This is the Bloomberg Surveillance Podcast.
I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. A huge debate, and of course our theme on this Monday morning is the many narratives that are out there.
Stephen Major is Global head of Fixed Income Research at HSBC, joins us here and on through this half hour. Stephen, you are iconic for a lower yield call. There is a camp aggressively looking for lower yields, led by the IMF in a stunning five year GDP projection globally reaffirm now the low yield call.
Yeah, the IMF also have ident the low are style numbers. I know you're not a big fan of that from what I've.
I had to be yesterday and Friday.
I was sitting next to Olivia Blanchard on Friday at a panel, so I love our start at right.
The reason you have to be a fan of it, or at least consider it. Is that you need an anchor in your process. Now, the word anchor is sometimes taken negatively. Are you that you're starts? You can't change your mind? But I like it as a sort of ballast to the thinking process in that we're anchored around this low our style because we seriously believe it. We believe that the debt levels in the system, and the demographics and the total factor productivity, these are key drivers
of this destination point. Now, most people seem to spend nearly all their time talking about the policy rate today, right, but you need both and I think it's completely reasonable to have that debate.
A strategist away from what you do is Ian Lingen, who's widely acclaimed in America. He aggressively said today the ten year three point five six percent, if it gets to three points sixty five percent, that's a buying opportunity, yield down.
Price up.
Do you have that nuance now or are you just saying by the take?
Yeah, Well, I think people look at me, they read the stuff and they think I'm just one way, just the bomb ball, And I guess you guys have done that to me as well over the years, and it's fair enough. I guess consistently we have forecast lower yields. There's a tactical overlay as well. We want to buy at more cheap at cheaper levels, right, So I think somewhere between here and three and three quarters is a
good entry level. If if if someone says three sixty five, then really you want to go in at three sixty four. But you know, I think it's very difficult to imagine us getting back to four percent on the tenure.
I'm actually less interested in the tactical movements that I am the sort of larger destination call, because that is one that I have never seen such a disagreement on as I have seen now or so many people say this is a new era, that the fragmentation that we're seeing with China and with the US and with Europe is going to lead to higher costs, that we're going to see some sort of more persistent inflation. Why do you push back against that?
Well, look, I respect these views, and we have to try and consider all available information. It's intuitively quite logical what you just said, So defense spending, the transition to net zero, there are questions about the behavior of aging populations as well, so they could change. So there's all sorts of pushbacks to the lower for longer view. But the thing is, I didn't see much science in any
in any of this. And I've got an observation that goes back for decades that says that there is a trend in place and the higher debt has been associated with lower yields, and I dare say it's even causal now until until we can overcome that, until you have a tipping point and it goes the other way. I think that's that's the central tenant of the hypothesis, if you like. And in science you need to be able to reject that what I hear at the moment are anecdotes.
There's there's going to be this, so this this will happen. Well, really, where where's the I mean that there's there's a lack of rigor around the whole the whole thing.
Although you could say this is a very quickly moving story and that before the past four decades was a different inflationary regime, and so people would argue that the fact that we've seen such resilience as evidence today by that early new York factory data shows that perhaps there is more steam behind this recovery, more steam behind this inflation growth that people previously have gave credit for.
Yeah, fair enough, Look, inflation is high and sticky, and it's not going to get back to target anytime soon. But we've got so many other things to consider, and to me, the common denominator behind a lot of the themes
that keep running through the market is the debt. Now, you spent a lot of time on this program talking about the bank stress, that that's one sect of this economy, not just the global economy of this economy, and the common denominator that runs through all of these inflection points seems to be debt. It happened to crypto, it happened to SPACs, it happened to the UK pension industry, and it's just going to keep happening.
And it's also going to pressure to your point of fiscal spending. So there's not going to be the same kind of ability to spend on some of these things that people are talking about because of that overhead, that weight of the debt. So where we are right now is this idea where people don't necessarily say that they agree with you, and they fight back against the IMF, but their trading as though they do the trading is though they're going to see rates get cut significantly by
the end of this year. Do you agree with that?
Do you know this right or wrong? Or agreeing or that doesn't really matter? And in fact that the most the most frustrating thing for me is meeting people who totally agree with me because they want the confirmation, and then you meet the others who completely disagree, and it doesn't seem to be much in the middle. And so it's not about right or wrong right, it's the process and it's the thinking behind it.
That the wall of money that's out there.
Sir John Templeton told me once in my ute that there would be a shortage of bonds.
That's exactly what he said.
There's a wall of money out there and a shortage of bonds. To the Steve major belief of abroad of you and Blanchard, I think totally agrees with you on the trend is in place of a lower our stard is price up yield down? How much price up yield down? How much of this off the ten year benchmark? Can you model a sub three percent ten. You're yield from here.
Out X number of quarters quite easily. I mean our forecast is two and a half. For what it's worth that the lack of safe asset to me is a paradox because after all these years of QE trillions and trillions, surely there's plenty of safe asset out there. Will Actually there's too much of the wrong kind of safe asset. You see the excess reserves created by central banks to buy the bonds in the QE. That's not something that
the WEE can that you and I can access. So you can't get excess reserves, right, you know, that's for banks only. What you want a T bows, You want T bills, and there's a lack of those. There is not enough T balls around, right, So globally there is a lack of liquid safe asset. That is still the case. So why are people surprised that the two year yield can set one hundred basis of points through the money rate?
Why would you be surprised about it? Because the price, because it's factoring in the average policy rate for the next two years. It's saying it could be five for eight months, it could be four for eight months, but it could be three for the next for the next eight. The average of those three numbers, I believe is four, so it's quite possible.
Right, this has been fine. I've got like forty five seconds or so. I purposely watched west Ham highlights with Arsenal yesterday.
Wow.
That was exciting.
How does west Ham rebuild from the threat of relegation?
Well, they look like they say it quietly, they look like it. They're almost safe at the moment. It's a shame you don't watch the whole game because the highlights don't do it justice.
After ten American, after.
Ten minutes, it could have gone to seven or eight zero. I was gonna say nil, but this is an American audience. I have to.
No chance will understand nil. But it's really exciting. I mean, Pharaoh's got me into all this. It's your fall as well.
Yeah, it's partly my fault. But try and watch the whole match sometimes.
Thank you. I'll do that. I think I got my marching.
This is phenomenal.
Thank you so much for an entire bitch. Stephen Major, thank you so much with that.
Just get it.
Please are your thoughts on that? To me?
This is such a rich conversation, and it's not one or two ways it could go.
It's like four or five ways it could go.
The science underpinning our assumptions. To me, that's my takeaway. People make a lot of proclamations based on logic, but how do we look to some sort of science at a time of such great uncertainty? And this is the difficulty right now. People are coming up with different parameters and making different arguments and looking at different data points. If you look at history and you think of the
debt overhang, it does complicate issues. Although you could push back and say, well, if everybody piles into bonds, that's going to lower the interest rate and that'll increase the ability to spend fiscally, and then we get right back to it. So it's kind of a lot to wrap your head around.
Are you going to watch a whole soccer game with me?
I used to play soccer. I would love to watch a whole soccer game with you.
We'll have to schedule one.
Yeah, in twenty twenty seven.
We'll do that as well.
Running green on the screen and this is important coming up here. John Ferrell's going to have some really good coverage with Edward Ludlow of this rocket ship that's going up. It's another day, it's in April day, and this is a piece of hardware that America has never seen. I can't emphasize enough how original this rocket launch, yeah, will be, and we'll see that in the next half hour. Rocket launch for US is a VIX of seventeen point seven
to two. Maybe it was a bear market in ending in October.
Stay with us through the morning. This is Bloomberg.
Let's frame the debate in the equity market right now with a bull and a bear. Here's the bear ist for you, Mike Wilson. Morgan Stanley kicking off the week with the fastest FED policy shift in forty years. We think more negative surprises lie I had for investors. He goes on to say, one that we think is in plain sight is Earning's forecast that remain too optimistic. That has been the message from Morgan Stanley for months now.
Bink Chaa takes the other side. The chief global strategist and head of VASA Allocation at Deutsche Bank joins us right now, Binkie, so let's start with this one. A good morning to you, sir, Thanks for being with US still long, still optimistic. What underpins that view for you?
So in the very near term, it's earnings, and I think you know, the things to keep in mind are Number one, the acquity market almost always rallies during earning season. It's not a huge rally, it's about to two and a half percent, but you know that would put us change the handle in the S and P to the
mid forty two hundreds closer to forty three hundred. I think on earnings, the big picture issue is very simple, which is that if you look at the top down macro drivers, what we had is upgrades to growth in the US, in Europe, in China, in Japan, we had the dollar come down. All of that argues basically for you know upside a rebound or a turn basically in
earnings up. And if you look at the same time as what we are measuring earnings against, which is the bottom up consensus, it's been falling since June of last year. It's down about sixteen seventeen percent now. And so when you take the top down drivers and you you know, plug them into our earnings models or frameworks, it's telling you should get a pretty significant rebound in earnings, we should get a pretty average beat of about five percent.
So there's this narrative out there that the bottom up consensus is forecasting you know, the worst season ever and down seven percent. I mean, I think they should be a little bit careful with that hypothetical because the earnings beat almost always by five percent. So you're already down to sort of about one and a half percent. And so if you get a little bit bigger beat. You saw the results on Friday, you know you're back at zero.
Well, your twenty stocks doing well, and the S and P is so basically made it halfway back out of a grim bear market. Institutional portfolios, maybe you've made halfway back. Is a basic statement you talk and this is great biggie chata, and that you take a longer timeline, a more relaxed view, and within that you talk about a passing of the baton from earnings to the next thing to keep your optimism going.
What's after our earnings analysis.
Well, you know it will then depend basically on you know, the big cloud and whether it's going to erupt into a severe rainfall of the US recession. And there what I would say is that basically, you know, instead of just looking at the aggregate all the time, we should do what we used to do when the pandemic began, which is differentiate goods and services. And what you will see here is a very very clear picture. And what I would argue is that you know now really comes
to test if you think about a trend line. We've got services that fell far below and have been rebounding and sort of you know, asimp toting or the growth rate is slowing basically towards trend. And the important thing to keep in mind about services is they don't generally slow very much. You don't get really recessions and services and all of the action has really been for the last two or three years on the good side, where
we got massively elevated re to trend. Depending on what metric we're talking about, anywhere have between fifteen and twenty five percent above trend levels. And it is something that we wrote about in the summer of twenty twenty one called the COVID speed cycle. And since then, what has happened, I would argue, is an incredibly resilient outcome, which is we've been going sideways in real terms for two years.
And the key question is as we come back down to trend levels, which we are very near now, are we going to start growing or are we going to suddenly crash?
But so as we talk about earning season and the expectations are all over the place, you have a more bullish expectation Mike Wilson, a more bearish one the overlay of a banking crisis that wasn't what are stocks currently pricing in taking out some of the regional bank stocks. What are they pricing in with respect to contraction of credit?
I don't think that the equity market is pricing in that much in terms of a credit downturn. But you know, if you look sort of at you know, what is the equity market pricing, It's pricing in ism of forty six, which is what we got. So's it's kind of right where it should be in terms of the very short term near term driver. So nothing really more than that.
And in terms of the banking stress, you know, to the extent that it's already captured basically in the pmis and the isms, then you know the market's priced it in. So something bigger now.
But do you think it makes sense that we have basically an SP five hundred to anticipate we'll get to forty three hundred and a rates market that is pricing inst some serious rate cuts. Do you think that can persist?
So, you know, on the rate cuts issue, what I would say, you know, if we're talking about the ten year yield, you know the difference of view between the Fed when you open it's dot plot, the first thing that just shields the rates are coming down massively. So the question is really about six months over a ten year period, six months, eight months, maybe nine months, but
it's not a huge move. I think the bigger issue for rates really is, you know, all of the forward guidance that convinced the market to gotively short kind of blew up, and so is the risk appetite to be just as short going to come back?
So just ask the question from active, Thank you. I'm just wondering, does the S and P five hundred and forty three hundred and CPI five percent does that encourage the Federal Reserve to cut interest rights? I mean, I'm struggling with them.
What she doesn't now, I mean it's not our house view, but our house view is that we will cut interest rates next year. So it's again they're going to get overhung up on what is a very fluid calendar and precise calendar times, and then they're all.
Out there in the future. So I'd be a bit careful on that.
Thank you, thank you, sir, thank you chatter at Deutsche.
Bank joining US now Jordan Rochester G ten Ef, strategist at the MURA for a morning brief for Global Wall Street. Jordan. What I find interesting is if I triangulate and go to euro yen, I've got euro yen butter stuff against resistance hit a one forty seven. It's unimaginable strong euro week yen on the US dollar pair? Is it about strong euro? Or is in the zeitgeist this weekend? Is it about week dollar?
It's been a bit of both, Tom.
I mean, I think in the past few weeks it's been the dollar aside that has really moved the needle of four euro dollar. With the banking situation sub's collapsed, It's allowed markets to price in the idea of FED cuts, and a lot of people would argue too many FED cuts priced in. The irony is there are these cuts priced in, and I don't see anyone arguing for them to be priced in. That way, so there is a bit of a dislocation between narratives and actual market pricing.
But Tom, I think the good news for euro isn't over.
I think the growth pickup that we've seen in the first quarter this year should carry on into the second quarter. That should keep the ECB in a more hawkish footing. The market is pricing very much a too low terminal rate for in our view, for the ECB, so we look for four to twenty five four point two five percent by July.
The market's somewhere around three point six.
Now for the Fed, they could do a rate hike of twenty five based points in May.
Our economics team thinks they won't.
They think they are done with this rate hiker cycle after the banking situation. But the market's pricing twenty one basis points or so for that meeting. So if the Fed do go ahead and do a twenty five I don't see much upside for a dollar from that rate hike, where with the ECB, the market's not pricing the fifty basis points that we expect to see from the next meeting.
So from a monetary policy point of view and from a growth point of view, there's more upside one fourteen in euro in the next three months.
Jordan, you sound like Christine Legard of Domestic over the weekend speaking to CBS now, Jordan, I just wonder if there's anything to be optimistic about, is this four twenty five on race of the ECB because growth can handle it, or growth is really outperforming well.
Last year was pretty doom and gloom. One of the best trades we had was just being short yured dollar short cable from pretty much January February time onwards, especially when Ukrame is invaded by Russia.
This year it has been super different.
It's been all of those negatives last year turned around from headwinds into tailwinds. So last year was about very high energy prices weighing on the consumer, weighing on the government spending situation as well as corporates. Now energy prices have pretty much collapsed in terms of natural gas. They've gone below where they were before Ukraine was invaded too. This is a huge sort of disposable income boost for
consumers and for firms as well, reducing their costs. So from that side of things, the terms of trade for euro would put euro dollar between one fifteen and one twenty massive good news. But for the Euro Area and the monetary policy side, we've got all the inflation from last year feeding through to second round of effects, very tight labor market, we're seeing wage hikes coming through.
We're seeing strike action in France.
As well, these sort of stories in the labor market, or keep the easy being a hawkish setting until it becomes very clear that inflation is going towards two percent.
Where in the.
US the Feds more of a dubbish setting now because the banking crisis has seen credit conditions tight and of firms, and we're already seeing the forward looking indicators suggest that this inflation pressures are on the way, and last week's CPI not coming in too hot allows the market to carry on looking at those forward looking signals of inflation because John, the key difference for me is that the Fed is perhaps going to turn from looking just at
realized inflation to maybe considering forecast of inflation when it comes to their policy settings. The ECB they're not yet at that stage. They're a few months behind. That's why we think they'll keep raising rates through to July.
So this is a conversation about the cycle. Now, Jordan, you know how this works. Euro dollar goes from parity to one ten, you get a ten percent move and you see those doom and gloom articles about the end of the US dollar circulating everywhere. Can we talk about the structural shifts that you're expecting from the green back, Jordan, and whether you subscribe to this theory that you are going to see this structural shift away from the US dollar.
The digitalization of trade is helping, for example, China's role in swift payments increase. The actual choice of currency in the past was tied to ease of use, and that was one of the factors behind it.
And now there's needs of use of just using any currency.
So there is a structural tailwind for alternatives to the dollar. But there's also when there's a crisis, you need dollars. That's still going to be the case for a quite long time. Trusting those other currencies to hold their value will be difficult in times of stress, especially if it was a Eurozone related crisis, or if it was elsewhere
in em that we had an alternative crisis. High levels of inflation in that other choice of currency would erode the value of that so it's not a perfect world for alternatives for the dollar when it comes to global trade, when it comes to just getting things cross border payments done. So John, in essence, there are definitely shifting tithes helping alternatives to.
Become more of an option.
But I do think that the dollar's going to remain the majority reserve currency for probably the rest of our lifetimes.
Go back to something that you said, which is the banking crisis in the US will keep lending conditions tighter, which will really cap how far the Fed can raise rates, and talking about how that could potentially pressure the dollar, even if it's not a long term kind of structural shift, as you were just talking about with John. Let's say there is no banking crisis. The M and T results that we got this morning seems to suggest that it's
not really a problem. Then all of a sudden do you start to price in more fed Rica hikes and you end up with perhaps a stronger dollar than you'd otherwise assume.
The biggest risk to the trade we have, Lisa. That's it. That is the biggest risk.
If the banking data massively improves, all of the doom and gloom goes away and Let's say it's followed by an inflation print or two that comes in het Let's say shelter doesn't cool down. Let's say good price is rebound, then absolutely the dollar strengthens in that scenario.
The H eight data this gets released every week.
The update from Friday showed that actually we didn't have consumer credit tighten as much as the previous two weeks, So we'll have to keep an eye on that data. If it massively rebound, which would be completely shocking and weird. But if it was to do that, then you could definitely see the Fed carry on hiking. Perhaps not at the fifty bases points clips that we saw last year.
Maybe it's just the twenty fives until something else breaks, because it seems that when you get to these levels of rates, something does break.
We've seen it already in the banking sector.
Of the question will be what else is a commercial real estate or other factors to consider? So, yes, that is the biggest risk to trade. Oil prices is the other one. So oil rebounds gets to ninety dollars one hundred dollars a barrow, inflation rebounds, and.
Therefore the Fed continues to remain hawkish.
So yes, rebound in banking data and energy prices, two main risks is long yeared all of you, which.
Also raises an issue of positioning right and how fragile positioning is at a time of great uncertainty. We've seen incredible whipsaws in benchmark rates, which should be a ballast for markets of stability. How tenuous is positioning that could create some really big moves in currencies in currency pairs given some of these big risks.
So positioning data is clear that essentially folks are on board with the short dollar trade. The euro seems to be where the consensus has built up given all of the bad news from from last year has turned into good news this year in terms of trade up. So the question is if credit conditions titan, can the Euro really rally And we saw that with SCB when we had the financial conditions titan. Urine dollar did come off that day and then it spread through to credit sweets.
I actually thought it was remarkable how it didn't go much lower during that period of crisis. So the positioning is one thing. In FX, yes, it's long euro, but I do think about last year. Most of last year of real money managers invested away from European stocks because of the recession, because of Ukraine and Russia, because of higher energy prices. Now we're seeing continued inflows into the euro Area, are rebalancing away from US equities towards European
and that's a structural trade as well. We've had underweights in European equities amongst investors for the pretty much ten years. All of the growth was in technology stocks in the US.
That's now changed, So I think that it on the FXX future side, it suggests long euro is in vogue, but I'm still seeing five months of continued equity inflows into euro Area, so I don't think investors are overly net long Euro to make a big risk for this trade right now, because I'm also looking from a terms of trade perspective and from the China reopening perspective too, So China's data has all come in quite pretty strong.
China data surprises are at the highs, and Europe is three times more exposed to trade with China than the US. So all of those factors make it very difficult for positioning to be the big concern for me right now.
Hey Jordan, thank you mate, and congratulations over the weekend to Villa. Thank you, sir Jordan Rochester and Namura.
One of the great voices of Wall Street counseling patients in a reach out three years as David Balen, chief investment Officer, Global Head of Investments at City Global Wealth, we had a certain courage to the pandemic to say stay in the market. David, you lead your essay, it is not easy to be an investor right now? How do I have confidence to stay in stocks?
Well, right down, Tom, We're sort of two thirds through the bear market, and what's standing between us and our recovery in portfolios is the recognition of what earnings are going to be and what the level of recession that the FED anticipates and has actually talked about now actually occurs. We think that earnings, you know, are going to go down probably between seven and ten percent, much less than what analysts are expecting in terms of they're actually expecting growth.
And the second thing that you and your team have just talked about, which I think is critical, is that we already see further tightening due to bank lending standards, and we see it across several data sources. First, we already see that banks are lending less that the actual amount of outstanding loans are going down. Second, we see the reporting by companies of the fact that lending standards
are already tighter. And third, we actually are going to see that the ability and capacity of small and medium sized banks to lend is going to go down as a result of almost a half a trillion do of deposits moving into treasuries and money market funds over the last three months. So these are already constraints on an economy that is already slow.
David, We've been talking on morning about the dispersion, the sort of disagreement between bonds and stocks. Bonds seem to be pricing in rate cuts on the heels of exactly what you're talking about, credit restriction that really just escalates throughout the year, and you see stock traders kind of shrugging that off and saying things are so all copacetic. Who do you think is right?
Well, the bond market looks to be right for the moment. What's interesting is that, you know, bonds have rallied extraordinarily, and you've talked about this for the last you know, five weeks. You know, the two year and the ten year have moved, you know, yields have moved dramatically lower. The stock market is anticipating and saying, well, that's great. You know, the discount rate for stocks has actually gone down, bravo.
But really what's happening is that the bond market is saying we have to be much more vigilant about where their earnings are going to go down and where they're going to go up. So companies that have motes around them, you know, different technology companies and other you know, industries where you can see both margin growth and revenue growth should be rewarded. But you've seen you know, the bank stocks in particular, and some of the ones you've been
discussing this morning do poorly. And the industry averages, you know, the S and P and stuff, has been largely range bound since October of last year. So what we have to see is this digesting of what really is going to happen with earnings in order to be able to look into twenty four and twenty five. And when we do, I think we'll see a substantial recovery. But again, we're two thirds of a way through a bear market inequities.
Earlier this year, people were talking about going outside the US to Europe in particular as a place, particularly because the ECB was still raising rates potentially much more than the FED was poised to do so this year. Do you still see that as the narrative that could drive investment theses or do you think the US looks like a better place to park simply because it will go through the cycle quicker and there will be more pain on the heels of some of the rate hikes elsewhere.
It's a great question.
If I had to predict one thing that we would be writing, you know, just a month or two from now, it would be that, you know, emerging market exposure is going to become or non US exposure is going to become extremely important. Right now, we are near the third highest dollar peak ever, we haven't come very much off of that, and valuations for non US stocks and especially
emerging market stocks are at all time lows. So if you're a US investor today, you would like to buy companies right in industries outside of the US to take advantage of both the disproportionate devaluation of those shares as well as the fact that the dollar is going to fall. I think it's going to be a major source of income for US for profits for US over the course of the next two or three years.
You're not alone, David. We've heard that a lot. David Padding of City Global wowth.
Right now a brief and this comes off the IMF World Bank meetings, and thank you to all in Washington that helped us, particularly Peggy Noon and running the ship for US in one Washington. Julie Norman joins now co director of UCL Center in US Politics, Julie is a broad stance. What I noticed at the IMF and World Bank meetings were the unspoken Nobody wanted to say China.
That word was banned from the meeting. You couldn't say China.
But the other thing that was banned was the word allies recalibrate for us now the Western allies.
How allied are the allies?
Well? Some I think you mentioned China as well, And obviously we've seen in the last couple of weeks, and I would say even longer than that, a little bit of wobbling and what alliance means and how different partners approached the question of China in particular. So obviously we see strong alliances in terms of the stands towards Ukraine. We've seen that with made with European partners, but with and as you like, China, it gets a little bit different.
There's a lot of different interest at play, as you all well know, and so I think we still see alliances, but at the same time we see some differences among that as well, and so there's a little bit more caution in using that term when you're talking about some of these more complicated issues.
The bilateralness or that, I should say, the tension between Washington and Beijing, to me is just too simplistic. Who are you watching among our allies to change the dynamic between Washington and Beijing.
Well, I think the you know, there's obviously the look to Europe first and foremost. The UK, I would say, has already shifted its policy notably in the last few years. I think even more so because of China's actions against Hong Kong more than anything else. We started seeing a bit of a tilt and some of the UK policies
continental Europe otherwise. But I'm actually watching some other allies kind of outside of West Western Europe, India in particular, states that are kind of in this kind of still allies with the US, but a lot of different kind of interests going on that do have a big say and influence on what's happening in the Pacific, in Asia and in other parts of the world. China's we think of this bilateral relationship with Washington, but so much of
word power is in its outside of European. It's in Africa, it's in you know, Southern Asia, it's across the world, and so those are the countries I'm looking at well.
But Julie taking a step back, one thing that really emerged from last week's IMF meetings was a sense of not only fragmentation, but an inability to have leadership to address it, to come up with what the framework is in the modern bipolar or multipolar era. Larry Summer's, a former treasure secretary, on Friday said there's growing acceptance of fragmentation, and maybe even more troubling, I think there's a growing sense that ours may not be the best fragment to
be associated with. China gives you an airport, we give you a lecture. How much is that really your sense of what's going on?
Well, I think you said it exactly right. There. There's a lot of states that are finding it advantageous to partner with China because they see it as there's not strings attached. There isn't going to be pressure on democracy, there isn't going to be pressure on human rights. It's very transactional. It's very much a business deal, and so that works for again a lot of states, and it works very well for China. So I would say in
terms of Summer's comments, again there's a lot at play here. Again, the US is still trading at the highest levels ever with China as well, so it's not like the US is backing away from that, but the US is coupling that again with very strong, you know, arms build up, with this very strong confrontational stance as well that other states are hesitant to get onto that for their own interests.
Just getting a couple event lines top diplomats in the G seven meeting over in Japan over the next two days. So the headlines from one US official, G seven ministers agree on engagement with China, agreed to stay tightly coordinated on Ukraine, and then linking the two issues, G seven cooperation on Ukraine tom leads to unity on China. The latest headlines from a US official as top diplomats meet over in Japan.
Seem to be massaged. I mean, it's exactly you know, I think it's exactly what you'd expect to see. What's important there is it's not a G eight. Russia used to be in the club, and Russia's not in the club anymore.
Well, also they've got a massage some of the issues of the last week. We keep returning to those comments Tom from the French leader a couple of weeks ago, assarching.
To do it's ignoring. I mean, that's what happened with European officials just like la la la la la were totally united.
That's that's what I got from the IMF World Bank meetings too, at least from so placed you went there. I'm just hoping those comments didn't happen, pretending they didn't happen totally.
I mean, you guys, I had to leave late because of this wonderful panel I did the IMF, and of course I stopped up on U Street at Ben's Chili Bowl. And I can tell you from reporting they're still called French fries.
Is that the latest the ladies they didn't hadn't gone there fun It.
Didn't change it's still frenchiest.
Why don't you continue, Actually I plan to, Julie. I wanted to bring that up. When you listen to US and European officials, they're almost pretending this tension between the two does not exist, Julie. How much tension is there right now over trade? Over big foreign policy issues?
Yeah, I mean, obviously there are tensions. I would say, I don't want to overstate them either. I mean, right now, the most immediate issue is Ukraine, and I think the US, France and other NATO countries are you know, that is where the alliance needs to stay tight, and it has stayed tight. China has always been complicated. There has been a difference between European and US approaches to China for some years now. So this isn't really taking anyone by surprise.
And even Macrone's comments I think are a bit more You're probably shared by some others, even though people are pretty quick to Gritique, but I think a lot of European states, as well as again other states on the periphery, are just realistic about the fact that China is going to take a little bit of a more nuanced kind of approach from any states where their interests are very intertwined there, and that's just a reality Jenny.
Thanks for this perspective, and the reality check has always Jenny Norman, that of the UCL Sensor on US politics.
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Thanks for listening. I'm Tom Keen, and this is Bloomberg