Central bank policy, particularly with
regard to the Fed, is very, very binary. They either cut or not.
They don't need to wait for inflation to come all the way back down to 2% to
actually start cutting rates. We just need to be confident that things
are evolving in the right direction. They're kind of trying to tell us that
we're on a path to get two rate cuts now.
Inflation has come down enough that they think that they can be cutting interest
rates. We can still get three rate cuts despite
s
ome of the hotter inflation data. They're trying to play the waiting game.
Eventually, they're going to have to suppress the front end.
This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz and
Annmarie Horden turn. Live from New York City this morning.
Good morning. Good morning.
Our audience worldwide. This is Bloomberg Surveillance year
equity mark on the s&p 500 positive by a third of 1%.
Three very mild days of losses behind us.
Let's see if we've got a day of gains in front o
f us.
In front of us this hour. Expect plenty of updates regarding the
Baltimore bridge collapse. Police are finding out just how bad it
was and how much worse it could have been, especially if we hadn't gotten
that mayday call from the ship that prevented more cars from entering the
bridge. Honestly, I was watching the video on
repeat last night. And again, the question just remains,
how could a bridge just collapse like a couple of toothpicks?
That's what it looked like in the imagery.
What el
se are the vulnerabilities that we have out there and how long is it
going to take to work through all of this?
In a matter of seconds as well? Promo Just absolutely stunning pictures
for us all. I think the team here at Bloomberg is
still tracking the disruption and working through 2.5 million tons of coal
cars made by GM, Ford Lumber. The list just goes on and on.
Yeah, when you think about this port, it is what they would call a second tier
port, but because of where it's located, is incredib
ly important for cars.
It's inland. It's close to all these railroads.
Think about all these cars going to say Detroit and then using it agricultural
manufacturing. Trains that can go to Chicago and then,
of course, an export for coal. Everyone is working through what this
means. But Anna Wang of Bloomberg Economics
says point two percentage points potentially could be a base case higher
for inflation given the disruptions at this port.
And people judge and officials are saying is going to take
a lot of time.
It's going to take a ton of money. To me, it's also this sort of another
test on top of tests of what happens when you start to reduce some of the
capacity. How much does you get?
Do you get clogged up ports in New York, in New Jersey, in Virginia, if you do
get that sort of redirected traffic, is this sort of a much smaller scale
pandemic type supply side disruption, 2.0?
Or is this something that's completely different on a much lesser scale?
The county lines is going to break d
own some of the headlines for us on the
ground in Baltimore in about 10 minutes time.
What it says, financial markets, just briefly, one currency part jumps out
this morning, It's dollar yen. Let's talk about some levels in dollar
yen. So October 20, 22, we're talking about
one 5195. Japan intervenes overnight, one 5197 on
dollar yen prime. And this is what happens.
Literally hours later, a meeting between the finance ministry, the Bank of Japan
and the Financial Services Agency. And the headlin
e coming from a top
currency official in the finance ministry is we will take appropriate
action against excessive moves. We maintain the readiness to act as
usual, and a 4% move in two weeks is just not moderate.
Now, that's the verbal intervention. We've heard that three times now, twice
today, once in the last week. Is that going to be enough to move this
currency market? The answer is in the currency market
right now, not yet. It feels like traders are thumbing their
nose at the Bank of Japa
n right now and saying, really, this is all you've got.
You're getting a little bit of a retracement of some of the weakness.
But still, we're close to the 34 year lows that we that we really hit
overnight. You have one Bank of Japan member coming
out and saying that the central bank must proceed slowly and steadily toward
normalizing its ultralow this policy. That's what triggered this.
And then authorities come out will take really serious actions and we have no
idea what those actions are. An
d they haven't really shown a
willingness to flood the zone in the past couple of months.
You go from negative rates to zero. It's your first time since 2007, 17
years, and then you come out and start complaining about speculative moves
behind a weak Japanese yen. Is it really just speculative moves
behind a weak Japanese yen? I'm not to say they can speculate all
they want about the speculative moves. I think a lot of people are looking at
this and say you've got inflation that's really coming
back in Japan for the
first time in a very long time. And you've got otherwise very easy
monetary policy. You put those two things together.
The currency move is pretty obvious. So, you know, call it speculative, call
it whatever you want. How they're going to address it really
is the issue of that verbal intervention.
This is what it's worth. One 5133 We're negative on the session
by 0.1%. That's how much things have moved off
the back of some of that chart. We'll pick up on that in just a mome
nt.
The broader market looks like this actually.
Futures on the S&P 500 shaping up as follows.
Futures at the moment positive by 0.4%, yields basically unchanged on a ten year
at four 2376. And the euro go an absolutely nowhere.
Euro dollar one away 27. Coming up this hour, mark in lower state
street as the rally takes a pause for a third straight day.
Bloomberg's Brendon murray on the bottom of bridge collapse and Bruce kasman at
Jp morgan on America's rising debt pile. We begin with the top st
ory in this
market. The equity market rally stalling for a
third consecutive day ahead of comments from Chairman Powell and Koepka to round
out the week. Martin lower stage three saying this We
will see rate cuts starting in June. Most will be justified based on falling
economic activity. The Fed is still an outlier given growth
and inflation performance today, but it's clear that there is a fairly high
hurdle for the Fed not to start the cutting cycle.
Marvin Lo joins us now for more. I think g
ood morning to you.
Just how low is that bar for that first cut from this Federal Reserve?
You know, they want to cut it's pretty low, kind of just.
Based on where data is and probably what they should be saying around that data.
But for the most part saying they're going to ignore the data so they want to
cut. There's an election cycle that kind of
gets into play with this. And, you know, they still firmly believe
that policy is restrictive. To me, it's a function of how much they
can cut. And
I think even though they pulled back
on their expectations, you know, they might be surprised how sticky inflation
is. It doesn't really matter what they say.
We've just had this equity market review, five consecutive months of it.
We've heard the complaints. RBC has talked about it being stretched.
Evercore yesterday on this program called it exuberance, I think economy.
Peter Chair was talking about taken out downside protection.
Why do you think now isn't the time to fight the strength?
You k
now what? Because we've got a lot of central banks
that are lining up for really the, you know, the start of releasing the hounds,
if you will. If you kind of think about a market
that's expecting three or four very large central banks to start cutting in
June. And then the modal aspect of that where
you get these quarterly expectations for, you know, the next year or two year
and a half. All of a sudden you've got several
hundred basis points of cuts in portfolios that are all going to benefit
from that. Marvin, yesterday's trading action did
remind me of Peter shares conversation and that's something that he may or may
not have Pingree on and said, See, this is exactly what I was talking about.
I think liquidity kind of moment, the fact that you could see a sort of sell
off into the close in a sort of unprovoked way, how do you trade around
a lack of conviction and really thin liquidity with the appearance of trades
leading to sudden moves for no reason? Yeah, I mean, it certainly is
a
challenge if you're in that world. Certainly taking a projection around is
how you approach it. I'm more of a, you know, intermediate,
long term investor. You know, I look for fair value and I,
you know, ultimately just sit through it and expect kind of that story to play
out. We are going to see several hundred
basis points of cuts around the world over the course of the next six months.
We do have liquidity that's still fairly robust, making its way into the system.
And we've got the Fed ta
lking about slowing down Q2 at a time when reserves
are still quite, you know, quite high. You know, all of that to me is still a
relatively positive story for risk assets.
Do you add then to risk assets? Do you say, okay, it's time to lean in
even further because it's unclear what could potentially disrupt this?
I wouldn't be leaning in heavily. I'm more for the most part, you know,
we've all added to our portfolios over the course of the last 6 to 9 months,
hopefully, and that's put us in a fa
irly positive position.
I think I think I'm looking for potential changes to get my portfolio
into a better position, if you will, up in quality.
If we're talking about credit, you know, potentially looking at parts of the
growth equity story that get me more comfortable.
But adding adding aggressively in here is harder, I'll admit to that.
Let's talk about verbal intervention. Start the week with it from Japan.
It continues today and overnight this morning, we get more comments.
They're going t
o take appropriate action against extensive moves.
They say dollar and is still through 150 for you in this market.
When you hear words like this, what does it mean?
You know what? It's a bit of a bit of a paper tiger.
Ultimately, they laid the groundwork in terms of how to think about their policy
when they until viciously hiked to zero. The rate differentials around the world
still remain fairly robust. I think when you have a very low
volatility world that we do in affects and we're always lo
oking for the carry
trade, you've got another potential funder that since they've taken out kind
of that big gap from the perspective of if they actually aggressively approach
policy, which they didn't. Do you think that it was a mistake then
that they insinuated that financial conditions were going to remain easy?
I don't think they needed to. I don't think they needed to ultimately.
And I think that they probably should have gotten more clarity in their mind
in terms of when the cutting cycle
was going to begin.
They waited for so long. Ultimately, if they hiked while while
everyone else was cutting, it would certainly make the interest rate
differential story a bit easier. I guess hindsight being 2020, you know,
I don't think they need to be as dovish as they as dovish as they are.
Do you think this story is specific to what's going on at the BOJ or also what
we're seeing from the Fed? The Fed is a story that every central
bank follows. The Fed is a story, you know, for better
or fo
r worse, given how the dollar's role is in the capital markets is
important in that discussion. So yeah, it's it's twofold for sure at
this point. We were talking a lot yesterday about
the potential for ongoing Fed intervention to offset some of the bills
for the U.S. government, and that's raised questions
about a longer term weakening in the dollar, especially as people realize,
okay, the US is going to try to inflate its way out of out of its debt issues.
How much do you see that as a long te
rm trend that you can actually bet on?
Yeah, I mean, I think that overall term premiums are too low in the market.
I think that you've got a lot of things coming together, whether it's the debt
level or whether it's the amount of bills and whether whether or not kind of
the Fed could get to 2% inflation target, inflation volatility and all of
those aspects equal equal some.
Challenges at the Long in the Curve. So really thinking about better staplers
later and later in the cycle is something tha
t I've been spending time
on to put this whole conversation together.
How much are we looking at a moment where bonds are the risk asset and
stocks are actually a haven in the sense that they're more hedged to the growth
and the potential stimulus that's coming from all sides, whether it's fiscal or
whether it's monetary. Yeah, for sure.
I mean, earnings are nominal. And if we were to kind of break down the
markets, you know, the US growth aspects are remain the strongest in the world.
One of th
e final thoughts on the events of yesterday, if we can, if you sever an
artery in global supply chains, no matter how small it might be, relatively
speaking, it can have global consequences given the challenges to
goods disinflation in America. What was your reaction to what happened
yesterday in Baltimore? You know, ultimately, I rely on your
reporters and your folks to kind of get me educated on this for sure.
But it doesn't make it easier at a time when the Fed needs to see the
continuation o
f these disinflationary trends.
That somehow took a pause over the last couple of months, make their way back in
the market. They've got some hard decisions to make
in the next couple of months, and this doesn't make it easier.
We'll see how big the challenge might be.
Marvin, Thank you, sir. Fantastic to catch up.
Marvin Loder of State Street, if you want just joining us, Lisa, equity
futures right now on the S&P near session highs.
We're positive a third of 1%. Let's get you caught up on some
stories
elsewhere this morning. The search and rescue operation after
the collapse of the Francis Scott Key Bridge in Baltimore is now a search and
recovery mission. A road crew is working on the bridge at
the time of the collapse. Two people were rescued.
Six remain unaccounted for. The area remained closed.
It remains closed to traffic, cutting off a major artery around the city.
Japan has stepped closer to currency intervention, as we were just talking
about. The country's finance minister ra
mped up
hints of possible action maybe after the end touched its lowest level versus the
dollar in 34 years. Policy policymakers there were kind of
running out of choices short of purchasing the currency to prop it up.
After the Bank of Japan's first interest rate hike since 2007 failed to change
the trajectory. Shares in Chinese EV maker BYD closed
the day more than 6% lower in Hong Kong after an earnings mess triggered its
worst sell off in seven months. China's largest electric vehicle maker
missed its 2023 earnings estimate by $138 million, raising questions over
whether it can sustain strong profit growth amid a pretty intense price war.
The company almost tripled its final dividend payment, but that was not
enough to allay investor concerns. And that is your Bloomberg briefed on.
Honestly, to me, it raises this question whether the whole EV trend, regardless
of the region, really is under pressure in many ways under their own doing with
a price war, but also just with respect to
demand.
I was thinking the same thing. This is supposedly the market leader.
Exactly. Also included in the race to the bottom
for these names. This is a massive struggle in this space
and it really bodes maybe a little bit ominously about how close people are
getting to questioning whether this is truly the next step and how quickly we
can get there. More on that story a little bit later.
Will be catching up with officials from VW and Nissan as well.
Up next on this program, Biden family, federa
l support for Baltimore.
I told them we're going to spend all the federal resources they need as we
respond to this emergency, I mean, all the federal resources.
And we're going to rebuild that port together.
That conversation up next. From New York City this morning.
Good morning. Trying to bounce following three days of
very mild losses on the S&P 500 equities up by a third of 1%.
And the bond market yields just about unchanged.
Your ten year for 2356 under surveillance this morning.
Biden vow
ing federal support for Baltimore.
I told them we're going to send all the federal resources they need as we
respond to this emergency. I mean, all the kind of resources and
we're going to rebuild that port together.
Everything so far indicates that this was a terrible accident.
At this time, we have no other indication, no other reason to believe
there's any intentional act here. Here's the latest search and rescue
effort suspended with six individuals unaccounted for after the collapse of
the
Francis Scott Key Bridge in Baltimore, Maryland.
Lawmakers pushing for an aid package to help rebuild the bridge with the
president saying he'd work with Congress to fund it.
The collapse expected, of course, weeks or possibly even months of disruption.
Split Bucks County Lines joins us now for more can be found at the scene now
for the last 24 hours or so. What's the latest on the ground?
Well, as you say, John, the search and rescue operation was suspended around
7:30 p.m. last night and start
ing at 6 a.m.
today. So really just moments ago, according to
Maryland authorities, the Maryland State Police, together with their partners,
are beginning now the recovery efforts. This is now going to be about actually
finding the bodies of these six unaccounted for individuals,
construction workers who were on the bridge working on potholes at the time
of the collapse. It really right now is an effort to try
to provide closure for some of those families affected.
Of course, that isn't all that
will go on today.
We could very well see the National Transportation Safety Board, the NTSB
actually board this vessel, the Daily today.
They did not do so yesterday as they didn't want to interfere with the search
and rescue efforts, which were the number one priority at that time.
But they could begin the work today of the actual investigation.
They're going to have a 24 person team investigating this, looking at the
recorders on the ship, trying to figure out what exactly happened with this
crash and what role the owner or operator may have played in any of this.
And then, of course, it's going to be a matter not just of investigating, but
actually trying to get the ship itself out of the harbor and start being able
to clear some of the debris from the shipping containers that fell off the
ship, as well as from the bridge itself, which of course, is in large part
submerged underwater as we speak, trying to get all of that cleared out so that
the port of Baltimore can reopen. Author
ities here, though, have been very
reluctant to put any kind of timeline on just how long that might take daily in
the meantime. And our thoughts are very much with the
families of those six individuals. I am wondering in the meantime, where
traffic is being diverted, what the scene is like, what the plan is,
especially given that this is a main thoroughfare, both for trucks but also
for commuters. That's absolutely right, Lisa.
Roughly 35,000 commuters every day were crossing this bridge to get
to where
they are going. And obviously today they will not be
able to do so. There was heavier traffic during rush
hour last night. And today will be the first real test of
morning rush hour as these drivers will not be able to use IE6 95 instead will
have to divert to other routes, including I-95 895 as well.
For commuters, that may mean more traffic on the way to work, but for
transit, the actual freight that was moving over this bridge, some 49,000
commercial vehicles are 4900, rather, comme
rcial vehicles use this every day
as well. If it was containing hazardous material,
they are not allowed to use the tunnels that go underneath Baltimore Harbor.
So their transit period could be much longer.
Tens of miles being added to their journeys is realistically what we are
talking about here. And that is really why reconstruction of
the bridge after the port has reopened in the channel has been actually
cleared. Reconstruction efforts are going to be
key to releasing pressure in this very
vital artery in terms of transit here in
the mid-Atlantic. But that is a timeline that could be
incredibly long and incredibly expensive.
We heard from the transportation secretary, Pete Voodoo judge.
She was here on the ground at the scene yesterday.
He said this will not be quick, this will not be easy.
And he said it will also not be inexpensive.
This is going to take time and a lot of money.
Katie, great work over the last 24 hours.
We'll catch up with you a little bit later this morning.
I
need to talk about global trade with our resident trade expert, Bloomberg's
Brenda murray. He joins us now for more.
Brenda, let's talk about how easy it is or not to shift cargo to other East
Coast ports. I'm thinking Boston, Miami.
How straightforward is that, Brendan? It's not a hugely complicated process.
And in fact, we're already seeing ships go to ports like New Jersey, New York,
Virginia and places like Savannah. This morning, you can see those ships
already gathering outside other ports
that have that have been diverted from
Baltimore. The problem comes in with each one of
those containers or the ship load of of of commodities.
They need another source of ground transportation.
So that that is that that's where the complication comes in.
And we're talking about thousands and thousands of containers and and
thousands and thousands of tons of goods and lots of cars.
Baltimore is the country's busiest port for for for auto imports and exports.
So they're going to have to find som
e other way to go through.
Some of the car companies, we understand, have have some have their
their their docks on the on the ocean side of the of the now collapsed bridge.
So they might not be affected. We're picking through some of those
details right now, but certainly the auto industry is one of the more
disrupted ones from this from this tragedy.
GM and Ford already saying they're rerouting to Georgia out of all these
East Coast ports. Jonathan mentioned who is most prepared
when it comes
to the auto industry, given how important and critical
Baltimore was for auto vehicles. Virginia is one of the names that one of
the ports that you hear talked about frequently.
Brunswick, Georgia, is another one that where a lots of vehicles flow through.
You know, in the southeast, there are, you know, a number of European carmakers
have their facilities there, so that services a number of European imports
and exports. So that's what we're seeing.
The bigger vessels, the the ones with more tha
n 12,000 containers are some of
those more southerly ports aren't deep enough to handle those big vessels.
So they're going to wind up in in New York, New Jersey.
Looking a little bit more broadly, how vulnerable is the entire supply chain
industry right now? You see what's going on in Panama.
We had the disruptions in the Red Sea and now we have a pretty critical port
on the East Coast down. Most of the folks we talked to are
cautiously optimistic that this is not going to be a huge
it's going
to have a huge impact on the on the on the national economy.
It will certainly affect the region from weeks, if not months.
But we'll have to watch and see. You know, we saw 10%, 20% more cargo
coming in to the ports of Los Angeles and Long Beach during the pandemic.
And the bottlenecks, you know, grew and grew and grew for a year or longer.
So we'll have to keep an eye on whether these whether these are just sort of
isolated chokepoints that get resolved and ironed out pretty quickly or whether
it's, you know, sort of the domino effect that we saw just a couple of
years ago. Exactly.
To that point, Ryan Peterson of Flex Port yesterday was saying that
essentially this is really the test, whether or not a sudden 10 to 20%
increase in some of the volumes at places like New Jersey and New York
causes the same kind of hang ups. What makes people optimistic that we're
not going to see those types of backlogs that were really problematic for a lot
of different companies during the pandemic?
Yeah, the U.S. economy is solid right now, but it's not
going gangbusters. So there is some capacity in the
logistics industries that we cover shipping and trucking and rail.
There is some of these ports are running at something like 70% capacity, whereas
during the pandemic they were they were, you know, at 100%.
So there is some there is some flex in the system to deal with this.
There's also, you know, the sort of wild card in all this is the is the
dockworkers on the East Coast have a contra
ct negotiation this year.
So they're going to become very important to workers at the East Coast.
Ports are going to become very important to making sure these these goods flow
smooth smoothly. And, you know, maybe perhaps this gives
them a little bit more leverage in those talks.
Brendan, what do you think the template is?
The lesson from the West Coast negotiations for what's about to happen
on the East Coast. Well, I think the you know, you know, as
I said, the dockworkers, you know, now that
the spotlight is going to be on
them to see if they see if there's enough labor even to handle all these
diversions. So the it looks like, you know, there's
a lot of, you know, big talk during negotiations like this, lots of threats,
you know, coming from both sides. But but it sounds like, you know,
heading into the November presidential election that, you know, there's they're
you know, they can't the parties on all sides can't afford
to, you know, to see a strike where, you know, the East Co
ast ports shut down.
So it sounds like they're going to try to resolve it rather than have it
become, you know, yet another supply chain disruption.
Brendan, appreciate your time this morning.
Thank you, sir. Brendon Murray there at Bloomberg out of
London, which released some of Rendell's work yesterday.
Just the uniqueness of Baltimore's port for coal.
This is what jumped off the page to me, the second largest terminal for U.S.
coal exports and the shutdown of this. And we don't know how long
it's going to
go for weeks, months, potentially hitting shipments to India.
And this goes back to how we started this hour.
You can get a severed artery no matter how small.
And the global implications take a while to sort of figure out the disruptions as
people try to figure out where else is going to come from to places like India.
Also, I was reading, which I put out a page to me where some of the farm
equipment and construction at a time that's crucial for planting things.
Now, this is one o
f the main arteries for all the tractor trailers instead.
To your point, there are very specific industries catered to in specific
arteries. And if they get severed, how quickly can
they be adjusted elsewhere, especially given some of the extra costs involved?
The coverage continues this morning on Bloomberg TV.
Up next on this program, Bloomberg's undercurrent as China's president looks
to mend ties with American CEOs. That conversation up next.
From New York City. Equity futures mid-session hi
ghs,
positive 0.4% from New York. This is Bloomberg. Stocks these session highs.
Welcome to the program. Equities up by 0.4% on the s&p.
Just a few days of losses. Really mild margin was enough once again
when you see some outperformance. We saw this last Wednesday didn't wait.
Following Chairman Powell. The outperformance starts to come from
small caps. We'll see if this sticks the Russell
Laser up three quarters of 1%. If you look at the correlation between
expected rate cuts and the Russell 2
000, it's getting closer and closer.
It seems like people believe the smaller companies are much more leverage to the
cutting cycle and will benefit that much more from some easing.
Five months of gains on the S&P 500 couple of days left of March.
We believe that Q1 is finally over. You're happy with that?
No, but it feels one feels like quarters with you.
Feels like the first half, doesn't it? I mean, how many directives have we been
through? We've talked about the idea are we did a
dependent o
r did Cedar not matter because they're just going to cut
anyway? Are we talking about a Fed?
Are we talking about in video cycle? Are we talking about the death of the
mega caps or are we talking about the magnificent two?
I mean, these are some of the narratives that have kind of percolated out with no
resolution. For the first, I'd say this, I think
we've seen just as many narratives in this quarter as we did last year, but
they're changing more quickly. So last year, for the whole month of
Ma
rch, it was hard landing talk rate, regional banking issues.
This time, what did that last couple of days and why see be stuck up and down?
Maybe some mutterings of hard landing, but no one really bought into it anyway.
Bear with me. It feels like people are just exhausted
by it. Sure.
And so they sort of half buy into it, don't really have any conviction, don't
really trade that greatly, and then just sort of hope for some sort of shift that
they could get excited about. You're convinced everyo
ne's bought right
now? I've heard that directly from a number
of traders. Oh, no.
You know, look, if someone's very excited, please reach out to me and I
want to hear it and I want to ride that excitement.
Let's get to the bond market. So your ten year 30?
Yeah. There's nothing excited about this
really muted price action. We said this yesterday.
It's like depths of summer price action in some places.
The ten year for 2356, the tier four 5951.
If you want a bit of price action, look to Japan aut
horities all over the place.
So give it a score and I'll get to the story in just a moment.
And one 5116 that currency pair is negative a quarter of 1%.
That is the smallest to wince. Is that what T.K.
would say? Takes what tracked the tiniest bit of
yen's strength against the US dollar? Because there might be intervention.
They will take strong actions after seeing their currency weakens.
That low is going back 36 years. At a certain point they have to come
through with something. And how much
conviction do they really
have behind trying to bolster a currency when it's clear that their central bank
has no interest in tightening policy materially until totally and one 5118
under surveillance this morning, six workers are presumed dead after
yesterday's collapse of the Francis Scott Key Bridge in Baltimore.
Authorities have yet to offer a timeline as to when operations will resume as
officials look to remove debris and the cargo ship daily from the entrance to
the city's port. Businesse
s are diverting cargo along the
East Coast. In the meantime, the port of Baltimore
is a crucial stop for European carmakers and the US exports of coal as well.
There's two dimensions to this story that I think are worth exploring right
now. There are many, but has to.
One is how much worse this could have been.
And the second piece of this is liability.
I remember yesterday we were all talking about this.
We wanted to understand the time between the mayday call and the collision.
And Governor We
stmore gave us some color on that.
Basically said this. Lisa would think, though, that between
the mayday and the collapse, we had officials that were able to begin
stopping the flow of traffic, which just gives you a sense of how much worse this
could have been yesterday. Never mind the time it happened.
I mean, you think about rush hour. This could have been seriously tragic.
I was watching the video, as I said on repeat, which I probably shouldn't have
done, but I was watching it and I was ju
st every car that was going across in
the 10 minutes before I was told, go, don't go.
And you're just so grateful that a number of them didn't go right before
the collapse. At a certain point, we're talking about
coverage that might go up several billion dollars for the ship, but this
needs to be immediate. How do you get immediate financing to
the whole region to start the reconstruction effort that took two
years in some of the other disasters? I think in Italy, for example, in
previous years,
it's going to be key and it's going to be speed that's important.
This is a liability question. Who ultimately has the liability, But
how long before we have to find out The answer to that?
I imagine in between is the president just going to offer the credit line to
the federal government? He said that yesterday.
He said his got his full commitment to rebuilding this bridge and helping out
this port. You also heard from number Senator
Senator Ben Cardin as well, said he does think Congress is g
oing to step up.
But, Jonathan, to your point, a reporter when the president was briefing asked
about this, it seems that a ship is at fault.
Does that company have liability? And the president said that could be,
but we're not going to wait around for that.
I want to turn to our next story, the latest out of Japan.
Top currency officials in Japan expected to speak after the yen hit its weakest
point against the dollar since 1990. A meeting earlier this morning between
the Ministry of Finance an
d Financial Services Agency Reserve Rice and the
Bank of Japan will intervene after the Japanese currency surpassed the one 5195
mark, which prompted the bank to step into in October of 2022.
We had some comments from officials saying the Fed.
So the top currency official spoke earlier this week.
It's a repeat of what we've already heard and we've said a million times.
For verbal intervention to be credible, there has to be a policy effort behind
it. It's unclear what that policy is going
to loo
k like and whether it's enough, especially because they keep saying
we'll take bold action if needed, if it's not needed when it falls to 36 year
weakness. I mean, to a certain point, where's the
line in the sand? We were talking about 150 being the line
in the sand. That's 151.
So this raises questions about their credibility as they've jawbone before.
And it's not clear to your point what the policy response is and what the
trigger is to really engage. It apparently is something very close to
152. The promise, the words, is not sure what
prompts the actual words. That gets the words which are in line to
the center. Let's turn to China.
President Xi Jinping urging U.S. CEOs to invest in China, saying the
economy has not peaked. Blackstone.
Stephen Schwarzman. Qualcomm CEO Cristiano Amon reportedly
among the business leaders involved in today's meeting in Beijing.
The talks lasting more than an hour and a half, according to Bloomberg's
reporting. Bloomberg Center.
Karen joins us now on
the story for more.
And that was this for the CEOs or was this for Xi?
Which one was it? I think it's something of a sales pitch
for China, as you mentioned there, John. Our colleagues in Beijing got some
details in terms of what was discussed. Like you said, it went for over an hour
and a half, some Q&A, the central message from President Xi being that
they welcome U.S. investment.
He doesn't see the need for the U.S. and China to decouple.
He wants cooperation. And he said the survival of bot
h nations
depends on each other cooperating, by the way.
And, of course, this all goes to this kind of idea that China is now on an A
fully fledged sales pitch. Given the hit the FDI over the past
couple of years. It's at a three decade low.
We know on the portfolio side, money is also leaving.
So when you have the top CEOs of U.S. companies in town, it seemed like a
perfect opportunity for President Xi to meet them and try and soothe some of
their fears on both the economy and on policy directi
on in China.
And that's China's message. We're open for business.
I wonder what corporate America's message is.
Do you think it's Our views are independent of our governments.
Well, it's often said there is some division between where the government
wants to go and where the underlying culprits wanted to go.
But look at what the data is telling us, John.
Clearly the tension is now moving to the real economic data.
FDI is at a three decade low. It's not that U.S.
companies or other companies are
pulling wholesale out of China.
But it is that sentiment is very negative when it comes to expanding
their business. They are looking elsewhere for
opportunities, and we're seeing that in the FDI data and we're seeing it in the
portfolio of those. U.S.
investors often make the point that China is on investment.
It's not what it was. They're also putting their money where
their mouth is. So there is some disconnect between
commerce and the government are always, always is when it comes to China.
But as I would say, there's also some alignment now between the data and where
where the political direction is going to.
It feels like it might have been an awkward moment to have this meeting
earlier in the week where the US and UK talk about accused state backed Chinese
hackers of going after companies, politicians in the U.K.
basically scrapping voter information. And is this something that still
concerns American companies and can she actually assuage those concerns?
And we had China lodgin
g the case at the WTO on Tuesday against U.S.
electric vehicles. This is all this is a common recurring
theme that even when you have this kind of headline effort to stabilize
relations between both governments or stabilize relations, at least on a
corporate level, you know, beneath it, the tensions continue.
And to your point, Anne-Marie, you're talking there about the hacking
allegations. Again, another reminder of some of the
charges against China, of course. And the flip side, you have China
making
this case at a WTO. That's an example of where the
geopolitical economic race is at the pointy end of things.
It is no doubt that, broadly speaking, relations have stabilized compared to
where we were a year ago around at the time of the balloon incident.
Both governments won't talk to each other.
But none of these other underlying concerns have gone away.
It feels like we're on time out until we get past the U.S.
election and see who comes out of that. We know one side will be very hawk
ish,
but of course, the other side will have to from probably matched up in terms of
hawkishness if we're to get through it. So as I say, it feels like a time out,
but none of the other problems have really gone away.
It's getting increasingly difficult to sort of parsed the politics from the
economic reality in the region. And I do wonder, especially yesterday
hearing about Apple, their iPhone shipments in China falling 33% in
February. Is this because of increased nationalism
or is this becaus
e the Chinese economy is doing far worse than people expect
and is a less fruitful place for international businesses to look to pick
up some some extra profits? I think there is a sense that the go go
years are pretty much behind China's economy at the moment.
Lisa, I mean, the consumer story, it's probably not as bad as the overseas
perception of it is, but nonetheless, it has been more subdued than has been
broadly expected. You see that in, for example, that's
playing into the to the Apple s
tory. Xi Jinping apparently told the CEOs that
they have the economy in hand, they have the issues in hand, and that the economy
has not yet peaked. But at the same time, when you speak to
business people both here, both here and those who operate in China, they make
the point that China's government appears to be very reluctant to really
turn things around and to wrap things up.
And that is frustrating overseas investors and those who do business
there. So I think it's something of a wet
blanke
t over China's economy at the moment.
They have a very aggressive growth target of 5% this year.
Obviously, that's a political target. So chances are they will do what needs
to be done to meet it. But in terms of animal spirits, I think
it's a night and day in China's economy today compared to what it was, say, a
year ago. And I know you pointed to this
reluctance by officials to really engage in any kind of significant stimulus.
Do you have a sense of what some of the business leaders would lik
e to see in
terms of stimulus and where is sort of the wiggle room is for the Communist
Party? Well, I think people still can't push
past a real estate story until that gets turned around.
That's going to weigh on consumers. That's weighing on broader activity.
It's such a multiplier in the economy. But then don't forget, people are also
keeping an eye on what's happening on the manufacturing side of the economy.
China is really putting in a lot of effort in into the innovative and
technology sp
ace. There is a lot of concern that China's
exporting a gangbuster reason to key sectors.
Some some trading rivals of China accusing them, of course, of dumping
products at a cheaper rate on world markets.
So even though the consumer side of things might be subdued and of course,
the real estate story is very much subdued.
China is pushing hard on the manufacturing and innovation space, and
that is now drawing political attention around the world as well.
But are they trying to drum up that dema
nd outside or inside China?
And they're exporting surplus demand?
By all accounts. The the suspicion and the allegation
against China is that they're exporting, obviously, we know, to every story into
the similar story, but they're exporting what surplus technology they have to
find new markets for it. Now, of course, to counter charge and
say business in Europe and the U.S. is that they cannot compete with what
China is doing. They're flooding the market with these
key goods. The you know, it's
an uncompetitive
race, and that's one of the underlying tensions in the story.
So as I say, the conversation on China's economy is that it's pretty much
underperforming. But don't lose sight of what's happening
in the manufacturing space. There's a lot of innovation going on
there. They are investing hard in technology.
It is a big priority for them and they're clearly making ground increase
in key sectors. And one of the best is going to catch up
with this and the current there of pulling back
on the latest between the
meetings between the US CEOs and Xi Jinping of China.
This one man I'd like to speak to Mr. Schwarzman Blackstone sort of Trump
whisperer, get his view on China and maybe, maybe what he'd say to the former
president. Do you think that Schwarzman wanted to
hear what she had to say or you think she wanted to hear what Mr.
Schwarzman had to say? I mean, and is talking about exports
coming out of China. The Trump campaign is talking about a
60% blanket tariff on Chinese im
ports. If he were to get in power, I would say
this. I don't know the answer to that, but I
would say this the balance of power between U.S.
CEOs and China has shifted. Given what we're seeing on FDI,
absolutely. We're looking at, what, 30 year lows on
foreign direct investment. This was on the Xi Jinping had to come
out and had to really make a moment. You know, we supposed to go to the China
in Davos and he's not going there, but he made sure he met with these
executives. It's an ugly number.
Let's turn to the price action. Equity futures on the S&P 500 shaping up
as follows On the S&P at the moment, trying to bounce back from the mild
losses of yesterday. Futures positive here, Lisa, by point
4%. All right.
Let's get you an update on stories elsewhere this morning.
UBS has finalized a deal with Apollo Global Management for the carve out of
Credit Suisse's securitized product group.
Apollo will purchase $8 billion in senior secured funding facilities.
The deal allows UBS to close ano
ther chapter in its acquisition of Credit
Suisse. It will book a net gain of about $300
million in the first quarter on the sale, and the private investment world
will get bigger. Shares in GameStop are lower in the
premarket after a videogame retailer reported plunging fourth quarter
revenue. One of the original meme stocks.
GameStop had seen gains following the Fed's messaging that a rate cut this
year will likely be appropriate. Gamestop's net sales were down 19% from
a year earlier and the s
hares are down about 19% in pre-market trading.
A landmark, landmark agreement struck between Visa and MasterCard.
Millions of U.S. merchants will see holders of luxury
credit cards charged more at the checkout.
The deal will allow retailers to pass on the premium charge to them for
processing cards carrying the Visa Infinite MasterCard world elite
branding. The plan is estimated to save merchants
$30 billion in swipe fees over five years and set up a war between some of
the card potential brand
s. Because if you have one particular type
of visa, you're going to get charged a different fee than another one.
And this is the bread and butter of many different banks.
If you've run a restaurant before, you know the story.
This ends up this is in our story today. I'll give you the numbers.
A $100 transaction at a small restaurant.
The customer swipes a visa infinite card that would cost the merchant to 60 and
fees. Traditional visa rewards cards would
cost just $2.10. That adds up over the y
ear massively.
And you've even seen it in bodegas and things like that.
Well, to say, if you use a card, we're going to charge you a 2%, 4% surcharge,
because that's what they're being charged.
This is massive. Who's going to bear the brunt of this?
It's not Visa and MasterCard. It's all of the banks that are providing
the base resource. What about the airlines?
I know there's a complaint in there somewhere.
Well, my my complaint is, look, this isn't that profitable for you.
Go back to the peopl
e who actually just travel and give them the ice cream.
And that's really the way to deal with some customer service on the airline,
without a doubt. Up next on this program, America's debt
dilemma. We're getting to a point where our
public debt is going to start crowding out private capital and we're going to
have structurally higher interest rates. That conversation up next. Obviously I'm going to different types
of restaurants. I say doing so many places, we're doing
fine, thank you. How are
you guys doing?
I'm good, mate. Do you have a credit card for the points
for perks, for cash back credit?
Yep. All of the above.
Bruce, the granted man, He's got a Chase Freedom account.
That's what I have. Yeah.
Entry level. That's my house.
Yeah. Equities right now in the S&P positive
by 0.4% in the bond market, yields just about unchanged for 2376.
There's so much going on in the land, the commodities craze, just a small
piece of it. We're down by 7/10 of 1%.
$81 on WTI. We'll talk about this
a little bit
later. But 888, it's talking about $4 pump
prices this summer. That's a problem across a whole list of
things. It's a problem potentially for the goods
disinflation story and arguably especially time wise.
It's a huge problem for the political season and cocoa as well.
Going through 10-K yesterday, which I know you want to talk about.
It's crazy. I just am thinking the fact that it's
actually more expensive than copper iron ore.
I mean, at this point we're talking about a commodity
.
If you built a cocoa house, it would be incredibly expensive.
It would be more expensive than building that entire house out of metal.
You're talking about chocolate house here.
Right. Okay.
I didn't know where you were going with that.
I meant so it's like if you wanted to become a cocoa exporter.
You mean, like, physically outside of cocoa?
Like, if you were going to go back to, you know, Hansel and Gretel and try to
do that? Sure.
You ever made one of those at Christmas? I was so bad at it.
Did you do a good job at that? No, no, no.
Law again at the ends would come off and the gumdrops say gumdrops.
That's a way to say. All right, maybe not.
And this event is this morning. America's debt dilemma.
The cost of financing our deficits are going to erode more and more of our of
our disposable income as a country. And I do believe they're we're getting
to a point where our public debt is going to start crowding out private
capital and we're going to have structurally higher interest rat
es.
Here's the latest this morning. The BlackRock CEO, Larry Fink, in the
last 24 hours eyeing the risk of rising U.S.
debt and its impact on the Fed's fight against inflation.
Think writing to shareholders, quote, More leaders should pay attention to
America's snowballing debt. Is a debt crisis inevitable?
The answer, he says, is no. Here to discuss J.P.
Morgan's Bruce Kasman joins us now for more.
We're going to talk about monetary policy, the Fed to be okay.
Can we just start on this with Ame
rica's debt pile?
I know given the team at J.P. Morgan have talked about the boiling of
the frog, Bruce, when does it start to get a little bit too hot?
Well, I think it will get too hot if we're right that the Fed just doesn't
have very much room to ease. And over time, that begins to affect
balance sheets. It keeps credit tight.
It weighs on pricing power. It's a slow moving story.
And I think we have to recognize that so far the effects of high interest rates
just haven't done nearly as much
damage as we would have thought to the private
sector. So that this story is playing out
against a another narrative, which is to say the private sector is healthy, we're
getting supply side improvement. Maybe we can live with high interest
rates and actually generate a soft landing.
We've kind of moved from being very much in the boiled frog stance to being
agnostic about where this story is going to lead us.
Can you talk to me, Bruce, then about the supply side narrative that the
Chairman seem
ed to endorse in the news conference last week?
What's the question? Do you have the sort of linger before
fully embracing it? Well, I think we should embrace it.
There's an immigration story which is playing out right now and is boosting
labor force growth, limiting the pressure on labor markets and inflation
from from rising jobs. I think we've also generated some pretty
strong productivity growth, and that seems to me to be linked with what we've
been doing on spending on R&D and intellectual
property.
The question is, though, we still have a tight labor market, we have elevated
inflation, which I think is sticky. I think as you mentioned a minute ago,
the goods price story globally is shifting here.
I'm just not convinced that's going to be enough to get inflation all the way
down to what will make the Fed comfortable over the next year or so.
Bruce, we've been talking a lot about the bridge collapse in Baltimore and
understanding that it's just, you know, one particular port and t
hat potentially
other ports can take in some of that traffic.
But does this highlight to you that supply shocks have not gone away and
that there are these vulnerabilities that will kind of put some sort of floor
under this goods disinflation that we've seen for the past couple of years?
Yeah. I think what you're seeing in some
senses is a little bit of that with the idea that there's some new pressures on
shipping costs and this port closure might be part of that.
But also you're just losing th
e benefits of having unwound the dislocations that
you know, you've had over the last six, seven months.
U.S. goods pricing, excluding energy, falling
at to two and a half percent base. I think most of the indicators, both
domestically and globally, are saying that's going back at a minimum to zero
here. Know, so when Chair Powell talks about
shelter inflation coming down, I think there's an offset here of quite
substantial, maybe even complete what's happening in the goods price story.
And then
that leaves the focus, of course, on inflation very much on how
you think about labor markets and other service price inflation, which I think
we're going to see is pretty firm when we get the PC report on prices on
Friday. So taking a step back.
This raises the question and we were talking about it with Mohamed El-Erian
about whether this is sort of a tipping point for this Federal Reserve in
tacitly accepting a two point something or a 2 to 3% inflation rate for the
foreseeable future. Do you
think that we have shifted that
this past hour press conference from the Federal Reserve was really the key
moment in that transition. I think what the Fed is telling us, it
wants to start the easing process in the middle of the year and it's willing to
do so even if in the first half of this year it's getting uncomfortably high
inflation performance. What I don't think this means is that
the Fed is willing to accept on a sustained basis inflation close to or
higher than 3%. And what we think i
s going to happen
here is that you are going to see a pivot sometime around the middle of the
year where the Fed maybe delivers one or two easing, but it really then starts to
shift its guidance. The market today has over 150 basis
points of Fed easing priced through the end of 25 unless the economy gets into
trouble. I don't think we're going to see that
delivered. You say they want they want to cut,
which echoes a lot of individuals that come on the program.
But they also continue to say how d
ata dependent they are.
What would they need to see in the data to actually say, you know what?
We're waiting. We're not going to cut this year.
I think that's an interesting point because as they're talking data
dependent, you could see Chair Powell in his press conference really talk as if
the bar is pretty high to prevent an easing.
So I'm not sure I have the the numbers. I'd want to be confident about where
that is. But I think what they've told us at
least to start the easing process around
mid-year, that they're fairly
comfortable. They've made enough progress.
Yeah, there are data prints here that could take them off of that.
And I would argue the committee, as you look at the the projections are probably
more evenly divided on this issue, but I think the bar is pretty high here.
I'm not even sure that if we get a couple of point threes on core
inflation, which I'd say a higher numbers, that that's going to be enough
to prevent a June, June easing. I think it'll stop them from d
oing much,
but I'm not sure it'll stop them from easing in June.
There's one inconsistency that jumps out to me and perhaps we should finish here.
How can the Fed simultaneously say we're restrictive and then at the same time
embrace the supply side narrative of the labor market, but also point to the
labor market as evidence of being restrictive?
How does that add up? Well, I think there's a there's a level
issue of how tight the labor market is. And then there's an issue of how much
supply sid
e performance is helping it. But I think you are raising an important
point, which is that the supply side is improving and helping the Fed, but it is
also a signal that the neutral rate is higher.
And I think when you look at financial market performance here, it is embedding
this idea that some combination of supply side performance, a friendly Fed
and some other things going on here is allowing us to do a lot better with
higher interest rates than we might have expected.
So I do think you're
Roger, right here, policy is not as restrictive as the Fed
seems to be suggesting. I think growth will do better if we're
right that inflation is sticky. I think they are going to have to change
their tune somewhat here. But it still looks to us like they're
getting ready to at least start an easing process around mid-year.
It's hard to disagree at the moment. Bruce.
Thank you, sir. Bruce Katzman of Jp morgan.
Economic Data on Friday morning. Coming up next on this program, Katie
Dixon of Northe
rn Trust, Bucks County lines on the latest in Baltimore.
Jeremy Thompson of Nissan America and a lineup of Black Rock.
All of that and a whole lot more in the second hour of Bloomberg Surveillance.
Up next. It doesn't pay to be bearish, right?
That theta is way too good. You've got to stabilize and you've got
to stay bullish on equities. And this is among the most record
setting periods of momentum that we've seen.
We don't have a magic seven. We've got a couple of stocks really
driving it. And
what we've just started to see and I
think that's accelerate as we go through the year is the rally broadens out.
We're still in a bull market and I think you stay invested.
This is Bloomberg Surveillance with Jonathan Ferro, Lisa Abramowicz and
Annmarie Horden turn at the line from New York City this morning.
Good morning. Good morning.
The second hour of Bloomberg Surveillance begins right now with your
equity market on the s&p 500 positive by 0.4%.
On the s&p continuing to track the fallout f
rom the collapsed bridge in
baltimore. And later, as we said repeatedly already
this morning over the last 60 minutes, just how much worse this could have
been. The distance, the time between the
mayday call and the ability they had on the bridge to stop the flow of traffic.
This could have been so much worse yesterday.
What a horrific event. And you're absolutely right.
The idea that they were able to halt traffic did keep other cars from getting
caught up in this. It does raise a question, tho
ugh, how
much time was there? What exactly was the cause?
How long is this going to disrupt some of the traffic and some of the shipping?
There's so many questions that remain. The focus right now is still on the here
and after the immediate aftermath of this.
At this point, though, this is an artery that has been severed, as you put it,
could be weeks, perhaps even months before this port reopens.
And then you've got to get into rebuilding the bridge.
And that could take a long, long time and a
lot of money.
It could take a long time and a ton of money.
We heard politician after politician and the United States yesterday say that the
federal government will support the rebuilding of this bridge.
It was interesting, a reporter, Jonathan, in his quick news conference
said, well, shouldn't the company responsible for that ship that caused
this problem? And he said, potentially, but I want to
get the funds there immediately. But you have to think Congress has
struggled to pass the most ba
sic appropriation bills.
This is a divided Congress, a dwindling Republican House.
How are they going to get this funding through quickly?
I don't know. In 1977, it took five years to build a
141 million USD. This is going to cost a heck of a lot
more money than that. Can we build it a lot more quickly,
though? When you take a step back, it also
raises a question about the ability and willingness for the United States to
invest in infrastructure and able to do it well and quickly.
This is to me,
I mean, it's sort of this comes at a moment horrible tragedy.
It also highlights a lot of the key issues that a lot of people in markets
have been talking about for a long time. There needs to be infrastructure
spending. We got it.
Okay. How are we going to pay for it?
How do we continue it? And what infrastructure is most
important to prioritize when the nuts and bolts are aging?
But you also have the big tech wars that continue.
So number one question in economics, I think following this, the
re are many,
but I think this is probably the number one, the disinflation we've seen in
goods over the last six months. It was a little bit fragile, perhaps
even some challenges to that over the last two months.
And you wonder just how fragile it is given what's developed just yesterday.
People are speculating this itself won't necessarily materially shift the needle
when it comes to some of the overall national metrics.
That said, and you put it well over the past couple of months, we already
got
this drumbeat of have we seen the end of disinflation in goods?
This just sort of highlights how supply shocks can exacerbate that floor under
some of the disinflation that we had seen.
Let's talk about some of the shocks. Let's get to the currency market.
Let's bring up dollar yen and take a look at what happened with dollar yen
overnight, dollar and overnight getting very, very close to 152.
So close. In fact, the Bank of Japan officials,
Japanese finance ministers, get together with the F
inancial services Agency and
start making some noise. Brianna, they have a meeting.
One 5197 is not where they want them to be.
They come out, they start talking about it.
But that's all they do. All they do is talk about, say, when are
we going to see the action to do something about it?
They get together and make some noise. I mean, that's essentially basically
what they did. I know.
So this raises this issue, which is is the market basically pushing and daring
Japan to do something? Are they
basically saying, let's see how
much you actually care? What is the line in the sand?
Is this a test in a way? Because we've seen this movie before and
yet still we're hovering at 36 year old weakness levels for the yen.
This is what that verbal intervention bought them.
Session high one 5197 on the screen right now one 5118 that currency pair in
the men's favor just a little bit by 0.2%.
Coming up this hour, we'll catch up with Katty Nixon of Northern Trust on how the
stock rally can broaden ou
t. From here, we speak to Jeremy Papa of
Nissan on how the automaker plans to compete in the EV market and Amanda
Lyneham of BlackRock and the competition for capital.
We begin with the top story in markets, tech tracking the S&P 500 to its third
straight day of losses. Carrie Nixon of Northern trust thank a
broadening count could extend the rally in stocks.
Writing this. Financial services stocks have found
their footing as the outlook for interest rates appears clearer.
These developments are
positive signs for investors.
It is. Clear that the market can advance beyond
those large cap names in tech carry a place to size with its rent a table.
Katie, good morning. Good morning.
Let's talk about interest rates. This is ask this question a million
times. The banks need higher rates or lower
rates. Are you saying they just need clarity on
the right path? I think clarity is is key here,
Jonathan, and it's been really interesting.
It's not just clarity, but it's lower volatility and intere
st rates.
And if you look at the MOVE index, for example, that the volatility expressed
in in that particular fear and greed index of the bond market has fallen
substantially. And I think that just gives clarity for
banks on what the what the environment's going to look like going forward.
Lower rates certainly help. A less inverted yield curve certainly
helps, but lower volatility really helps the banks.
Why do you take this as a sign, a bigger sign that maybe this momentum, this
broadening out
can continue? Why you extrapolate out this moment,
extrapolating out this moment beyond just the next few months?
Right. So it's not just the financial services
stocks, Jonathan, but when I look across the board, the laggards have started to
catch up slowly and unevenly, but they've started to catch up.
So you can start in the U.S. with mid-cap stocks, mid-cap indices
reaching highs. You can even look at value stocks within
large cap and mid-cap starting to starting to beat growth stocks over t
he
short term. So that's a good sign.
You can look at some of the laggards in terms of the energy sector starting to
pick up steam here. So the broadening beyond just those MAG
seven, those big tech stocks is really healthy.
And then you broaden it out to looking around the world and you can see
European stocks finding their footing and starting to perform well.
So I do think this broadening is is a good sign of more confidence in the
market rather than that sort of narrow, Brett, that we had in
2023.
This is such an interesting moment in markets and I keep going back to this.
I wonder how much we're seeing bonds is the risk asset.
Government bonds is the risk asset in equities is actually in some ways a sure
bet because you got a Fed that basically is saying we're we got your back and you
have an economy that continues, you've got fiscal stimulus.
What's not to like? Have we gotten to this level where
stocks are sort of the safety and bonds really are the risk?
I don't know if I would
go that far, but I would say it's it's pretty hard to bet
against U.S. stocks here at least.
And as you said, you've got sort of the macro working in your favor.
You know, we've had better than a soft landing.
We enter the the year with a lot of positive momentum.
Inflation is falling again, albeit stutter stepped but falling.
The micro picture looks better broadening out of earnings.
So we had very narrow earnings growth in 2023.
That is now broadening out. I think eight of the sectors of the
S&P
are going to have positive earnings in 2024.
And then you've got the policy, as you said, I wouldn't necessarily go as far
maybe as to call it a Fed put at this point, but I would say it is clear that
the Fed is on the path towards lowering rates in 2024.
And that, again, is very supportive. And if you look at history, Fed rate
cuts without a recession tend to be very good for risk assets.
Meanwhile, you have the likes of Larry Fink, but also even just government
officials coming out and rai
sing concerns about what's happening with the
deficit. Do retail investors care about the
deficit? Do they start asking, hey, is it a good
idea to buy ten year, 30 year bonds of the US government if we think this is
going to become a problem at some point in the future?
I can tell you I think investors are starting to get concerned about the
deficit and I think that's why you are seeing potentially a set up where we
just have a higher term premium down the road.
Right? There's a higher chance th
at we're going
to have inflation run hotter. There's a higher chance that we're going
to have these funding needs going going forward.
And a huge supply, frankly, of treasuries that have to be absorbed.
So I do think the average investor is starting to get concerned about it.
We're certainly getting questions about it all the time.
Begs the question, let me ask you one then.
If I'm looking at the yield curve at the moment, I can get full 60 on a two year,
then thereabouts. Why should I go out fu
rther along the
curve to a ten year say to lock in for 23?
What's the incentive to do that at the moment, given what you just said?
I'll tell you though. So here's the thing.
So the upside here is that rates stay where they are because the economy is
sort of Troy trudging along, inflation is coming down.
It maybe not as fast as as we would like to see.
And the Fed cuts rate. The downside, though, is that the Fed
has to cut rates because we do see that the economy in the second half of 2024
slowi
ng down. Actually, we think the Fed's forecast is
a little bit too bullish. So it could be a situation where rates
do fall on the short end a little bit faster.
And in that case, those juicy yields that you see today are just not going to
be there for you when you really need them four or five years from now.
So, Andrew, which was in was it in the F.T.
yesterday? Right.
And PIMCO over at PIMCO in the FT. I get my words that bear with me.
And he's basically saying, if I want you raise some risk,
I'll go elsewhere for
it. There are limits to the cutting cycle.
I can take this exposure elsewhere, maybe in Europe.
What's the argument to take? Kid in the United States?
Well, I mean, again, you are you're having clarity right now on the path of
of rates regarding the Fed. And then you can see again, if you look
at what's happened to the ten year Treasury, for instance, this year,
Jonathan, it's been really interesting because you had a little spike as we had
inflation prints come in. You had
the Fed come in and say nothing
to see here, don't worry, a bump in the road.
And you had yields back up pretty quickly.
And now we have the ten year back, you know, below our our forecast range.
So I think there is a lot of demand for for fixed income and for treasuries
right now given the given the environment in the outlook.
So I think you're going to see that demand come in as we see rates go up and
it's ultimately going to put a ceiling on how high rates can go.
Just kind of put a bow on i
t and sort of underpinning what Andrew Balls was
getting at in in his F.T. piece, PIMCO being cited there.
How much are you looking at a higher inflation regime at the United States
that is different from the regime in other countries?
Well, I think it's a great question. And I think we heard a clue in the press
conference, not not in the statement, but in the press conference last week
that there is a bit of a tolerance for a longer period of higher inflation,
perhaps not for a ultimate higher
inflation goal, but to tolerate a higher
a longer period of higher inflation in order to maintain economic growth.
Sort of recognizing now that there may be a tradeoff
between higher getting inflation down to the target and maintaining economic
growth and maintaining full employment. So I think there's much more of a
balancing act going out, gone going on now in the Fed than there was earlier.
It was just to fight inflation. Now it's sort of like, well, we want to
get inflation down patiently, b
ut we really want to maintain unemployment at
or around 4%. When I look at some of the equity
strategies that come around, higher inflation.
They all point to oil. You're mentioning energy.
How much is that sort of the sweet spot right now as a hedge?
Well, Lisa, you mentioned earlier the supply shocks that we're seeing.
Many of them are around energy. You know, we see issues in the Red Sea.
We see issues in the Panama Canal. There are issues with transport and
logistics now around energy. I thi
nk we're seeing now a not just a
soft landing here in the U.S., but we're seeing recoveries overseas.
So you're going to see demand, global demand for energy come up.
So I do think it's a great place for investors to be.
And, you know, again, Jonathan, to your point about, you know, broadening out of
the market, that's an area of the market that was left for dead last year.
So, again, investors should look at their portfolios and see where am I
positioned for the next year, the next five years?
Do I have my small mid-cap? Do I have my non-U.S.
exposure? Do I have my energy exposure and my
inflation hedges in my portfolio? Because it is possible that we are
living in a higher for a longer inflation period.
Well, Jp morgan's talk about $100 a barrel of oil potentially this year.
When you talk about exposure to energy across the board or do you want to move
into more of the old school energies that are picking up pace or are you
still like maybe potentially clean energy as well?
I think i
t's both. And at this point, and I would even
expand it beyond energy to the broader commodity complex.
It's been interesting to see all the attention on artificial intelligence,
for example, and it's certainly driven the Meg seven.
But if you sort of scratch beneath the surface, you see there are all sorts of
tentacles into the commodities market, into the energy market and other
commodities that are required to support the growth in AI that's getting all the
attention right now. So I think for
a variety of reasons, you
really want broad exposure in the energy market and in the commodities market
today. Katie, This was great.
It's good to see you. Nice to see you, too.
Thank you. Katie Nixon of Northern Trust Wealth
Management. Brent Crude at the moment down by 0.7%.
8565 on Brent equity futures bouncing back on the S&P 500 slightly firmer this
morning, Lisa, higher by 0.4%. All right.
Right now, let's get you an update and stories elsewhere this morning.
We've been talking about this
all morning.
Japan stepping closer to currency intervention.
Maybe the country's finance minister ramping up hints of possible action
after the untouched its lowest level versus the dollar in 34 years.
Policymakers are running out of choices short of purchasing the currency to prop
it up. After the Bank of Japan's first interest
rate hike since 27 failed to change the trajectory.
Chinese President Xi Jinping has told a group of American business leaders in
Beijing he wants U.S. companies to inv
est in China.
Putting aside differences and what he said were, quote, minor issues.
She met with leaders, including Blackstone's Stephen Schwarzman,
Qualcomm's Kristie Cristiano Amon for more than 90 minutes.
China is seeking to restore confidence in its economy, acknowledging issues
with the domestic economy, but saying it hasn't yet peaked.
Drug maker Altima could have cracked a problem which has been weighing on
obesity. Drug makers.
Patients in the latest trial of its experimental drug saw 7
4% of their
weight loss coming from fat tissue. The company says that mirrors the
results from diet and exercise programs. By comparison, trials of the active
ingredient in ozempic and wegovy show a higher rate of.
Lean muscle mass loss compared to fat. That's your Bloomberg brief, John.
That's a big deal. They should call that shred.
They really should. That is the ultimate dream.
That's the dream thing. That is the dream.
I mean, this is one of the complaints that I heard anecdotally that peop
le
were trying to work out and the trainers were saying, really, you guys can't do
anything because of those epic shots that were just stripping them of all
their muscle. If they can shred Operation Shred, there
you go. I mean, if you watched the Oprah
special, I actually went back and watched a little bit of the relation
between lean muscle mass and longevity is a real deal.
So this is a big issue. Reminds me of another story, actually.
You see this one at the ACP, which won olive oil.
This sto
ry is the funniest story ever from Politico.
There was a staff mutiny over the quality of olive oil sent to the
European Central Bank. Have you seen this?
Oh, my God. In the canteen, a narrowly avoided after
in-house caterers acquiesced to demands to bring back extra virgin options to
the table. It looks like on the internal message
board, the Italians were going after the Germans.
You're so in Frankfurt. I'm so proud.
I know this is the way it is in the car on the way to work this morning, read
ing
this story from Politico. And I just smile from it.
It's just like, thank you. God bless the Italians for trying to
bring some health and sanity to the diet, you know, just to try to bring
blood real food to the people of Germany.
Up next on this program, a big revolt in Baltimore.
The path to normalcy will not be easy. It will not be quick.
It will not be inexpensive. But we will rebuild together.
That conversation up next on the Graham cabinet is just around the corner. Drew Matisse met li
fe just writing in
great story says one time he was delayed ten hour delay in Rome and all the
Americans immediately went to the counter and asking for any flight to the
East Coast. And all the Italian passengers were
asking who was going to see them. That's amazing.
My wife and I still laugh about it isn't a great story.
Well, who and what are they going to be fed with?
It's just fantastic. I love that.
If you're just joining us, welcome to the program.
Equity futures on the S&P 500 shaping up
as follows.
The S&P positive by 0.4% yields just about unchanged on a ten year for 2258.
Under surveillance this morning. A big rebuild in Baltimore.
Our work is just beginning to rebuild this bridge and deal with impact in the
meantime, to reopen this port and deal with supply chain impacts.
The path to normalcy will not be easy. It will not be quick.
It will not be inexpensive, but we will rebuild together.
Here's the latest we have this morning. Officials suspending search and rescue
efforts
with six individuals unaccounted for after the collapse of the Francis
Scott Key Bridge in Baltimore. President Biden pledging federal support
to rebuild the bridge with weeks or possibly even months of disruptions
expected. On the ground is Bloomberg's county
lines. We've been talking about this through
this morning, how bad it was, but how much worse it could have been.
Absolutely, John. Of course, there was this construction
crew present on the bridge at the time that the dolly rammed into a
structural
support beam and subsequently collapsed. It is those six individuals that they
are now not searching for, for rescue purposes, but for recovery purposes.
But the fact remains that there was enough time from the mayday call of the
ship in which they, of course, were experiencing distress, ultimately lost
power and control of the vessel, hence the the collision with the bridge.
They were able to alert Port Authority soon enough that they stopped further
traffic from coming on to the bri
dge. So it is likely that that action was
able to save some save some lives here, even though, unfortunately, it does
seem, according to officials, that six other lives are presumed to have been
lost at this point. That recovery effort is ongoing as we
speak, and then it will move forward into the investigative phase.
The NTSB likely to board the vessel today to begin their investigation with
a 24 person team. And then, of course, it's going to be a
matter of trying to actually get the ship out
of the harbor and clear the
debris, not just from the ship and its containers, but from the collapsed
bridge as well. This is going to be a multipronged
effort. And I actually spoke yesterday with a
Democratic senator of Maryland, Ben Cardin, about those future steps.
This is what he told me. Search and rescue is the priority, but
they're already planning on what's going to be necessary to get the channel open
and to get this bridge replaced. Every day it's close, every day the
harbour is close.
It's millions and billions of dollars
lost to the local economy. People are going to be out of work.
They're not going to get paychecks. We've got to move with great dispatch.
So clearly there is an economic impact here locally for Baltimore.
There are more than 100,000 individuals whose jobs depend on the operation of
the Port of Baltimore. But there's also the consideration of
the ripple effects that could have for the national economy.
And the fact remains there is just no timetable at this
point firmly that
authorities have been able to point you to estimate, to indicate when the port
may be back open or when this reconstruction may happen and how long
it may take. Great interview with Senator Cardin.
He also told you he's hopeful that Congress will actually act and step up
when it comes to the funding to rebuild this bridge and the funding to support
the port. KELLY How quickly could we see Congress
act? Well, that's an excellent question.
And Ray, of course, we heard from Presid
ent Biden in remarks yesterday.
He said he does intend for the federal government to pay entirely for the
reconstruction of this bridge. In theory, some of the funding breakdown
will happen more immediately from emergency funding.
There's a question of what infrastructure funds that have already
passed Congress could be drawn upon for this effort, but likely it will require
a supplemental request from the White House to Congress.
And yes, Senator Cardin, as well as his other Democratic senator f
rom Maryland,
his colleague Chris Van Hollen, both expressed confidence that Congress will
do what it takes to get this passed and that the Maryland delegation will be
pushing for it. We have seen that funding is very
difficult to get across the finish line in terms of the actual appropriations,
the fiscal year that it took almost six months to actually finish and get
through both the House and the Senate. And of course, a supplemental funding
request related to emergency aid for U.S.
allies sti
ll has gone nowhere in the House.
So we'll see if this can happen in a more expeditious matter.
It is worth keeping in mind that Congress is in recess this week as we
speak. They won't be returning until later on
in April. The International Longshoremen's
Association six year contract Ceilidh is also coming due this year.
How does this impact those negotiations? It's a good question.
Obviously, we have seen some disruptions of port workers broadly, not just here
on the East Coast, but the West C
oast as well.
It took some time to get that dockworkers contract sorted.
And as I said earlier, there are thousands of individuals who are
employed by this port who are probably worried at this time about job security.
This is something that I actually had indications of in my conversation with
Senator Chris Van Hollen. He talked about how, yes, we are seeing
companies already diverting cargo, some of these shipments moving to ports
either to the north like New York or New Jersey or to the south
to Norfolk down
in Virginia. But he wants to make sure that things
come back to Baltimore when this part port is reopened, that this is not a
permanent disruption to trade flows, but just really a temporary diversion until
the port can be reopened, that there will be job security for all of those
here in Baltimore and the wider economy. That depends on the operations of this
port. That is likely something that they will
be looking for in the months to come. Can we just finish up with a descript
ion
of what you actually see with your own eyes?
Because I think it's amazing to be sitting here talking about the rebuild.
We need to talk about the cleanup. There is a 1000 foot ship stuck there
and the bridge debris all over the place.
How long is that going to take? It could take some time, John.
Really, frankly, the scene we see before us is almost apocalyptic as you're
coming in off the highway. The highway, of course, that you can
transit to come here to the actual port area.
You see a br
idge that once was very prominent in the Baltimore skyline that
is just no longer existent. Parts of it still sticking up, many
parts of it submerged. Right behind me is a highway that
literally goes to nowhere. It just cuts off because there is no
continuation over the water of a structure that can support vehicles to
go across. This is really extensive damage that has
been done, of course, because this is, as you say, a very large vessel that ran
directly into a beam of support for this bridge
.
It only took seconds for all of it to come crashing down.
And it's likely going to be a long effort not just to get the debris off of
the ship to figure out what is happening with the actual shipping containers that
were on it, whether any hazardous contents were inside.
Once you get the ship out, then you've got to start getting everything out from
under the water. And, Kate, a wonderful to hear from your
county lines there in Baltimore. Lisa, just going through why this
cleanup could take a
long, long time, which is the reason why there are some
estimates that that ship isn't going anywhere for weeks, if not even
potentially months. Yeah, never mind the rebuilt.
Got to get through the cleanup effort first.
Coming up on this program, Jeremy Papa, the chairperson of Nissan America, on
how they plan to compete in the EV market.
That conversation. Up next. Stock market bouncing back by 0.4% on
the S&P 500. Pretty stable gains through this morning
so far on the Nasdaq, up by almost a ha
lf of 1% outperformance on the
Russell, the small caps by 0.7 in the bond market to yet ten year 30 year look
a little something like this four 5848 Yeah it's a little bit lower by not even
a basis point on a two year similar price action on a ten year at four 2218.
And actually pretty interesting what Mr. Bull was over at PIMCO had to say in the
F.T. yesterday.
If you want duration risk, why take it in the United States, given the limits
that people perceive there are to the right kind of cycle
and ultimately the
growth story in the US is much better if you want to take duration risk on a
growth slowed down in a big rate cutting cycle, should you take it elsewhere?
That, to me honestly also raises questions about is the U.S.
in a uniquely inflationary moment that's different than, say, what you're seeing
in Europe just simply because it is a beacon of strength and yes, maybe their
productivity gains. But there also are limits to that.
And we're seeing that in the good sector with mayb
e the end of some of the
disinflation there. Speaking of unique moments, switch at
the border and get to foreign exchange daily and overnight session high one
5197, triggering some verbal intervention strongest yet without any
currency intervention off the back of it.
What if 50 106 is where we are now, down a third of 1%?
That is Japanese yen strength. The BOJ, the Finance ministry, the
Financial Services Authority over there getting uncomfortable with the one way
traffic we've seen in the curr
ency market.
How uncomfortable are they? And basically that's the question that
the market is asking because it doesn't seem like there's particular concern
that there's going to be some dramatic intervention that's going to reverse the
slide in the yen. At this point, you have to get the
finance ministry and the Bank of Japan on the same page or else, frankly, this
market is voting with the Bank of Japan. And the Bank of Japan is in no hurry to
really raise rates materially. Yeah, that dovish h
ike a regret, do you
think? Maybe it doesn't sound like it because
we heard from a Bank of Japan official overnight and this is what triggered the
additional weakness, basically saying we need to be cautious.
We need to be very, you know, deliberate and slow, basically doubling down on the
moves that they just took. 151 on dollar yen under seven is this
morning. Six people presumed dead after the
collapse of the Francis Scott Key Bridge in Baltimore.
President Biden saying he wants the federal g
overnment to pay for the
rebuild, vowing to, quote, move heaven and earth to reopen the port and rebuild
the bridge. The collapse poses a further strain to
global supply chains with the port one of the busiest on America's east coast.
Amari the rebuild, you've got to do the cleanup first, which is what we talked
about with Caylee just moments ago. Absolutely.
What you're hearing from officials is that this is going to take weeks, if not
months, just for the cleanup before we even start talking a
bout the funding and
what's going to be needed in terms of the infrastructure to rebuild this.
I'll go back to what Brendan Murphy said earlier, though.
Is this an isolated choke point or can we potentially see a domino effect?
It looks like at the moment companies are really able to reroute GM, Ford,
they're saying we're going to move to Georgia.
You brought up a great point about coal to India.
That's a lot of coal that actually goes to India from this port.
Are they going to have to rely more
on Russia and potentially Australia to
bring in some of those coal? And then at a time we are seeing
commodity prices on the upswing. What I want to understand also from
executives in some of the industries that use this is just how much are they
building in things that previously were thought as inefficiencies to compensate
for disruptions in supply chains? How much do you have to do overlap just
to keep that security in place post-pandemic?
And that is something a lot of people have been real
ly looking at.
Well, this could be a big disruption. Here's our next story.
This from China is filing a complaint to the World Trade Organization over
America's EV subsidy, saying parts of President Biden's inflation reduction
act are, quote, discriminatory and have seriously distorted the global supply
chain for electric vehicles. The US hitting back top trade official
Katherine Tai saying China continues to use, quote, unfair policies and
practices to undermine fair competition and dominate gl
obal markets.
Now often economics can come up with some jokes promotes, but the complaint
that we're getting from China is very similar to what we heard from some
European officials on the same issue. Okay, There is maybe some legitimacy in
terms of what measures are being taken. At the same time, it is a bit rich for
it to be coming from China. And basically the tit for tat.
We have Janet Yellen, treasury secretary, speaking in Georgia this
morning, talking about China's overcapacity, distortin
g global prices,
and talking about how this is a real competitive disadvantage.
This is going to be the tit for tat. But now, how much is this protectionism
and nationalism and all that? And this is sort of the new reality for
the global economy. I had the same thought you did,
Jonathan, when I saw this. I said, well, there are some Europeans
who actually would agree with Xi Jinping when it comes to this.
But I think the nail in the coffin for China was, in the recent months, the
United States f
inalizing those reductions.
And if you are from a country of foreign entities of concern, a.k.a China, you
can't tap into the subsidies, which means no one's going to buy your cars.
The United States stones, glass houses all round on this front.
Right. I think we can all agree on that.
Sticking with Avis, shares have been widely falling in Hong Kong trading
after the Chinese EV makers earnings missed estimates, raising questions over
whether it can sustain its strong profit growth amid an intens
e price war.
One. Company looking to double down on fees
is Nissan. The Japanese automaker targeting an
additional 1 million vehicles by 2027, including reducing the cost of EVs by
30%. The CEO saying, quote, We have to change
our ways to compete with companies like Big White.
Joining us now is the chairperson of Nissan Americas, Jeremy Patton.
Jeremy, great to catch up with you, sir. Let's just talk about the new release
for you and you help me understand what's going on in this market at the
m
oment. Nissan Kicks.
I know you're excited about it. I want to understand if there are too
many EVs in this market or whether you just think there's not enough at the
right price point. Yeah.
Look, we're very excited about the Nissan Kicks.
It's it's I think the car the customer wants at the moment in the US it's it's
a combustion engine Absolutely Great design affordable price point we're
bringing a lot of technology, a lot of fun to drive to the market place and and
so we think we're just hitt
ing the market with a new vehicle in the sweet
spot of where the consumer is wanting at the moment.
That's all the new kicks in terms of the EVs, The growth is there in the market.
Perhaps the consumer moving into the the EVs is at a slower pace than what some
had dreamed about. But the growth is the growth is there,
the interest is there, consideration is growing.
And once people have driven EVs, they are very loyal to that type of
powertrain. And so we think we will be seeing a
steady growth i
n the market. Jeremy There are some reports that you
have to offer dealers at the moment anywhere between $500 to $2000 cash per
vehicle to take on more inventory. I'm just trying to gauge, get some
transparency from you just how difficult things are in this moment.
Jeremy, is that story true? Can you verify that?
I think I think the story is a is a market story.
I think there are a number of of brands that have to deal with some inventory
situations. And helping the dealers with a floor
plan. A
nd availability is a it's part of our
job. We're doing it in cooperation with the
dealers. And so it's just, you know, short term
phenomenon. I think the key is having an exciting
brand advertisement and bringing the new cars to the market for the consumer to
show up on the showrooms and and take those cars home.
So there's nothing specific to what Nissan
is doing to the market at the moment. We're just we are adjusting to good
demand. And the fact the consumer is looking at
this monthly payment
and we're helping them in every way we can.
Our dealers pushing back. Jeremy, More on having more electric
vehicles on their lot simply because there hasn't been the demand that many
people were expecting. I think the dealers are they do see the
growing interest. They do also face the need to
perhaps spend more time is through the process of explaining all the technology
that goes into the into the into the EVs.
I think there's one point of notice that Nissan is offering is that we know
there's
a lot of technology that goes into EVs.
We are offering a second delivery, which is an opportunity for the customers
eight days, 15 days after buying an EV, yet Nissan, to actually have someone
come home and we explain and we introduce and make sure all the
technology is being used the right way, whether it's EV charging, propilot,
assist the driving assistance or any of the connected services features that we
have to offer. I think that's that's what we all need
to do, is that educating and su
pporting the customer into getting the full
access to what we have to offer through is because they are ACT technology cars.
But how do you keep up when BYD continues to cut prices?
That's a story of the industry. There has been always the need to be
cost efficient. And so I would say we're very used to it
ourselves. We're working on breakthroughs for for
our easy production, fewer parts, more simple to produce, uh, greater economies
of scale. I would say it's just what the auto
industry is abou
t. There's no there's nothing specific.
One day when company is more aggressive on prices, the next day it will be maybe
another one. And we keep up with the pace of it,
transforming those productivity gains into more affordable products for the
for the customer. So it's healthy competition.
Do you think the market missed an opportunity to push hybrids, given the
fact that we've seen more uptick in hybrids and people have been a little
bit resistant to go full EV. I again, I think what matters i
s the
fact that we can all offer what the consumer wants in our plan that you've
mentioned the new plan, the mid-term plan.
We will be launching 30 new cars and trying to grow the business by a million
units. 15 of those new 30 cars will be
electrified. And and in the US we will get seven new
cars over the next four years in all powertrains combustion engines, battery,
EVs, hybrids, TVs. Because what matters is just to be able
to offer the consumer what he wants. And so that's coming.
That choic
e, I would say, is coming in greater numbers, including at Nissan.
Jeremy, I feel like we should call all executives of car companies ambassadors
at this point, because it seems like you're trying to navigate the
geopolitics of the world in a very fraught moment.
And I wonder how much you're having to change your business structure to
prepare for increasing tensions in different regions where you're not
allowed to sell vehicles with parts from other countries that are specific.
I think the indus
try praises stability of rules and can cope with any rule that
is being set. And so that's the most important for us.
We make decisions early on. We make decisions today on the products
that will hit the market in 2028, 2020. Nine billions of dollars are being
invested. And so what matters is the stability of
those of those rules, essentially whatever they are.
And so that's that's what we're very focused on.
We know how to adjust to any any set of regulation that is being thrown.
They'll set up
for us. And and that's how we mean, that's where
we make our business is going to be. What I struggle with now is how you gain
economies of scale, trying to do three different things simultaneously.
So to satisfy the Chinese market with the ISVs and to simultaneously satisfy
the US market with hybrids, you've got to do different things in different
places. How do you generate cost reductions,
achieved economies of scale when you have to do all of those different things
simultaneously? Yeah, I t
hink your regional size is what
matters. China for China at Nissan is something
that's working very well and we will be launching in China over the next few
years for new energy vehicles completely developed localized in the and and
produced obviously by uh by our Chinese for China business and then elsewhere in
the US, in Europe or in Japan business. We are trying to leverage global scale
where it's work. So regional scale where it can.
We've got a very big presence in North America, both in US
, Canada and in
Mexico. And, and there's enough volume to
generate, again, the economies of scale to be competitive.
And being competitive just means bringing the cars at the right price for
the customers to be very happy with those.
The question that Lisa asked, though, I think it's a really important one and it
plays into this discussion that we are having.
Can you generate global scale when it feels like these markets are becoming
increasingly regional? And you mentioned the regional effort.
I want to understand and I'll ask you direct, what happens if we get the
former president coming into power and he doesn't just put big tariffs on
what's happening in be white and with Chinese automakers in Mexico, He does it
across the board, puts the walls up and shut everything down.
If we shut down the global auto market, it becomes heavily regionalized.
Does it change what you do or do you think the market was already moving in
this direction? I think the market is moving.
I mean, with COVI
D and the semiconductor crisis, we've been obviously much more
knowledgeable and careful as to how the logistics routes are set up across the
industry. We've been thinking about the dual
sourcing and more ensuring of the activities.
And so that's a trend that, you know, we want to continue building.
Where you sell is a recipe for success in the in this industry.
And so we are obviously very committed to making investments in North America
that will that will help manufacture all the vehicles tha
t will be sold here.
And that's really the and so, again, any change in regulation, I would say we can
cope with and adjust gradually. They just need to be stable over time.
Jeremy, thank you, sir. Nothing stable about the last few years.
Jeremy Pfeifer of Nissan Americas, thank you very much and good luck with the new
product launch. We'll speak to VW a little bit later.
And I think a conversation we have to have with VW is how do you plan for your
manufacturing footprint in the United States o
f America before getting clarity
on the future? Clearly, they'd like stability.
Stability is not what we have in Washington, DC at the moment.
Also the point about if Trump were to come into power, those subsidies that
are driving some of the EVs, even though this market is seeing a glut and we're
not seeing that demand, the subsidies are there to try to help.
If Trump comes in, maybe they won't attack the full array, but he can
rewrite the Treasury rules and make it much harder at the Treasury
Department,
make it much harder to claim those subsidies.
So until you know who's going to be president, it's also very hard to see
the demand and what's it going to be for the EV market in the United States?
Some pretty lofty goals for Nissan will catch up with VW in about 60 minutes
from now, if you want. Just joining us, equity futures on the
S&P 500 trying to bounce back near session highs.
Lisa's still positive about 0.4%. Right.
It's basically stability there. Elsewhere, maybe not so much.
Let's get to an update on stories elsewhere this morning.
The search and rescue operation after the collapse of the Francis Scott Key
Bridge in Baltimore is now a search and recovery mission.
A road crew is working on the bridge. At the time of the collapse, two people
were rescued. Six remain unaccounted for.
The area remains closed off to traffic, cutting off a major artery around the
city. UBS has finalized a deal with Apollo
Global Management for the carve out of Credit Suisse Securities Pr
oducts Group.
Apollo said to purchase $8 billion in senior secured funding facilities.
The deal allowing UBS to close another chapter in its acquisition of Credit
Suisse. It'll book a net gain of about $300
million in the first quarter on the sale, and Brent could hit $100 this year
if Russia's decision to cut production isn't balanced out by other
countermeasures. This according to analysts over at
JPMorgan. The bank saying the actions could see
the price of oil hitting $90 next month, close at
triple digits by September.
Russia saying its decision to deepen its production cuts was based on
expectations for global oil demand growth.
So this really raises this question, is this the boy who cried wolf again
because we've heard this before, or is this truly going to be the time where
the market wakes up to the fact that demand isn't falling off a cliff?
Yeah, And we are seeing supply that is being constraint.
We reflected on the Morgan Stanley forecast, which was something like $90
Brent
free kick and 90 sounds like a big number.
Then you look at Brent, which is basically 86 with $4 away.
We've had this sort of stealthy rally back higher in crude, which raises a lot
of questions about the timing, because not only were we talking about the
disinflation narrative and whether this challenges it, but we're also talking
about, you know, the silly season for politics in particular, and that's the
latest in the commodity market. Up next on this program, the competition
for capital. Yo
u really have started to see the
competition between public markets and private markets drive credit spreads
tighter over time. You're going to see a convergence of
those of those two markets. And it does create a bit of froth with
with pushing spreads tighter. That conversation up next will be
catching up with BlackRock's M&A lineup. Following three days of losses on the
S&P 500 equities bouncing back on the S&P up 0.4% through most of its morning
so far, yields just about unchanged, too, down
a basis point on a ten year
full 2218 disadvantage this morning. The competition for capital,
I think the story has changed where there's such a competition for capital
that you really have started to see the competition between public markets and
private markets drive credit spreads tighter, start to make covenants a
little bit less strong. Now you're seeing it look much more
similar to public markets where there's lending groups, including private and
public lenders. And I think over time you'
re going to
see a convergence of those of those two markets.
And it does create a bit of froth with with pushing spreads tighter.
Here's the latest. Credit spreads at their tightest levels
going back to 2021, with investors weighing how Fed rate cuts could see
them tighten further. Amanda Lyneham of BlackRock expecting
cuts to start in the second half and writes in this While a far longer cost
of capital environment poses fundamental pressure for some floating rate
borrowers with limited financi
al flexibility.
Competition between syndicated and private markets, coupled with ample
private debt dry powder has encouraged tighter pricing, especially for large
borrowers who have access to both markets.
Amanda, I'm pleased to say, joins us now for more American Morning to you.
Good morning. Thank you.
Adam Perabo with this yesterday and they were talking about a soft landing in
credit. Is that your kind of world, your view on
things at the moment? Good morning.
Thank you for having me. I did
see that interview with Megan
yesterday. I think I would agree with that.
I think the bar for significant disruption is really high in the
corporate credit market. We do, though, expect dispersion and we
are actually seeing that to a pretty significant extent more recently in the
US, European and Asian credit markets. Two things I would note on the point of
kind of competition between public and private, I think the way we're viewing
it as maybe several years ago, if you were a corporate and le
ft, then you
would have made the decision between issuing a bond and issuing a leveraged
loan. Now there's a third option.
And so you've actually seen private credit become a viable option for the
opportunity set for a lot of corporates. Not every corporate, not every corporate
needs the size to become index eligible in that market, but it is a viable third
option. The other point is, I think on just the
terms of having more access outside of the banking channel and the public
markets, we believ
e has been a good thing for corporates.
And you actually see that in what I would argue is a pretty muted default
rate given the interest hikes that we've had since March of 2022.
And I think that that shows that it's working.
And Bob Michael of JPMorgan was talking about that the ballast kind of to some
of the credit spirit. I do, though, want to just sit on this
idea of froth. And that's something that Megan was
talking about, that there is this froth developing and tighter credit spreads
beca
use of the increased competition. Sounds a lot like the equity market
exuberance, but it makes sense. So it can go on for a long period of
time. Is that kind of what you see?
We see it, and I would say it's not exclusively limited to the LA Fin market
where there's overlap with private credit.
You also see super tight credit spreads and investment grade.
To me, actually it reflects a few things.
One is fundamentals are pretty good, economic backdrop is pretty strong.
But if you look at spreads,
they look really tight optically.
If you look at all in yields. However, if you look going back to the
post financial crisis period, we're talking really cheap levels on a
percentile basis. If you were to look at just daily
spreads, daily yields back to 2010 yield screen, really, really cheap and spread
screen really rich. So I think that's part of it is that the
marginal buyer in credit is actually yield based.
So when they're coming to deploy capital, they're not looking at it on a
spread vers
us an index. They're looking at where can I lock in
all in yields? And I think that's fuelling some of that
optically tight spread measures and credit as opposed to it's not
indiscriminate because again, we are actually seeing triple C's lag.
We're seeing actually a pretty significant share of credits that are
trading above a thousand basis points in spread.
You're seeing dispersion in the single name capital structure over leveraged
capital structures that are doing liability management.
So I w
ould say if it were kind of a rising tide lifts all boats and
everything was rallying, I would say we are entering into kind of maybe possible
overexuberance, but we're not seeing that.
We are actually seeing some discrimination under the surface.
And that's what I really wanted to get into.
If I just go over a part of that again and just read it out loud for the
audience, competition between syndicated and private markets, coupled with ample
private debt, dry powder has encouraged tighter prici
ng, especially for larger
borrowers. Is it just the larger borrowers?
Who's getting left for debt here? I think it's it's largely in the high
end of the size spectrum where companies have the ability to run dual track
processes so they can actually see, okay, again, going back to that point of
I've now got this other third viable option, where am I getting best
execution? I think the pricing is most competitive
at that end. But but again, it's it's not I do think
it's it's there's there's not a
sense that folks are being left behind in the
sense that that competition is pricing them out.
I think what it is doing is. It's just changing that mix shift.
In late 2023, we saw a lot of public debt being refinanced with private debt
that shifted in the first quarter. Now that the syndicated markets are open
and we're seeing a lot of a lot of private debt actually getting refinanced
in the public markets. But those companies need to be ready to
be public market. Just following up on Meghan's p
oint, how
concerned are you about weakening covenants, weakening deal terms?
Is this something that you see sowing the seeds for something they might not
come home to roost this year, Maybe not in 25, but maybe 26?
Well, most of the syndicated market is of late, as you know, on the leveraged
loan side. And as the high yield bond market has
become, more institutionalized, covenants have become less of a binding
constraint in that market, too. It's really the private market that has
a lot of the c
ovenant protections. I think the big risk that I'm concerned
about for risk asset valuations is a sustained reacceleration in inflation
that the Fed cannot deliver at some point in 2024 on rate cuts.
Not that that rate cut in the in the form of rate relief is so game changing
for those credits. But I do think that it's really
important for sentiment and I think that's where you would might start to
see things really unravel from a risk asset side is that we don't get any rate
cuts in 2024. We're
in this extended high for longer
into 2025. And I think the key there is if that's
happening because inflation is sticky, that is problematic.
If rate cuts are very shallow in 2024 because of high growth, I would view
that as less of a problem. But if that gets postponed, I think
that's an issue. Just quickly, maturity.
Well, red herring or not big issue or something to ignore.
I was very concerned about it in the fall of 2023.
I think the fact that the capital markets have remained open to low
er
rated issuers to allow them to get that refinancing done, it's it's released a
lot of press pressure and European high yield.
It's a steeper maturity wall than the U.S.
So I'm watching. They're interested.
Thanks for that, Amanda. Great to catch up.
Thank you. Madeleine in there.
If BlackRock had to get something bearish in for the very the conversation
basically any time she was didn't really buy it, she said ignore it.
What's in Europe though? Yeah interest.
Thank you. Thank you.
Thank you
during that meeting this morning here at the Paris place.
Coming up, caitlin of service. What's new about that?
Yeah I know rich founder of PIMCO and Pablo to save a Volkswagen.
All of that and a whole lot more from New York City.
This is Bloomberg. Central bank policy, particularly with
regard to the Fed, is very, very binary. They either cut or not.
They don't need to wait for inflation to come all the way back down to 2% to
actually start cutting rates. We just need to be confident that thing
s
are evolving in the right direction. They're kind of trying to tell us that
we're on a path to get to rate cuts now. Inflation has come down enough that they
think that they can be cutting interest rates.
We can still get three rate cuts despite some of the hotter inflation data.
They're trying to play the waiting game. Eventually, they're going to have to
suppress the front end. This is Bloomberg Surveillance with
Jonathan Ferro, Lisa Abramowicz and Annmarie Horden were in the third hour
of B
loomberg Surveillance begins right now live from new york city this
morning. Good morning.
Good morning. Equities trying to bounce by.
Let's call it 4/10 of 1% on the s&p 500. Pretty stable gains through today.
Nothing stable about the last 24 hours. A tragic bridge collapse in baltimore
and a big question being asked in the world of economics, just how fragile a
global supply chains and how fragile is that good disinflation we've seen over
the last six months coming in to PC Lisa.
Friday mornin
g, we thought that supply chain shocks not were behind us, but at
least had subsided. And this raises questions of how
vulnerable the global economy is to one artery that's not even that significant
on a global scale being disrupted. A lot of people gaming out that it
wouldn't necessarily be massive. Nonetheless, disproportionate effect on
specific industries. You pointing to coal?
Yeah, coal in a big way. The word I've heard a lot in the last 24
hours is just time. This is going to take time to
figure out
the disruptions. It will take time to clean up an MRI.
It will take time to rebuild and a heck, a lot of money as well.
Absolutely. When it comes to time, Bloomberg
Economics is talking about if this isn't quick, potentially it will have that
inflationary impact on the end of the year inflation numbers.
Time to rebuild means it's going to take also a ton of money.
We're going to get an update actually this hour from Governor Wes Moore of
Maryland, potentially before before. Jonathan,
your point earlier, before we
start talking in the rebuild, he's going to really lay into what's happening in
terms of the the cleaning up of what is going on, getting that ship actually out
of the way and opening up that channel on the you can always question decent
conversation with Andrew Hong, host of city just yesterday.
I want to go through the quote that you shared in the newsletter just yesterday
morning, Lisa, that the period of deflation in goods that we've been in
for the last six mo
nths or so, we're probably coming out of that now.
And how much of a challenge will that be?
Particularly, we need the services now to do some of the heavy lifting, a lot
more of the heavy lifting. Andrew's point is that for services to
do that, it's going to require an economic downturn, which is not the
central case, the base case on the FOMC at the moment.
It's kind of what Bruce Kasman was referring to as well when he talked
about how, services aside, inflation has remained stickier and he e
xpects it to
continue. So.
So in other words, a lot of the disinflation that we've seen has come
from the goods sector. And we've heard time and again before
this additional disruption that might not be that significant on the overall
numbers, significant for the region and for the lives.
But what we're looking at right now is a situation where commodities are coming
back up, goods prices are coming back up.
It's a new era where a lot of people are going to see some real challenges
fighting infl
ation, crude front and sense to that.
Without a doubt, Friday morning PC data that's just around the corner a few days
away. Then you hear from Chairman Powell a few
hours after that as well, setting up the market.
The price action this morning, equities into an overnight episode of 1% on the
S&P in the bond market. Things shaping up as follows.
Yields down by, let's call it a single basis point for 2179, see a call and get
boring. Some people might say maybe it's just
stable. Things have calmed
down.
Just a touch. Well, this is where I would push back if
it was just stable. Why the dramatic sell off and things
like in video last night, in the last half hour of trading, it doesn't feel
like there is necessarily a ballast of calm as much as a lack of conviction.
It is a different kind of moment that's fraught, I think, for the potential for
some news to really disrupt things. We'll ask that question to Keith Lerner
of True as he joins us in just a moment. Weighing in on the market resil
ience.
We'll catch up with the former Fed vice chair Richard Clarida on the central
bank's path forward and VW North America CEO on the company's strategy.
That conversation about 40 minutes away. We'll be giving that top story in
markets. Stocks mixed as investors await the
Fed's preferred inflation gauge coming Friday.
KEITH Lerner of Truist saying this. The equity market has been fiercely
resilient since the rebound off the lows last October.
Strong price momentum like we've seen over the pas
t five months tends to occur
in the midst of bull markets and it's a sign of underlying strength.
We still expect to see normal pullbacks along the way.
However, we suggest investors stay with the primary market trend, which is up
and look to pullbacks as opportunities. Keith joins us now for more.
Keith, Five months of gains, that's what we're on track for.
It's almost been uninterrupted, I think in that period, just three weeks of
losses and two of them came in the last month or so.
Keith, why
do you believe this can continue?
Oh, first of all, great to be with you. And as you said, I mean, it's it's an
extraordinary five months. I would say, just looking back as a
starting point when we've seen five months of gains of more than 20%.
We've only or what the cumulative gain has been more than 20%.
We've only seen this happen about ten times since 1950.
And a year later, you've been up every time with average gains of double
digits. Now, to be fair, that's only ten times.
So that's just
a starting point. The market on a shorter term basis is
somewhat stretch, sentiments a little bit stretch.
But in general, when you see strong momentum like we saw late last year,
like we saw breaking out of that two year range in January and now this,
those are things that tend to happen in a bull market and the surprises tend to
be to the upside. So again, I want to be also balanced and
so far that, you know, historically you've only had three years since 1980
where you haven't seen at least
a 5% pullback.
But if you're in a bull market, you stick with the primary trend.
You look at those those pullbacks as opportunities, a case this hasn't just
been contained to the United States. We've seen in Europe, we've seen it in
Japan. Are you more confident in the story at
home or abroad? We are still Team USA.
Jonathan. We've been Team USA for several years.
I mean, as you pointed out, we're seeing better global breadth, meaning we're
seeing, you know, Germany, Spain, Italy, obviously Japa
n, which was, you know,
talked about a lot this morning, you know, at multi-year high.
So so I think we're seeing a broadening of the overall market.
But we still like the US for several reasons.
One, the economic trends that if you look at global economic revisions, the
US is still powering those upward revisions.
Secondly, the earnings trends are still much stronger in the US relative to
international markets as well, and the relative price momentum is also better.
So for us to get more positi
ve international, we want to see those
earning trend start to flip. And normally those international markets
do better when the dollar weakens. And also coming out of a major low, a
major like out of a recession. So, again, we're watching the cheap, we
think even cheap for a reason, but we're being patient before we shift that
longstanding US bias, the US bias being equity focused.
I wonder if that really applies to bonds.
As while we were talking earlier about Andrew Balls of PIMCO quoted in a
Financial Times article talking about how he likes longer duration bonds
overseas not in the US because that strength is also coming with perhaps a
stickier inflation going forward. Do you agree?
Was no more focused on the US. I think in some ways as you invest
overseas in the fixed income market is also that currency component and you get
the big kicker both in the equity market and the fixed income market.
When the overseas currencies rally or the US dollar weakens, our view is more
that the U
S dollar is in a choppy range. I think the relative economic strength
and maybe the Fed being somewhat slower will keep that US dollar somewhat
supported. So we would prefer to just stick with
high quality US bonds and and the most liquid bonds still in the world.
And we're still even with even though they're staying pretty much in a trading
range is still having the highest carrier coupon and ten year treasuries
that we've seen in about 15 years or so. So we want to keep it simple and to stay
w
ith the US. We were just speaking with Amanda
Lyneham and she said that we're one of the big risk cases to her is if
inflation remains sticky for longer, if the Fed is unable to cut rates.
And that really does create a real problem, real questioning in just how
much the Fed has the back of markets. Is that something that would shake your
view as well if the Fed was forced to keep rates here simply because inflation
and strength has just been so consistent?
It's a delicate balance. I mean, you kn
ow, our motto really for
most of this year is that we would prefer less rate cuts and a stronger
economy to a weaker economy that needs more rate cuts.
I think the environment that would be most problematic would be here, more of
stagflation. We're not seeing that as well.
I think if the Fed if if the markets shifted from basically where we've been
all, you know, all year long is three rate cuts, two no rate cuts, I think
that would be problematic from a valuation standpoint.
There would be some
offsets, Right. Why are they not cutting inflation?
But also that likely means that earnings are also moving higher as well.
So it's it's not just straight forward that the Fed doesn't cut rates in the
markets, sells off because earnings should stay strong.
And in a nominal environment where economic growth in inflation stays
somewhat higher, I certainly think it caps the upside and likely probably
leads to that, you know, a gut check at some point in this market.
Okay. So I've got no idea what
happens in the
future. But I do want to understand the past
just a little bit if we can, Keith. We have priced out a load of cuts over
the last three months or so and valuations haven't come down.
And I'm just wondering what the relationship actually is.
Well, there was an extremely close relationship for a while, whereas the
Fed or the expectations for the Fed to cut rates came down, the McCoys moving
up. That became unhinge earlier this year.
And I think the reason why that is, is because if
you look at GDP estimates on
Bloomberg, right, you can see that the revision trends for GDP estimates for
the US continue to move up. And you also see forward earnings
estimates for the S&P make a record high week after week after week.
So I think, you know, I think the market can still do fine as long as those
earnings estimates and GDP revisions stay strong.
That will offset the need for those cuts.
I think the market's also getting more used to these higher rates.
And also, you know, if we lo
ok back historically, we did a study, I think
late last year. You know, the average cash rate for the
last 40 or 50 years has been about 5%. The average tenure has been around 10%,
I'm sorry, around 5%. And the equity market has done just fine
in that environment, up double digits in general.
So it's almost like we have this recency bias after the global financial crisis,
where in some ways we've moved back to somewhat of a normal environment on the
interest rate front. And stocks are you know,
stocks can do
well in a normal environment when inflation is a little bit higher and
interest rates are back to more of a normal state.
Okay. Do you believe this is sort of the
snowball, a return to that? You know, it's a new normal, right?
I mean, it's not it's not the just the state we've been in since the global
financial crisis. We're not going back to the seventies,
so we're creating a new normal. But I think in some ways it's I think
more what was really more abnormal was really that last
decade.
And maybe it's somewhere in between those those those two different phases.
But I do think that economic growth is probably going to be a little bit higher
than on that post-financial crisis. I think inflation just stays somewhat
higher as well. And I also think valuations for the
market, they're elevated by any metric. That's a risk, but it's not an apples to
apples comparison either. There in 1990, the technology sector was
about five or 6% of the S&P today is 30%.
So and those those s
ectors tend to have higher multiples as well.
So, again, you know, history is, you know, it's not always an apples to
apples comparison. Before we let you go, Keith, I want to
just circle back to something that we've been talking about a lot over the past
couple of weeks, and that came into real clear focus yesterday.
Even though we seem addicted to our phones, we're very much living in a
physical world and the nuts and bolts that haven't necessarily seen the same
kind of investment. How much ar
e you sort of trying to ride
the industrialization wave or the re industrialization that we keep hearing
about? That's been part of some of the
commodities story that we see playing out.
No, it's a it's a good point. We've been overweight tech in
communications and financials. Our work is starting to be somewhat more
favorable toward some of these deeper cycles.
And I think if you think about the industrial sector, it's at an all time
high. It made that all time high right
alongside technology e
arly on. If we look at a lot of these
infrastructure bills, a lot of that money is hitting now as well.
So I think there's a if you think about the next 510, even longer than that, I
think this industrialization, this on shoring has a long legs to go.
And I think that's will be an attractive area of the market for some time.
I could get your thoughts. An update from Truist.
Keith Linebarger of Truist. Thank you, sir.
I appreciate it. On the growth policy mix, the optimal
mix at the moment, and w
hy this equity market rally can continue perhaps
through to the end of this year. Equities right now still rally at least
a positive by 0.38%. Yeah, although coming off just a couple
of basis points. Let's get you an update on stories
elsewhere this morning. The search and rescue operation after
the collapse of the Francis Scott Key Bridge in Baltimore is now a search and
recovery mission. A road crew is working on the bridge at
the time of the collapse. Two people were rescued, but six remain
u
naccounted for. The area remains closed off to traffic,
cutting off a major artery around the city.
Chinese President Xi Jinping has told a group of American business leaders in
Beijing he wants U.S. companies to invest in China, putting
aside differences and, quote, minor issues.
Xie met with leaders including Blackstone's Stephen Schwarzman and
Qualcomm's Cristiano Amon for more than 90 minutes.
China is seeking to restore confidence in its economy, with Xi acknowledging
issues with the domest
ic economy, but saying it hasn't yet peaked.
Trading platform. Robinhood is rolling out a credit card
as it looks to further push into the consumer market.
The Robinhood Gold Card will be offered exclusively to members of the company.
A subscription based Gold Investment Suite members won't have to pay annual
or foreign transaction fees and will receive 3% cash back on all purchases.
That's your Bloomberg brief, John. The goal is for all our customers to
hold all of their assets in Robinhood and
for all of their transactions to go
through it. It's a pretty good goal, isn't it?
Okay. Just taking a step back, everybody going
to say whether that's the shape of the loan.
Well, I just want to say everyone wants to be a credit card company, whether
it's the airlines or whether it's Robinhood.
That's number one. Even at the time of some potential
pushback in the antitrust market puts one or two.
How much is this gold card going to help to fuel the zero days to exploration
options market that
people say is fueling a lot of the volatility in
markets? I mean, this is this is a great story.
You said this is an additional line of credit to buy stocks.
Is that what you think this becomes to say, you know, cash back, Where does it
go? It goes directly back into zero.
The stock market, the vibrancy of American capitalism, which is exactly
why that money should be recycled. Do you think so, rather than the
physical world? No idea.
Up next on this programme, Baltimore's bridge collapse strain
ing supply chains.
It's a large port with a lot of flow through it, so it's going to have an
impact. We'll have to divert parts to other
ports along the East Coast or elsewhere in the country, and it'll probably
lengthen the supply chain a bit. That conversation coming up next live
from New York City. This is going back. Flight from New York City about an hour
and 13 minutes away from the cash open. In New York, equity futures positive buy
third of 1%. Bond yields a little bit lower than a
singl
e basis point for 2179. And in the commodity market, Joe Biden
made some good news fast, $81 on WTI, we're down 0.7% for the president.
triple-A warning for dollar crude at the pump this summer under Savannah is this
morning Baltimore's bridge collapse straining supply chains.
It's a large port with a lot of flow through it.
So it's going to have an impact. It's just at this point, we'll have to
understand what that means for us specifically.
We'll work on the work arounds. We'll have to divert
parts to other
ports along the East Coast or elsewhere in the country, and it'll probably
lengthen the supply chain a bit. Here's the nice is this morning.
The port of Baltimore now closed indefinitely, threatening to disrupt the
transport of 2.5 million tons of coal and shipments of Ford and GM cars.
The port is the second largest terminal for US exports of coal and handles the
nation's largest volume of automobiles. John Cat Sonus of Breakaway Advisor
saying the situation will, quote, create d
isruptions in global trade, some that
will be felt in the US market given the importance of the Baltimore port when it
comes to importing cars and consumer goods.
John, I'm pleased to say is with us around the table.
John, good morning to you. Good morning.
I'm sure you've been super busy in the last 24 hours and something we haven't
done enough, nearly enough, I don't think is really explore how big the
ship's on. I know this is something you want to
speak to. We're talking about something that
is
almost 1000 feet long. And when you hear things like it's
traveling by close to ten miles an hour, it doesn't sound like that's that fast,
You should be able to slow it down. Could you give us a better framework to
think about the size of these ships and the kind of forces involved?
Absolutely. I mean, people have to think these are
huge structures, you know, tens of thousands of tons that travel.
The momentum for these structures to stop could take like, you know, ten, 15
minutes for the mo
ment you lose propulsion.
So people when they see the ship hitting the bridge, this the engines have
stopped way before, minutes before is not easy to really stop this at the
moment. It's not it's like we're used to like,
you know, with our car, for example. The other thing is obviously when this
happened, a lot of the procedures were followed the right way.
I mean, the ships throw the anchor, for example, try to slow down the momentum.
Right? They try to to rout away from there from
the pilot.
But it is not something I think it's
more of the timing. The timing was really bad when this
blackout happened. If it had happened like a few minutes
later or before, this wouldn't have happened.
As an observer from the outside looking in, when you see the lights go off, come
back on, go off, come back on, and black smoke starts to come out of the back.
What was it that you thought was coming all at that point?
Well, I think like what people are doing in the bridge, trying to figure out what
the
situation is. Right.
They see like suddenly things are not responding the way they should.
Probably the emergency generators or the emergency systems didn't work or they
weren't you know, they were malfunctioning.
I mean, I'm pretty sure there was a lot of like, you know, the attending to like
saw the situation and they did the right thing, like they called the authority.
You have to stop the cars. Right.
So they did the things that they should have done.
Probably. We don't know exactly what yo
u know,
what the situation was, but that's what I would imagine.
But there is not really an easy solution.
Is it timing more than actually what happened?
I mean, a lot of ships get under these conditions, but you never hear about it
because it's not in a bridge or in in an area that affects anything.
So it's not unheard of. But these are timing.
When we talk about risk controls, some some have postulated that maybe this is
a result of dirty fuel. Does that ring true to you?
Is there a sort of a
theory that you see is something that's more common for some
of these malfunctions in the past that could be at the heart here?
So contaminated fuel could be the reason.
And it's something that you hear in the shipping industry.
I'm pretty sure that there's an easy way to find out.
You can test a fuel, and I'm pretty sure that the investigators will find that.
But yes, that could be one of the reasons.
One economic consequence people have been talking about is that even a 10%
increase in capacit
y inflow to New Jersey, New York, Virginia ports will
cause the same kind of backlogs that we saw during the pandemic.
How concerned are you about that, that that kind of additional traffic will
cause ships to have to wait out in the harbor to get unloaded and get to get it
sufficient dock workers to get it all done?
So the good thing is that we're in a slow shipping period, right?
We're not in there in the in the Christmas period or pre-Christmas period
right now is a slow shipping period, espe
cially for consumer goods.
So that's a positive. But you're absolutely right.
I mean, the 10% sounds not a big number, but if the ports of New Jersey or down
to Norfolk, southern Charleston, Savannah, are already close to capacity,
that can really create a situation there.
And I think that's something that you cannot really guard, You cannot really
measure. Also, like probably the West Coast can
take some of the cargo and then rail it to the East Coast.
That definitely increase prices. And that'
s part of like a.
Seeing the effects you might feel on the consumer side, but I don't think that is
as. In terms of size, it's not going to be
anything close to the pandemic. Right.
We're not talking about anything like that.
But keep in mind, this comes on top of what's happening in the Suez Canal and
the Panama Canal. So this is not like an isolated
incident, because if it goes by itself, then it's not a big deal.
But you have the Suez Canal, all the divergence around the Africa.
And then you
have the Panama Canal where you don't have enough water for the
ships to transit, at least not to the to the rate that they used to.
This ship was built in Korea. We hear a ton of protectionist policies
and rhetoric coming from Biden and Trump ahead of November.
You don't hear it about shipbuilding. The U.S.
doesn't make ships anymore. Well, they do, but it's like three times
more expensive. So it's not I think it's a cost issue.
It's not really you don't do that. And you cannot compete in a pro
tected
economy in the ship, in the shipping industry in the U.S..
So that has been going for four decades in the U.S.
And everybody either complains or try to protect the industry, depending on where
you are. But I don't think that that's an issue.
I mean, Korea built two very high quality ships.
This is a new ship, high quality built ship.
It was maintained. Well.
I mean, it's not really something that I think the focus should be on, given all
your experience in the space. What do you think the
timeline is for
the cleanup and the rebuild? So if you go back like 20, 30 years ago,
a similar incident happened down in Florida.
It took seven years to rebuild the Bay Bridge.
When you talk about that, I'm not a structural engineer, but that's
something to to think about reopening the port.
My personal view is that it's going to take months.
People talk about a few weeks, but if you see everybody can see the structure
and what how much steel is in the water. Think about the salvage operations
.
How are you going to build this? How to bring this barges and cranes to
take all these steel out of the water. And then, of course, the shovel is the
actual ship. Take the containers that were broken in
the water, the cars. So I think it's going to be longer than
what most people think. You've been an investor, an analyst, for
more than two decades, I believe, 20 plus years.
I'm trying to understand where the liability might sit.
How are you thinking about that at the moment?
The president's c
ome out and talked about using federal funds to rebuild all
of this. But as you think about who might be
responsible for this Web with the liability set and whether the insurance
be. Well, I mean, if you take the whole cost
of this is running to multiple billions, I don't think there's going to be
anywhere close to that for whoever was responsible in that shipping site.
Obviously, the nightclubs will get involved, I think is a much more
complicated situation than just an accident, a shipping acc
ident, because
it's very rare that a shipping accident affects actually ordinary citizens or a
structure that is standing there idle. So if two ships collide, then it's very
it's very simple. It's not simple, but is easier to
understand where the liability stands. Here you have like a sitting structure
and a ship hitting the structure. So it's totally different.
I think a lot of different parties get involved on the shipping side, but also
on the actual commercial side.
John This was thoughtful
stuff. Love to do it again sometime soon.
Thank you for that, because this is going to be an issue that lingers for a
long, long time. Later, as the cleanup effort continues
and as John was saying, it's not an isolated incident in the sense that
we're seeing other shipping disruptions, which just raises this question, how is
it going to be felt? John, concern is that of breakaway
advisors Coming up next on this program, do not miss this.
The former Fed vice chair, Richard Clarida, he said last y
ear this Fed
would be willing to accept two point something, two point something on
inflation. Are they willing to accept just that? 60 minutes away from the opening bell.
Equities doing okay positive by something like a third of 1% this
morning on the S&P, up by third of 1% on the Nasdaq.
The Russell fighting just a little bit earlier on this morning was up by 0.7%.
Now by about 0.5 in the bond market, two year, ten year, 30 year, the two year
still in and around for 60 for 58, 68 for 22.
18 is
where we are on the ten year on a 30 year for 3875.
If you want some volatility, look to Japan.
I'll give you a little bit. One 5197 was the session high?
Apparently that's the line in the sand for a bit of more verbal intervention
from Japanese authorities. Overnight we dropped back down to about
one 5127, -5.2%, a slightly stronger Japanese yen.
That's all verbal intervention this morning.
Lisa has bought them. I love that you just said slightly.
I mean, we're talking about people fading.
The
move that came after Japanese officials said, please stop.
We are going to intervene, we're going to do something.
And people said, no, we're not going to do it, because essentially the Bank of
Japan has shown their cards and their cards are dovish and that's all that
they need to show me the think and make sure that I'm aware that that threat of
higher rates potentially is pretty credible because based on what we heard
last week, you just know what the bigger priority is.
And I think that's wh
at stands out. For me.
The ultimate priority is that we've got this once in a generation opportunity to
reset inflation expectations higher. And we don't want to do that.
We're willing to take negative rates away and go back to zero.
But if you think we're going to go on an aggressive tightening cycle any time
soon and undo what's taken decades to build, you're wrong.
The priority is on something else. I'm wondering if Japanese finance
ministers are getting on the same page as Bank of Japan memb
ers, because at the
same time that we heard this from the finance minister, we heard this from a
Bank of Japan member basically coming out and saying that the central bank
must proceed slowly and steadily toward normalizing its ultra loose policy.
They're not singing from the same hymnal that the finance department is.
Yeah, the currency is just not the priority at the moment.
In the grand picture of things, the big picture one 5126 on dollar yen under
seven is this morning fallout from the Balt
imore bridge collapse continues.
Six construction workers are presumed dead, but authorities are resuming
recovery efforts. The conditions improve.
Cargo is being diverted to other major US ports along the East Coast.
Maryland lawmakers are pushing for an aid package to help rebuild the bridge
as President Biden calls on Congress to approve federal funding.
Which begs the question, Anne-Marie, how quickly that's going to change?
Well, one is that you have officials on recess, Jonathan, but then,
of course,
it's going to be an immense amount of pressure for them to secure funding, to
rebuild and help their support. Kaylee was just in a gaggle with
Governor Westmore, and she wrote to me that what he's talking about is that
he's working with state government, a federal congressional delegation, to
make sure that they are able to get that funding and also support those Maryland
workers that rely on this dock for support.
And if that dock is going to be closed for a while and that port's go
ing to be
closed, you're going to have an issue of this local economy.
Look for more reporting from candy lines throughout this morning.
Our next story from the FTC. They've been investigating Tik Tok over
alleged faulty data security and privacy practices.
Politico reporting that the agency could decide to bring a lawsuit or settlement
against the platform in partnership with the DOJ.
FTC officials accusing TikTok of deceiving users by denying that
individuals in China have access to user data.
The FTC and DOJ are reportedly holding discussions about next steps, including
civil penalties. The case is unrelated to the for sale
bill that's now stalled in the Senate. But you imagine the Senate and senators
will begin to lean on whatever comes out of this, Lisa, sometime soon.
Exactly What I was going to say is that basically national security was doing a
lot of the heavy lifting, and now it's actually doing the entirety of the
lifting from the through the Department of Justice.
Is this t
he avenue that will be the quickest way to get there, given how
many hurdles we've talked about with getting through a sale or some sort of
divestiture? You've raised the question about Europe
in the last week in data privacy. The focus was on Apple and what's
happening with Alphabet and all the other tech companies.
What's going to happen with Bytedance, with Tech talk in Europe?
So good question. And honestly, how worried are they about
the potential data breaches and how much does the U.S.
an
d Europe get on the same page at a time where there are other differences
having to do with certain, you know, antitrust issues that Europe has raised
about? The U.S.
senators may now rely on the FTC, but actually this originated from Senator
Warner and Rubio in July of 2022, writing a letter to the FTC saying, you
need to look into this. And now it's come full circle, very
circular, everything down in Washington. Let's turn to the Fed speak, continuing
today with Governor Walla set to deliver r
emarks at the Economic Club of New York
on Friday. You'll hear from the San Francisco side,
President Mary Daly speaking ahead of champ Paul himself.
That remarks coming after the Fed's preferred inflation gauge.
PCE is due out 830 Eastern time on Friday.
Bloomberg Economics expecting core PKA to rise the most since September,
backing the Fed's patience on rate cuts. I'm pleased to say that we're blessed
with the presence of the former Fed vice chair Richard Claret.
And Rich, it's good to see yo
u and I'm blessed to be here.
Thank you very much. I've been singing your praises for the
last week because I was thinking back to the second.
Outlook from PIMCO in the middle of last year, where even the team wrote down
this Fed will accept two point something.
Can you describe what you were looking for back then, what you saw and whether
it started to come your way? Well, John, I think it has played out.
Look, I think Chair Powell and the committee deserves enormous credit.
Inflation got up to
five and a half or 6%, maybe ten on headline, and it's now
running in the twos. Our view then was two point something
would be the point at which the Powell Fed would start to pivot towards easing.
I think they think they're done. I think they're signaling that they're
going to be cutting starting this year. I think it's important to remember the
goal is to get to 2%, but they're going to start cutting before they get to two.
Based upon their view, the financial conditions are tight.
So we'll s
ee how it plays out. But I think so far that's played out
like we thought. A phrase you've used is opportunistic
disinflation. Can you help me explain the difference
between what you see and maybe what others see when they start to say things
like I was talking about on this program, a higher tolerance for
inflation. What's the difference?
I don't think, John, I don't think there's the tolerance.
Opportunistic inflation actually is something that folks thought the
Greenspan Fed did 30 plus years
ago, that if you're tighten policy, you get
inflation close to where you want it. But for that last mile, you just wait
till the next recession to get it done. And that could well be what we end up in
this cycle. That is, the rate cuts will start before
you get to the long run goal of 2%. And at some point there'll be a
downturn. Inflation can fall further.
Then the tricky thing is, of course, the Fed wants to avoid the downturn in the
first place, which means at minimum, Chair Powell will have
some
communication challenges ahead, I think. Well, there's a lot to unpack there.
Just let's start on the first issue, which is something that Andrew Holland
Horse was talking about earlier this week, that essentially you cannot get
down to 2% without a recession. Do you agree?
Well, I think historically that's what you would say.
But look, the progress has been remarkable.
You mentioned Governor Waller, a big fan of Chris's, worked with him.
You know, Chris has been making the point you can't
get back to 2% without a
lot of unemployment if vacancies are cut.
So I don't want I don't want to say that you can't get there.
But but it could be a heavy lift. Yeah.
Well, and the other part of what you said is it's really important.
The Fed doesn't seem to want that weakness.
And they even said that they would cut rates in response to a weakening labor.
I noticed that. Yeah.
What does this mean for for the longer term inflation rate?
Does it mean that two point something is the floor and ki
nd of we could see sort
of bouts of volatility in inflation in the upcoming years?
I think that is a risk case. I think the progress on disinflation is
remarkable, but it's inflation still above where they want it to be.
And there's some evidence that it may be more sticky and stubborn than than folks
were thinking. Again, I'll let the data speak for
itself. I hope the Powell Fed really is data
dependent. I think they need to be open to the
possibility that inflation is sticky, and I think that
changes their
communication and the rate path. Can you help us understand the
inconsistency that we struggled with last week?
And again, on the program this morning, we caught up with Bruce Kasman of Jp
morgan. He's brilliant and acknowledged the
difficulty in explaining the following. When the Fed is asked if we're
sufficiently restrictive, Chairman Powell will often speak and point to the
labor market, then simultaneously embrace and confirm that a lot of the
improvement came from the supply s
ide. Now, I'm trying to understand whether
you could really point to the labor market as a sign you are sufficiently
restrictive and also acknowledge that a lot of the improvements come from the
supply side. Can you do those two things at once?
You can. I think, look, there has been
improvement in the labour market. Wage inflation has stepped down from
five and a half down to around 4%. But that's still a little bit hot
compared to where they want to get. But the chair is right.
There's been imp
ortant supply side benefits, in particular labour supply
productivity has also picked up.
I actually think, John, if I could, I think maybe a little bit more of a
disconnect is on the financial conditions predicate itself.
Know, if you just look narrowly at the federal funds rate, it's well above
inflation. That looks very tight historically.
But of course very few people, including banks, borrow at the federal funds rate.
If you look at mortgage rates and you look at other things, they they've
come
down and credit spreads are tight. You know Bloomberg financial conditions
indexes including Bloomberg's are easing and so he got that question last week
about financial conditions and he says we think they're tight.
Well, they could be, but they're certainly easier than they were in
November. So what do you think he's pointing to
when he says, we think they're tight? What is he pointing to?
Well, absolute borrowing costs. If you want to get a car loan, if you
want if you want to get a mort
gage rate. So traditional indicators of the cost of
borrowing are elevated, but obviously other indicators are moving in the other
direction. So as usual, with the data, it's
probably a mixed picture. Do you think that it's clear that it is
truly a sufficiently restrictive rate currently at the Federal Reserve?
That would be my base case. But there is a risk that that is not.
And I think importantly, the focus on the baseline, of course, is reinsurance.
We want to know what's going to happen. Bu
t I think there is a risk management
case here where it may not be restrictive enough.
I think the Fed's view of I don't think people care what I think.
I think the Fed's view is if they if inflation stickier and more stubborn
than they want, they'll just keep rates at the current level longer or they'll
reduce the pace of rate cuts. I don't really think the Fed is thinking
about hiking any more right now. I think they think they're done.
You said if the Fed really is data dependent and I don't
think you're
necessarily casting doubt on whether they look at data, but what data matters
most, if what we're looking at right now is inflation data that is coming in
hotter and frankly, goods, disinflation, that seems to have ended.
Certainly the the January February data, if the PC comes in, that that would be
the reason there is some evidence. I think the chair's correct of
seasonality. You know, that's always tricky.
And in recent years, most of the bad news in inflation has been in the fir
st
four or five months. So I don't think we want to remove that
possibility. I just think that a sticky inflation
scenario is maybe not a baseline, but it's a very realistic case.
And I think investors and and people looking at the economy need to start
thinking about it. How do you perceive the balance of risk
holding to longer, cutting too soon? What is the bigger risk for you?
Well, I'm no longer there, so it probably doesn't matter.
I think, given that the last three years, inflation has sub
stantially
overshot the target. Look, I was a charter member of Team
Transitory. It's looking better now than it did a
year ago. But I think there is past dependence and
history, dependence on monetary policy. And so I think the risk management I
would be doing if I were there would say there is a real we want to avoid.
I don't think we want to avoid having inflation shoot up again and having the
credibility challenged. So I would be leaning more in a hawkish
balance of risk mode than than just
hugging the baseline right now to put
sort of a bow on that point. If you think about how much more
investors have to consider the idea of sticky inflation and Fed officials
themselves. Can you give us a sense of how much that
possibility has increased in your view, in the past month or two based on the
loosening of financial conditions and, frankly, the Fed's response to it?
It. It has increased, certainly.
Look, we got really we got five out of six months of really, really good,
surprisingly g
ood inflation data and for good reasons, both supply and and
demand. We're I think in some ways I think
there's a actually now compared to where we were maybe in January, a better
alignment between markets in the Fed in the sense that, you know, after the
December meeting, the markets are priced in six or seven cuts, which which was a
disconnect with what I thought the Fed would deliver.
So on that end, I don't think there's too much of a disconnect now.
I think markets understand. They think th
ey're done.
The margin that they're going to play with is when to cut and how much to cut,
but not to hike. So I, I don't think there's not much of
a of a disconnect right now. One final question.
Could you do the show again in Newport Beach, California?
Can we do that in June? Here's me Well, you know, it's above my
pay grade, but and I'll treat you to a burger like I
actually You treat me or not treat each other?
No, I think we treat each other. We treat each other.
I think sort of money and M
ike exchanged cards or something like that.
Rich, it's good to see you. Thank you.
Thank you very much. The former Fed vice chair Richard
Clarida Equities right now on the S&P 500 later positive 5.4%.
Let's get you an update on stories elsewhere this morning.
Six people are presumed dead after the collapse of Francis Scott Key Bridge in
Baltimore. President Biden saying he wants the
federal government to pay for the rebuild.
But the governor of Maryland telling reporters it's critical they act
q
uickly. This is not just impacting Maryland.
This is impacting that farmer in Kentucky.
It's impacting that auto dealer in Michigan.
And so it is imperative that we get this bridge rebuilt.
It's imperative that we get the port of Baltimore back up and going.
And it's not just about how are we supporting Maryland.
This is about how we support the American economy.
Meanwhile, Brent could hit $100 this year if Russia's decision to cut
production isn't balanced out by other countermeasures.
It's acc
ording to analysts at JPMorgan. The bank saying the actions could see
the price of oil hitting $90 next month and close to triple digits by September.
Russia saying its decision to deepen its production cuts were based on
expectations for global oil demand growth.
Trump Media and Technology continuing to surge in pre-market trading.
The stock ending the day 16% higher after rising as much as 90 as much as
59%, I should say. On his first day public yesterday, the
stock adding to the former presid
ent's net worth on paper.
Trump's 60% stake may now be worth more than $6 billion based on SEC filings.
However, Trump cannot sell his stake immediately due to a six month lockup
agreement, which raises questions, John, about whether this is actual wealth,
whether it's a paper wealth, or whether he can cash out.
What this means. All I know is that to short that stock
is incredibly expensive and a lot of people are piling into very risky, I'm
sure as well on every level. I think the real day on t
he calendar you
should look for is maybe not the end of the six month lockup, get back into
power and sell it tax free. Right.
Is that what you are? You want to if I go back into the tax
mitigation policies that you find interesting.
Sort of like Jamie Diamond. That's the last remaining attractive
thing about working in Washington. This is your pitch to people in the U.S.
This is why executives said you can't think of another reason, absolutely
credible. You'd want to sort this out to get that
m
oney. So we can't rule against it.
President. That's so cynical.
What about serving the great country? Yeah.
How many people want to do that now, given what's happening in Washington?
Jamie Dimon. Think about it.
Think about the message that is come from the people who have left in the
last week. We had a Republican recently talked
about messaging bills, how we're sick of it.
Mike Gallagher, think done. Go back and listen to what Mike
Gallagher had to say. And I think that's a sad indictment of
how people feel about serving in Washington at the moment.
I really would like to get back to an era, especially not necessarily the high
level, but rank and file, where it is something of an honor.
And that's all that we all can hope for. I'm with you on that point.
Up next on this program, if makers facing demand pressures in terms of the
EVs, the growth is there and the market, perhaps the consumer moving into the EVs
is at a slower pace than what some had dreamed about.
But the growth is the
re, the interest is there.
That conversation. Up next. The opening bell 42 minutes away.
Equities doing okay on the S&P 500 positive through most of this morning by
around a third of 1% to about 4/10 of 1% under surveillance this morning, makers
facing demand pressures in terms of the evs.
The growth is there in the market perhaps at the consumer moving into the
EVs is at a slower pace than what some had dreamed about.
But the growth is there, the interest is there, consideration is growing.
And
once people have driven EVs, they are very loyal to that type of
powertrain. And so we think we will be seeing a
steady growth in the market. Here's the latest this morning.
Growing demand concerns are forcing automakers to scale back production,
with some making a pivot to hybrid vehicles in China.
Chesapeake White falling in Hong Kong, trading after the EV maker's earnings
missed estimates amid aggressive price cuts.
Competitor Volkswagen saying it expects to fall behind in China.
Along with
our value over volume growth strategy, we are deliberately prepared
to give up market share in order to find a sound compromise between margins and
volume. For more popular to see.
Volkswagen Group of America president and CEO joins us now.
Pablo, good to see you. Good morning.
Thank you for coming into the studio. I know it's an important couple of days
for you and the team here in New York City.
I just want to reflect on the events of yesterday in Baltimore.
Important hub for automakers. Can y
ou walk us through the potential
disruptions for you, the team and the company?
Yeah, First of all, regarding yesterday, our heart goes to the families.
Yeah, it's quite unfortunate that everybody's pulling back.
Looking at this from a business point of view.
We are on the side of the sea level. So, you know, when the ships come into
Baltimore, we're not going to be affected by this event.
Obviously, we're going to have some disruption because of the trucks, but
it's not going to be as disruptiv
e as other automakers.
Supply certainly hasn't been the problem in this industry.
Unfortunately, it's been demand. Can you walk us through what you're
seeing, things we can weigh, saying things strengthened and whether you're
able to lean into what's happened with hybrids and the demand for it in
America? Absolutely.
So let me start talking about the industry.
February, year to date, the demand is very strong as an industry.
The North American market, which is Canada, US and Mexico grew 8% in
Fe
bruary, year to date versus last year, and we grew 21%.
So we're tripling the growth of the market, but still 8% is quite strong.
And what we're seeing, the data for March is still strong.
Having said that, the ebb has flatten. The curve remains around seven and a
half, 8% of the total industry. But we as b w we still have 12% of our
sales are in the A4 in the electric vehicle space.
So we're still having higher growth than the average market.
Do you expect to ramp it up, though, more slowly and
maybe put a greater
emphasis on hybrids? Are you starting to sort of sow the
seeds for that right now because you have a couple of years or potentially
months to really get that up and running?
Yeah, So our factory is highly localized in the US and we have both combustion
engines and electric vehicles in Chattanooga, in Tennessee, and we're the
only foreign automaker that qualifies for the $7,500 credit for the consumer,
which means that we're localized within the region.
So that gives us our f
lexibility going forward.
I think the pace of growth will be slower, but we still grow in the space
and other powertrains will be a good alternative for the consumers.
So the consumers will be able to choose electric vehicles like hybrids, hybrids
and combustion engines. How important was that subsidy to you to
not only build the factory, but also just in terms of your decision of the
product mix to sell? Well, first, I think the IHRA definition
is a great piece of legislation for the US because
it is transforming the
industrial base of the US. So you see all these new factories and
battery factories being built in the US over the next three or four years.
So the benefit is not only for us but also for the consumer, you know, by the
fact that we're localizing and we're bringing all the jobs of both market and
also the suppliers. You know, we create an ecosystem that
provides more jobs here, and then the consumer gets a $7,500 credit.
If Trump were to come back in power, though, he can
rewrite those Treasury
laws, which makes a subsidy which could make the subsidy basically impossible to
get. How are you thinking about that kind of
impact when all this money has been put towards the EV market?
Yeah. So we have a long term vision on these
topics. I mean, we know that and we believe we
remain committed to the EV strategy in the long term and the pace will depend
on the consumer. Now, is it possible that the rules will
change? It's possible, but he would need a vast
majority in t
he Congress and the Senate to change his loss.
And also, when you look at the map where all the factory shall be built, they're
not built only in states that are Democratic or Republican.
They're being built all over the US. I think, you know, in the interest of
jobs and growth. In technology.
I think it would be wise to maintain this long term vision.
Do you think it would be wise to wait until after the election before you make
decisions about your manufacturing footprint in this country?
I do
n't think so. And I'll give you an example.
And these are not only words. We decided to localise the A4 way before
the Inflation Reduction Act, which goes back to your question.
Right. So we believe so much in the transition
to electric vehicles and in localizing our footprint in the US that we made
decisions before and after that. We're going to continue to localize one
push over the last year or so by this president, by this White House, is to
push and support union workers. You mentioned Chat
tanooga.
There's at the plant is going to be a vote on whether the workers joined UAW,
that specific union. Can you walk us through what that could
do to your cost base? Yeah.
First of all, we respect the freedom of our workers to choose how they're
represented. Having said that, we're constantly
talking to our workers on how to improve, you know, their working
conditions, the salaries and the benefits.
It will be up to them how they want to be represented
in the future. So we will respect that.
And the cost base, would you just assume it would increase off the back of that?
I'm not so sure. I mean, we have a very competitive cost
base. Competitive in terms of the employees.
We have wages around 23, $23 an hour, which are comparable to Michigan with a
lower cost of living. So we will see.
Pablo, Thank you, sir. Hopefully we can catch up again soon.
Appreciate your time. Thanks for the invitation.
Scenic San Pablo to see the VW of North America CEO.
Let's set up tomorrow. Tomorrow?
This
is what the program looks like. We'll catch up with Kia, see if the
conversation around automobiles will continue.
DHL supply chain CEO asking about what joined us to Merck CEO Robert Davis and
Tiffany Welding and PIMCO. A lot to get into Paramo regarding
industry and global business, especially at a time of so much changed.
And really what we've been hearing is consistency is all that really matters
and that, you know, going forward that they can adapt to any possible shift as
long as there's
some consistency. The opening bell about 35 minutes away.
Equity futures near session highs positive by almost 0.5% from New York
City. This was Bloomberg Surveillance.
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