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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.
So, you know, it's meant to capture an idea and it's about convincing the market that you're sort of done with the trade policy issue.
There is a huge amount of uncertainty about the different ways that that can be done. And at the end of the day, given where we are, you know, I expect it will be kind of mushy. I don't have a better word than that. So some trade deals, perhaps some lowering, the big question mark about 10, you know, the 10% uniform tariff. Because by the uniform tariff that we have put on ourselves, you know,
We've heard US growth more than we are hurting anyone else. Lisa asked the question where the pressure would come from. Where do you see the pressure coming from? What drives that credible relent? I think at the end of the day, it's the same thing. So when you think about presidential elections, you know, we've all heard it's about the economy, stupid, in the sense that other things matter, but it's mostly about the economy.
And so I would argue it's presidential job approval ratings. And because if you think about if the presidential election is about the economy, and then you ask people, where do we ask people, how do they feel about the economy? It's consumer confidence. So the typical pattern is new presidents start with hefty sort of goodwill of employees.
honeymoon period of high approval ratings, the honeymoon then tends to wear down. And the question is, where do we land? We land at levels that are basically, you know, dictated by consumer confidence, I would argue, happened the last two administrations. And so, you know, we are midway in that process. We started up here. We've been coming down. And the trajectory right now at
And I would just remind that current consumer confidence levels suggest that you might get down to 30%. And so I think there will be a reaction long before. Yeah, there's some pretty negative soft data that have been coming out. You talked with us when you had still a 7,000 rating, 7,000 target on the S&P 500 saying it was a matter of time. And if this uncertainty didn't get resolved, you would have to bring your forecast down, which is part of the reason why you did bring your forecast down. That's right.
Now there is a question of how much longer can this go on before you bring it down again, before you cannot put the toothpaste back in the tube, you cannot put the genie back in the bottle, pick your potential saying. How much are you looking at that? Very much. I mean, I think that, you know, the risk is that the relent that we were talking about comes basically too late and the nonlinearities of recession kick in. I think one has to be honest, which is that
it's just very difficult to gauge what the impact of the tariffs is going to be. And by that, I mean, I think they're clearly negative for U.S. growth. They're very negative for U.S. earnings. Precisely how much is the question.
I mean, on a 12-month basis, you know, we calculate that the impact would be $56 of US S&P 500 EPS. And just to put that number in perspective, you know, last year we had $250 of earnings. So, if you're talking about $56 hit, that's a very large number.
it's a very large number by any standards. And so, yes, the nonlinearities of recession can kick in and the relent might come too late. But then you have to think about basically, okay, so if we're going to go down, maybe we have a recession. Getting a recovery from a supply-side recession doesn't fit the typical playbook. So it's something that will have to be...
seen and worked out, basically. Do you get the sense that big tech is going to lead this charge? That that is essentially what we have already seen from both Meta and Microsoft, as well as Alphabet last week, that there's sort of a resurgence in faith in U.S. tech that can bolster some of the pain that you might see elsewhere from the likes of McDonald's or GM or some of the other companies that are more hit?
What I would say is, earnings are basically saying they're hanging in right now and earnings are fine. But again, this is about yesterday, not about tomorrow. And the question is, what happens tomorrow? So our take is that earnings growth for the first quarter currently looks like it's coming in around 10% year on year.
That could drop to basically zero in the second quarter that we are in and then basically turn negative on the baseline view that the announced tariffs all come into effect and stay. I mean, it's just, you know, if you think about the numbers, they're just, you know, horrendous. Binky, you talk about this relent. What's the level? What's the destination you think we're going to get to in a base case scenario?
I don't know is the honest answer. I think it's all getting worked out dynamically. And so the circumstances and what happens. So it's data dependent, to use a bad term. So you think it's politically driven? Yeah, I think it's political. So basically they have until November 3rd of 2026.
You know, the midterm elections start a lot earlier, and I would argue, you know, the clear and present danger is to approve ratings. They have, you know, sort of predictable consequences on your ability to cover. And so we shall see. Binky, we shall see. It's good to get an update from you. Thank you, sir. Appreciate it. Binky Chowder there of Deutsche Bank on the equity market.
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Brian Gardner of Stifel with us around the table. Brian, good morning to you. Good morning. A little bit later this morning, we'll catch up with Binky Chandler at Deutsche Bank. And this is his call. 6150 on the S&P. He says that's going to be driven by a credible relent on tariffs. And that will be shaped by damaged polls. Is this president driven by polling? No, I think he's driven by legacy.
I mean, I think that's what drives everything with the White House right now. This is the second term. There will be no third term, despite the jokes about it. But he's been talking, Trump has been talking about tariffs and a restructured U.S. economy since the 1980s. This is it for him. This is a one chance to get this done. So the idea that there's going to be this massive pullback, despite the pause and everything, I think Trump believes this in his heart.
Maybe there is some economic data, some market data that comes in later and causes them to recalibrate. You know, certainly everybody's thought there was a Trump put. I think we mispriced the Trump put to a large extent.
Maybe it's still there, but I think at the end of the day, they're thinking about legacy. Well, he basically said recently to The Atlantic that there's really no red line, no certain number that would pull him back and reverse policy. To your point, though, that he wants to see a global realignment, he talked about yesterday in this town hall the fact that tariffs are difficult to explain because he takes a maximus approach to then bring it down. Do you believe he wants a full global realignment with some of the figures he has now, or he wants negotiated deals and terms?
I think he wants negotiated deals to get to that endpoint. That endpoint being that restructured global economy, whatever that looks like. And I don't know that he necessarily has a clear picture in his mind what it's supposed to look like, what he wants it to look like. I think at the heart...
The current system, in his view, does not serve America well. And we can, you can debate whether that's true or not. But in his mind, it doesn't serve America well. And so he wants to leave something that's better. And I think it's probably through a negotiated deal. How you get there is another matter. So when it comes to China,
What do you think this could look like? I was talking to people yesterday in Washington, D.C., who are convinced that Trump wants a grand bargain, includes things like TikTok and other levers they can pull. What do you think that deal could potentially look like? Yeah, I think I'm not sure what the deal looks like because I think it's a lot more complicated than people think it is. So China takes a much longer view than we do. They think they can outlast us, that the pain threshold that kind of Jonathan was just alluding to, that it'll be so great in the United States.
that the U.S. is going to have to capitulate at some point. So they're going to wait on this. The other is, you know, there's been this view in the United States that China has more to lose from this than we do. And if you look at the raw numbers, yes, that's true. You know, they export more here than goes the other way. At the same time,
The U.S. exports, Chinese exports to the United States are less than 3% than the overall Chinese GDP. That's a big number, but it's a manageable number. And if you take that longer view, you can start to restructure your economy and find other trading partners to at least partially fill the void. So I think China is going to take much longer than people expect it to.
I want to build on John's line of questioning where he said right now it doesn't seem like the polls is really a check on the president despite what a lot of people had expected. It doesn't seem like the stock market is a check on this president's policies. What is a check potentially on what he decides to do and not just what he decides to do but how he does it?
I do think, I agree, the stock market is not a check. I do think what we've seen is that the bond markets and the broader financial markets are a check. And I think you have the Secretary of the Treasury talking to the President and warning him about economic repercussions if he keeps going down in certain lines on trade policy. I think that's why we got the pause. So there are some checks. Again,
We probably have mispriced all of this, right? The checks are still there. They're at just much different levels. What that level is, we don't know until we know. It's impossible to say. But his poll numbers have deteriorated over the last couple of weeks. The honeymoon seems to be over. Very interestingly enough, this is lining up pretty much with the same timing that President Biden saw his honeymoon end when
when he had the problems with Afghanistan and a few other issues in April of 2021, maybe there is some level at which further poll deterioration causes the White House to rethink this. And because the president's not running again, he's a little bit immune to polls, but at some point does the vice president step in? Because obviously the vice president is going to want to succeed. And how much sway does J.D. Vance have
with the president because clearly he is looking towards 2028. Donald Trump's not. He's got to. That's a huge question. Brian, it's good to see you, sir. Thank you for having me.
Let's stick with tech. Apple reporting results after the closing bout today. Dan Ives of Wedbush writing, we remain bullish on the long-term opportunity for Apple's flagship ecosystem. Investors need to look past the next three months and assume China tariff negotiations take a positive turn.
Dan, optimistic as always, joins us now for more. Dan, welcome to the program, sir. Let's get straight to it with Apple. How are you going to draw a distinction later on this afternoon between a front-loading, people rushing to the stores before the tariffs, and decent, sustainable underlying demand?
Yeah, I'm actually less focused in the quarter, as you talk about in terms of pull forward or front loading. It's really about what Cook talks about in terms of tariffs. Like, are they going to stay on schedule with the iPhone 17 launch? You know, how are they going to sort of scenario analysis in terms of everything they're seeing in China that we need to hear from Trump administration? Those are the keys. I actually think numbers take a backseat to Cook's commentary about that.
So, Dan, let's talk about the guidance then, what kind of scenarios they could offer and what you think of the approach so far from corporate America, because we've seen a range of things done. Some people have just pulled guidance, haven't offered any. Other people have cut. Some people have offered multiple scenarios. What would you appreciate? What would you prefer to see this afternoon? I'd prefer no guidance because I think if you give guidance, you actually put your back against the wall. I want they can give some sort of scenarios that
But it comes down to June's mulligan. It's a toss away quarter. I think the really focus is, you know, do you launch in terms of September iPhone 17 and give some scenarios and ranges for investors to understand what this could do? Look, we've already factored 10 percent cuts in numbers. Worst case, 12 to 15 percent. Best case, 2 to 5 percent. That's how we're going into tonight.
John raised this really interesting point earlier, Dan, about how much forward buying there was over the past couple of months and frankly over the past couple of weeks to get ahead of any potential disruptions in shipments from China. Are you expecting to get any guidance about the pull forward effects and maybe that we could even see much better than expected numbers that will only be made up in maybe declines later on? Yeah, look, there will be pull forward. And again, I think number graphs are going to be very strong.
And I think they could quantify some of that. But that's sort of breadcrumbs. I think the real focus is next few quarters, over the next six, nine months, how they're going to navigate these tariffs, in terms of maybe even talking about some supply chain plans, the India scenario. I think any commentary like that would be very important to understand from Cook, to kind of put a...
you know, flashlight in a dark tunnel when it comes to tariff scenarios. We're hearing a lot of commentary about how maybe Meta and Microsoft have been somewhat immune. We're going to be hearing more potentially from Apple and Amazon. We got this reporting overnight from the Wall Street Journal that they were thinking among some of the height at Tesla, at some of the height of the carnage and some of the boycotts that they were looking at potentially getting another CEO to replace Elon Musk.
What do you make of that? Look, we talked about it on your show, right? A lot. I mean, the point is, regardless, the board denies it and the scenarios. This was the moment of truth. The board had to do something, whether it's a warning shot or whatever it may be. And Musk had to choose. CEO of Tesla, do it. And we thought that conference call is probably the best conference call I've seen Musk do
Maybe ever, at least in the last four or five years. So important because the brand damage and what was ultimately happening clock struck midnight. So regardless of the semantics and what actually happened, what didn't happen, the end result is a huge positive. Musk back in the driver's seat, CEO of Tesla. And I continue to think like his days, the White House are essentially dumb.
Well, Dan, they're not in the sense that he was at the cabinet meeting yesterday wearing not just one, but two Make America Great hats stacked on top of each other. Even though he is more focused maybe on Tesla now than he was in the beginning of this administration, he was very focused on Doge. Can that brand destruction still carry through?
Yeah, look, I mean, you've talked about that a lot. And I'd be surprised if these other cabinet meetings, I mean, just given, I think the pressure for him to sort of detach himself from
But we've talked about brand damage. You've got to contain it. You have a massive era of growth ahead. Autonomous, robotics, turning things around in China, especially BYD in terms of rising, you know, in terms of from a share perspective. Leaders lead. That's what Musk has to do now. And I just think that was the move that he started to take on last week's call. And I think that's what we expect to see from Musk going forward. It's also why the stock's up.
Because ultimately now you have the biggest asset of Tesla back, regardless of the drama that went through between the board and Musk or whatever did or didn't happen. - Dan, let's finish on the biggest challenge to them right now, which I think could possibly be a tie up between Waymo and Toyota. We're talking about the best sounding car brand on the planet.
Two of the best-selling models out of the top three in the world in the last 12 months. Getting together with Waymo that's delivering 200,000, 200,000, 250,000 paid trips every single week. Why isn't that a threat to Tesla?
Yeah. I personally think that's not as big of a threat as maybe some have talked about. Look, Waymo, $240,000 cards in four cities, they obviously will expand. They had the lead in terms of coming out of the gate. I think when it comes to cybercabs and outside autonomous, the scale and scope, they're really going to own that market. So you're going to see more and more partnerships like this, but it's not like I view this partnership as something that changes my thesis.
on Tesla in terms of autonomous. But it also speaks more and more. Musk needs to be leading Tesla, not sitting there, as Anne-Marie said, wearing two or three hats in a cabinet meeting. I'm guessing you're at the airport, Dan. Travel safely. I am. It's good to see you, sir. Thank you. Thanks for making time for us. Dan Ives of WebPush.
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We'll put this around the table now. Ian Lingan of BMO Capital Markets. Ian, good morning. Morning. Thanks for having me on. I'm going to repeat that question for you. The Treasury Secretary, Scott Besson, said because the two-year yield is trading below Fed funds, it's evidence that they are too tight and they should cut interest rates. What's your response to that?
It's suggesting that the market anticipates that over the course of the next 24 months, effective Fed funds is going to be lower than it is. That doesn't mean that now is the time to cut. That just means that the market is telling us that the Fed will resume normalization at one point. Does it concern you that there is so much discussion around Fed policy from administration officials? Well, we came into this knowing that there was going to be some political pressure put on Powell.
There's been conversations coming out of the White House about potentially removing him. I don't think that that's really in the cards, nor do I think that's frankly possible. It's not surprising, however, that we have started to see some negotiations with potential replacements for President Trump.
Powell coming in to, whether it's via the media, whether it's conversations that have been had at the White House. So I'm not really surprised, but somewhat apprehensive of the uncertainty created by this political pressure. Well, that's what I was going to say. On the margins, does this affect not just Fed policy,
but also how the market responds to it if there is this feeling that there will be somebody else coming in, that there could be a shadow Fed, that there is pressure increasing job owning, and frankly, that Fed officials may feel like any decision or words that they say will be interpreted in a political way, both in the market and in the White House.
I don't think it's really atypical for the administration to be pushing back against any given Fed or any head of the Fed. But what I think it's what's so unique in this cycle is how vocal and how real time it has become.
Typically, you would expect any sitting president to want the easiest monetary policy possible. But Powell's objectives are for the long-term stability and health of the U.S. economy, which involves price stability. And that's the battle he's fighting at the moment. Ian, because it's so vocal, and the Fed chair had to come out and say...
this is inappropriate in a sense, saying by law he's allowed to stay in his job. Does it make it harder for them to cut rates if they had to? Because then it just looks like they're placating the president of the United States. Well, I think something that we've learned over the course of the last several weeks is, yes, there's a Powell put, but there's also a Trump put. And the Trump put is struck higher than the Powell put.
Powell doesn't want to encourage and reinforce behavior in the White House that isn't necessarily going to be good for the long-term health of the economy. And so, to your point, I think that when Powell deems it time to resume normalization, that that's when it happens, and he won't give in to the political pressure. Following the Treasury Secretary's
comments about the two-year rate below the Fed funds rate. Neil Dutta put out a note and said, wage and salary growth is running below the level of Fed funds rate as well, meaning it's already too tight. What do you make of that argument? Well, I will argue that the bulk of
What has occurred over the last six or eight weeks has been really an uncertainty-inducing event, and it follows intuitively that as some of the backward-looking data could suggest that it's time to cut rates, that the market is focused on those aspects of it. There's also aspects of the data that suggest that the Fed should continue to remain on hold until September or later, which is actually my assumption at this point. It's a really difficult moment. Take the numbers from Visa. We mentioned this just yesterday.
We've not seen any signs of overall consumer spending weakening. That's from the CEO. From McDonald's right now, this is what they're saying. They're cautious about the overall health of the consumer. They're seeing pressure hitting the middle-income consumer in America and elsewhere.
Pick your poison right now. It's difficult. And that's the reason why cruise liners are up. But if you look at one cruise liner, it's up, but maybe not the other. And then you have people saying, well, sometimes companies are just trying to use the circumstances as an excuse to talk about weakness that might have already been present in their business models. It is difficult to understand whether this consumer is going to be tolerant of price increases or not, which is the reason why you might see some testing by companies to see, let's get a sense. Can they absorb this and can we pass it along?
I don't think it gets any easier from here. You're going to see way more distortions in the data for weeks, maybe even months to come. Ian, it's wonderful to catch up with you, sir. Appreciate it. Ian Lingan there of BMO Capital Markets.
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