Latest / Bloomberg Intelligence / Lighthizer Signals Progress On USMCA, But Not On China

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Lighthizer Signals Progress On USMCA, But Not On China · Bloomberg Intelligence

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  Speaker 1: Welcome to the Bloomberg pien L Podcast. I'm Paul swing you,
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  Speaker 1: on the front burner. Today, we welcome Michael McKee, international
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  Speaker 1: economics and policy correspondent for Bloomberg News. He joins us
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  Speaker 1: in our Bloomberg Interactive Broker studio uh here in New York. Michael,
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  Speaker 1: thanks for joining us. What do you expect to hear
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  Speaker 1: from Mr Leitheiser today in front of the Senate Finance Committee. Well,
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  Speaker 1: we we've seen some headlines out from his text, and
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  Speaker 1: he's going to of course tout the president's trade accomplishments,
• 0:44
  Speaker 1: because that's his job. The most interesting aspect of the
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  Speaker 1: text so far is that he suggests that the new
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  Speaker 1: NAFTA treaty, the U s m c A should be approved.
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  Speaker 1: They expected to be approved because it was written with
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  Speaker 1: democratic opposition in mind. Now we know that the Democrats
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  Speaker 1: are are holding up some discussion of it because they
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  Speaker 1: want changes to be made. Lightheiser seems optimistic about the
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  Speaker 1: prospects for it, and he does a little bit of
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  Speaker 1: a sales job for it. What will be most interesting
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  Speaker 1: is in the questions and whether the Democrats lay out
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  Speaker 1: specific terms they want. Also joining us is Sean Don
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  Speaker 1: and senior trade reporter joining us from d C. So
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  Speaker 1: the backdrop though, of course, is the tweet from President
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  Speaker 1: Trump and he and g just talked on the phone
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  Speaker 1: and they're going to have a meeting of the G
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  Speaker 1: twenty and then G through CCTV also reaffirming that they're
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  Speaker 1: going to have a meeting. Um, do we believe now
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  Speaker 1: this is actually moving forward on? Yeah? Well that's I mean,
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  Speaker 1: it's really interesting developments that we've just had in the
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  Speaker 1: last hour. I think the most interesting thing about Bob
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  Speaker 1: Leightheiser's prepared testimony is what's missing, and that is any
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  Speaker 1: mention of China, really uh, in there any any addressing
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  Speaker 1: it as one of the big issues, and it's the
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  Speaker 1: elephant in the room, really uh in terms of US
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  Speaker 1: trade policy. But he's really gonna be asked about the
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  Speaker 1: President's tweet this morning. Uh, and uh like as you
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  Speaker 1: say that the Chinese announcement as well, that there's phone
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  Speaker 1: call has taken place, that's a big development. Um. There
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  Speaker 1: were a lot of people questioning whether or not whether
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  Speaker 1: such a meeting might even take place. At at the
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  Speaker 1: G twenty, there were some people who thought that the
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  Speaker 1: things were just two tents right now. Uh. So it's
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  Speaker 1: a good sign that there that they're going to meet,
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  Speaker 1: but we should remember, uh that there's a big gap
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  Speaker 1: between the two sides uh in these talks right now.
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  Speaker 1: And uh, it's unclear how much President Trump and j
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  Speaker 1: and Pink can close that gap in just one meeting. So, Michael,
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  Speaker 1: it seems like we've in terms of trade, things are
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  Speaker 1: on a little bit better track with Mexico. It now
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  Speaker 1: seems like a China may be on a similar track.
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  Speaker 1: How do you think the markets are kind of pricing
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  Speaker 1: right now global trade because it's been such a driver
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  Speaker 1: of uncertainty the market's really since the fourth quarter of
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  Speaker 1: last year. It's very hard to price because you don't
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  Speaker 1: know with President Trump what he's going to do from
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  Speaker 1: day to day. They've put into earnings and expectations about
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  Speaker 1: as much as they can in terms of what a
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  Speaker 1: trade war would mean, but there has been this reluctance
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  Speaker 1: to fully price it in because they don't think it's
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  Speaker 1: really going to happen. The President has sort of pushed
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  Speaker 1: back against that, but then you know, with China, but
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  Speaker 1: then with Mexico he raised the prospect and then he
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  Speaker 1: dashed it again. So you know, how far will he
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  Speaker 1: really go? That's a question. If I were on the
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  Speaker 1: Senate committee, I suppose I would ask that question. But
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  Speaker 1: I don't know if you get a straight answer from
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  Speaker 1: Bob Leheizer, because I don't know if he knows the answer.
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  Speaker 1: And uh, you know, the standard answer is, of course
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  Speaker 1: the President is going to follow through, but it's not
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  Speaker 1: in his interest in uh terms, to have an economy
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  Speaker 1: that is going down, to have a stock market that's
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  Speaker 1: rolling over. So there's definitely an incentive for him to
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  Speaker 1: try to move forward with Shi Jinping, and that maybe
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  Speaker 1: just enough to carry the market for a while. It
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  Speaker 1: may not reach a deal, as Shaun says, but they
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  Speaker 1: may at least say we're going to keep talking and
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  Speaker 1: that will get priced in as good news. But if
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  Speaker 1: the economy is holding up in Lukawa has a great
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  Speaker 1: piece on the Bloomberg right now talks about how US
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  Speaker 1: equities are a performing the rest of the world. Yet again,
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  Speaker 1: our GDPs better than other countries. Yet again, inflation expectations
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  Speaker 1: rolling over still higher than like you're a Germany, for example,
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  Speaker 1: in Japan. I mean, if it's the best house and
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  Speaker 1: a bad block thing, is that enough to sustain well
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  Speaker 1: for a short time. I mean, the problem is we
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  Speaker 1: don't know exactly what is causing the weakness that we
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  Speaker 1: see in the United States. We know that in Germany,
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  Speaker 1: for example, in Europe, the trade is weighing heavily on them,
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  Speaker 1: and that's an issue. And so you you would figure
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  Speaker 1: if they can reach some sort of trade accommodation that
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  Speaker 1: things might get better. I was saying earlier that I
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  Speaker 1: think the President may have just tweeted j Powell out
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  Speaker 1: of having to do a really stole that dangerous radio
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  Speaker 1: because because uh, you know, you got gotta wait. You
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  Speaker 1: gotta wait and see what happens before you make any
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  Speaker 1: monetary policy decision exactly, or put a trade on for
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  Speaker 1: that matter. Just think about a trade one to put
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  Speaker 1: something on this morning, and how's that trade has been
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  Speaker 1: whipsald um Sean I want to bring you back. And
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  Speaker 1: just as it relates to China, just give us a
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  Speaker 1: sense of where you think the Chinese negotiators are in
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  Speaker 1: terms of their position right now. How confident did they
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  Speaker 1: feel as they potentially sit down with the US. Well,
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  Speaker 1: I think the real danger in these negotiations right now
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  Speaker 1: is that both sides feel like they're in a in
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  Speaker 1: a strong position. You've heard the UH the argument that
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  Speaker 1: everything is hunky dorry in the United States and it's
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  Speaker 1: the you know, or it's the best house on a
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  Speaker 1: bad block, if you will. I think the Chinese kind
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  Speaker 1: of feel similarly that they're not in a bad position
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  Speaker 1: and that, if anything, they have more power to pull
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  Speaker 1: the levers they need to and respond to any slow
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  Speaker 1: down in the economy. We heard that from Ye Gang,
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  Speaker 1: the governor of the People's Bank of China, in a
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  Speaker 1: Bloomberg interview a couple of weeks ago, where he said
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  Speaker 1: they had lots of room UH to respond to to
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  Speaker 1: any slow down and whereas the US may have less room,
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  Speaker 1: and as Donald Trump keeps complaining, UH, he doesn't have
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  Speaker 1: the ability to to pull the levers directly UH to
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  Speaker 1: to boost the economy when he needs to. I think
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  Speaker 1: why I'm just look, I was in China for ten days. Uh. Uh,
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  Speaker 1: just back a week or so ago, and and one
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  Speaker 1: of the common themes you hear on the ground in
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  Speaker 1: China is that people are just bracing themselves and getting
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  Speaker 1: ready for a more protracted trade conflict, and they're ready
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  Speaker 1: to adapt. Sean Donna, thank you so much. Shawnas, senior
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  Speaker 1: trade reporter for Bloomberg News, joining us in a Bloomberg
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  Speaker 1: studio in Washington, d C. Michael McKee, international economics and
• 6:41
  Speaker 1: Policy correspondent for Bloomberg News, joining us live here in
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  Speaker 1: Bloomberg Interactive Broker studio. We're gonna move on to a
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  Speaker 1: story here that's just crossing the tape the White House
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  Speaker 1: uh explored the legality of the mooting FED Chairman pal Uh.
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  Speaker 1: To help us explore this new topic, we welcome Celia Motion.
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  Speaker 1: She is of a Bloomberg News Selah, thanks so much
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  Speaker 1: for joining us. Give us a sense of what you're
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  Speaker 1: reporting right now. Yeah, so, survices have told us that
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  Speaker 1: back in February, just about two months after the President
• 7:12
  Speaker 1: discussed whether he could fire Jerome Powell, UH, the White
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  Speaker 1: House General Counsel's Office, the team of lawyers explored the
• 7:20
  Speaker 1: legalities around UM stripping Jerome Powell of his chairmanship and
• 7:24
  Speaker 1: leaving him just as a governor, which would allow the
• 7:27
  Speaker 1: President then to either nominate another existing governor he has
• 7:31
  Speaker 1: swore to choose from too that he himself placed on
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  Speaker 1: the board UM to become chairman, because they said chairman
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  Speaker 1: always has two jobs. They are the chair and they
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  Speaker 1: are a governor one of seven governors. The other options
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  Speaker 1: that the President would have UM if he was able
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  Speaker 1: to demote essentially h Jerome Powell in that manner is
• 7:52
  Speaker 1: to nominate UH someone to fill one of the two
• 7:56
  Speaker 1: open governor seats and then make that new governor or
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  Speaker 1: a chairman. So how unprecedented would a move like this being.
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  Speaker 1: So this has never been tested. We don't actually even
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  Speaker 1: know if it's possible, and I imagine that is what
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  Speaker 1: the White House was exploring. UM it is legal experts
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  Speaker 1: are telling us that this would most likely go to
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  Speaker 1: the courts if chair Powell decided that he wants to
• 8:21
  Speaker 1: challenge Trump and say that he is not allowed to
• 8:23
  Speaker 1: demote me this way. The courts would then have to
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  Speaker 1: look at the Federal Reserve Act and try to interpret it.
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  Speaker 1: But this has never actually happened before. So is there
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  Speaker 1: any evidence that this review of this type of motion,
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  Speaker 1: the legality of it, was in fact directed by President Trump?
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  Speaker 1: Is there any evidence of that? No, there's no evidence
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  Speaker 1: of that. And there's also no evidence that the President
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  Speaker 1: is at this very moment considering taking any action against
• 8:48
  Speaker 1: Powell like this? Do we do? We know how far
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  Speaker 1: along this process got. Is there any sense of how
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  Speaker 1: widespread it was and maybe how deep the the consideration was.
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  Speaker 1: What I can tell you and what we reported in
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  Speaker 1: the story that's on the terminal today, is that a
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  Speaker 1: ruling was made by the White House lawyers on on
• 9:09
  Speaker 1: what this kind of strategy would look like and whether
• 9:11
  Speaker 1: this is a viable option, And that ruling has not
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  Speaker 1: been revealed, even on background by sources. We do know that. UM.
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  Speaker 1: The Wall Street Journal in at the beginning of April
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  Speaker 1: reported that Trump told Powell and a phone call in
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  Speaker 1: March that he said, you know, I guess I'm stuck
• 9:27
  Speaker 1: with you, which you know, take that from you know,
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  Speaker 1: take from that what you want any sense now, I mean,
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  Speaker 1: you know, the White House they've not not commenting presumably UM,
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  Speaker 1: but just kind of what next next steps might be
• 9:39
  Speaker 1: UM for this issue. Absolutely not. They're not commenting at all,
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  Speaker 1: and it looks like, you know, we're not expecting any
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  Speaker 1: next steps. The legal um study has been done and
• 9:49
  Speaker 1: it's there just in case the White House needs that.
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  Speaker 1: Are it's it's a FED chooses to edge their own research.
• 9:54
  Speaker 1: We don't know. Interesting, So Silely, I just you know,
• 9:57
  Speaker 1: finally here its just the obviously, as you mentioned and
• 9:59
  Speaker 1: as you re ported in this story, the relationship between
• 10:02
  Speaker 1: Chairman Pound and pre President Trump remains difficult. What is
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  Speaker 1: the sense of how the the UM the Commission itself
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  Speaker 1: is actually functioning right now? Is it feel like despite
• 10:13
  Speaker 1: the tensions, the Commission is still uh or that you
• 10:16
  Speaker 1: have still kind of getting work done? Yeah, you know,
• 10:21
  Speaker 1: so far the Powell has said, the chair has said
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  Speaker 1: that there is no political influence. He's not going to
• 10:26
  Speaker 1: be influenced by the President or his comments or any
• 10:29
  Speaker 1: phone calls that they have behind closed doors. UM. The
• 10:33
  Speaker 1: We can also see that the Fed didn't about face
• 10:35
  Speaker 1: of monetary policy in January. Markets were so royaled after
• 10:40
  Speaker 1: the rate cut and the hawkish outlook for rates that
• 10:44
  Speaker 1: was given in December, and in January we started to
• 10:46
  Speaker 1: see the Fed pull you turn on that policy and
• 10:49
  Speaker 1: now we're you know, markets are expecting a lot of
• 10:51
  Speaker 1: economists are expecting not a rate cut tomorrow, but something
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  Speaker 1: to be signaled and a possible rate cut in July
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  Speaker 1: or later this year. So it doesn't make you think
• 11:00
  Speaker 1: that maybe the Trump is getting his way. We can't
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  Speaker 1: really know, um whether that is because of what Trump said,
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  Speaker 1: or whether that's just the Fed independently making those decisions. Soliah,
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  Speaker 1: thank you so much for this reporting of this important story.
• 11:15
  Speaker 1: Celia moson Bloomberg News on the phone with us. The
• 11:23
  Speaker 1: Federal Reserves Open Market Committee meets today and tomorrow. The
• 11:27
  Speaker 1: market is eagerly awaiting comments tomorrow Fed Chairman Pal to
• 11:31
  Speaker 1: get a little preview of what we might hear. We
• 11:33
  Speaker 1: welcome Ira Jersey. Ira is chief US interest rate strategist
• 11:37
  Speaker 1: for Bloomberg Intelligence. He joins us from the b I
• 11:39
  Speaker 1: headquarters in Princeton, New Jersey. Ira, thanks so much for
• 11:42
  Speaker 1: being with us. What do you expect to hear from
• 11:46
  Speaker 1: Chairman Pal tomorrow? Given what we saw out of the
• 11:48
  Speaker 1: e c B this morning and even a follow up
• 11:51
  Speaker 1: tweet by President Trump about the euro what do you
• 11:54
  Speaker 1: expect to hear tomorrow? Yeah, good, good morning. So I
• 11:58
  Speaker 1: think a couple of things. I think firstly, the FED
• 12:01
  Speaker 1: is going to have to be more dubblish and just
• 12:03
  Speaker 1: in general. Um, so you look at things like inflation expectations,
• 12:07
  Speaker 1: both survey measures and from the Treasury inflation protected securities market,
• 12:11
  Speaker 1: and uh, they are going to have to acknowledge that
• 12:14
  Speaker 1: inflation expectations are well anchored, um and uh and even
• 12:18
  Speaker 1: moving lower. So so so that that's one thing that
• 12:20
  Speaker 1: you could look for in the first sentence. The second
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  Speaker 1: is I think that the market that he's not going
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  Speaker 1: to be quite as doublish maybe as the market is
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  Speaker 1: anticipating at the moment. I do think that there's going
• 12:31
  Speaker 1: to be a doublish hilt. He's going to say that
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  Speaker 1: the balance of risks maybe is to the downside at
• 12:35
  Speaker 1: the moment, But that doesn't mean that they're going to
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  Speaker 1: cut three times this year, which is largely priced into
• 12:40
  Speaker 1: the market. So turning, so the stage is really set
• 12:44
  Speaker 1: by Mario Draggy or as President Trump refers to Mario
• 12:47
  Speaker 1: d which is just too cool for words. Um, do
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  Speaker 1: you feel like the pressure that we're seeing the bond
• 12:52
  Speaker 1: market over in Europe? You know, negative thirty plus basis
• 12:55
  Speaker 1: points on the German tenure is going to inform the
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  Speaker 1: FED at all, Like what do they do when they
• 13:00
  Speaker 1: look at something like that. Yeah, So, you know, Europe
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  Speaker 1: in the US when it comes to the economy has
• 13:05
  Speaker 1: di verge a little bit. But the but kind of
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  Speaker 1: the slowing trend in the economies is um has continued
• 13:11
  Speaker 1: in both jurisdictions. Although in the US we might avoid
• 13:15
  Speaker 1: a more prolonged slowdown. I think in Europe they're really
• 13:17
  Speaker 1: worried about about a more prolonged slowdown. They are worried
• 13:21
  Speaker 1: that inflation continues to be um, you know, not be
• 13:25
  Speaker 1: able to pick up at all. I think the problem
• 13:27
  Speaker 1: with all of these things is that there's forces at
• 13:30
  Speaker 1: work that monetary policy can't help with. So the fact
• 13:33
  Speaker 1: that you have low inflation and slow growth in Europe
• 13:36
  Speaker 1: in particular and places like Japan is largely a demographic issue.
• 13:41
  Speaker 1: It's aging populations and as well as low birth rates.
• 13:45
  Speaker 1: So it's not something you know, the monetary policy that
• 13:49
  Speaker 1: has to be easy, uh, kind of just to keep
• 13:52
  Speaker 1: things afloat. But how much easier can you get? So
• 13:55
  Speaker 1: one of the things that Mario drag You said overnight
• 13:57
  Speaker 1: was if the economic outlook doesn't prove we're likely to
• 14:01
  Speaker 1: cut interest rates. And you know, so what's happened is
• 14:04
  Speaker 1: you've had this rally in um in Europe and and
• 14:07
  Speaker 1: basically you're now pricing for an additional rate cut by
• 14:10
  Speaker 1: the ECB by the end of the year, and that's
• 14:12
  Speaker 1: pulled all of these interest rates flowers. So don't look
• 14:15
  Speaker 1: at don't look at European ten uere yields at negative
• 14:18
  Speaker 1: thirty two basis points as the as the measure, because
• 14:22
  Speaker 1: you can still buy a tenure bond in Germany funded
• 14:26
  Speaker 1: overnight in Germany and and still make money, right, So
• 14:30
  Speaker 1: that's that's the thing that we have to realize, is
• 14:32
  Speaker 1: that is that the carry from trades UH is not
• 14:35
  Speaker 1: necessarily as bad as it looks on the surface, just
• 14:38
  Speaker 1: seeing that it's negative thirty basis one is there an
• 14:41
  Speaker 1: argument to be made that the US FED should hold
• 14:45
  Speaker 1: out on rake cuts as long as possible, perhaps even
• 14:48
  Speaker 1: till the end of the year. They perhaps and I
• 14:52
  Speaker 1: think that if the data rebounds as the as the
• 14:55
  Speaker 1: Bloomberg Economics teams thinks, so Carl Rickadana and his team,
• 14:59
  Speaker 1: if the data amounts and there's not a reason for
• 15:01
  Speaker 1: them to do that, which is one reason I think
• 15:03
  Speaker 1: they will wait at least until July to see another
• 15:05
  Speaker 1: set of data before they actually consider cutting interest rates. Um.
• 15:10
  Speaker 1: That being said, there's other things they can do. So,
• 15:12
  Speaker 1: for example, one thing that would not surprise me um
• 15:15
  Speaker 1: is they could taper the quantitative tightening faster, so they
• 15:18
  Speaker 1: could actually maybe end balance sheet reduction by the end
• 15:21
  Speaker 1: of July potentially, And something like that would be a
• 15:24
  Speaker 1: debbish measure that they could take without actually without actually
• 15:28
  Speaker 1: cutting interest rates. So, because the problem is that they
• 15:31
  Speaker 1: don't have that many bullets, they you know, the feed
• 15:33
  Speaker 1: in particular doesn't want to cut interest rates less than zero.
• 15:36
  Speaker 1: I think J. Powell was pretty clear about that a
• 15:38
  Speaker 1: few weeks ago. So the thing is, if you can
• 15:41
  Speaker 1: only cut interest rates eight times, you don't want to
• 15:43
  Speaker 1: have to do that as your first step if you
• 15:45
  Speaker 1: can avoid it. So do you think so if they
• 15:47
  Speaker 1: did that, so they opted for balance sheet normalization now
• 15:50
  Speaker 1: versus later, like, does the market like it? Is it
• 15:53
  Speaker 1: devilish enough for them? Well? I think that that risk
• 15:57
  Speaker 1: asset markets would probably be more or less and change.
• 16:00
  Speaker 1: I think I think the bond market has already priced
• 16:03
  Speaker 1: for a lot of bad news and and certainly for
• 16:06
  Speaker 1: the FED to cut so I think if they did
• 16:07
  Speaker 1: something like that and said we're going to end quantitative tightening,
• 16:11
  Speaker 1: but don't look for but hint that there's not going
• 16:13
  Speaker 1: to be an interest rate cut in July, I think
• 16:15
  Speaker 1: the bond market, probably the two year notes and the
• 16:18
  Speaker 1: front end of the of the market. Short term maturities
• 16:21
  Speaker 1: they probably go up and yield, but long end maturities
• 16:23
  Speaker 1: probably stay where they are, just on the idea that
• 16:26
  Speaker 1: the Fed's not cutting enough with this negative sentiment hanging around.
• 16:30
  Speaker 1: And then a lot of this negative sentiment, of course,
• 16:31
  Speaker 1: could go away very quickly, as you saw today. I
• 16:34
  Speaker 1: mean we were we we were up a lot more
• 16:36
  Speaker 1: in the bond market. But then you know, Donald Trump
• 16:38
  Speaker 1: makes a tweet. The next thing, you know, five basis
• 16:40
  Speaker 1: points of that rally, today's rally goes away. And I
• 16:43
  Speaker 1: read just the she agrees President, she agrees is coming
• 16:47
  Speaker 1: on the redhead headline, come across the tape. She agrees
• 16:51
  Speaker 1: us China should keep talking. So just confirming the tweet
• 16:55
  Speaker 1: from President Trump. So is there something here that maybe
• 16:58
  Speaker 1: the market's missing? What be you know, just we've had
• 17:02
  Speaker 1: so much volatility just to pass well, let's just go
• 17:04
  Speaker 1: today for for that matter, Where could the FED or
• 17:07
  Speaker 1: how could the Fed really surprise the market, maybe even
• 17:10
  Speaker 1: on the downside tomorrow. Yeah, well, I I mean certainly
• 17:15
  Speaker 1: if the if the Fed cut tomorrow, that would be
• 17:17
  Speaker 1: a huge surprise. Um. I think that would be you know,
• 17:19
  Speaker 1: really good at least temporarily for risk assets, and um,
• 17:22
  Speaker 1: the market is not price for that. But I think
• 17:25
  Speaker 1: if they were to cut tomorrow, then we would probably
• 17:28
  Speaker 1: price out to cut in July, so you wouldn't you'd
• 17:31
  Speaker 1: see the very very short term market, so one month,
• 17:34
  Speaker 1: three months he bills for example, would move, but not
• 17:36
  Speaker 1: necessarily two year notes very much because we're already pricing
• 17:39
  Speaker 1: for two and a half more than two and a
• 17:41
  Speaker 1: half interest rate cuts by the by the end of
• 17:43
  Speaker 1: this year. Um, could they could they suggest that they're
• 17:46
  Speaker 1: going to Could they cut fifty basis points? They could?
• 17:49
  Speaker 1: I think that that would be highly highly unusual. Ira Jersey,
• 17:52
  Speaker 1: Thank you so much, Irish chief US interest rate strategist
• 17:55
  Speaker 1: for Bloomberg Intelligence, joining us on the phone from the
• 17:58
  Speaker 1: headquarters in Prince to New Jersey. Thanks for listening to
• 18:02
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• 18:05
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• 18:09
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• 18:13
  Speaker 1: pim Fox. I'm on Twitter at Lisa abramoits one before
• 18:17
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• 18:20
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