Bloomberg Surveillance TV: May 28, 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.

So here's the latest this morning. President Trump's policy stoking concerns about the dollar's dominance. Ishwar Prasad of Cornell University writing, the dollar's dethroning is unlikely. Luckily for the United States, and unfortunately for the dollar's detractors, there appears to be no competitor strong enough. Ishwar joins us now for more. Ishwar, welcome back to the program, sir. It's always good to get your thoughts on Bloomberg surveillance. Let's take it from the top. What's the difference between diversification and de-dollarization?

So the two could very well be related, John. What is the reality the world faces is that if you're holding more than 57% of your assets, that is reserves, in one currency or one asset class, you really should be diversifying, which is something that the world has been trying to do for a long time. So there are very good reasons to step away from the dollar.

Now, the issue, of course, is that the dollar is very important, not just as a reserve currency, but as a payment currency, as a funding currency. And in all of those respects, the reality is that there simply isn't another currency that can out-muscle the dollar. Certainly, a world in which there were multiple currencies that were competing on an even basis might be a more efficient world. It would create more discipline and more incentives for discipline from the issuers of those currencies. But that's not quite the world we live in right

now and the weaknesses of the other currencies are still keeping the dollar in pretty good shape. Well, let's talk about some of those weaknesses. It feels like for many that China is just a non-starter because of the lack of capital mobility. What about the Europeans, Ishwar? Where do they fit in?

That would be a very logical alternative to the dollar. In fact, when the euro was created in 2000, there was an upsurge of excitement about an alternative to the dollar finally, and the euro did seem ready to fulfill those promises. In the first seven to eight years after its creation, the share of the euro in foreign exchange reserves, for instance, went up by about

eight percentage points from about 20 to 28 percent. And there was a sense that the euro was an unstoppable linear path to taking over from the dollar. But then it all ended. The global financial crisis and the eurozone debt crisis revealed that Europe does not quite have

all the elements of a monetary union. Yes, there is monetary union, but the true banking union, the fiscal union and other parts of economic union did not really hold together. So if you think about the core part of the Eurozone, you know, countries like Germany, Austria, the Netherlands and so on, that's a much smaller share of the overall Eurozone bond market. And even those core countries are not exactly doing very well right now. Germany is struggling, for instance.

So it doesn't look like Europe is ready to step up and take on the mantle. And certainly since 2008, the euro has done very poorly. Its share as a payment currency, its share as a reserve currency have all fallen back to about the pre-euro levels.

This is the institutional weakness that you're talking about that leads the dollar to remain on a much longer leash than any currency should rightfully have. That's your words. At the same time, the dollar is still on a leash. And Steve Englander, a standard chartered, said overnight that a U.S. dollar and rates crunch could emerge if the fiscal bill steepens the debt path without boosting growth. How much do you see that as a possibility, say, in 2026 or 2027?

You know, by all logic, Lisa, the dollar should not be where it is. We are seeing that macroeconomic policies in the U.S., especially the fiscal deficit and debt levels, do not show any real discipline by U.S. policymakers. The key elements of the institutional framework that are crucial to underpinning the dollar's dominance, you know, the independence of the central bank, the Fed, the system of checks and balances, the rule of law,

All of these have certainly taken a pretty strong beating. But the reality is that if you put the whole package together, the institutions, but also financial market depth and size and the dynamism of the US economy, even if the US does very poorly in each of these dimensions in a relative sense, it's still doing better than the rest of the world. And that's a difficulty.

But having said that, we have certainly seen a fall off in the dollar share of global asset flows and so on in the last four to five months. But it's worth keeping in mind that from September of 2024 to about January of 2024, just till about inauguration day for the new president,

The dollar on a trade-weighted basis rose by about 10%, possibly making it quite overvalued. And then it's fallen back by about 10% to about where it was in September 2024. So if you want to tell a very negative story about the dollar, you start in January. If you want to tell a different story about the dollar, then things have changed, but not really in a fundamental sense. You go back to September 2024 and not that much has changed.

We know the president hates trade deficits. Do you think any of this is strategic to boost U.S. exports? That's a very interesting question. We've heard very mixed messages from the administration about whether they want a weaker dollar in the short run and a stronger dollar in the long run. Trump certainly has spoken about how he wants the dollar to remain the dominant currency. But at the same time, in many of the

issues that we've had with other countries, including countries that the US is running a trade surplus with. The Trump administration has argued that many of those countries are manipulating their currencies to keep them weak, suggesting that the US would prefer that those currencies be stronger and they'll

be weaker. That mixed messaging certainly should be hurting the currency, and it probably is, but it doesn't seem to be a fundamental aspect of policy that they're trying to weaken the dollar through the messaging, but certainly the policies they're putting in place, you know, the increased likelihood of a U.S. recession later this year because of all the tariff troubles, the increasing, you

fiscal deficit levels, all of those are certainly going to weaken the dollar. I have no doubt this is going to be an ongoing conversation, particularly with you, sir. Ishwar Prasad there of Cornell University.

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There's no business like small business. Hiscox Small Business Insurance. Joining us now, the Republican Congressman French Hill of Arkansas. Congressman Hill, welcome back to the program, sir. Let's get into this. I want to understand. So here on Wall Street, as you know, there's a big sense of self-importance. When you put this bill together, how much attention do you pay to the bond market, fixed income and what's happening on Wall Street?

Well, Jonathan, great to be with you. Look, Republicans in the House and Senate have collaborated for over a year on the components of this bill, and certainly very intensely since the election. We wanted to deliver on President Trump's campaign promises. First, redeploy federal spending. Cut out some of the federal spending that we don't particularly agree with and reinvest in the border and reinvest in defense. And secondly, block

a 22% tax increase on families by extending the Tax Cuts and Jobs Act. Those were the fundamental components. And we did believe that between the Trump regulatory policies and growth policies and tax policies that we would get

some acceleration in economic growth from the provisions in the tax code. But we also focused on cutting spending, and in the House bill we cut $1.5 trillion in spending over the next 10 years. Congressman, there's a handful of vocal senators already who want major changes to this bill. Is it going to look remotely like anything you sent over to the Senate?

Well, I'm not going to make predictions about what will happen in the Senate. We legislate every single day in the House. They legislate periodically over in the Senate. And so when they do, they have a lot of concentrated effort on it. They have to work by consensus in the two parties there even more so than we do in the House.

So I don't want to predict that. But look, I want to be clear that John Thune and Mike Johnson and President Trump have collaborated on the background and details of these bills. And that's why, based on what I've witnessed in the House over the last five months, I want to echo Speaker Mike Johnson's point, which is this is a delicate dance and a delicate balance. And so the Senate has to consider any major changes very, very carefully, I think.

Can a bill be big or can it be beautiful or can it be both? Well, when you've got President Trump, you've got both at all times. So I think it can be significant in its policy direction and change.

as well as very beneficial to American families and the growth of the American economy. And I think that's delineated in the scope of the bill that we passed in the House. Congressman, of course, Amory was talking and referencing what Elon Musk was talking about as he seemed to distance himself, saying he's a bit disappointed that the current iteration of the bill does increase the deficit and, as he said, it seems to undermine some of the progress made by efforts

in Doge. Do you agree? Does it concern you that there is this increase in the deficit without real offsets for the longer term?

Well, I think the work by DOGE over the first five months of it has done a lot to uncover productivity loss, need for reform and full-time equivalent positions, how to reform IT systems, make them more reliable, reduce waste, fraud and abuse. All those things found by DOGE are helpful. And I think they informed Chairman Tom Cole, the chairman of the House Appropriations Committee, and his colleagues

exactly how to better focus FY26 spending. When we get back into session next week, you'll see the hearings in the House Appropriations Committee start quickly. And I think that's where the Doge work will be best reflected is in looking at FY26.

Do you think that the current iteration of the bill does enough to juice growth to offset some of the constraints that you're seeing with tariffs, with the idea that even Walmart in your home state in Bentonville is being told, eat it, and you're seeing profit margins contract or expectations for it? If you have both the deficit increasing and you have the potential for companies having to cut back, does that worry you?

Well, as I've said on your show before, I remain concerned about the uncertainty in the tariff strategy. I think we've got regulatory reform going absolutely in the right direction. I believe that the tax preservation of no cuts for households and tax incentives for business are good in the bill, including minimums.

major tax incentives to bring a new plant and facilities to the United States for construction. But we need to make sure we have clarity on the tariff issue. And you're right. Doug McMillan, the CEO of Walmart, met with President Trump, made it very clear to him how quickly he believes that tariff clarity needs to be found or it's going to impact

store shelves and store prices across the country. And I think you've seen that reflected in the Macy's report that you had just a few minutes ago. Did you get a sense, speaking to a Walmart congressman, that we will get clarity by July 9th?

Well, I believe that what I've heard from business, Dillard's Department Store here in Little Rock, Arkansas, one of the biggest retailers in the South, Walmart headquartered in Bentonville, Arkansas, as well as a number of small manufacturers here in the state and large, that they want clarity soon, meaning May, June, early July, because that's going to really impact planned shipments, planned purchases, and

and what's going to be on the shelves for back to school and this fall. So it's very important, particularly in the retailing industry. Other industries and manufacturing, maybe there's a little bit more leeway based on inventories that's been built over the inventory that's been built over the first few months of this year. Congressman, just before you go, I have a feeling you might want to weigh in on this. The

and what he had to say to Axios, that AI could wipe out half of all entry-level white-collar jobs. Are we sleepwalking into a bit of a disaster? Well, I served last year on Speaker Johnson's bipartisan full house AI task force. We had hearings all year from every segment and walk of life, from education to healthcare to service businesses.

And we came up with a series of principles. And one is you have to keep a human in the loop in applying AI either internally or externally in a business application or a government application. And if you use it as a tool, I think it's going to be a very big productivity advantage.

tool to boost economic output. And from what we heard in testimony, I didn't hear the Armageddon approach in the short run because it's such a

emerging early stage tool. It's accelerating rapidly, but I think if we keep a human in the loop as we apply it internally and externally in our businesses and in government, that we're going to continue to have employees that use it effectively and that it's not going to be as catastrophic in the short run, particularly as that prediction. We hope you're right, sir. Congressman Hill, it's good to see you, as always. Congressman French Hill there on the latest news this morning.

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Investors bracing for NVIDIA results after the closing bell as China export curbs way on the chipmaker. Joining us now to look ahead, Mandeep Singh of Bloomberg Intelligence. Mandeep, welcome to the program, sir. What are you focused on later this afternoon?

Well, we know that China is the focus, but for me, gross margin is where we can determine, you know, NVIDIA's pricing power. And right now, everyone is fixated on power supply. Six months back, you know, everyone was fixated on supply of GPUs. I feel that concern has alleviated and the focus is more on power.

And so what I want to know is how does that affect NVIDIA's gross margin in terms of supply concerns abating? And look, the geopolitical tensions are still there. They may have to remove some of their supply chains. But in the end, it comes down to gross margin because that's the biggest determinant of NVIDIA's free cash flow.

There's also a question, Mandeep, about the hyperscalers that have come under some unique pressures. I'm thinking of Google or Alphabet, the parent company of Google. How much do you expect some of these companies to increasingly become competitors and not just customers and for that to be part of the narrative mix stemming from earnings today?

Absolutely. I mean, look, we know NVIDIA's revenue is concentrated with the five big hyperscalers. And we also know OpenAI is trying to branch out on its own when it comes to building its data centers, etc. So from that perspective, you know, the commodification of LLM. So if Gemini is

is catching up to open AI, that's bad news for Nvidia. And look, for Nvidia, clearly they want the LLMs to standardize on their chips, but there are a lot of alternatives emerging, especially in China. And if, you know, Chinese aren't getting the supply of GPUs and they're still able to train the models,

they are setting up a precedent that you can do inferencing without nvidia gpus and that is what will determine in this ai infrastructure super cycle what sort of market share will nvidia have two years from now or five years from now the stock is positive in the pre-market by 0.6 percent mandeep appreciate your time mandeep singh there of bloomberg intelligence to build on the conversation joining us now frankly of hsbc who has a hold rating on the stock and a 120

price target on Nvidia. Frank, welcome to the program. I just want to build on some of the conversation we've already had so far this morning and understand from your perspective why this won't be the beat and raise quarter that maybe some people got used to in years gone by.

Yeah, I think if you look at the beaten race, we haven't really seen that for the last couple of quarters in video since the second half last year. So I think what you're seeing is that and one of the reasons I think we see is that there's still some ongoing challenges they're facing this year, which they didn't face last year. You know, number one, you had, you know, the supply chain is still having some ongoing issues, especially on the downstream side and the way they ramp their NVR rack architecture. We've had the China ban

come through earlier as well. And also, I think the GTC roadmap that was launched, it wasn't as exciting as people had hoped. We're not seeing a huge spec migration that will drive this incredible pricing power going forward. So these, I think, were the headwinds that I think NVIDIA is facing in the first half of the year. And I think as you go into earnings, I don't think there will be a major surprise. I think the market has gotten used to that already. Expectations

for the revenue has come down over the last three months. So I don't think there will be a big disappointment either. So I think the focus, though, will be probably as we go into 2026. There's a question, Frank, about the supply side of this story with respect to supply chains and other issues just creating enough chips to really meet demand.

And then there's a question around the demand and how much is coming from China versus the Middle East versus hyperscalers. Which side of the equation do you think is going to be the more important one this earnings season? I think the focus will be, you know, the narrative somewhat has actually changed

quite a bit, especially after the, I think, the Middle East AI deal, because that represents a new greenfield market opportunity for Nvidia that, you know, over the long run could perhaps double their revenue from where we are today. So I think that has been probably the biggest change and the big reason why the stock has rebounded off the recent lows.

However, I think to get confirmation that this demand from the Middle East will materialize, we're going to have to see between now and in the year whether the supply chain expectations for next year does continue to reverse. Because since the beginning of the year, what you've seen is that the capacity on the chip side allocation has been coming down. So as this trend starts to reverse as we get into next year, that will be seen as a very important indicator. We may not see that for another couple of months.

But that would be something I think is really critical because that establishes your baseline for 2026 that it can grow again. But I think prior to this narrative, it was just really the hyperscaler capex will slow. And they will also see more of a focus on their own chip, the ASIC chip. And that's why we see Broadcom seeing a very strong growth for next year as well.

Frank, it was a pretty remarkable moment in a photo op when you have Jensen Wang basically standing in between President Trump and Sheikh Mohammed bin Zayed in Abu Dhabi when they signed this AI partnership. But whether you put all of these deals together across the Gulf, is it enough of an offset for what's happening with China?

I think right now the narrative clearly is there to suggest that it is. I mean, they've talked about 600 gigawatts that potentially over the next 10 years or so could double their revenue to 200 billion. But the

You know, that's the narrative. Whether it materializes or not, we'll have to see. I think, again, as we see next year, the supply chain start to see upward revisions. We've been in a downward revision since beginning of the year. Now, does that start reversing course? I think that will be an important thing to see because that's going to be the most, I think, a very important driver for NVIDIA next year. The hyperscaler will slow down. I think they know that. And I think they've been prepared.

preparing for that, which is why I think at Computex Jensen also talked about willing to sell the networking chip so the hyperscarers don't have to buy the complete solution from him. So I think he's become more open-minded about selling other chips besides the entire solution.

Frank, just to wrap it up, we'd love a thought from you on the man himself, the leadership, Jensen. Tim Cook increasingly out in the cold at the moment with regards to the relationship with the president of the United States. What is Jensen doing right? Yeah, I think it's an interesting one because Jensen clearly has expressed desire to continue to sell into China. He's been very vocal about it. In fact, I think they are working on another chip that they plan to sell into China that

I guess get around some of the restrictions we're seeing today. But on the other hand, I think he's also quite supportive of the loosing of AI diffusion. The deal in Saudi Arabia, I think, was a good start. So I think he's also been very supportive and appreciative of the administration about going that direction. Frank, given his pursuit of China, though, and China is a major customer, do you see tension down the road between the two individuals?

I think, you know, what NVIDIA has proven to be is very adaptable. So they've been, you know, every time there's been a restriction, NVIDIA has abided and followed it. They just come up with another chip that basically falls below the criteria benchmark. And so I think he will continue to do that. But again, in a fashion that I think is pretty much well telegraphed. So I don't see it as being a problem.

negative source of tension. I think he still doesn't want to give up on the China market, but at the same time, I think he's also looking to follow whatever the restrictions are placed and he'll find ways to meet them. Got it. Hey, Frank, appreciate your time. Frank Leder of HSBC on Nvidia. Earnings from them a little bit later this afternoon.

And as always, on the Bloomberg Terminal and the Bloomberg Business Hour.

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