Bloomberg Surveillance TV: June 25, 2025
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.

Let's turn to crude. President Trump surprising traders by posting on True Social that China can continue purchasing oil from Iran. Brent crude coming off the biggest two-day decline since 2022. Amrita Sen of Energy Aspects joins us now for more. Amrita, I want to get to this line that's coming from the president. Can you help me answer this? When did China stop buying Iranian crude?

I think that's a question you might have to ask him. But basically, there's been a lot of confusion since that statement that, to your point, China hasn't stopped buying Iranian crude. China is still buying 1.5 to 1.7 million barrels per day of Iranian crude. There was maximum pressure under the first Trump administration, which did get exports down to 400,000. But then since the Biden administration took office, it's been kind of creeping up and then election and high oil prices were an issue. So the administration turned a blind eye.

So yesterday when the kind of tweet came out, everybody was like, okay, does this mean sanctions are being lifted?

Anyway, the point being since then the White House has clarified this is not a change in sanctions policy. However, we would also say this does mean that there's not going to be a tightening in sanctions either, i.e. status quo prevails, China continues to buy about 1.5 to 1.7 million barrels per day of Iranian oil. Just build on some of those numbers, Amrita. What is that of a share of total Iranian production, the amount of barrels that are on the market right now already?

So Iranian production is about three and a half-ish million barrels per day. Oscillates a bit between 3.5, 3.7. All their exports, whatever they are exporting, goes to China. And the rest of it is consumed domestically.

which is the reason why this is such a big potential buyer and why this is such a big deal for the oil markets in terms of who else would supply that and what this would mean for the price. Does this suggest that this is part of the ongoing negotiation, that the goal is to keep oil prices low and to bet against that is frankly a fool's errand?

I would say that's exactly how the market's interpreting it. You know, when we are talking to our clients, the general impression is that, look, we know President Trump wants low oil prices. He's going to get it one way or the other, right? So if that means that, especially because we were in the high 70s not that long ago, that means that we're not going to see tightening of sanctions. And I think traders are very much focused on that.

The fact that he wants low oil prices, especially ahead of the bill, and he has been saying that consistently, right, that he doesn't want prices to go up. Inflation is a big concern. So that's where I think the market kind of – that's why the market reacted the way it did in terms of selling it so hard. But at least since then, it's been clarification that sanctions are still in place. This is China avoiding sanctions and the U.S. not doing anything about it.

But yes, it does mean that there's more oil in the market than otherwise would be. But from a trading perspective, Romita, doesn't this act as a cautionary tale to anyone who tries to expect oil prices to rally in any kind of material way? That there is a Trump put, in essence, on that. That there is a willingness to navigate the geopolitical situation in a way that brings down oil prices one way or another. So why would you bet on $100 crude or $90 crude, which is the worst case scenario that so many people are talking about?

Yeah, no, I completely agree. And I've been surprised that people have been calling for that. You know, we've never, I mean, I've been with you guys saying that, you know, 70 and 80 is not going to be sustainable given where the balances are. And, you know, people are looking towards those bills that we are also predicting from Q4 onwards. I think the challenge, of course, is that this is not a market you can short either.

because these risks and the geopolitical risks are real. Fundamentally, though, the right here, right now remains very, very tight. Stocks are very tight. Cushing, just look at that. It's super low. So this is also equally hard to short. But on a macro level, your point is very valid that Trump and his policies will somehow make sure that prices don't run away too quickly. It does mean that generally there's a bias towards the lower side. And Rita, can we just finish up by asking you what the demand side is?

looks like at the moment. I think economists are really scratching their heads at the moment about where the economy is, particularly here in the United States. We're trying to gauge where we are, speaking to company executives. What's your take just looking through the prism of crude oil?

Yeah, I mean, it's not great, but it's not dire either. And I think we're kind of in between our demand numbers between seven to eight hundred thousand barrels per day growth year on year. Again, the U.S. is actually doing OK. Europe is doing very well. China, not so much. And I think that's kind of the spectrum. We don't think this is a recessionary environment in the sense of what people were expecting when tariff fears were at its peak. But it's also not an environment where global growth is humming along very nicely. Amrita Sen of Energy Aspects. Amrita, thank you.

If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

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Joining us now to discuss John Lieber of the Eurasia Group. John, welcome to the programme, sir. Before we get sort of knee-deep with what's happening over in Europe, I think we want to talk about the President's agenda and the key deadlines still to come. July 4th, the self-imposed deadline for the tax bill. July 9th, the self-imposed deadline for a trade deal with a whole host of countries. John, where do you think we'll be by the time we get to the middle of July?

You know, this tax deal is coming together and they're basically done with it. There's a couple of kind of dotted I's and crossed T's they've got to think about right now. And of course, there's the House of Representatives, who isn't going to like the deal that's coming out of the Senate necessarily, but I think is going to have a really hard time voting against this thing. You're going to have unanimity among the conservatives in the Senate to pass a bill with deep cuts to Medicaid, the most impactful cuts that they've done on an entitlement program in decades.

And I think that some of the moderate members are probably where you're going to have a harder time getting the votes because of the issue with the SALT cap, which is the Senate's moved back down to $10,000. The House had passed it at $40,000. That's going to be an issue you have to work out.

But, you know, President Trump now out there truthing that nobody should go home for the Fourth of July holiday until this is passed. If it doesn't pass next week, it's going to pass shortly thereafter. On the tariffs, you know, that 90-day pause is up on July 9th. And a lot of countries, you know, a lot of countries are still negotiating their deals. So I think it's notable that despite the really early momentum around Japan, you know,

India, the UK, of course, announced something. You haven't finalized anything. So they're going to have to extend this 90-day deadline, and they're probably going to do it for most of the biggest countries. But I also think they're going to send a message here by increasing tariffs on some countries, maybe not back to Liberation Day levels. Trump still has total discretion here as to what level he's going to get to.

But some of these tariffs are going up and only Trump knows which ones that is. The White House staff doesn't know. And I think they probably haven't made that determination and won't for at least a week or two. John, this president doesn't stop. By the looks of things, he never sleeps. After the next few weeks, what's left of his agenda? What does he focus on?

I think that it's going to be crisis response, right? So, I mean, this is going to look a lot like the first Trump term where they did the tax. You know, they tried and fail on health care in the first half of the year. And then the second half of his first year was all tax reform. And then in year two, it was kind of just, you know, Trump counterintuitively.

tweeting about all kinds of subjects that was whatever was on his mind and responding to what was going on in the world. And then, of course, picking a trade battle with China. He's already picked the trade battles. He's going to be done with his tax agenda. You know, there's going to be foreign policy crises that come up from time to time, like we just saw in Iran this week. But he's not actively pushing much. And on the deregulation front, you know, I hear a lot of people talking about the tailwind coming from deregulation in the latter half of Trump's term coming up.

But that stuff takes time and they're going to stop enforcement across a number of, for example, financial regulations, basically. But deregulation itself is a whole process. And if they want it to stick up in the court, they have to do it right. And doing it right means going slow. And it means you won't see the results from the deregulation, if there is any, until possibly the end of Trump's term or even after the

when all of that, of course, could be reversed potentially by a Democrat. John, there's a lot to unpack there. I want to talk about crisis response in particular to foreign policy. It seems like people are taking the recent developments in the Middle East as providing something of a roadmap for how President Trump will respond to future international crises. What's your take on that? What did we learn from the way the president handled Iran and the attacks by Israel?

Yeah, I think what we learned, and this has been a pattern throughout Trump's time, is that foreign policy is pretty easy for him when there's a power imbalance. When there's a power imbalance and the US can respond with overwhelming force and has no risk really of being struck back at, Trump will strike. He did it in Iran twice now with the assassination of Soleimani and now this unprecedented level of bombing. But if you look, for example, at Russia, where there's less of a power imbalance, they have nuclear arms already.

there's nothing really Trump can do to intervene in that conflict. So I think this is going to be something that other countries are paying attention to. I'm sure China is paying attention to what happened in Iran this week. Now, China's diplomacy, their ambitions have a much longer timeframe and, uh, you know, they're much less of an active threat to their neighbors than Iran was. So that situation is obviously very different, of course. But I do think that, um,

I think that Trump is willing to act. He's not gonna commit American troops on the ground. I think that's a red line for him. But he is willing to throw American firepower at countries that are irritating him if he thinks he's gonna win without consequences. This is kind of a curveball, but you talk about we learned something about President Trump's response based on the mayoral primary election in New York. What have we learned about the Democratic response to President Trump's policies, if anything? Has that sort of served as something of a roadmap?

Yeah, I don't think so. No. I mean, New York City, you know, great, most important city in the country, but it is not representative of the rest of America. And I don't think that a socialist mayor in New York City is going to be a look that the rest of the Democratic Party necessarily wants to embrace for the midterm elections. I expect the party is going to try to run from him. However, there is going to be a backlash against President Trump that is going to have a

is going to have a left wing in its flavor. And that is going to be a national story. And you're going to have this battle inside the Democratic Party for who's most likely to win in general elections. You know, the socialist emerging from the primary is not going to win in Missouri, but they can win in New York City. That's not really a roadmap for the rest of the party. Hey, John, I appreciate your thoughts as always. John Lever there for the Eurotrip Group.

Joining us now is Sheila. Sheila, good to see you. Good to see you. Defence spending very much in focus given this headline as well coming out of the NATO summit. Companies like Rheinmetall, German defence operator, that stock is already up 177% so far this year. How much of this story is already well-priced? Well,

Well, we focus on the U.S. names, as you know, Jonathan. Of course. And in terms of what we're seeing is we were at the Paris Air Show last week. It's historically a commercial aerospace show, but a lot of focus on defense exposure. European defense companies are trading at 50 times EBITDA. These multiples are ridiculous. And we're seeing a lot of focus from U.S. investors into European names, but also undiscovered names, whether it's a name like AeroEnvironment that we're

reported last night, Elbit in our coverage, it's an Israeli name, 30% Israel exposure, 20% U.S. exposure, 25% Europe. So who has hidden European exposure that could benefit from some of the NATO spending, which is going to pour hundreds of billions into additional defense spending? Do we have a sense of which region of defense contractors Europe will be working with disproportionately? Will it be mostly European?

defense manufacturers, will it be the United States, will it be elsewhere, does it matter? Is this being used as a diplomatic tool or is this just where they can get them in order to get their forces up? - Historically, it's been two thirds of European spending has been flowed back to the US, but companies like Ryan Mattel are really emerging, investing in their local capacity. In the last month, we've met with all five defense contractors

And the common theme is local for local. Yes, we have a facility in Spain. We have a facility in Poland. So we think about 50% of the NATO spend will come back to the US. And I actually think over the next five years, it'll be focused on missiles, munitions, replenishing what got lost in Ukraine. And over the long term, I think what we'll lose out on is the fighter aircraft. You know, the local teams, France, Saab,

we'll have local manufacturing of larger equipment in Europe and U.S. will still supply missiles, air defense, which is where the U.S. really excels at. Yeah, to build on that, there was this feeling, and John, you mentioned it, it was like watching Top Gun in action over the past couple of weeks in terms of the B-2 bombers and what they actually engage with and how much is that, you

different countries around the world saying, "I want that," versus just the very nuts and bolts of, "I need another missile here, I need another thing there." Is that kind of the sort of more humdrum aspect of what we're actually talking about here from the European build-out? - Yeah, I think we have to give the Northrop B-2 bomber a minute here, 'cause I think it's so amazing. And it just happened this weekend, and everybody brushed it off on Monday morning.

The last time it was used was against Yemen in 2024. But aside from that, it was used in Libya in 2017 and 2011 before that. So we don't use these that often. I went to the facility in Palmdale where Northrop sustains them. I mean, the coating itself costs hundreds of millions to recode every time. So it's a pretty cool aircraft. We only have 20 of them. We use seven over the weekend. So I think it also helps accelerate

the Trump agenda, whether it's the next generation fighter with NGAD, which they awarded to Boeing, and pulling forward things like the B-21, which is also a Northrop aircraft. What about what we have seen take place in Ukraine?

in the war between Ukraine and Russia and their ability to cause serious damage to air defense of the Russians with just drones. That seems to be a major development over the last couple of years. The character of war has changed. And I wonder if the type of investments, the kind of things that people invest in in defense is changing too.

- A little bit of both. The reconciliation bill, which is about 150 billion, has nine billion dedicated to drones and other autonomous vehicles. So the Trump agenda really focuses on accelerating technology and what the next war will look like, whether it's against China, but it also pushes forward their agenda. One of the things I do really appreciate is how the bill really pulls forward

programs that are already accelerating, whether it's like Textron's FLARA program. If we have it, if it's in the air, why are we waiting for certain milestones to be reached? Sheila, important conversation. Good to see you, as always. Thank you. Sheila Coley there of Jefferies on Defence Planning.

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A lot of spending on defence in Europe and again in the United States. What does it mean for fixed income and this bond market? Matt Hornbeck of Morgan Stanley joins us now for more. Matt, welcome to the programme, sir. We're going through the mid-year outlook from yourself and the team. Let's talk about the bond market call and the dollar call with that in mind. What's the new base case for you and the team?

John, thanks for having me on the show. Yeah, we see both of these assets going down. The dollar we see going down in price. We have the dollar depreciating about 10 percent over the next 12 to 18 months. And then for Treasury yields, we have Treasury yields

also falling. We have the 10-year yield ending this year at 4 percent, and we have it ending closer to 3 percent by the end of 2026. Now, both of these forecasts, of course, are related. They are driven primarily by a Federal Reserve, which ends up

up cutting policy rates much more aggressively than what markets are currently pricing in. We're more confident, I would say, on the magnitude and the direction of those rate cuts as opposed to the exact timing of those cuts.

as I'm sure you read in the note, we don't have the Fed cutting this year, but we have the Fed cutting a lot next year. That's an interesting feature of the outlook, but is one that's subject to change, of course. Matt, what are the economic conditions that lead to those deep cuts in 26?

Yeah. So ultimately, the first is that we get past the hump on tariffs. Tariffs create a temporary inflationary impact. Our economists have that impact concentrated in the third quarter of this year. And then by the time we get to the fourth quarter, those tariff effects are starting to fade away and you begin to see

the weakness in the labor market really come through. That's ultimately what catalyzes that discussion on the Fed to begin lowering rates, which our economics team has happening in the first quarter of next year. Why aren't you worried, Matt, that when the Fed does lower rates, it won't cause the long end yield to rise, akin to what we saw last year?

Yeah, well, I think what happened last year, Lisa, is the Fed did cut rates and interest rates did go down temporarily. But then we went into the U.S. election and the market being forward looking, began to speculate on what was to come after the election. And of course, at that time, investors were thinking about much larger deficits, more government bond supply, kind of a

better economic outlook than we think exists at the moment. So it was a different time and we're not expecting that to happen again, at least for another three and a half years. Matt, given the discussions heading into July 4th and then July 9th, it does seem like the deficit's going to deepen in the United States. Why is that not a threat to your call to go into duration, to buy those 10-year bonds that maybe other people are steering clear of?

Well, the expectations for the deficit have actually changed quite a lot. And the primary driver of that change is, of course, tariffs. Coming into this year, most investors didn't expect the Trump administration to do as much with tariffs as they have done. And so when we think about what kind of revenue are these tariffs going to generate, and don't ask us, you can ask the Congressional Budget Office what it thinks about the revenues generated by the tariffs that are currently in place today.

And the CBO scored that tariff revenue around two and a half trillion dollars over 10 years. Presumably some of that's front loaded. So we are seeing a meaningful increase in revenue that was not expected coming into the year. That's going to mean that deficit expectations are actually lower than where they were right around the time of the election last November. Matt, have you got a window in that office? Got an external window of some daylight?

I do have some daylight. Good. But really, my daylight comes from the picture of my daughter behind me. Oh, that's beautiful. Matt Hornbeck of Malkin Stanley. Matt, thank you. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business Hour.

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