Markets Soar on US-China Trade Truce
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This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Begin strong with Jeff for you, Senior Strategist, EMA, BNY. Jeff, thank you so much for joining us. Let me go right to the terrace. Michael Brown in London has a wonderful tweet out.

So the U.S. went from negligible tariffs on China to 10%, then 20, then 54, then 104, then 145, and now we're back to 30 in 90 days. Jeff Yu, is China advantaged by this round trip on tariffs?

Well, round trip and detailing how long, right? I'll just highlight simultaneously when that joint statement came out, China actually put out a 2035 white paper on security and resilience. OK, that round trip is going to last years and years and years. Or rather, it's not a round trip at all. So they're looking to perhaps

get some data in the short term, paper things over, stability, but target restructuring of the economy in the medium to longer term. So in terms of long-term strategy for Beijing, this doesn't change a thing. And for the export numbers, I'm going to say 48 hours ago, showing buoyant exports out of China,

to other nations. This delay in the trade war, this round trip by President Trump, doesn't it give them more time to organize and disperse their supply chains to other nations?

And one hour ago, I believe China's just signed deals with Lula detailing billions and billions of investment into Brazil and vice versa. And you think about agricultural supply chains, potential. So South America is a very large market for Chinese EVs, for example. So all of that is taking place in the background. And let's look at now how whether China reaches some form of agreement with Europe, which

on EVs as well. That's going to be a big one. So Beijing's not done in terms of its broader focus on diversification, but also needs to restructure its own economy as well in favor of domestic demand. Whereas from the U.S. side, hopefully that it's a short-term blip and we'll need to see whether it can continue U.S. exceptionalism because that's in the mind of all investors right now. So Jeffrey, we're seeing a rally in the Bloomberg Dollar Index here. How do you think about the U.S. dollar here?

Well, a lot will depend on the Fed and also how the economies pursue in terms of growth. I look at dollar Asia because that's where the volatility has been right now. And there's this view that, oh, well, the Asian currencies need to appreciate up ahead. But back to Tom's favorite theme, yes, appreciate, but in real terms. How do we square the circle here? Well, that means fiscal stimulus across Asia that can afford it to boost our own economies, to boost the domestic side, bring inflation up.

in Asia. And I think that will help paper global growth over. And for the U.S., I don't see that as a bad thing either. It's the rebalancing process. And perhaps the exceptionalism can continue with a softer dollar to stimulate the U.S. economy. And Paul, brilliant to bring up the Bloomberg Dollar Index, folks. This is a more emerging market adding in China index off of DXY. The symbol for those of you with a terminal in your car nationwide, DBDXY. Paul, we've moved. It's an elegant chart. I did it logarithmic because Jeff used with us.

And we're at 2.6 standard deviations up. So it's not like a fiery rally in the dollar, but it's a legitimate move. Jeffrey, when you see the risk assets, let's just take the U.S. equity markets here, rallying 3%, 4% here today. What does that tell you?

I think that tells you that people are viewing this stability as being prioritized by this administration and the stability is being prioritized by all administrations and globally. Ultimately, this loosens financial conditions and is good for risk appetite. So no one really wants to rock the boat. And that is back in the pricing here. But up ahead, I think let's just see how U.S. growth is going to consolidate.

And I think this will hinge on the Fed. And I think, again, this is where the domestic side of the US, inflation, the labor market, that's going to matter a lot more. Is it so cool that we have Jeffrey Yu and Jordan Rochester back to back? It's unbelievable. Let's continue with Jeff Yu a little bit more. Hey, Jeffrey, we had stories just as recently as a week ago of

ships coming from China, turning around and going back to China, not coming to the port of Los Angeles. How do we think about that now? That's the key question. Where are our ships going now? They're off Hawaii, stacked up like in Newark. Exactly. So...

So what I would focus on right now, and I know the Commerce Department's very focused on trans shipments, but are we seeing a pickup in Chinese shipments, the likes of Malaysia, Singapore, Southeast Asia, how those deals have progressed? And then are you going to see a corresponding pickup in exports from these regions to the U.S. as well? But then let's see how much volume clears customs airspace.

in the US from Asia in general, is that coming down? If not, and I don't think it will come down that much because demand is going to be in place. What's the weighted average pricing that matters for the Fed? Will that feed into inflation? So I don't worry about supply, but there still will be a price issue. And that's something that the Fed will need to look into when setting policy. And ultimately, that's what US equity markets will react to as well. - Jeff, you've fooled the bonds, the currency, the commodity correlations

into the equity market for our listeners seeing this relief rally. Is it all clear for Jeffrey, you and the stock market? Jeffrey Mishlove:

US exceptionalism means you buy stocks, you buy US stocks, you buy US bonds, and you buy the dollar. We think that the only thing which may de-correlate slightly or not just be as full on is on the dollar side. So to compensate for maybe a little bit more risk premium due to the recent uncertainty is a softer dollar. But again, this shouldn't be seen as a bad thing. A, it's something that the Trump administration perhaps on and off has been talking about. But B, what if US companies become exporters as well? Then you can benefit forever.

from that FX earnings translation that Europe, Switzerland, Japan, and even China, Asia, they always look for. So that correlation shift is perhaps taking place, but don't read it as a negative for US exceptionalism, at least not yet. Let's see if US companies can adapt. This round-trippedness. Here's Lula of Brazil. Folks, this is a Bloomberg headline. Brazil's Lula

says, "Can't understand Donald Trump's tariffs." I'm not making that up. That's the actual headline. Jeffrey, you, heads are spinning over this modern neo-mercantilist policy. What's the outcome that you see? A complete capitulation by President Trump?

I would say Beijing and the US ultimately will view that free trade or rather any unwinding of trade decoupling as both sides and Treasury Secretary Besant has stated.

There's no win in this, right? So it's lose-lose for all. So there is a vested interest or rather there is an interest for the global economy. Beijing has said this for stability. So that is something I think that both sides are now very focused on. But over the medium to longer term for the US and for China, restructuring is needed. And for Europe, look at how much Europe has rallied this year on account of Germany focused more on domestic demand.

That is healthy, and that's something Besant has highlighted. He's absolutely correct in this. Restructuring in favor of domestic demand matters for the exporters in China, in Japan, in Europe, and the hope is for markets that they continue along that. So as an equity investor, you focus on the domestic elements in Europe and in Asia, which have been underpriced for so long. Jeffrey, thank you for getting us started. Senior strategist, BNY, greatly appreciate that. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple Podcasts.

Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 1130. Someone else correlating beautifully and publishing on LinkedIn this morning. Paul, why don't you bring in Mr. Rochester here in Mizzou. Jordan Rochester, he is head of fixed income, credit and commodities, macro strategy, macro

at Mizuho. Jordan, we wake up to news this morning that the U.S. and China will temporarily lower tariffs on each other's products. And the news, Jordan, is the U.S. will reduce its levies from 145% to 30%, and China will reduce its duties from 125% to 10%. Is it back to business as usual, Jordan? It's back to business.

It's back to business like it was in March. So the effective tariff rate, if you take all of this sort of exemptions has gone from 108 on you on Chinese exports to us to about 27, if you take it all in. So that's where we were in March. We were lower than that, of course, before Donald Trump took it to the white house. So there could be a bit more to go. There's a few caveats as well. This is a 90 day reprieve. Things could escalate further down the line, but in the,

the sort of press conference with Scott Besson earlier, what was quite clear was the hurdle to extending beyond 90 days is quite low. It was just as long as talks remain constructive. So it's quite clear that with Scott Besson leading the charge on this in Switzerland, that there is a move by the US to get rid of what was a defacto trade tariff embargo, a trade tariff wall. It was such a high tariff that business was freezing up. And as we,

the previous speaker was talking about lots of trade shipments were being rerouted and and chinese exporters were considering ways of paying for the the tariffs uh at lower prices than what they possibly are so there's all these sorts of uh complex parts of international trade that would the sort of cogs were being put into motion now they don't need to be at the same level because we are now down to the tariff rates that i think the us firms can swallow

So what's next here? If you're in the C-suite, you're a CEO, you're a CFO, you're a purchasing manager. How do you navigate here, do you think? I mean, much less being an investor here, if you're just an executive trying to run your business. Well, before Liberation Day, it was quite clear what a lot of firms had been doing was that

China might have been the original creator of an item, but it was being shipped to a third country and final construction of that product was being made in Vietnam or elsewhere and then shipped to the US at lower tariff rates than what was previously applied upon China.

what changed on liberation day is everybody got this 10 tariff so it becomes a lot less effective to do so even for countries with free trade agreements uh that there's a 10 tariff and then there was the extra kicker there was a higher rates of reciprocal on top of that and countries like vietnam and others who had been part of this chinese rerouting system uh faced a much larger tariff so if you're in a c-suite right now you're thinking well i can't it's hard for me to avoid tariffs it's more about

going with an importer of choice that can help your supply chain in the first place, but also bringing it back to the US. I think this is a key part of the administration's focus. If it can be produced in the US for a similar economic cost, it will be. Jordan, have you, with the terrific Mizzou team, not only in Tokyo, but in London and worldwide, have you and Dominic Constance, Steve Rusciuto, have you come up with an optimum solution

Tariff statistic, something less than 10% back towards a blended 3% level we were at. Is there a tip point where we get an optimum tariff?

I think getting down to 3% or 4% like it was is pretty much impossible with this administration. But the level to consider, the number, is that the effective tariff rate that the sort of sell-side consensus amongst banks were expecting on Liberation Day was roughly between 12.5% to 17.5%, so let's call it 15% in the middle.

If we get an effective tariff rate back down to 15%, this market will handle it pretty well because we went into Liberation Day with the stock market down 3% or 4% year-to-date, but nothing too crazy.

most sell side analysts were expecting the stock market to rally into the year end. So if we get that number, Tom, that's the crucial tipping point. And the moves from China today really do get us closer to that. Paul, as an economist, where's your tip point in the second Vespa? I mean, what percent, seriously, what percent tariff would

Would you say, I don't care about the tariff, I need a second Vespa? I need a second Vespa. I have a trade deficit with Italy right now, buying my Vespa for $4,000, I think. Jordan, what do we do here in the marketplace here? How much risk this morning are you suggesting your clients take here?

In a big way, we've got to reverse the recent narrative, which is the sell America theme, which I never truly believed in as a theme. It was mostly a positioning point of view. It was an unhedged dollar exposure that needed to be hedged. Well, now it's been hedged.

And the reasons for hedging have really fallen down, if you think about it. And so a lot of the Eurodollar buying we saw will not be fully unwound, but you're not going to have the same pace of buying. And the same with the yen as well. So I think the dollar's got to rebound here because you've got essentially a lot of people who've,

position for continued dollar weakness, but forgetting that this is a market that has about three or four different narratives per year. And we're currently now going into a reversal of tariff tensions and that'll lead to dollar strength on the back of it. Euro 110, it's under a 111, 110.98. I can't imagine if you formulated a new Euro call, Jordan Rochester, can you get back to a 105 or dare I say, we need a parity call in May?

No, we're not going to those levels. So we have to split it into short term versus long term. Short term, I talk about dollar strength here. That's kind of what needs to happen. The market's very short the dollars. However, longer term, I actually think Eurodollar gets to 120 by year end rather than the sort of 105 level, which is what rate spreads currently would suggest. We've had this real problem in FX where rates are saying the euro should be weaker than what it is. But

Anyway, I digress. 120 by year end, why? It's because of this German fiscal story. EU joint issuance is possible and also EU reforms. So we're going to see an expansion of European growth potential later this year. And that'll keep the idea of 120 alive in Europe. I've got to squeeze this in. We've got to stop the show, folks. Jordan Rochester, are you suggesting with joint issuance that we finally get a coordinated fiscal policy out of Brussels?

We've already had joint issuance before during the COVID pandemic. And so do we see a crisis that triggers them to move again? The trade tensions were causing that crisis. I know things have calmed down in recent weeks. So therefore, it doesn't feel as urgent as before. But the EU is looking at the US as a less trusted ally. And that's going to lead to them thinking we need to boost our defense spending. There's a summit on that in June. And that will be the outcome of that.

But for the other things, such as EU reform, that's going to be much more harder and longer to do. But you do have Ursula von der Leyen and other EU commissioners pushing for it. So in answer to your question, I think joint commission has dropped us a probability in the past two weeks, but it still remains on the cards for me. Jordan Rochester, thank you so much.

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CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. We're going to rip up the script right now. We can do that with Laurie Kelvis, seen incredibly gifted. And I want to play off Doug Cass' smart note today, which is, I'm paraphrasing Mr. Cass, effective immediately, the tariff thing is sort of pushed aside, whatever the end outcome is. And all of a sudden, the stock market is beholden to the bond market.

And the debate over fiscal, the debate over the tax bill, Cass trying to move into the summer of 2025, like the dreaded New York Yankees are moving into the summer of 2025. What do high yields do to the Lori Calvacina space? Well,

Well, looking just at higher treasury yields generally, I mean, you know, it depresses valuation multiples. I mean, that's what we tend to see. And I would also point out, though, that when I've done my back testing and my modeling, I'll nerd out on you for a minute. We actually find the inflation rate is a little bit more sensitive with PEs if you go all the way back to the 60s as opposed to bond yields. So the bond yields matter. But I don't

I think we're totally done with this tariff moment and the inflationary impacts. I would like very much to get out of this tariff moment, but I don't know if I quite agree with Mr. Cass that we're totally done. Well, okay. Well, I'm paraphrasing, and Doug maybe will call up and say, Tom, you're wrong. I didn't say we're totally done. The chaos, folks, this morning is crazy.

What will people do in the mid cap, small cap, small business space? They're not Apple. Their heads have to be absolutely spinning. Yeah. So look, I would say as you think about the size of businesses, right, I think the bigger, the better in terms of your ability to navigate whatever problem, whatever headwind is out there for margins. And so while we've dialed down the China tariffs this morning, at least temporarily, we're

We're still in a worse place than we were a couple of months ago, right? And so there are still things that have to be navigated and dealt with. And I do think small and mid-cap companies have less of an ability to do that than the bigger cap companies. And, you know, we are mostly done with S&P reporting season. We've still got a lot of SMID companies yet to report, so I'm sure we're going to get an earful about this issue, and we'll find out whether I'm right or wrong on that. But that is my general rule of thumb.

That being said, small cap futures are up like 5% last I checked. So the markets are clearly celebrating in here, but that would be kind of the one word of caution I'd throw out at you.

So how has your investment outlook for equities changed this morning, if at all? You know, it's interesting. You know, I was watching everything last night. The best Mother's Day gift, I guess, was that we got the news at night, not in the middle of the day. So, you know, all the moms could enjoy the day. But look, I think that we have known that there was a tension in the modeling right now. Right. So I look at a bunch of stuff and I can give you like six or seven different things that said we had hit maximum pain.

One of those was the rate of upward revisions, which hit 28% for both small and large cap a few weeks ago. And when we updated that at the end of the last week, small cap revisions were up to 40% to the upside and large caps move up to like 34%, 35%.

So anyway, we've seen these various stress indicators that are healing. But we also know that there's some uncertainty and there's some headwinds out there from all the disruption that we've had. And that's not just trade and tariff disruption. That's the news we got out of health care this morning. That's the news we got about Doge. If you look at the Challenger data, the Doge layoffs are consistent with what we see in recessions. So we've still got a lot of that stuff to sort through. I will tell you the sentiment indicators are

bullish economic indicators, less so. That tension, you know, the bulls won out on the day, but that doesn't mean the sort of, you know, headwinds on the econ side have disappeared. How about on earnings? We saw earnings estimates come down, maybe reflecting some of the trade conditions.

Does that suggest maybe we can get a little bit of lift in earnings now because maybe things are a little bit less bad? I think it's not clear to me we're going to be back to upward revisions anytime soon unless we just make these tariffs go away. And that's not what happened this morning, right?

Companies, especially on the industrial side, are saying mitigate, mitigate, mitigate, price, price, price, adjust footprint, adjust footprint. Okay, fine. So a lot of these companies are coming out and saying, we're going to offset this. A lot are also saying we're only giving quarterly guidance now, right? So that tells you about the conviction level in that call. I went back and looked at 2018 recently, and you actually didn't see too much movement in those earnings forecasts in the second half of the year, but we still got a lot of cautious commentary in September, October that year.

I think earnings, you know, big cap companies find a way to make it work, but that doesn't mean the rhetoric is going to be great. We continue with Lori Calvacina on your commute across the nation. Good morning, particularly out in Los Angeles. Gene Sirocco of the Los Angeles Port Authority scheduled to be with us Thursday. That'll be a timely conversation. Lori, I just brought up a chart from 100,000 feet, like almost up, like if, should I go up in the Bezos spaceship?

They send up an entire group, me, Bill Nye. Bill Nye could lead it. Everybody on the spaceship would have a bow tie on. Can you see it? I can see it. Can you envision it? Okay. I'm at 100,000 feet. I got a quarterly Dow Jones Industrial Average chart. It's as vanilla as you can get.

And even quarterly with a pullback, we really are still in a bull market. Are we still in a bull market? Well, look what we and I try not to get stuck in those labels, but I'll tell you what we did on the April 8th lows. And we look more at the S&P, but we priced in a growth scare. We priced in a near miss. We never priced in a recession. And I think that was the appropriate thing to do based on the information at hand. The recession risks feel like they're dialing down, but they're still elevated versus where they were. So we do have to be vigilant.

If you get a recession, you're going to break through those lows and probably go to something like $4,200, $4,500 on the S&P. I feel like we reduced that risk this morning, but we still have to be vigilant because we have had a lot of stuff thrown at this economy in recent months. Yeah, so I'm wondering here, Lori, again, it feels a little bit better today. The market's telling us that today with a big lift in the futures. What are some of the sectors that today kind of

It kind of looked good to you. So I would say, thinking very short term and more tactically than I tend to do, normally we look six to 12 months. But if you just look at what's been positively correlated in terms of sector performance with Trump's favorability in the polls, we look at net favorability. We actually just published a study on this this morning. It tends to be the big growth sectors, tech, consumer discretionary, comm services. And I think that's because this tariff angst

caused a rotation out of the US, right? Those are the biggest weights. But also look at the financials. That's another Trump trade that's emerged. And if you dig down under the surface, a lot of tech industries have been very positively correlated with Trump's positioning in the polls. But also things like apparel,

autos, airlines, which are a big macro bet at this point in time. So those are the things I'd watch today. Stepping out more broadly, I still really, really like financials. Whatever's coming on our way, I think they have an ability to manage. Lori Calvacina with us here. Okay, the financials.

you're going to tell me I'm supposed to look at what? Regionals, super regionals, less than super regionals, some bank I don't know in Oklahoma. Which financials? I like the regionals thinking roughly kind of like the Russell 2000, you know, kind of regional banks. I think you generally see better. Can you give me one example not to Bible? The

The compliance gods will shoot me with a bolt of lightning. You should say, our compliance gods are tougher than yours. Continue. No, I've agreed never to say a stock on TV. No, that's okay. But as I do parse out the valuations, what we see very clearly is across the Russell 3000, your regional banks are giving you the best valuations. We look at that on a median basis. So think of kind of smitty, kind of like your bigger small caps, so to speak.

Kind of some of the more kind of well-established ones, you know, kind of more tried and true names on Wall Street like that John Armstrong would cover for example. I do think the investment banks which has been, you know, really kind of the this, you know, what everyone's love to love because of the M&A trade, I would still maybe fade those relative to the regionals because I just don't think you have the same valuation appeal and I don't know that a ton of uncertainty was alleviated this morning and that's been the big thing, you know, sort of holding back some of those transactions.

I would think the news today about declining trade tensions would be good for the consumer. How do you think about the consumer, the consumer spending, and maybe how to play that in the equity markets? So, you know, I'll tell you, the University of Michigan data is one that we watch really, really closely. I'm getting a little...

a little tired of it, but post-COVID, we've actually seen, if you look at stock prices year over year, they've been very well correlated with that Michigan sentiment index for both small and large. We think we're in a sentiment-driven market, and that's, you know, frankly been better than the conference board data at explaining market moves. What I'm seeing in that data, though, is that you're already getting back to recession-type lows. So we know everybody feels lousy. As a strategist, when those prints come out, I don't make forecasts on them

but you know i've been telling people part of why we want to own the financials is they benefit when that indicator moves up they outperform and it's so bad as a strategist even though we all feel lousy and we're kind of you know push you know pushing back on some of this trade stuff you have to look for inflections barons this weekend played up buffer funds with pro and con comments i don't want to get into do i support him belchunas will explain this when he shows up if if he shows up yeah but

A buffer fund is basically, I want to be in equities, but I'm scared stiff and I need something less volatile. I'm translating, folks. I'm not a piñata here for the ETF business. Lori Calvacina, if the public is demanding buffer funds because they're scared stiff, do you frame it as a single-digit future, or can we get still addicted to a double-digit equity return? You know, I think that...

we have to see what happens with the international investor and their affinity for U.S. equities. And we know that the economic policy backdrop is more uncertain than it was in the past. That tends to be well correlated with PEs as well. So I feel like we're setting up for a period of less robust returns because, you know, the door to Europe has been opened, for example, and the policy environment is more volatile than it's been in the past, and that's probably not going to change entirely.

So, you know, it's not to say equities can't do well, but I feel like we have lost some of the tailwinds that we had in the past. See, our Mother's Day was perfect until 4 p.m. yesterday. Boom. Exactly. Hopefully you had a good Mother's Day. It was a great beach day for those that were down with me on the Jersey Shore. What do we do here? What's the call with your RBC clients today?

So look, I think it's enjoy the day. Let's get some more information. There are a bunch of big retailers that are coming out in the next two weeks, and ultimately they matter more than what I think about what just came out. So I think, you know, enjoy the day. We have not wanted people to be wholly defensively positioned. We were not overweight health care. You know, some of our concerns in that sector are playing out. You know, just the disruption risk. We keep seeing one thing after another coming at that sector.

So I would stay balanced. We still like the financials. We still like comm services. And there was a moment where it looked like tariffs might hit that sector as well. That seems to have gone away. But I would say stay balanced. I would stick with higher quality stocks. We are seeing that that's generally outperforming in the factor data.

And to the extent you want to be defensive, do it through utilities. There you go. Lori, thank you so much. Lori Calvacino with this one. You really, really appreciate that. With RBC Capital Markets. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple Podcasts.

You see how Hugh von Steenis walks in the studio and the market goes up? Is he based in London or New York? First of all, Hugh von Steenis joins us and there's just way too much love from him.

over the last number of weeks, Vice Chair Oliver Wyman. First of all, let me cut to the chase. Will you join the Carney cabinet in Canada?

I'm not a Canadian citizen, so I don't have that honour, but I'm rooting for him. It's amazing. Tell me about the clarity of thought and process of Mark Carney as he takes on these challenges for Canada. Well, Tom, you've met him. I mean, certainly I was really honoured to work for him for 18 months. He's got a cool head in a crisis. He's got a really good strategic nows. And do you know what? He loves to do the detail, so he can really follow down. I've learned.

And I think that's the great thing he can challenge. And so, look, he is at heart. Remember, he did do 13 years of Goldman. He has a financier at heart, but obviously now very public spirited. So I think he's going to have a really good finger on economics. So to give you an example, 70% of potash used for U.S. fertilizer comes from Canada. He knows that. It's the detail that actually will help in these negotiations. So I will not mince words, folks. Hugh von Steen is in there. The Americans are going, who's the Brit?

And the answer is the gentleman at a shockingly young age owned the analysis of European finance. And he's, of course, parlor that over to Oliver Wyman now in an esteemed career. You are more qualified than anyone to say, is the investment dream of Europe actually in place, led by the Germans? Can we actually look for a new Europe?

It's a great question. I definitely see there is some really good debate about whether Europe has got a renaissance as an investment destination. U.S. investors have... Hold on, hold on. I've got to interrupt. Do you see the difference here? Renaissance, sorry, renaissance. It's a renaissance. No, we're good. He sounds like a masterpiece theater thing. I feel like I'm with Henry VIII and Cromwell.

The renaissance. Help us here with the renaissance. That's right. The renaissance of Europe as an investment destination. Take the BlackRock data. US investors put seven times more money into European equities this year than last year in ETFs. But the key thing for me is now that was the tactical trade. What's the strategic trade? What do you think about the day after tomorrow?

And I think the big debate we're having with CIOs is actually, is it an equity opportunity or a credit opportunity? And to be honest, sitting here today, I think the credit opportunity is clearer to me because there's going to be hundreds of billions of infrastructure and digital and defense to be spent. And if Europe grows faster, that's fantastic, but they're going to demand a huge amount of credit. The yield on European credit is higher than US at the moment.

And what's more, as we've discussed many times, the bank rules are still really tight. And so actually it's not like the banks have got tons of capital to deploy. So as a credit investor, there's a really interesting opportunity. But certainly that's certainly from the CIOs I've met. - You woke up this morning, it seems like it's a little bit more of a risk on environment relative to where we've been over the last maybe four months here. How do you put all this tariff stuff into context for your clients? I guess context matters here.

Look, I think everyone's got their own specific situation. And I think particularly if you're a European or Asian regulated investor, let's say a pension fund or an insurer, the FX vol has been wild. And the State Street data showed that coming into this year, FX hedging by international clients was at the lowest level for eight years.

And so what we're picking up is all these pension, a Danish pension fund, a Dutch pension fund, an Asian insurer, they want to increase their FX hedging by maybe 10 to 20 points. They want to own US credit or rates or equities, but they need to reduce that volatility. That's the number one. But then beyond that, there's also a bit of push and pull. I think there's a bit of demand to bring a bit more capital back home to redeploy both in Canada and

and Europe. So I think there's also a, can you take maybe three, four points off the table from the US and maybe redeploy it back home? US exceptionalism, still a thing from an economic perspective or maybe less so these days? So, I think,

I think I'm in the camp of, I thought Mark Rowan's line last week at Milken was great, which is that it's not exceptionalism at the end. Maybe it's the end of hyper-exceptionalism. The US is still an extraordinary place to be. And as I said, a lot of the CIOs I've met in the last month want to keep their holdings. They just want to mitigate the FX risk because it's just been a bit too hot to handle. So I definitely think the exceptionalism is there.

Private equity. We also heard in Milken last week a lot of discussion about private equity. I think a lot of people would like to get liquidity in their private equity and maybe a little bit less so today. See how it changed? You brought that up, you rude guy. I know. So what do we do here? So I think in the private markets, so again, coming out of our conversations, and we're trying to do a survey, but no one really wants to put hard numbers around it because the quarterly investment committees haven't yet met.

But I think on private equity, my gut would be people want to reduce it by five points maybe. And some of that was already coming into this year. Public markets have outperformed private. Part of it is that actually it's about cash flow management. They'd said to themselves, we'll keep it, but we'll only put cash out when we cash in. So obviously as those exits have been pushed to the right by, you tell me, six, nine months, maybe a bit longer, that constrains it. And there's some chips back home. That said, private equity,

Private credit raising actually hit another new record in Q1 from what we can see for the top firms. So there's a pivot. And this is why it's the secondary opportunity and it's the doubling down on wealth is kind of where it's at. Kevan Steen is here for a few more minutes. We're thrilled he's with us with Oliver Wyman. It's not your remit there, but I have to ask.

I think for Americans, either the United Kingdom at post-breakfast is almost off the radar, or it's a convenient trip to LHR, British Airways, buying a zillion dollars worth of Boeings, whatever.

We worry about the state of the United Kingdom. You've got the confusion of us, the laborers in power, the Democrats, the Tories are silent, the Republicans. Off to the side is a MAGA-like reform as well. Politically, where do you see your United Kingdom in a year or two? Do we have a clue?

It's a great question. Look, this is the moment where it should be a bit more long-term. The great advantage of the UK for many years was it was mid-Atlantic. It didn't have quite the US growth rate, but it certainly was growing faster than Europe. Unfortunately, since the financial crisis, but particularly since Brexit, we've lost that UK exceptionalism. In fact, in a way, we were exceptional compared to Europe, and now we're... Actually, the end of UK exceptionalism in 2016 was really right. And actually, my old boss, Prime Minister Carney, was correct.

Brexit was economically at least put to one side politically a poor decision so I think that we're trying to get our act together again um I think at the moment that it's very difficult to see what how you get back to the exceptionalism anytime soon is it all or nothing or is there a way in a parliamentary system to pull away from Brexit

So why don't we do... I think one thing that the president here has really shone a light on is like the terms of trade internationally. The UK's terms of trade with its nearest counterpart is now poorer.

So is there a way to put the politics on side, improve trade relationships? And maybe if you want to have a Hail Mary, it would be if if Canada wants to actually have lower tariffs with Europe, maybe there's an opportunity for Ukraine, Canada, UK to end into a much lower tariff zone. That would be the dream if it's I mean, it's being talked about whether it happens. I don't think I'm the right political expert to put odds on.

30 seconds. What is the politics of Brexit today? Do you think it would pass or not pass if it were to go again today? Oh, based on... No, there's buyer's remorse. So if you look at the polls today, that it wouldn't pass. Part of what you think is the older cohort has died, partly, but it's also just the regret. But if I want to go see a soccer match over in Paris, I take the train...

I can't just walk in now. I gotta go to a line? Yeah, well, which passport do you hold? I mean, if I'm an Englishman... Oh yes, I was about to say, you probably would have been in line anyway. Yeah, anyway. Special line for me. No, it's a pain in the neck. I travel an awful lot. In fact, do you know what the bizarre thing is? It's now easy, it's quicker for me to get in JFK than it is in Paris. It's nuts. Really? Because global entry here, I'm through in two minutes. Yep.

And Paris. Carney got you global entry. I don't have global entry. I had to wait like six months. I said, you're kidding me. Hugh, thank you so much. Hugh von Steen has said this with Oliver Wyman with some good perspective there.

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This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. Joining us right now as we continue this conversation and here on America's Fixation on Technology, Daniel, I know a tariff when I see it, Ives. He joins us now with Wedbush.

Securities. Describe Tim Cook's mood, Dan Ives. I mean, I saw some blurb over the weekend that Tim Cook is arguably the most important American with China manufacturing, with the impact on the world. Everybody's got an iPhone up. When the Pope was St. Peter's Square, I mean, it looked like an ad for iPhones. Dan Ives, what does Tim Cook think this morning? I mean, Cook's probably drinking a mimosa.

A tang mimosa. I love it. Having a great breakfast. And it's a bright day. I mean, at the end of the day, for Apple, for NVIDIA, for tech, this is a dream scenario. And in my opinion, it puts new tech highs now back on the table for 2025. But Apple, front and center in terms of how they were exposed in the China tariffs. So, Dan, how do you think this...

impacts Apple day to day. I mean, they've had to live under the sort of, boy, these 150% tariffs and what does that mean? And well, all companies do, of course, but Apple seems to be our poster child for kind of China here. Has their policy, has their view of China changed, do you think, over the last four, five, six months?

Yeah, I mean, look, obviously more hedge policy relative to India. But I think what this essentially does is it slows down significantly that shift to India, especially as you go into iPhone 17. Now you get the engines ready. China is going to continue to be the vast majority when it comes to production for iPhone. So I think that's how it changes. There was a window here.

where this needed to change. And that's why, look, market also speaks to, there's going to be no retaliatory. That was the worry about China retaliatory against Apple. So Dan, in your tech space, you cover everything. How do you kind of rank kind of the opportunities now? Because we wake up this morning and it seems like a little bit of a different world here, maybe a little bit less restrictive, a little bit more growthy outlook out there. So how does that impact your tech space?

It's a game changer because the 30% realistically on the China tariffs, I mean, when you start thinking about now, we probably go 15, 20%. So, streets already seeing through that.

Now you look at Apple, you look at Nvidia, you look at chip names, TSMC and others. Those are the names, really table pounders here. And then the AI, think about the AI revolution names, right? From Palantir to Microsoft to all the hyperscalers. I mean, this...

This now puts that key, you know, if you think about it now, that key bull case back on the table. Do they have pricing power? I saw luxury goods in Europe raising prices, and we've had a number of conversations, I think, at Dana-Telsey in retail, where pricing power is everything. Do they have pricing power at Cupertino? No.

Look, Tom, I think they have price and power to an extent. But the last thing they want to do is trip over their own shoelaces. Especially when you look at the next two, three years. I mean, you're basically going to have half their install base that are going to be going through upgrades. So the last thing they want to do is increase just to increase.

and then all of a sudden there could be cannibalization five ten percent of demand so they're very well aware of that but that's why the tariffs it goes back to tariff situation this gives them the flexibility they could reason certain areas and ultimately not in others but then also goes to their ai strategy where you now need to you know really produce especially when it comes to wwdc in june what's coming on iphone 17.

hey dan where's elon musk these days i mean thankfully not in the white house not mar-a-lago in the factories and what i believe is now driving the autonomous strategy for austin in june and that look it speaks to why tesla's up right i mean you need your leader back they got their biggest asset back

And I think that was, it's going to be viewed as a pivotal moment for the Tesla story. Tell us about use of cash here. We had a bond transaction with Apple. I'm going to say it was pretty small, actually. And they've got a lot of short duration stuff. I assume they have to substitute in here. But do you see use of cash of, I mean, Paul's screaming for dividend increases versus buyback. But even Dan Ives' share buyback, I think they did $100 billion at the last

At the last earnings release, I mean, do you model out they could actually do a 120 or dare I say $150 billion announcement? Look, I think also they could up that. And when you start to think about some of the cash, especially in the next year or two, obviously dividends is not really the focus, but they're going to have a situation where they might have to do some accelerated earnings.

you know in terms of buybacks you know relative to the cash that they're going to generate because look that it's a high class problem that they're going to be especially with no m a that continues to be their strategy hey dan before you know president trump took office in january all we talked about for maybe two years was ai and then now it's been on a tariff discussion non-stop can you give us a refresh of where on wall street the ai story is today

Yeah, look, we always talked about the AI party, and I'd say Trump closed the party for a little for this tariff situation. Party's back open, right? It's still it's called 1030 p.m. in that party that goes to 4 a.m. If you think about it, software use cases we're seeing with the hyperscalers, you're seeing a Palantir, you're seeing in service now. It's playing out in front of us. The 325 billion of CapEx that's been doubled down by tech.

that only 4% of US enterprise have gone down the AI path. So, Paul, to my point is that tariffs have not even slowed down this AI revolution. It's 2 to 3 trillion that's going to be spent. And that's why we're seeing with open AI and others. I mean, this is just the beginning of a fourth industrial revolution. But it also is US and China, they both blinked because they know no one wants to lose out on really what's going to be a generational environment for tech.

Where's your target? We've got to make some news here, Dan. I mean, Farrell just spoke to Besson. I'm speaking to Ives. It's more important than the Secretary of Treasury. Can you announce here a Wedbush increase in your 270 price call on Apple?

Look, Tom, I think now with this, three is back on the table. I mean, I think now you could start to rationalize that Apple is one in the next 12 months. We could be looking at, I think ultimately it could be a stock of the three in front of it. That's my view. It could add $30 to $40 per share in terms of what happened here on these China tariff discussions for Apple. Was that a buy recommendation? Yeah, I like that. That's it. It was on the edge. Dan Ives, 300 on Apple.

Thank you, Dan. Greatly appreciate it. Short notice this morning with Apple moving 6%. A disquieting green jacket, though. It's upsetting. Yeah, well, you know, it's as close as you can get to Masters. That's his Masters jacket. Daniel Ives, thank you so much. This is the Bloomberg Surveillance Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts.

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