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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hordernt. 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 holding steady? Is
Wall Street a waste? The next round of corporate results? Daryl Kronk of Wells Fargo, writing, based on our expectations for accelerated earnings, we believe the next twelve to fifteen months will favor us sequities. Darrell joins us now from More Darrek Grim Mornig Majah. What is it about the US stock market that this story is going to favor?
Well, I think it's a number of things.
So beyond the earning story, which I think you guys have well socialized and talk about in a kicked in, I think you've got a lot of certainty that is coming in vogue, right. I mean, we know the Fed's going to cut interest rates. We don't know exactly by how much and when, but we have a high degree of certainty that monetary policy is going to ease financial conditions over the next twelve to fifteen months.
We know the fiscal rules we're playing by. Now.
We had the One Big Beautiful Bill in July. There is no one Big Beautiful Bill two dot zero and the remainder of this president's term. So if corporate America is waiting around for mergers and acquisitions and capex and everything to kick in because they were uncertain let's say last April with Tariff's and Liberation Day, now they're much more certain, and there's a lot of stimulus corporately in that one Big Beautiful Bill. There's also a lot of
stimulus in there for the consumer as well. I mean, there's going to be big tax refunds in the first quarter next year that people are underestimating right now.
That will kick in.
And history tells you the consumer spends a dollar seventeen cents of every dollar they get back in a tax refund, right, so they overspend what that is, So there's I think a wave coming that will push through for Corporate America and continue to drive that margin line in the bottom line righter.
So the secon thing you like, your favorite is financials. Just moments again of the team at Bloomberg broke a story. I'm going to share it with you. Rate as follows. According to people familiar with the matter, the Federal Reserve has shown other US regulators the outlines of a revised plan that would dramatically relaxed abiden era bank capital proposal for Wall Streets largest lenders.
I'll spare everyone the details.
You can read through the details and have like the story, But ultimately this feels like the direction of travel. Absolutely how big a pillar is that if you're long gone financials, So deregulation is a is a pillar, and it matters greatly to.
The gcify banks, right, I mean, and I think to your point about where Basel three was heading, you know, say twelve eighteen months ago to where it is today, huge one hundred and eighty degree turn just in the cinement. I think what's more important though, is probably two other pillars.
One is you know, M and.
A and CAPEX kicking in right, So you get this whole kind of you know, what we thought was going to be the merger acquisition cycle that was going to happen for all twenty five that got delayed because of tariffs, and more importantly and most importantly, maybe is the right way to say it. We think we have a high conviction the yal curve is going to keep steepening, right. I know it's kind of flat in the last couple
of weeks. But if you think about this, if the Fed is going to cut interest rates and you're not going to get a recession, right, then those term premiums on inflation and growth on the long end of the curve have to come up, right, So the Fed's going to hold let's say short term rates alongside comes up steepening.
Right.
If we're wrong and that doesn't happen, Let's say we're on the precipice of a recession or a slower event that we don't know, then what has to happen. The Fed has to cut interest rates more than what's projected by the market right now, drives the.
Short end down steepening, right.
So in both cases, you know, when you wargame this out, I don't see a way that you don't end up with a steeper curve. Steeper curve favors financials.
I'm looking right now on the heels of what John is just talking about, Bank of America, Wells Fargo, JP, Morgan, the Shire's futures all got a pop on the heels of the latest note of deregulation that we're seeing. I'm just wondering whether this is a read through to the broader economy or whether this is a financial specific sector.
I mean, this sort of the initial read.
On earnings has been incredibly positive on the backs of financials, but financials haven't been as tied to the broader consumer economy as much as in the past.
So how do you pair those stories?
Well, I think you know, when you look at the after last week's let's call it credit scare, right when the regional banks and what's happening in some of the private credit markets and stuff, we just don't see it. Right in the loan portfolios, the consumer remains strong, the small medium sized businesses remain strong, right, so the lending portfolios of these banks are pristine. Then you couple that with the investment banking piece kicking in and really driving
earnings a steep or real curve. Right, all the stars kind of line up. Now, when you get all the stars line up, the problem is something that could go wrong in that equation, but we don't see it. To your point on deregulation, though, I would unequickly say, it's not simply a financial story.
Right.
It spills into the healthcare sector. It spills into the energy sector, right, it spills into frankly, the industrial sector on the reshoring of a lot of the manufacturing and that element. So I think all of that plays in and probably drives margin and earnings into twenty twenty five.
We're actually I was twenty twenty six. Sorry, we're actually very bullish heading into next year.
So when was the shift?
Can you just walk us through the psychology, because I remember talking to you a couple months ago and you did not sound this positive, and a lot of people seemed a lot more worried. And suddenly everyone who comes in the show, no one can kind of find the real crack in this veneer.
Right now, they're trying believe me.
When did you really start to say, hold on a second, I need to upgrade my expectations and be more pro risk.
I think in the middle of the summer, right, I think the summer when we started to see where the Fed was taking monetary policy, when we knew the fiscal clarity was kicking in. You get these big kind of multi year secular trends of the re vitalization of manufacturing
AI of course all that stuff. Those are things that when you get I wrote a piece here not so long ago called you know, getting through the noise, getting the signal above the noise, right, and you start looking at these secular trends that we think have legs for maybe the next two to four, three to five years.
They're powerful, right, and when they all align simultaneously, that creates a unique environment that you don't see very often, right, where you get manufacturing kicking in, you get technology continuing to do well.
You get monetary and fiscal policy alignment.
Right.
I mean all those things can actually drive corporate earnings, and you also reduce some level uncertainty. I know, the day to day noise around uncertainty is high. You know, whether we're going to have you know, a g Trump meeting, and you know all those kind of things. But I think all of that starts to come down and you look through that out in the next two to four years. I think America does really well in the next couple of years.
So what more was you next year? Then if you feel like you've gotten a lot of clarity in twenty twenty five, so.
Question I would say the three eyes, Right, I think that this is what I wake up and kind of pay attention to inflation of course, right, which we'll get the reading Friday, interest rates, what happens because you know, if interest rates come down too far, you have to start asking the question why are they coming down so far? Right, there's a point where lower rates is good and then all of a sudden, lower rates start to become bad. And the third one that doesn't maybe get as much
better time as illiquidity. Right, I mean, if you look at what's happening in the repo market, you're seeing reserves drained down in the banking system, Which is why I think here in October, power will come to the table and say we're going to start setting the stage to ending QT. QT is worth by our math, another twenty five basis point interest rate cut. So if we get twenty five in actual FED funds in October, you get QT happening there's another twenty five. You get twenty five
in December. Right, All that starts to add up.
When you say interest rates going saloon, you have to question why it's because the economy is so bad. Do you think they're being job owned by the White House.
Well, the reason might be the latter.
But I think when you start getting interest rates lower, you have to start saying, what's going on there? Is it a true flight to quality or is it just the whole curve shifting down?
Right?
Once you get that flight to quality element and narrative that enters the discussion, that's where you have to kind of pay attention. We're not there yet, we don't think we're going to be there, but that's what you would want to watch for.
Stay with us.
More Bloomberg surveillance coming up After this, trade tensions between the United States and China remaining high. President Trump saying he expects to reach a good trade deal with China, but his meeting with President chiajing Ping in South Korea next week may not happen. At Mills of Raymond, James writes the following, the big question is how much beyond the status quo can get negotiated and it's previously banned US technology about to get the green light for the
Chinese market at join just now for more. And I think you're right on the money. What is and isn't on the table in these negotiations. What isn't going to be pound of any potential deal?
Yeah, John, I think everything is on the table. I think what we're seeing is that if China went into this with the status quo, China would come out with the status quo. So you're seeing a playbook we've seen time and time again. And Trump is moving the goalpost, ramping up the pressure.
She is doing the same.
She in China has come to Trump two point zero much more prepared. They are sending a message We're willing to do things that could be mutually a short economic destruction. So come to the table and talk. I do think the number one thing that she cares about in these conversations are these tech controls, the semiconductors and semicap equipment that has been banned going into China. The US policy is shifting here, John, and it is now the default kind of desire of the US government to have the
US technology be the default full stack globally. And they don't think they can kind of shut out the Chinese market. So there's more room for negotiation here than I think most investors realize.
And is China basic taking this hardline strategy. And there's been some reporting about this because they think Trump will fold.
I think it's they think Trump will fold, or they will think that Trump will give them more if they push for more emory. You go back to earlier this year, it was their restrictions on rare earths that got Trump to walk back those one hundred and forty five percent terrorfs. We were dangerously close to having real negative impact on
our industrial production here in the United States. And while we're signing these different critical mineral deals rare earth deals, it's going to be five plus years before we're able to get most of these. So China does have some cards that they can play, and as they play them, Trump has been willing to negotiate more. They view Trump as a transactor, and so to get him to transact, you got to push him in that right direction.
Do you find it suspect that China hasn't confirmed any meeting.
It's been the way things have happened all year long. What we have seen is the US delegation comes out and they give a read out, and then China confirms nothing. And then what we've seen is that everything that the US side has said has actually followed through.
I do think this meeting happens.
I do think part of this is that she does not want to appear to be weak. Some of the calculus that China has had is that what Trump wanted the most was to have this meeting, so they gave him a meeting. I'm also okay with the fact that we've already set up a home and away after this. Trump is supposed to go to Beijing, she is supposed to come to the United States, so that takes away
a little bit of the pressure here. That hasn't been confirmed necessarily by the Chinese side either, but we can get some flourish, big announcements coming out, but really working on these details to be determined later on, which has happened on every other trade deal so far this year.
And it seems like they're both buying time, both the Chinese and the United States, and trying to rearrange some of the supply chains the technological backdrop.
In the meantime.
I just wonder what the negotiating chips are going to be to buy time. How much Taiwan is going to come into play, how much the Russia Ukraine war is going to.
Come into play.
Do you have a sense of how much that's on the table if there is some sort of meeting.
Yeah, So Trump has said that he expects there to be some level of conversation about Taiwan. I do think that this is obviously the big focus of a lot of investors, and I get a ton of questions about.
That at Raymond James.
Trump has said that they don't have a plan to invade. I think trying to bring down a little bit of those tensions. The last meeting between a US president and she occurred at the last APEC summit, and she supportedly said that there was no kind of need for a military intervention as long as a peaceful reunification occurs. I do think that a lot of folks look at that Trump as a transactor to say, is Taiwan more on
the table than we could normally see? Beyond that, Trump has also been very concerned about the agricultural purchases of China.
So can Chinda make some kind.
Of agricultural purchases make that commitment for a trillion dollars of investment in the United States, and therefore we can send them those semiconductors and that semicap equipment, especially if we're moving to this idea that US technology needs to be the default technology.
Those are the things that I'm watching here in these negotiations. Lisa, stay with us.
More Bloomberg surveillance coming up after this first turn back to markets, what a move and gold extending losses after its steepest sell off in over a decade. The precious metals record run before yesterday's sparking concern at a US debasement trade. Jane Furley of Rabbabank debunking that theory writing the basement would imply and move away from the dollar and US treasuries into assets such as gold, and there is very little evidence to back up these flows. Jane joins us now for more.
Jane, welcome to the program.
It's been a really curious year because the narrative around foreign exchange was born in one quarter, and it was the first quarter of twenty twenty five, and I find it difficult to find evidence that the rest of the year really drives with that narrative at all. We had a big blast of dollar weakness. Jane, what's followed, Well, you're quite right.
I mean most of that dollar weakness has really done in the first five months of the year and ever since. We'll actually over the last month or two, I keep on finding myself saying, well, no, actually that the dollar isn't we it's been one of the better performers in I think it's a better performance right now in the months today and perhaps over the one month.
For you too.
So actually, essentially, if we look at the dollar index, for instance, that's sort of gone nowhere since at the beginning of July. And what are we looking at in euro dollar? You know, a currency at the dollar that is certainly well off. It's those versus the euro. So we we aren't looking at a week dollar as as we as we stand. But yes, the theme really was set at the start of the year by that huge bat of dollar weekness.
So Jane, let's talk about reality and the last few weeks, and then we can get to the peculiar move yesterday, the wild swing we saw in gold. Well recently we have seen gold rip high started to go vertical the middle of August and never looked back. And alongside that we did have dollar stri and participate as well. So Jane, what explains those moves? What's the relationship if there is one between the two, you.
Know what I mean? Normally, of course, when you get a stronger dollar, then a profit taking sets in. And I think with respect to gold, yeah, there are good reasons I think for many portfolios to think about diversification this year, and I think that's still a valid theme and I think gold, you know, can be held along
those lines. But you know, I do think there was lots of fomo you a phrase that I've heard, you know, in your channel quite a lot over the last few weeks, and certainly you know, at the start of this week the Australian press work we're showing pictures of the retail investors queueing around the block to get their hands on some gold. And I think for many institutional investors, you know, that was perhaps the last stort, so profit taking pushed
in as well with the stronger dollar. I think as we go into the next year, there's probably still a theme, a reason to diversify her portfolios, and maybe gold again is part of that. But I think it is going to struggle quite clearly to match those very recent high in the very near future.
Jane, is the concept of debasement just overly binary. And there's something else afoot that is maybe along the same kind of theme but isn't quite as strong, which is more people are considering that the dollar isn't the only thing in town.
There is a discussion.
Yesterday about how Ethiopia is trying to transfer loans that had been dollars denominated into U and I mean, honestly, this is not necessarily something that's going to cause alarm bells everywhere, but there is the sense that people are looking for alternatives. At what point is that a realistic narrative to really play into your calculations.
You know, I think we'd probably could be having the same sort of conversation in twenty or thirty years time that there is a theme of you know, reduced dollars for instance in global reserves, and you know, we can trace that being back, you know, to the start of this century if we like. There is a theme also, you know, in China they want to internationalize their currency
a lot more the Euro. We've had several times from Christine regard from the ECB sins this year that she wants to have a bigger role for the euro on an international basis. So we can assume maybe the eural will makes some progress, or remember will continue to make that the progress that it's been making. But the dollar
has a massive advantage. It's already a huge transactional currency around the globe, across Africa, Latin America, across Asia, and the US Treasury will be making attempts, you know, to protect that, not the least with you know, with stable coin. So it is going to be something that the ustroasure will fight back on. But yeah, there might still be incremental benefits, perhaps an international loalization for remomb beats or Europe.
But I still think that that's that those games are going to be really quite modest.
Jane, how many questions do you still get about bitcoin?
Not that many more about stable coin. I think this year less about bitcoin. I mean bitcoin, you know, certainly very much in the news, but I think most people have come to terms with this. You know, this is something that you know, it's an asset. Perhaps it's part of that diversifications story again, but it used to be perhaps a different type of comprehension about where bitcoin was, and perhaps in misunderstanding that it was a currency in the way you know that the yen or the euro,
that the dollar was. And I think that misunderstanding really now has more or less ebbed away.
Jane.
When it comes to gold, if there's too much momentum and that's starting to wane, what do you make of everyone talking about five thousand dollars an ounce next year?
You know, I think if we were to look at you know, really big movements, we'd have to be looking at, you know, significant movements in the backdrops for the world economy. So maybe you know, we would have to be expecting or seen a shock rise in inflation perhaps, or you know, maybe more geopolitical tension perhaps, And I think if we were looking down those lines and seeing that type of stress, then I think that there is perhaps the reason is to carry on moving to inter gold, and it's you know,
because of its intrinsic value, et cetera. But you know, we're not looking at huge amounts of inflation anymore. I mean, if we go back, you know, to the start of the year, people were panicking about the degree of inflation that we could see in the US. We're not panicking anymore, you know, we're seeing far more moderate types of inflation. Yes, we're still focused on you know that there's the potential for worsening in the trade front, which could create inflation,
but there isn't that panic anymore. And assuming that we don't get panic either run inflation or the geopolitics, then I think these sorts of games are really going to calm down.
Jane wanted to finish on the move of the day in foreign exchange is Sterling inflation came in a little bit lighter than expected, yielded down across the curve, particularly the front end. We're now down by about eleven basis points on a two year guilt this morning. Sterling's a whole lot weaker for a fourth session one thirty three seventeen. Out of the corner of my eye, Jane, what's behind
the latest move? And do you think the Bank of England will embrace this move lower in inflation and ultimately deliver more rate cards.
You know, I think they're still a world count here because yes, the inflation data was better than expected, lower than expected. Yes, it's still well above where the Bank
of England wants it to be. But between now and the December Bank of England meeting, which is the one the market is now focusing on for a possible cut, we do have that November twenty sixth budget in the UK, and there is speculation that Richurieson may cut the eighty on energy bills in order to bring inflation down further, and that maybe could give the Bank of England the sort of confidence that they need to cut infistrates again.
See stay with us more Bloomberg surveillance coming up after this. President Trump reiterating his pledge to revive American manufacturing, the Commonwealth of Virginia securing thirteen billion dollars in new domestic investments between July and October of this year alone. I'm very pleased to say that joining the program now is the Republican Governor Glenn Youngkin of Virginia. He joins us now for more. Governor, welcome to the program. So always good to catch up with you.
Yeah, good morning, John, And it has been a very very busy few months for us as we have welcomed a lot of manufacturing into Virginia, particularly from the pharmaceutical sector, and I think it demonstrates that we're leading not just in Virginia but in America and resoring this critical supply chain.
So, Governor of the serenadly a consensus, we need to do more of that, produce more manufacture more domestically here in the United States. Can you share with us what you've done in Virginia to attract more of that investment from overseas and bring it back home. And perhaps she's murk as a good example of that.
Yeah, we identified three years ago that pharmaceutical manufacturing had to come back to the United States. It's a national security imperative where all of the active pharmaceutical ingredients were being manufactured overseas and a lot of them in China, and we needed to.
Bring it back.
But on top of that, we saw big investments coming from the pharmaceutical manufacturers, and so we prepared a great workforce development program. We lessened all of our regulations. We've cut almost thirty percent of our regulations in Virginia. And then finally we made sure that we had sites ready for them. We're a business friendly state, ready to go, and then we went and recruited them. And you combine that with President Trump's strong push against the pharmaceutical industry
to bring manufacturing to America. And we've just seen a huge drive of reshoring and investment, and yes, it's been thirteen billion dollars in work. Was our latest big announcement this week with a three billion dollar facility to set up their active Pharmaceutical and Small Molecule Manufacturing Center of Excellence here in Virginia. They're going to hire five hundred people direct and there's going to be thousands of indirect jobs plus construction jobs. And it's just another big step
of bringing manufacturing home. I like to say made in America means made in Virginia.
Governor.
We've all seen a lot of tech companies invest in Virginia. There's a lot of data centers in Northern Virginia. We've also seen, though, the cost of electricity prices go up.
How are you balancing the two?
Well, we first start with it's an imperative to have an all of the above, all American energy plan, and that means that, yeah, we have to embrace natural gas and nuclear and yes, of course the renewables that we already have, but we've got to build a.
Lot more power on top of that.
Because Virginia is the data center capital of the world, and we're seeing investment all over the state. Now we also are driving bring your own power initiatives and so power goes behind the meter. That actually keeps rate payers whole, so they don't get charged with a disproportionate amount of the cost of the infrastructure build necessary to support the data center industry. And again, this is a national security
imperative that we're so pleased as happening in Virginia. You know, since I became governor, we've had one hundred and forty billion dollars of commitments from businesses to expand here or come here. And that's manufacturing and distribution and research and development.
And I think it just goes to show that when you care create a business friendly environment, where a right to work state we have deregulated, we have made sure we have the best workforce in the country, businesses will come and invest, and that creates opportunity for not just Virginians, but I think to supply in all of these critical critical needs that once we're manufactured overseas and they're all coming home.
You talk about an all of energy approach. The Trump administration has canceled federal funding for things like offshore wind and some renewable projects. Has that become a problem for you as you are dealing with higher electricity prices.
Well, it hasn't. It hasn't for us in Virginia.
We of course have been really pushing to build new natural gas plants and we hope to lead the nation and the development of small modular reactors, and we do have wind and solar projects underway. The reality is the previous Democrat administration in Virginia so underestimated the growth aspects of Virginia that we're behind, and that's why we're massively building in order to catch back up on top of that.
I do believe it's one of the great challenges for our nation, and that's why President Trump's initiative for energy dominance has to be a top imperative because we're finding that, Yes, when we're building data centers and advanced manufacturing and of course electrifying just about everything, power demand goes up substantially.
We've seen China developing.
Gas plants, nuclear plants like crazy, and we're behind, and so we have to build in America, and we need to do that fast so that we cannot just catch up, but we can supply all of the reshoring of American manufacturing that is going to secure our future.
Governor, you really are at the vanguard in Virginia of a lot of trends around the nation, particularly when it comes to the labor market.
You are bringing jobs back.
You also have a heavy investment from the likes of Amazon, which is supposedly on the way to replacing a lot of roles with robots. And I'm just wondering what role you see in terms of job training to try to adapt to a rapidly shifting backdrop in terms of technology.
Yeah, we have been out in front here because of course artificial intelligence particularly is now part of every aspect of the business supply chain. Of course, from design and engineering all the way through to manufacturing, marketing. Everything is being fundamentally changed. And so we initiated, in partnership with Google, ten thousand AI credentials that allow folks free to come
in and build their capabilities. And I think mean as we see technology rapidly transforming the way we do business, we have to rapidly transform the way we prepare our workforce to.
Thrive in that environment.
Listen, we got a lot of jobs in Virginia we have two hundred and seventy seven thousand more people working today than when we started, two hundred twenty thousand open and available jobs, and the one hundred and forty billion of capital investment underpins another eighty five thousand jobs and nearly forty thousand construction jobs. So we've got a lot of work to do here to prepare a workforce to
take advantage of that opportunity. And I think making sure that workforce is AI ready is really important, and that's why we've been way out in front to make sure that that workforce is prepared for it.
Governor, I remember talking to you when you used to be at Carlisle, and you've had this incredible dual hat where you've been investing on one side in infrastructure and then you are responsible.
For helping to plan and bring jobs in.
I'm just wondering, does it concern you some of the private investments that we've seen in some of the infrastructure spending and some of the speculation that maybe things could be getting a little bit frothy in that space.
Listen, the big difference that we're seeing now is the capital investments, particularly around data centers and AI and machine learning, are tied to business commitments in order to drive forward this transformation, and therefore it needs to get invested behind. We need to see the power investment, and we're competing against China day in and day out.
Listen, this is a race.
We need to make sure that we have the appropriate stop gaps and just in case that the application of AI begins to overwhelm the interface between humans and decisions. And my Artificial Intelligence Executive Order that I wrote last year said that we are going to incorporate artificial intelligence and what we're doing in government, but we're also going to make sure that we have people between advice and decisions,
and I think that's one of our big steps. But with regards to the investment that we are seeing, I firmly believe that this investment will grow great capabilities and those capabilities will be put to work. And that's why it's so important that we win the artificial intelligence race and not allow China to win it.
Governor Runkin, just quickly, have you spoken to the Trump administration speaker Johnson Leader soon about reopening the government because your constituents, hundreds of thousands of them, are not getting paid right now.
Yeah, this is the Schumer shutdown is such a tragedy because they're holding America and Virginia hostage at a time when they need to be doing their jobs, which is of course funding government. The Schumer Democrats voted in support of a clean se are thirteen times during the Biden administration. There's a clean cr sitting on their desks, and they just need to vote and open up the government. I will tell you, we're starting to see some real pressures.
I applaud the Trump administration for making sure that the military and law enforcement are getting paid. I know they're working hard to try to lessen the pain on the American people. But at the end of the day, we're starting to worry about snap benefit next month. And to say that the Schumer shutdown is going to hold hostage Americans who need support for food insecurity is absolutely crazy.
This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, antient 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