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Begin strong with jeffre You, Senior Strategy Seema Bny. Jeff you, thank you so much for joining us. Let me go right to the terriffs. Michael Brown in London has a wonderful tweet out. So the US went from negligible tariffs on China to ten percent, then twenty, then fifty four, then one oh four, then one forty five, and now we're back to thirty and ninety days. Jeff you, is China advantaged by this round trip on tariffs?
Well, roundtrip and detailing how long? Right, I'll just highlight simultaneously when that joints came out, China actually put out a twenty thirty five white paper on security and resilience. Okay, that round trip is going to last years and years and years, or rather it's not a round trip at all, so they're looking to perhaps get some dat in the short term paper things over stability the target restructuring of
the economy and the medium to longer term. So in terms of long term strategy for Beijing, this doesn't change a thing.
And for the export numbers, I'm going to say forty eight hours ago showing buoyant exports out of China to other nations. This delay in the trade war, this round trip by President Trump, doesn't it give a more time to organize and disperse their supply chains to other nations.
And one hour ago, I believe China's just signed deals with Lula detailing billions and billions of investment into Brazil and vice versa. And you think about agricultural supply chains potential. So South America is a very large market for Chinese evs for example. All of that is taking place in the background, and let's look at how chum weather. China reaches some form of agreement with Europe on evs as well,
you know that's going to be a big one. So Beijing's not done in terms of its broader focus on diversification that also need to restructure its own economy as well in favor of domestic demand.
Whereas from the US.
Side, hopefully that it's a short term blip, and we'll need to see whether it can continue US exceptionalism, because that's in the mind of all investors right now.
So, Jeffrey, we're seeing a rally in the Bloomberg Dollar Index here. How do you think about the US dollar here?
Well, a lot will depend on the FED and also you know how the economies pursued in terms of growth, right I look at dollar Asia because that's where the volatility has been right now, and there's this view that, oh, well, their Asian currencies need to appreciate up ahead that that to Tom's favorite theme, Yes, appreciate, But in real terms, how do we square the circle here? Well, that means
fiscal stimulus across Asia. That can afford it to boost our own economies, to boost the domestic site, bring inflation up in Asia, and I think that will help paper global growth over and for the US. I don't see that as a bad thing either. It's the rebalancing process and perhaps the exceptionalism can continue with a softer dollar to stimulate the US economy.
And Paul brilliant to bring up the Bloomberg Dollar Index, folks, this is a more emerging market. Adding in China index off of dxy the symbol and for those of you with a terminal in your car nationwide dbdxy. Paul, we've moved. It's an elegant chart. Yep. I did it log rhythmic because Jeff us with us and we're out two point six standard deviations up, so's it's not like a fiery rally in the dollar. But it's a legitimate move.
Jeffrey, when you see the risk assets. Let's just take the US equity markets here rallying three four percent here today.
What does that tell you?
I think that tells you and that people are viewing this stability as being prioritized by this administration, and the stability is being prioritized by all administrations and globally ultimately this uh, this loosens financial conditions and it's good for risk appetite, so you know, no one really wants to rock the boat. And that is back in the pricing here. But up ahead, I think let's just see you know where US growth, how US growth is going to consolidate,
and I think this will hinge on the FED. And I think again, you know, this is where the domestic side of the US inflation, the labor market that's going to matter a lot more.
Is it so cool that we have Jeffrey You and Jordan Rochester back to back. Let's continue with jeffre you a little bit more.
Hey, Jeffrey, you know we had stories just as recently as a week ago of ships coming from China turning around and going back to China, not coming to the port of Los Angeles.
How do we think about that? That's the key question?
Yes, exactly where are ships going now?
Where a Hawai stecked up like Newark exactly?
So, so what I would focus on right now? And I know the commerce departments very focused on transshipments, but are we seeing a pickup in Chinese ship and the likes of Malaysia, Singapore, Southeast how those deals have progress? And then are you going to see a corresponding pickup in exports you know from these regions are to the US as well. But then let's see how much volume clears customs in the US from Asia in general? Is
that coming down? If not? And I don't think it will come down that much because demand is going to be in place. What's the weighted average pricing that matters for the FED? Will that feed into inflation? So I don't worry about supply, but there's still will be a price issue and that's something that the FED will need to look into when setting policy, and ultimately that's what USXC markets will react to as well.
Jeff you've fooled the bonds, the currency, the commodity correlations into the equity market. For our listeners seeing this relief rally, is it all clear for Jeffrey? You in the stock.
Market, US exceptionalism means you buy stocks, you buy US stocks, you buy US bonds, and you buy the dollar. We think that the only thing which may decorrelate slightly or not just be as full on is on the dollar side to compensate for maybe a little bit more risk premia due to the recent uncertainty is a softer dollar. But again, this shouldn't be seen as a bad thing. A. It's something that the Trump administration, perhaps on and off,
has been talking about. But b what if US companies become exporters as well, then you can benefit from that FX earnings translation that Europe, Switzerland, you know, Japan and even China Asia they always look for so that correlationship is perhaps taking place, But don't read it as a negative for US exceptionalism, at least not yet. Let's say if US companies can adapt.
This round tripidness. Here's Lula of Brazil Folcus. This is a Bloomberg headline. Brazil's Lula says can't understand Donald Trump's tariffs and not making that up. That's the actual headline. Jeffrey, You heads are spinning over this modern neo mercantilist policy. What's the outcome that you see a complete capitulation by President Trump?
I would say, you know, Beijing in the US ultimately the world view that free trade or rather so any unwinding of trade decoupling as both sides and Treasury secreted. Beston has stated, there's no win in this right, so it's les Lee's for all. So there is a vested interest, or rather there is an interest for the global economy. Beijing has said this for stability, so that is something I think that both sides are now very focused on. But over the medium to longer term for the US
and for China, restructuring is needed. And for Europe, look at how much Europe has rallied this year on account of Germany focused more on domestic demand. That is healthy, and that's something Bessent has highlighted, and there's absolutely correct in this right. Restructuring in favor of domestic demand matters for the exporters in China, in Japan, in Europe, and the hope is from markets that they continue along that.
So as an exit investor, you focus on the domestic elements in Europe and in Asia which have been underpriced for so long.
Jeff, for you, thank you for getting a started, senior strategist be and why I greatly appreciate that.
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Else correlating beautifully and publishing on LinkedIn. This morning, Paul, why don't you bring in mister Rochester here at Missouo.
Jordan Rochester he is head of fixed income, credit and Commodities macro strategy at miszou Ho Jordan. We wake up to the news this morning that the US and China will temporarily lower teriffs on each other's products, and the news Jordan is the US reduced its levites from one hundred and forty five percent to thirty percent, in China will reduce its duties from one hundred and twenty five percent to ten percent. Is it back to business as usual Jordan.
It's back to business like it was in March.
So the effective time for right, if you take all of this sort of exemptions, has gone from one hundred and eight on you on Chinese exports to US, so about twenty seven if you take it all in.
So that's why we were in March.
We were lower than that, of course before Donald Trump took it to the White House, so there could be a bit more to go. There's a few caveats as well. This is a ninety day reprieve. Things could escalate flower down the line. But in the sort of press conference with Scott Best earlier, what was quite clear was the hurdle to extending beyond ninety days is quite low.
It was just as long as talks remained constructive.
So it's quite clear that Scott Bessett leaned the charge on this in Switzerland that there is a move by the US to get rid of what was a de facto trade tariff embargo, a trade tariff wall. It was such a high tariff that business was freezing up, and as the previous speaker was talking about, lots of trade shipments were being re routed and Chinese exporters were considering ways of paying for the tariffs at lower prices.
Than what they possibly are.
So there's all these sorts of complex parts of international trade that the sort of cogs were being put into motion. Now they don't need to be at the same level because we are now down to the tariff rates that I think US firms can swallow.
So what's next to you? If you're in the C suite, you're CEO, your CFO, you're purchasing manager. How do you navigate here? Do you think I mean, I mean much less being an investor here? If you're just an executive trying to run your business.
Well before Liberation Day, it was quite clear what a lot of firms had been doing was that China might have been the original creator of an item, but it was being shipped to a third country and final construction of that product was being made in Vietnam or elsewhere, and then ships to the US at lower tariff rates
than what was previously applied upon China. What changed on Liberation days everybody got this ten percent tariff, so it becomes a lot less effective to do so, even for countries with free trade agreements that there's a ten percent tariff, and then there was the extra kicker there was a higher rates of reciprocal on top of that, and countries like Vietnam and others who had been part of this
China needs rerouting system face a much larger tariff. So if you're in a C suite right now, you're thinking, well, I can't.
It's hard for me to avoid tariffs.
It's more about going with the importer of choice that can help your supply chain in the first place, but also bringing it back to the US. I think this is a key part of the administration's focus. If it can be produced in the US for a similar economic cost, it will be sorgan.
Have you the terrific Massouu team not only in Tokyo but in London and worldwide. Have you and Dominic constant sever shootout, have you come up with an optimum terraff statistic something less than ten percent back towards a blended three percent level. We were at. Is there a tip point where we get an optimum tariff?
I think getting down to three or four percent like it was is pretty much impossible with this administration. But the level to consider the number is that the effective tariff rate that the sort of cell side consensus amongst banks were expecting on Liberation Day was roughly between twelve and a half to seventeen and a half.
So let's call it fifteen in the middle we get If we get an.
Effective tariffreight back down to fifteen percent, this market will handle it pretty well because we went into Liberation Day with the stock market down three or four percent year today, but nothing too crazy, and most self side analysts were expecting stock market to rally into year end. So if we get that number, Tom, that's the crucial tipping point, and the moves from China today really do get us closer to that bol As.
An economist, where's your tip point? In the second vesper? Yes? What percent?
What?
Seriously? What percent tariff? Would you say? I don't care about the tariff. I need a second vestment.
I need a second vestment. I don't I have a trade deficit with Italy right now? Buying my vest of four thousand dollars. I think, Jordan, what do we do here in the marketplace?
Here?
How much risk this morning are you suggesting your client to take here.
In a big way, We've got a use the recent narrative, which is the sell America theme, which I never truly believed in as a theme.
It was mostly a positioning point of view.
It was an unhedged dollar exposure that needed to be hedged. Well, now it's been hedged, and the reasons for hedging it have really really fallen down if you think about it. And so a lot of the euro dollar buying we saw will not be fully unwound. But you're not gonna have the same pace of buying the same with the
yen as well. So I think the dollar's going to rebound here because you've got essentially a lot of people who've positioned for continued dollar weakness, but forgetting that this is a market that has about three or four different narratives per year, and we're currently now going into a reversal of tariff tensions, and that will lead to dollar strength.
On the back of it.
Euro on one ten, it's under a one eleven ninety eight. I can't imagine if you formulated a new euro call, Jordan Rochester, can you get back to a one oh five or Dare I say we need a parody call in May?
No, we're not going to those levels, So we have to split it into short term versus long term. Short term I talk about dollar strength there. That's kind of what needs to happen. The market's very short the dollars. However, longer term, I actually think your dollar gets to one twenty by year ends rather than the sort of one five level, which is what rate spreads currently would suggest. We've had this real problem in FX where rates are saying the euro should be weaker than what it is.
But anyway, I digress one twenty by year end. Why it's because of this German fiscal story, EU joint issuance is possible and also EU reform. So we're going to see an expansion of European growth potential later this year, and that'll keep the idea of one twenty alive in you.
I got to squeeze, so we're going to stop the show for Jordan Rochester. Are you suggesting with joint issuance that we finally get a coordinated fiscal policy out of Brussels.
We've already had joint issuance before during the COVID pandemic, and so do we a crisis that triggers them to move again. The trade tensions were causing that crisis. I know things have come down in recent weeks, so therefore it doesn't feel as urgent as before. But the EU is looking at the US as a less trusted ally and that's going to lead to them thinking we need to boost our defense spending. That there's a summit on that in June and that will be the outcome of that.
But for the other things, such as EU reform, that's going to be much more harder and longer to do. But you do have us Lavon Delaine and other EU commissioners.
Pushing for it.
So answer your question, I think joint commission has dropped US a probability in the past two weeks, but it still remains on the cards for me.
Jordan Wrchester, thank you so much.
With Missia, you're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app or watch us live on YouTube.
We're going to rip up the script right now. We can do that with Lori kelvisin incredibly gifted and I want to playoff Doug cass a smart note today, which is I'm paraphrasing mister cass effective Immediately, the Tarorff thing is sort of pushed aside, whatever the end outcome is, and all of a sudden, the stock market is beholden to the bond market and the debate over fiscal the
debate over the tax bill. Cass trying to move into the summer of twenty five like the dreaded New York Yankees are moving into the summer of twenty twenty five. What do high yields do to the Lori kelvisina space, Well, looking just.
Like higher treasury yields generally, I mean, you know, it depresses valuation multiples. I mean that's what we tend to see. And I would also point out though that when I've done my back testing and my modeling, I'll nerd out on you for a minute, we actually find the inflation rate is a little bit more sensitive with pees if you go all the way back to the sixties, as opposed to bond yields, So the bond yields matter. But I I don't think we're totally done with this tariff
moment and the inflationary impacts. I would like very much to get out of this tariff moment. But I don't know if I quite agree with mister Cass that we're totally done.
Oh okay, well I'm paraphrasing, and Doug, maybe will you know call up and say time you're wrong. I didn't say we're totally done. The chaos folks this morning is crazy. What will people do in the mid cap, small cap small business space. They're not Apple. Their heads have to be absolutely spinning.
Yeah.
So look, I would say, as you think about the size of businesses, right, I think the bigger the better in terms of your ability to navigate whatever problem, whatever
headwind is out there for margins. And so while we've dialed down the China tariffs this morning, at least temporarily, we're still in a worse place than we were a couple of months ago, right, And so there are still things that have to be navigated and dealt with, and I do think small and mid cap companies have less of an ability to do that than the bigger cap companies, and you know, we are mostly done with S and P reporting season.
We've still got a lot of smid companies yet to report.
So I'm sure we're going to get an earful about this issue and we'll find out whether I'm right or wrong on that, But that is my general rule of thumb. That being said, small cap futures are up like five percent last I checked, so the markets are clearly celebrating in here. But that would be kind of the one word of caution I'd throw out at you.
So, how has your investment out looked for equities changed this morning, if at all?
You know, it's it's interesting. You know, I was watching everything last night. The best Mother's Day gift, I guess was that we got the news at night, not in the middle of the day, so we you know, all the moms could enjoy the day. But look, I think that we have known that there was a tension in the modeling right now, right so I look at a bunch of stuff, and I can give you like six or seven different things that said we had hit maximum pain.
One of those was the rate.
Of upward revisions, which hit twenty eight percent for both small and large cap a few weeks ago, and when we updated that at the end of the last week, small cap provisions were up to forty percent to the upside, and large caps move up to like thirty.
Four to thirty five percent.
So anyway, we've seen like these various stress indicators that are healing, but we also know that there's some uncertainty and there's some you know, there's some headwinds out there right from all the disruption that we've had, and that's not just trade and tariff disruption. That's the news we got out of healthcare this morning, right, that's the news we got about dose. If you look at the Challenger data, the Doge layoffs are consistent with what we see in recessions.
So we've still got a lot of that stuff to sort through. I will tell you the cinnamon indicators, bullish economic indicators less so that tension. You know, the bulls went out on the day, but that doesn't mean the sort of you know, headwinds on the econ side have disappeared.
How about on earnings, We saw earnings estimates come down maybe reflecting some of the trade conditions. Does that suggest maybe we can get a little bit of lift in earnings now because maybe things are a little bit less bad.
I think it's not clear to me we're we're gonna be back to upward revisions anytime soon unless we just make these tariffs go away. And that's not what happened this morning, right, Companies, especially on the industrial side, saying mitigate, mitigate, mitigate, price, price price a just footprint as footprint. Okay, fine, So a lot of these companies right are coming out and saying we're going to offset this. A lot are also saying we're only giving quarterly guidance now, right, So that
tells you about the conviction level and that call. I went back and looked at twenty eighteen recently, and you actually didn't see, you know, too much movement in those earnings forecasts in the second half of the year. But we still got a lot of cautions commentary in September October that year. I think earnings, you know, big cap companies find a way to make it work. But that doesn't mean the rhetoric is going to be great.
We continue with Lori Kelvicina in your commute acrass Nation. Good morning, particularly out in Los Angeles. Jeans Roca of the Los Angeles Port Authority schedule to be with this Thursday. It'll be a timely conversation, Laurie. I just brought up a chart from one hundred thousand feet like almost up, Like if should I go up in the Bezos spaceship? Oh, they send up an entire group me bill Ni, bill n, I could lead it. Everybody on the spaceship would have a bow tye on. Can you see it? I can
see envision that. Okay, I mean one hundred thousand feet. I got a quarterly Dow Jones industrial laverage chart. It's as vanilla as you can get, and even quarterly with a pullback. We really are still in a bull market? Are we still in a bull market?
Well?
Look what we and I try not to get, you know, stuck in those labels, but I'll tell you what we did on the April eighth lows, and we looked more at the S and P. But we priced in a growth scare. We priced in a near miss. We never priced in a recession, and I think that was the appropriate thing to do based on the information at hand.
The recession risks feel like.
They're dialing down, but they're still elevated versus where they were, So we do have to be vigilant. If you get a recession, you're going to break through those lows and probably go to something like forty two to forty five hundred on the SMP. I feel like, you know, we reduced that risk this morning, but we still have to be vigilant because we have had a lot of stuff thrown at this economy in recent months.
Yeah, so I'm wondering here, Lori. Again, it feels a little bit better today. The market's telling us that today with a big lift in the futures, what are some of the sectors that today kind of.
So, I would say thinking very short term and more tactically than I tend to do normally.
We look six to twelve months.
But if you if you just look at what's been positively correlated in terms of sector performance with Trump's favorability in the polls. We look at net favorability. We actually just published a study on this this morning. It tends to be the big growth sectors tech, consumer, discretionary, calm services. And I think that's because this tariff angst caused a rotation out of the US, right, those are the biggest weights. But also look at the financials. That's another Trump trade
that's emerged. And if you dig down under the service, a lot of tech industries have been very positively correlated with Trump's positioning in the polls. But also things like apparel, autos, airlines, you know, which are a big macro bed at this point in time. So those are the things i'd watched today. Stepping out more broadly, I still really really like financials whatever's coming on our way. I think they have an ability to manage.
Laurie Calvacina with us here. Okay, the financials, you're gonna tell me, I'm supposed to look at what regionals, super regionals, lessons, super regionals, some bank I don't know in Oklahoma, which which which financials I like?
I like the regionals, thinking roughly kind of like the Russell two thousand, you know, kind of regional banks.
I think you generally.
See me one example that to buy the.
Compliance gods will shoot me with a lightning.
That is, our compliance gods are tougher than years continue.
No, I've agreed.
I agreed never to say a stock on TV. That's okay, But the but the you know, as I as I do parse out the valuations, what we see very clearly is across the Russell three thousand, your regional banks are giving you the best valuations. We look at that on a median basis. So think of kind of smitty kind of like your your bigger, you know, small caps, so to speak, kind of some of the more kind of well established ones, you know, kind of more tried and true names on Wall.
Street, like that John Arthstrom would cover, for example.
I do think the investment banks, which has been you know, really kind of the the you know what everyone's loved to love because of the M and A trade I would still maybe fade those relative to the regionals because I just don't think you have the same value appeal and I don't know that a ton of uncertainty was alleviated this morning, and that's been the big thing, you know, sort of holding back some of those transactions.
I would think the news today about you know, declining trade tensions would be good for the consumer. How do you think about the consumer, the consumer spending and maybe how to play that in the equities.
So you know, I'll tell.
You the University of Michigan data is one that we watch really really closely. I'm getting a little a little tired of it. But post COVID, we've actually seen if you look at stock prices year every year, they've been very well correlated with that Michigan Sentiment index for both small and large. We think we're in a sentiment driven market, and that's, you know, frankly been better than the Conference
Board data at explaining market moves. What I'm seeing in that data though, is that you're already getting back to recession type low. So we know everybody feels lousy as a strategist when those prints come out. I don't make forecasts on them, but you know, I've been telling people part of why we want to own the financials is they benefit when that indicator moves up. They outperform, and
it's so bad as a strategist. Even though we all feel lousy and we're kind of you know, push you know, pushing back on some of.
This trade stuff, you have to look for inflections.
Barons this weekend played up buffer funds with pro and concomments. I don't want to get into do is of Borne and Belchunis will explain this when he shows up, if if he just shows up, but a buffer fund is basically I want to be in equities, but I'm scared stiff and I need something less volatile. I'm translating, folks, don't you know. I'm not a pinata here for the
ETF business. Laura Calvisina, If the public is demanding buffer funds because they're scared stiff, do you frame it as a single digit future or can we get still addicted to a double digit equity return?
You know, I think that we have to see what happens with the international investor and their affinity for US equities, and we know that the economic policy backdrop is more uncertain than it was in the past. That tends to be well correlated with pees as well. So I feel like we're setting up for a period of less robust returns because you know, the door to Europe has been opened, for example, and the policy environment is more volatile than it's been in the past, and that's probably not going
to change entirely. So, you know, it's not to say equities can't do well, but I feel like we have lost some of the tailwinds that we had in the past.
Sure, Mother's Day was perfect until four pm.
Yesterday exactly hopefully. I had a good Mother's Day, was a great beach day for those that were with me on New Jersey. Sure, what do we do here? What's the call with your RBC clients today?
So look, I think it's enjoy the day. Let's get some more information. There are a bunch of big retailers that are coming out in the next two weeks, and ultimately they matter more than what I think about what just came out. So I think, you know, enjoy the day. We have not wanted people to be wholly defensively positioned. We were not over weight health care. You know, some of our concerns in that sector are playing out, you know, just the disruption risk. We keep seeing one thing after
another coming at that sector. So I would stay balanced. We still like the financials, We still like calm services, and there was a moment right you know where it looked like tariffs might hit that sector as well. All that seems to have gone away, But I would say stay balanced.
I would stick with higher quality stocks.
We are seeing that that's generally outperforming in the factor data. And to the extent you want to be defensive, do it through utilities.
Laurie, thank you so much. Lorid Calvacina with us this morning. You really really appreciate that. With RBC Capital Marcus.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Cocklay 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.
You see how huvon Steinis walks in the studio and the market goes up?
Is he based in London or New York?
First of all, huvhon Steenis joins us is just way too much love from him over the last number of weeks. Vice chaired Oliver Wyman. First of all, let me cut to the chase. Will you join the Carnie cabinet in Canada.
I'm not a Canadian system, so I don't I'll have that honor, but I'm rooting for him.
It's amazing. Tell me about the clarity of thought and process of Mark Kearney as he takes on these challenges for Canada.
Well, Tom, you've met him. I mean certainly, I was really honored to work for him for eighteen months. He's got a cool head in a crisis. He's got a really good strategic nows and do you know what, he loves to do the detail, so he can really fire it down. I have learned, and I think that's the great thing he can challenge. And so you look, he is at heart Remory did do thirteen years ago when he has a financier at heart, but obviously now very public spirited. So I think he's going to have a
really good finger on economics. So give you an example. Seventy percent of potash you know I used for US fertilizer comes from Canada. He knows that it's the detail that actually will help in these negotiations.
So I will not mince words. Folks, Hu von Steins and the Americans are going, who's the brid And the answer is the gentleman at a shockingly young age owned the analysis of European finance and he's of course parlor that over to Oliver Wyman. Now in an esteemed career, you are more qualified than anyone to say, is the investment dream of Europe actually in place? Led by the Germans? Can we actually look for a new Europe?
It's a great question. I definitely see there is a really good debate about whether Europe has got a renaissance as an investment destination US investors have I gotta interrupt.
Do you see the difference here? He sounds like he sounds like a masterpiece theater thing I feel like with Henry the As and Cromwell the rene help us here.
Renaissance of Europe as an investment destination. Take the Black Croc data. US investors put seven times more money into European equities this year than last year in ETFs. But the key thing to me is now that was the tactical trade. What's the strategic trade? What do you think out the day of to tomorrow? And I think the big debate we're having with CIOs is actually is it
an equity opportunity or a credit opportunity? And to be honest, sitting here today, I think the credit opportunity is clearer to me because there's going to be hundreds of billions of infrastructure and digital and defense to be spent. And if Europe grows faster, that's fantastic, But they're going to demand a huge amount of credit. The yield in European
credit is higher than US at the moment. And what's more, as we've discussed many times, the bank rules are still really tight, and so actually it's not like the banks have got tons of capital deployees. So as a credit investor, that's a really interesting opportunity. But certainly that's certainly from the CIOs i've met.
You woke up this morning, it seems like it's a little bit more of a risk on environment relative to where we've been over the last maybe four months. Here, how do you put our this tariff stuff into context for your clients? I guess context matters here.
Look, I think everyone's got their own specific situation, and I think particularly if you're a European or Asian regulated investor, let's say a pension fund or an insurer, the FX of all has been wild and the State Street data show that coming into this year hedging FX hedging by international clients was at the lowest level for eight years.
And so what we're picking up as all of these pension you know, a Danish pension fund, a Dutch pension fund, an Asian insurer, they want to increase their FX hedging by maybe ten to twenty points. They want to own US credit or rates or orecities, but they need to reduce that volatility' that's the number one. But then beyond that, there's also a bit of push and pull. I think there's a bit of demand to bring a bit more capital back home to redeploy, both in Canada and Europe.
So I think there's also a can you take maybe three four points off the table from the US and maybe redeploy it back home.
US exceptionalism still a thing from an economic perspective, or maybe less so these.
Days, So I think I'm in the camp. I thought Mark Growan's line last week in milk And was great, which is that it's it's not exceptionalis at the end, and maybe it's the end of hyper exceptionalists. Okay, the US is still and the extraordinary place to be. And as I said, a lot of the CEOs I've met in the last month want to keep their holdings. They just want to mitigate the FX risk because it's just been a bit too too hot to handle. So I definitely think the exceptionalism is there.
Private equity.
We also heard in Milking last week a lot of discussion about private equity. I think a lot of people would like to get liquidity in their private equity, and maybe a little bit less so today maybe people change.
You brought that up, you rude guys.
I know, yeah, So what do we do here?
So I think in the private markets that so again coming out of our conversations, and we're trying to do a survey, but no one really wants to put hard numbers around it because the maybe the quarterly investment committees haven't yet met. But I think on private equity, my gut would be people want to get reduce it by five points maybe, And some of that was already coming
into this year. Public markets about performed. Private part of it is that actually about cash flow management that's said to themselves, we'll keep it, but will only put cash out when we cash in. So obviously as those exits have been pushed to the right by you tell me six nine months, maybe a bit longer, that constrains it. And there's some chips back home that said private credit raising actually hit another new record in Q one from
what we can see for the top firm. So there's a pivot, and this is why it's the secondary opportunity, and it's the doubling down on wealth is kind of where it's at.
You've I've seen us here for a few more minutes and we're thrillies with us with Oliver Wyman. It's not your remit there. But I have to ask. I think for Americans, either the United Kingdom at post breakfast is almost off the radar, or it's a convenient trip to LHR British Airways buying a zillion dollars worth of Boeings. Whatever we worry about the state of the United Kingdom, you've got the confusion of us, the labors and power the Democrats, the Tories are silent, the Republicans after the
site is a maga like reform as well. Politically, where do you see your United Kingdom in a year or two? Do we have a clue?
It's a great question. Look, if this is the moment, way to be a bit more long term. The great advantage of the UK for many years was it was mid Atlantic. It didn't have quite the US growth rate, but it certainly was growing faster than Europe. Unfortunately, since the financial crisis, but particularly since Brexit, we've lost that
UK exceptionalism. In fact, in a way we were exceptional compared to Europe, and now where we've actually the end of UK exceptionalism in twenty sixteen was really the right, and actually my old Prime Minister Carney was correct. The Brexit was economically, at least put to one side, politically a poor decision. So I think that we're trying to get our act together again. I think at the moment that it's very difficult to see how you get back to the exceptionalism anytime soon.
Is this accit amendable? I mean, is it all or nothing? Or is there a way in a parliamentarior system to pull away from Brexit?
So why don't we do? I think one thing that the President here has really shon a light on is like the terms of trade internationally. The UK's terms of trade with its nearest counterpart is now poorer. So is there a way to put the politics one side improve trade relationships? And might be if you want to us of a Hail Mary, it would be if if Canada wants to actually have lower tariffs with Europe, maybe there's an opportunity for Ukraine Canada UK to end into a
much lower tariff zone. That would be the dream. If it's I mean it's been talked about, whether it happens, I don't think I'm the right political expert to put odds.
On thirty seconds. What is the politics of Brexit today? Would it Do you think it would pass or not pass if they were to go again today?
Oh, based on no, there's buyer's remorse. So if you look at the polls today that it wouldn't pass part of part of which is because the older cohorts died partly, but it's also just the regret.
But if I want to go see a Sacra match over in Paris, I take the train.
I can't just walk in now, I got to go to a line.
Yeah, well watch which possible? I mean an Englishman? Yes, I say, you probably would have been the line anyway.
Anyway, special line for me.
I know it's a it's a it's a pain in the neck, and I travel an awful lot. In fact, do you know what the bizarre thing is? It's now easy. It's quicker for me to get in JFK than it is in in uh in Paris. It's not really gloomed entry here. I'm through in two minutes. In Paris, you global entry.
I don't have to go like six months. It's such your kid me, Hugh, thank you so much, you von Stein Oliver Wyman with some good perspective there.
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.
Joining us right now as we continue this conversation, and here I'm America's fixation on technology, Daniel, I know a teriff when I see it, Ives, He joins us now with Webbush Securities. Describe Tim Cook's mood, Dan Iives, I mean I saw some blurb over the weekend that Tim Cook is arguably the most important American with China manufacturing, with the impact in the world. Everybody's got an iPhone up when the Pope was Saint Peter's square, I mean
looked like an ad for iPhones, Danives. What does Tim Cook think this morning?
I mean, Cook's probably drinking a mimosa. I love it, having a great breakfast and it's a bright day. I mean at the end of the day, for Apple, for Nvidia, for tech, this is a dream scenario and in my opinion, it puts new tech highs now back on the table. For twenty twenty five, but Apple front and center in terms of how they were exposing the China tariffs.
So Dan, how do you think this impacts Apple day today? I mean, I mean they've had to live under the sword of wit, these one hundred and fifty percent tariffs and.
What does that mean?
Well, all companies do, of course, but Apple seems to be our postal child for kind of China here has there policy? Has there view of China change? Do you think over the last four or five six months?
Yeah, made look obviously more hedge policy relative to India. But I think what this essentially does is it slows down significantly that that shift to India, especially as you go into iPhone seventeen. Now you get the engines ready, China is going to continue to be the vast majority when it comes to production for I. So the thing that's how it changes is like there was a there was a window here where this needed to change. And that's why look market also speaks to there's gonna be
no retaliatory. That was to worry about China retaliatory against Apple.
So Dan, in your tech space, you cover everything, how do you kind of rank kind of the opportunity now because we wake up this morning. It seems like a little bit of a different world here, maybe a little bit you know, less restrictive, a little bit more growthy outlook out there. So how does that impact your tech space?
I look at a game changer because the thirty percent realistically on the China tioffs. I mean when you start thinking about now, we probably go fifteen to twenty percent. So streets already seen through that. Now you look at Apple, you can video, you get chip names, you know TSMC and O, there's those been names really table pounders here and then AI think about the AI revolution names right from pound Tier to Microsoft to all the hyperscalurs. I
mean this this now puts that that that key. You know, if you think about now that that key bowl case back on the table.
Do they have pricing power? I saw luxury goods in Europe raising prices and we've had a number of conversations. I think a Dana Telsey in retail well, where pricing power is everything. Do they have pricing power at Cooper Tino?
Look Tom, I think they have pricing power to an extent, but the last thing they want to do is trip over their own shoelaies is you, especially when you the next two three years, I mean you're basically gonna have half their install based that are going to be going through upgrades. So the last thing they want to do is increase just to increase, and then all of a sudden there could be cannibalization five to ten percent of demand. So they're very well aware of that. But that's where
the tariff situation goes. Back to the tariff situation, this gives them the flexibility they could raise in certain areas and ultimately not in others, but then also goes the AI strategy where you now need to, you know, really produce, especially when I'm to WWDC in June. What's coming on iPhone seventeen?
Hey Dan, where's Elon Musk these days?
I mean, thankfully, not in the way I nows, not mar Lago in the factories, and what I believe is now driving me a ton of strategy for Austin in June, and that, okay, it speaks to why Tesla's up right. I mean, you need your leader back. They got their biggest asset back, and I think that was it's gonna be as a pivotal moment for the Tesla story.
Tell us about use of cash here. We had a bond transaction with Apple. I'm gonna say it was pretty small actually, and they've got a lot of short duration stuff. I assume they have to substitute in here. But do you see use of cash of I mean, Paul's screaming for dividend increases versus buy back. But even Dan I's share buyback. I think they did one hundred billion at
the last at the last earnings release. I mean, do you model out they could actually do a one hundred and twenty or dare I say one hundred and fifty billion dollar announcement? Well?
I think also you could they could up that And when you start to think about some of the cast, especially the next year or two, obviously diving is not really the focus, but they're gonna have a situation where they might have to do some accelerated you know, in terms of buybacks, you know, relative to the cash that they're going to generate. Because look that it's a high class problem that they're going to be, especially with no M and A. That continues to be their strategy.
Hey, Dan, before you know, President Trump took office in January. All we talked about for maybe two years was AI and then now it's been on a tariff discussion non stop. Can you give us a refresh a where on Wall Street the AI story is today?
Yeah, Look, we always talked about the AI party, and I'd say Trump closed the party for a little for the tariff situation. Parties back open right, it's still it's called ten thirty pm in that party that goes to four am. If you think about it, software use cases we're seeing with the hyperscalers, you're seeing a pollenteers seeing in service. Now it's playing out in front of us the three and twenty five billion of capacs that's been doubled down by tech that only four percent of US
enterprise have gone down the AI path. So to my point is that tariffs have not even slowed down this AI revolution. It's two to three trillion that's going to be spent. And that's why we're seeing with open AI and others. I mean, this is just the beginning of a fourth Industrial revolution, but it also is US and China. They both blinked because they know no one wants to lose out on really what's going to be a generational environment for tech?
Where's your target and We've got to make some news here, Dan, I mean fairly just spoke to best and I'm speaking to ives. It's more important than the Secretary of Treasury. Can you announce your web Bush increase in your two seventy price call on Apple?
Looked time? I think now with this three is back on the table. I mean, I think now you could start irrationalize that Apple is one the next twelve months and we could be looking at you know, I think ultimately could be a stock of the three in front of it. That's my you. You could add thirty to forty dollars per share in terms of what happened here on these China taroff discussions for Apple.
Was that a by recommendation?
Yeah, like that's it.
It was edge yep, Dan, I Ale, Thank you, Dan, greatly appreciating short notice. Is earning that with the Apple moving six percent?
Uh whing whining green jacket though, just it's upsetting.
Yeah, well, you know, it's just it's going to get the masters. That's master, that's its masters jacket digalized. Thank you so much.
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