Foreign Exchange and Equities in Trump's First Week

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There's always in a given week. Two three, four Research reports a stick out. A couple of days ago, George Savelli has put out an absolute jewel Deutsche Bank and information bursting stereotypes on all that's going on on tariff's international dynamics, economics and of course you know the whole debate here that we have. He joins us now from Deutsche Bank. George, thank you so much for being with us. Figure two. No one knows this, including the President of

Yes, the US does if you exclude energy.

And I think one of the challenges in thinking through about tariff risks is the economic impact. And if you compare the economic impact of tariffs on Canada VERSUS, for example, China on the US, it would be far larger because Canada has a bigger capacity to retaliate.

There's a reliance on energy that creates inflation. So the market is questioning.

How much President Trump will go ahead with the tariff is threatening on Canada.

As soon as February first, does the X and it's going to be a learning process.

Does the xxis matter? Is it timing important like they want to try and set out or is all in one big one or that? Does that matter to George Caravellas.

I think, well, what matters to me is what impacts the market. And if you look at the price action this week in the market, what.

Was interesting and it's something we had warned about. The previous week. The market was expecting an immediate tariff announcement.

You could see it in the risk premium that was priced in to the volatility space. You could see the inflation break evens. And therefore, when tariffs were not announced on the first day of President Trump's new administration, you have seen the market squeeze in terms of the doll longs. Now we're entering next week with almost the opposite dynamic. The market has completely taken out the risk premium of potentially mediate tariffs, especially with regard to Canada, and that would be a big shock.

I mean, I figure nine, Paul, this brilliant research report. Folks, we protect the copyright of our guests. You're not going to get it from me her poud go to Deutsche Bank to get the Sarah Ellis research. The US imports more oil from Canada than all other countries come.

But I did not know that.

I mean, well that's what you get from Crevel Ceabellos, so Georgia in your market. In the currency market, how have traders been positioning themselves for a world where there may be higher trade tariffs, you.

Know, not just Canon Mexico, but kind of across the board.

So this is really the key question for the market and the big driver this year so far. It's what I would call the tariff risk premium. How much of that risk premium is priced into the market and traders have been positioned for some probability of tariffs going ahead. I think what we saw this week was just how aggressively people were expecting immediate tariffs, and that is why

Not below the lower end of what is a reasonable range of tariffs going forward.

And that's really the reason why we still see the risks askewed towards more in terms of dollar strength, because the market at the moment, I think is underpricing the full extent of tariffs that could materialize.

In this hour Accrassination on your Friday and YouTube again, Subscribe to Bloomberg podcast building each and every day, including the weekends. A lot of podcasts watching during the weekends. George Sarah ellis with As we continue, he is with Deutsche Bain. Coming up, Sarah Hunt. We'll talk equities with.

Her pot George, is there any reasonable bear case for the US dollar? I just don't see it out there, and I haven't for the longest time.

You mean a reasonable case for the dollar to.

A weekend or just yes and yeah, just kind of a bearish case for the US dollar.

So I can give you a historical example.

When President Trump started his first administration, the market was also expecting dollar strength, and you saw two things happening. You saw any progress on fiscal and tax reform stall for nine months as the administration was.

Trying through peal Obamacare, and you saw a big upswing in global growth.

I think if you saw a repetition of that, the dollar would most certainly weaken. But what we're seeing this time is the administration picking up pace. The immediate focus is.

On tax cuts, it is on trade, and the global.

Environment looks a lot more challenging, so we I can always build a varish case for the dollar, but from my perspective, I think the hurdle is much higher than what it was in twenty nineteen.

The news flow is extraordinary Jersey. They got to do an audible here just in the last twelve hours, eighteen hours. The president is reverted in Fed speak, and I think indirectly in currency speak to what we knew Donald Trump to be, which is he likes lower interest rates. I mean, he's a real estate guy, which real estate guy Paul doesn't like lower interest rates. Introduce him to me sometime, George.

If the FED is independent and this institutional independence is maintained, then the answer is no. The transmission would work via FED appointments. But then if you're looking at the FED appointment process, which requires Center confirmation, and also the number of FED governors that are up for reappointment.

There's not that many.

But what I would say, going back to the question around the bare case for the dollar, the single biggest risk would be a compromise of FED independence. We certainly don't see that from our perspective, because I think the administration is well aware that if that was to happen, it would lead to all sorts of other.

Bad things happening. For example, heels going up rather.

Than down right in the back end exactly.

But I think it's for that reason that the commentary is likely to remain rather than genuinely impacting and government what we saw last.

Time, and Governor Lusetti will straighten that out. One final question, George Saravellos, the president wants a week dollar. He's been that way since before he was president as well. How far are we from the tension of the Plaza accord where there was a primal scream for a week dollar.

So you raise a very interesting question, Tom, because by this time in the first administration, we already had the Secretary Treasury nominee Unusin talking down the dollar, we had tweets from President Trump talking down the dollar. And this time what I'm seeing is something very different. I'm seeing Scott Besson in the testimony in the Senate testimony hearing talk about the importance of the dollar as a reserve currency. I'm not seeing Trump talk about the dollar all that

Gotta un Jorge Servell's congratulations for the research piece of the week, just absolutely outstanding. Mister Serrave ellis at Deutsche Bank.

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Sir Hunt joins US now and the equity markets. Are you surprised at the day after day bid of the market.

I'm not really because what we're looking at right now.

Is again all the optimism and people are putting the pessimism or the things that might go wrong aside.

Because of earnings or Washington, so Washington.

But earnings have helped, right, So earnings also a lot banks that banks.

Needed to come in with good numbers. They did. If we can see earnings come in good.

That's going to go well, because it seems like twenty twenty five, if this market's going to move higher after two years of twenty percent plus returns and a FED, that's probably not going to be that active in twenty twenty five in terms of lowering rates. Earnings really have to drive the story here. Are you confident in a eleven, twelve thirteen percent growth in SMP earnings?

It depends a lot. Again, Now, what's going to happen with technology?

Right?

You can look at the energy sector and go okay, oil prices are higher. That's going to help earnings for the SMP as a whole, where last year it was it was a detriment. There are going to be areas where you need to see that growth coming through because the multiple where the multiple is, it's hard to see multiple expansion. You need to see the earnings grow into that so that you can see that market move higher.

One of the sectors that has been, if I guess Trump trade kind of sectors financials. The expectation that the regulatory environment's going to ease if nothing else that would be beneficial. Do you ascribe to that? Have you guys stepped up your exposure to financials?

I wouldn't say that we've necessarily stepped it up because we had representation there and basically a lot more in the larger banks, because I think there may be some issues with the regional banks. But I think that just the fact that you may see an M and a boom after you've got a change at the FTC might help on the financial sector because you have a lot

I guess with this new administration there's been I think a palpable sense of economic optimism. I'm not sure it's animal spirits is the right word, but people feel like this is an administration, a government that is pro business, pro growth. If that's in fact a sense, is this maybe a time for smaller caps mid caps to actually do well?

I think it absolutely is, and I think that, I mean that's it's going to depend a on on what happens to the rest of the underlying economic data, because for small caps to do well, you need to see a good economy. The fact that the FED is likely to be backing off a bit here is tougher for small caps because higher rates are tougher for them as a group. But I think that that could be If the US does do well.

Small and min should do well as well.

Not once, but twice this weekend, I got grilled on international stocks, and I, you know, I went back and looked at my Sarah Hunt notes and the basic idea is they're completely correlated to week dollar. Am I right on that?

I think it is much bigger driver than what's going on for them economically, and one of the reasons that you would think they should be less strong is because what's going on in Europe is not fantastic economically, But there definitely is a currency trade off there, and I think that it's sort of like when the US when interest rates go higher, the tech group goes lower when the dollar gets weaker.

Yeah, how do you digest? And I don't wanted to talk about Apple specifically unless you want to, But there's like rumors ONNG somebody's this, or that there's a shortfall. There are these research geeks measuring things on whatever product. Do you lean over the desk and listen to those people, read those people or is it just tangential noise.

I think it has to be part of what you're looking at altogether, because you don't want to be surprised by some sort of a shortfall, but the market doesn't seem to be enormously surprised. I think it really depends on what else is going on underneath.

For something like.

Apple, specifically, that service revenue and that recurring revenue is a bigger part of what people look at in the story.

The hardware is still important.

So if there's a shortfall and it's not continuous, that's probably not as big a deal.

We're talking apple. Can I be rude, Paul? Are you're going to load the boat on an apple? There's a pullback.

I'm definitely going to make sure that if I was underweight or not participating and I like the story, I would be adding to it.

Here. We had a participation already, so I mean.

She owns Yeah, that's fine.

That's that's Baron's talk. That's the way Mario Gabelli talks.

Nothing wrong with that.

We mentioned the FED before, probably a little bit more quiescent this year than maybe we initially thought think the FED will do this year.

There's going to be that's going to depend on a lot of different factoris. But right now I think the impetus is to do nothing. It's just sort of wait and pause. We'll see what happens next week. But I think that you're going to need to see data on the inflation side come in reasonably good for the FED to be able to cut more just because things are going well enough that it seems contradictory to say, we're raising our inflation out and we're cutting.

Rates, But aren't these rates nominal or real quote unquote normal. We have this great conversation with Greg Peters of p JAP. I mean, a lot of the younger people are going, oh gee, it's so weird.

Is it.

It's not so weird on the back end, on the long end, but on the short end that seems a little high relative to other things. So that could be the argument of saying I can bring the short end down a little bit because we want to see that steep ree yield curve and that more normalized yield curve. But yes, after a decade of zero, go back and look, rates at five percent are almost.

In a low relative to history, especially on the long end.

Tearing up Paul Out on YouTube today. On live chat, he used the word quis like when you're court sighted duke and the first quarter doesn't go well. Now do you look there, and who's the freshman start calem.

H Cooper flag Connor, Yeah, Cooper Cooper, Cooper Flagg.

So do you go Cooper you're quiet?

Yeah, that's not gonna happen. I'd get thrown out of my seats.

Quies, what's happened to me?

You know, Lisa, he's ruined yep to others to it, Sarah, thank you so much, Sarah Han on short notice today in the equity markets, as we really readjust without buying Saxon.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.

Calem Anderson for years was definitive in international economics. You get upset, you throw out a twelve page wonder Oh damn, I gotta read this. He was that good.

He's teemed up.

With Thomas Harr of the Denmark Central Bank to write a lovely, short focused treatise on your fear of inflation. Doctor Hart joins us right now, chief Economists, head of all of economics for the Central Bank of Denmark's National Bank. Is this nineteen sixties inflation? Is this the inflation that our parents or some of us older lived, Doctor Herr.

Well, thanks a lotor for being on the show, Tom, and no, I don't think it is. So. I think what happened, and that's what we talk a lot about at length in the book, is there was some extraordinary shock, and there was extraordinary you can say, fiscal and monetary policy. A lot of differences between the different regions we describe both the US, Europe and Asia. But that happened.

But what was the key.

Difference between compared to the sixties and seventies was, for example, that inflacing expectations did not rise to the same extent, and therefore that was one of the key reasons why inflacing back down. Clearly there are a lot of uncertainties out there have to talk about that.

The heart of the matter, in the fear of every sentence of Jerome Powers press conference, is the fear of central banks unanchored. Are we threatened that we could be unanchored in these tumultuous times?

I think, I mean all central banks are monitoring this extremely closely and clearly. When you look at the last and that's what the book is about. The twenty twenty one, twenty two bursts of inflation. We did see on the short term inplaced expectations that they write somewhat, but the longer term still was so you can say surprisingly or

To us.

The discussion these days, just in the last a week or so here in the US, it has been about tariffs. Tariffs, teriffs. From your perspective, what is their impact on inflation? How do you think about that relationship?

Now? I think there is a difference between whether you look at it from a US perspective or whether you look at it from a world perspective. But because one of the point we're actually making in the book is that inflation is to a very large extent of global phenomena. But I would say, and that's always the danger of

Two, Thomas Hard, I would be remiss if I didn't pull an audible here for American commuters those on YouTube nationwide. The Bank of Denmark rights heard on all the research capabilities of Greenland, and I don't want to get into a debate about who's going to end up with Greenland here, but I do want to ask simply, what's the number one thing in the Danish Central Banks research on Greenland that you would like to convey to our American audience.

I mean, we do some ananosis on Greenland. We will actually quite quite soon come out with a new analysis on Greenland and that you can look out for. I think it would be out in a couple of months, just published from the Central Banks, purely on the economic out roup for Greenland. We're updating this on a quite regular basis and that will come out as I said in a couple months.

Time, we'll have to have you back on for that. I think maybe Paul Spring and Copenhagen, Thomas Hart, thank you so much. Congratulations on your book with Callum Anderson the inflation Researchers. We greatly appreciate it. Today, doctor Herr is with the Denmark Central Bank.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple, Corplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.

The daily look at the front page is the Lisa Matteo Moment and now the Yak Report. What are you talking about?

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President's Trump moving back into the White House. He sent the DC luxury home market. It's on this buying spree right now because more people want to be his neighbor. So you have business leaders, new members of Congress, wealthy political appointees. They're all scooping up these like multimillion dollar properties in DC and some of those surrounding neighborhoods. So I'll give you an example December Canter Fitzgerald CEO Howard Lutnik,

He's looking for a home there.

But the real estate agents they're just saying that these are like big ticket deals. That's really taking off faster than in any prior administration.

You know, the DC metro area there were eighty seven home sales about five million dollars last year compared with fifty three and twenty twenty three, and sixteen in twenty twenty six.

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Money for this.

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Their to TikTok's still dark.

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Well, if that's your business, you know, if that's your business being an influencer or content creator, you got to be.

There, right.

If you deleted it, then then you're stock. But people are saying, you know what, don't do it because they can have some spyware in there. You could, you know, be in trouble. They're saying that there are safer options. You can go to web browsers. They still have it on there. Reddit people and Redder are saying there's like a workaround to the app. There's always some kind of way around, but it's a good way to make money if you have an old iPhone with TikTok Lisa.

But tay you, thank you so much. On newspaper Report Today.

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