going to push both sides to some kind of negotiation point. You know, it doesn't necessarily mean that we're going to
be looking at lower tasks. We could be even looking at slightly higher tasks and where they are today, but we wouldn't expect there to be a move back to the one hundred, one hundred and thirty five percent tasks that we did see earlier this year.
Do you think this just gets done by November first, where the President said that seems like an eternity for him, or is this a twenty twenty sixth story for the market.
I think we can get somewhere by November the first, and I have to say, I think it's going to be very very rocky road with a lot.
Of noise, a lot of back and forth.
But certainly I think that the issues with China is not something which can be put to bed very quickly. I would assume that this is going to be a situation that we're going to be talking about through twenty twenty six through twenty twenty seven, and that rivalry between the two countries is going to be something which is a continued pain point which comes back to rock the market. Every now and then over the foreseeable future.
What was interesting, and John pointed this out earlier, is that on Friday we saw rally and to US treasuries, and this was different than what we saw after the August, the April second Liberation Day, and it raises the question about whether the market is looking through any kind of price shocks as one time transitory, or whether it's complacent about the inflationary ramifications of this decoupling between the US and China over a longer period of time.
How do you see that?
Yeah, it's an interesting one because you know, in the last couple of.
Months you haven't really seen the inflation impact that people are anticipating in April, and so I think that what we saw on Friday was just this assumption that this is the continuation. There will only be a one time shock, You'll be very modest. This is really really early day. So to our minds, one of the key risks that we do need to look out for in twenty twenty six is, you know, the inflation number is moving a
little bit higher than anticipated. At the moment, we're expecting CPI to be hovering around the kind of the mid I actually said the three point two to three point three percent level. If we were to see it move above three and a half percent towards it four percent number, well, then I think the equations kind of change, and I think that that would be a real sticking point for
the market. But it is really early days, and I think as we go into to earning season that to us is going to be the key thing that we're listening out for. What are CEOs telling us about the price impact, how much they're planning to be passing on. And I think that that picture won't be very clear until we're looking into Q one Q two of next year.
Stay with us. More Bloomberg Surveillance coming up after this. Let's turn to the US dollar. The index down eight percent year today, facing ongoing volatility. Jean Balvan, head of the black Rock Investment Institute, rights, we see the US dollar slide tied to expected FED rate cuts and fiscal concerns, not evidence its reserve status is under threat. Jehan joins us now for more. Johnk and morning, Good morning. How difficult people finally get to draw a distinction between one and the other.
Yeah, I think, you know, if you look at this year and the commentaries around the dollar and so on, and connect the dots between you know, uncertainty and pausing so on. It's easy to tell the story that investors are more skeittish about the dollar, and it's a specific dollar kind of risk premium that is being applied. But I mean when you look under the hood and the facts so far this year, I mean, there's no massive disconnect between the dollar weakness we've seen in historical fundamental
behavior and so on the face of it. You know, there might be down the road question about the reserve currency status, but I don't think we have the evidence for it yet. I think moreover, when you look since the you know, all the discussion about central bank independence and so on, like eat it up over the summer and a bit before, the dollar didn't really weaken against other kind of G ten currencies, So we think it's more of a broader fiscal story.
Globally, you see y'll curve steep uh.
And that has some impact on gold versus currencies, But I don't think we see really a US dollar kind of reserve currency trade yet.
I brought I'm glad that you brought up gold, because the dollar has to appreciated dramatically against gold, and you could argue that the only reason why you haven't seen a greater weakening than the dollar is because nobody else is much better. I mean, how much is this absolutely debasement but represented in gold, not necessarily anything specific about the dollar as reserve status, but is generally a change in the global financial system.
Yeah, I think that's a that's the that's there's more to data think going on right now, which is how we will resolve these fiscal outlooks.
Globally.
We see what's happening in France, we see Japan and the US, so I think it's it's a common story. Uh, the dollar, sorry, the goal gold is attractive in that context. I'm not sure, uh you know, if it's going to be a long term trade, but clearly when the guard, when when the markets is a bit more anxious about these questions, we see a narrative that it's gold up. It's been playing up. It hasn't worked for a long time. It has been working this year, for sure.
You talked about a yeld curve steepening, and the more we talk about this, the more I question why we're not seeing an even steper yield curve where we're not seeing even more of a sell off in long bonds globally and developed markets, given some of the fiscal concerns, and given frankly, this debasement that we've been talking about, does that strike you as odd?
I think we're getting We might be getting lucky at this, at this juncture where the US economy might be weakening just enough so that this doesn't really come to head.
Just right now.
We were a bit more concerned coming into September that you would see, you know, inflation maybe not behaving. Last time I was here, I was talking about like the doubts we had about the ability of the FED to cut as much as the market was expecting. Now we are a bit more confident that the Fed can deliver. Macro is weakening enough, and that's going to help relieve some of the debt servicing cost tensions that were happening.
So we might be for the next few months, or I don't know, for a long in a more of a lucky spot where these concerns are not really coming to head. But underneath that, I totally agree that there's a bit of a disconnect, and that's why we think longer term was I need to see long long term rates go up from here in a ten year closer to five makes more sense for US than four percent, you know, a few years down their road.
John, When you say there's no evidence right now that the dollars reserve currency status is under threat, what would you see if it was, what would be happening?
I think you would.
So you look at this year, and fifty percent of the weakening that we've seen can be attributed to the increase easing expectation from the FAD. So just the interest rate differential story that we've seen this year playing out explains a bit, explains a big part of the move. And then you know the yield curve steepening investor asking more for a term premium for you know, holding that us that maybe that has played some role as well.
But the point is that if you look at like how the dollars behave relative to like term premium the VIX or interest rate differential, historically that relation ship hasn't really broken. If we were seeing that relationship broke break and the dollar being much weaker than these fundamentals suggests, then I think that would start to be evidence that the investors are asking for more than just the fundamentals, and they're more worried about a dollar.
What signal do you take from the relationship between gold and risk more generally the equity market move pad with the gold move this year.
Yeah, I think there's a story around, you know, some concern of fiscal dominance maybe playing out down the road, not a reality, but markets are paying some.
Credence to that.
But at the same time, before you get there, you have an environment that's going to be pretty supportive for equity.
So I don't think there's really a disconnect.
It's an easy financial condition world maintained for longer bids, you know, equities, but you want to get some insurance with gold.
Did you think we are on the path towards fiscal dominance in twenty six I think this.
Is a huge call.
And one things that I keep saying is it's very in twenty twenty five. One thing that we need to guard against is like extra apple laid from like what looks very dramatic and then your term to long term consequences and big change. Right, So on a day you see some headlines you can be tempted to see I never would have expected to see headline like this, so hence we're going to see physical dominance At the same time.
I think these are big steps. There's going to be equalibrium forces playing out, So I think this is something you need to put more weight on than you would have had historically.
But I don't think this is a default.
So at least I talked a lot about this. You look at the TRAS rate that's aggressively shortened duration. The Federal Reserve under this leadership is putting a priority on cutting interest rates, so at least a bias to reduce interest rates even with inflation around three. Now, that might not be fiscal dominance per se, but maybe the symptoms of it. The consequence is a similar There's some crossover here which I think speaks to the gout trait doesn't it to some extent at least.
Yeah, I think as long as long as the macro picture evolves in a way that I mean, it's sounds cynical to put it this way, but like there's a
proper cover for cutting rates from a macro perspective. Markets might be concerned about, like what's really the motivation behind it, and whether it's like yeah, but as long as we have the proof of it, I think we're going to run with We're not in the fiscal dominance world just yet, but yeah, I think it's going to depend on if we reach the point where it's really very hard to explain cutting rates just on the business of the macro outlook, and and it looks like we're deviating, then I think
it's going to be and I want to I don't think it's going to be continuous. I think there's going to be like a discontinuity at that point if we deal there.
Stay with US mobile imperc surveillance. Coming up after this, building on this historic story Norman Rule, they form a senior US intelligence official rites in the following. The Middle Age continues to post many challenges, but the president's approach reshuffled the strategic deck, offering opportunities and leaving the US the undisputed major power in the region. No, I'm joined us now for more. Norm Wickoff Kushner, the President of the United States. No, what made a difference here?
Well, we've got a form a president who has spent the first ten months of his administration developing a new policy for the Middle East, a policy that focused on constraining Iran, Iron's nuclear program, Iran's proxies, providing Israel with unalloyed support, but also building very strong relations with a variety of Arab partners, resetting relations with Saudi Arabia, the United Arab Emirates, but also maintaining strong relations with Qatar,
and ensuring strong relations with Turkey and Egypt. And together this provided an architecture that enabled the Trump administration to speak with pretty much everyone that needed to be brought to the table, but also to provide pressure on all of those parties through those channels, and then he used unorthodox approaches mister Wikoff and mister kush and I have dealt with mister Kushner in the past, and he's a very sober and hard working individual and we've seen extraordinary results.
We should not over be it, not understate the tectonic nature of this moment.
Norm was it the strategy behind this Trump team that really changed it. We spoke to almost hawk Seen on Friday, who was an individual that worked under Biden and said this deal was on the table in January. What's changed in the nine months.
Well, aspects of this deal are We're always going to be on the table. I mean the idea that there would be a prisoner exchange, of a release of Palestin prisoners, the release of hostages, that there would be some sort of a disarmament of Hamas. That was going to be true no matter what administration was going to be in power. But the idea that you would bring pressure upon the parties to.
Make this happen.
I don't think that was going to be achievable in the Biden administration because of the nature of their relationship with the player in the region. And the Trump administration had a very different approach, and that approach made this happen. So we should be clear the Biden administration's approach to the region was unlikely to achieve this result, and the Trump administration did this in ten months.
Normal when it.
Comes to what comes next, is going to be this unprecedented peace conference in Egypt. What do you expect that will come of that? Will we get more information on what Phase two looks like when it comes to Gaza.
This is an extraordinary conference in and of itself. This is unusual.
Twenty nations, the President of Indonesia is showing up. You've got twenty nations dealing with Mohammuda Bas, who has not been to.
Israel in some time.
You've got the Prime Minister of Egypt who has been invited and may show up nonetheless at the end of this important holiday seat holiday. If that happens, that would be the first time he has been in Egypt in quite a while. That the Israeli Prime Minister attends, that would be the first time he would be meeting with some of these countries that remember, there are countries attending this that do not have relations with.
Israel.
And this would be the Israeli Prime Minister attending with Prime President Mohamud A Bass, someone he has refused to recognize. So this would be an opportunity for Natanyahu and a Boss to in essence set the stage for that second effort, that second phase also for these countries to identify with support they're going to provide, and for the President to
pull them together and start that process. And it is critical to this security that this AID be put in place to provide the Palestinian people with the humanitarian and security architecture they need to restore their lives.
Norman, just to that point, you were talking about whether it be be Natanya who the Prime Minister of Israel will be going. His office said this morning, thanks to President Trump for the invitation, that he won't be able to attend to to the beginning of the Jewish holiday this evening. So we'll see whether he eventually makes it there. But right now it doesn't seem like it's the case. And I'm just wondering, if you parse this out, is this coalescing of powers in the region.
Going to be helpful to bring Israel back into.
The international fold or is Israel still the odd man out? Is it going to take a lot for them to regain some of their previous reputation.
Well, again, we'll see how long the conference lasts and if at the end of the holidays the Prime Minister is able to attend.
We need to see what the.
Prime minister's politics are like if the hard right becomes a problem which prevents him from participating as well, because he would be meeting with a boss, he would have to make some concessions.
He has stated no palicitating.
Authority in the West Bank, so that's Aeron Gaza that that's going to be a problem. But we've got a situation where the Israelis are now not going to be responsible for security or some of the of some of the reconstitution of governance in Gaza. The Palestinians will be doing this. Will Hamas be responsible for the problems of Gaza or the Palestinian authority. It's no longer Israel's responsibility. It's not a Palestinian issue and an international inst issue.
So in essence, the blame shifts from its an Israeli problem to an international problem. But again, we must get a humanitarian aid, security aid, and rebuild the lives for the Palestinian people. So I think before we get to that political problem, this is a humanitarian and a security issue, and that's where the emphasis will remain.
At this point. Nor I wonder if there's a broader conclusion.
Also, because we used to see that the alliance between Western nations used to be the United States, Europe, and a couple of others, maybe Japan. Now it seems to be really shifting to the Middle East. How much has this deal in the US's relationship with Saudi Arabia in particular, really solidify that idea.
Well, you've seen several things.
So first of all, this wouldn't have happened had the United States work with Egypt, Qatar, and even Turkey.
Certainly that's true.
However, there have been months of intensive diplomatic conversations with Saudi Arabia and the United of Arab Emirates, and Saudi Arabia working with France and other countries that in essence created an architecture that also made this happen outside of the United States itself, and that's Saudi Emoradi and diplomatic
pressure was itself a dynamic that cannot be ignored. So these capitals, these rising powers, are something that need to be recognized and work with, and the Trump administration, to its credit, did exactly that over the last ten months. And we're seeing the results so ranging from the chip deals that the Trump administration is putting together, the energy discussions, and now we're seeing this in the Middle East. It's a very interesting and dynamic approach.
Stay with US Multilemberg. Savannah's coming up off to this. Let's stick with the data still impacted by the government shutdown, Abigail what a ups right in the following. If the government reopens early in the week, it's possible that we may receive the September employment situation within two or three
business days. Abigail joins us now for more, Abigail. If we don't, we could have this really strange situation at the end of the month where the Federal Reserve has the CPI report, but doesn't have payrolls, has CPI about three percent, and still decides to cut interest rates. How uncomfortable might that moment.
Be running Thanks thanks for having me join.
Yeah, look, I think you're totally right to focus in on the kind of balance between the labor market and the inflation data. I think that's clearly what drove the in the September meeting, was this shift towards concerns over the labor market. And while we might not get the September employment report, as you said, the FMC are expected to get the September CPI data later this month, which I think will be helpful for them and understanding kind
of potentially where that balance of risks is. I would say that even though we don't have the September employment report, we do have kind of other data that we can look at to get a sense of the state of the labor market, and in particular, you know, we've been looking very close at what we're seeing in the initial
and continuing claim data. These data are not being published, you know, in the normal kind of formal report from the Department of Labor, but we are able to kind of patch together the kind of state level data, and you're continuing to see kind of elevated levels of continuing claims in those data as well versus this point last year. So I do think that that kind of balance between the two, you know, the labor market data and the inflation side, will keep the FED on tracks kind of
cut at the meeting at the end of the month. A.
Yeah, what initially kicked off the sense that the FED might be behind the curve and needed to catch up by cutting rates was the revisions to the payrolls that really came in so much more significantly than people expected. But Sneldasai was on the show last week and she said, actually, what it means is that the economy was doing pretty well without all of those jobs, and without that job of creation. Doesn't that speak to a wave of productivity, not necessarily to a real weakness.
I mean, how do you sort of square these ideas.
That maybe we are just operating with a lower job creation base.
Yeah, Look, I think obviously there's been, you know, a wealth of people kind of coming out with estimates of.
What the run rate of kind of payrolls.
Or the run rate of employment grows might look like, particularly obviously given the shifts we're seeing in terms of potentially population grows, but also kind of what we're seeing in terms of changes in participation rates. I think we've seen obviously participation kind of coming off a little bit, and I think that's probably like the driven bicyclicality rather than say kind of demographics, which has been the kind of down drift that we've seen there in kind of
recent years. I think the question in terms of the kind of run rate and kind of the time together of what we're seeing in terms of growth in the labor market, I think really what you've seen is it stepped down just in terms of demand within the labor market. I do think it's potentially more demand driven than it
is supply driven at this juncture. And I think one of the things we have seen is obviously a lot of a lot of noise in terms of the growth numbers with swings from kind of noisy components, but you have seen a step down in terms of the pace of domestic demand that underlying pace of demand in the US economy was relatively soft through the first half of
this year versus where it was last year. So I do think they kind of slow down you've seen in the labor market and the slow down you've seen in kind of the broader economy or are kind of broadly consistent with one another.
How do you square that with Delta?
And I know that this is sort of not a perfect data set, but it is the data set that we have. Delta reported earnings and it was better than expected, and they said they see no reason for there to be any softness in the path a head. They're seeing demand really pick up across the board. How do you square that with a decelerating in labored demand that you just talked about.
Yeah, look, I think there's a potential reason for that could be that we are seeing but a narrowing I think in terms of the drivers of consumption.
Right.
So, one of the things that we've been referencing for a while is that we'd expected the lower end of the income spectrum would become under more pressure through the beginning of this.
Year, and I do think we have seen that.
I think one of the things we have seen, though, is that the upper income groups are continuing to sit on relatively healthy balance sheets. And there's a number of elements that we're seeing in terms of the income data, particularly the Nipper revisions with a big, a big kind of revision in terms of dividend income supporting income growers in recent years. And I think that's also unlikely to
be equally distributed across the income distribution. So if you think about kind of where the kind of support for kind of recreational services is coming from, it's likely to be coming from those upper income groups disproportionately. So I think that's that's the reason why you know, we have a slowing in terms of the economy, we have a slowing in terms of consumption given the potential for kind of pass through of tariff headwinds later this year, but
we don't have an outright contraction. And I do think it is because you do have that kind of stronger upper income group in particular still kind of able to support, you know, the pace of consumption as we go forward.
And again when it comes to terraffs, how are you thinking about the latest rhetoric we have when it comes to Beijing In Washington, and potentially an increased teriff rate on China.
Yeah.
Look, I mean, China is the area where we have seen obviously the strongest kind of ratcheting up of tariffs. They're sitting with the highest weighted average tariff of kind of any country and trading partner that the US has, And I think, you know, the kind of resurgence of the rhetoric around potential for the one hundred percent tariff to be added late last week, I think this is just a you know, a timely reminder that this is an area where we could continue to see tensions kind
of flaring up. Obviously, we had the kind of November tenth deadline already in the calendar for the potential for the reciprocal rate on China to increase. I think, you know, the kind of deadline here for the one hundred percent of November first potentially gives you a little bit more time to see kind of more progress and negotiations between the two. So I think for now, you know, we're
watching to see how that progresses. I think obviously the experience of earlier this year we saw a very strong kind of increase in terms of tariffs on China that proved relatively short lived, so we would be watching to see kind of how that rhetoric develops in terms of before we would want to kind of think about how that might feed into into a kind of the economic outlook and our expectations.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angier politics. 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