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Will a trade deal between the US and China ever get done? · The Financial Exchange Show

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Speaker 2: It's Friday here on the Financial Exchange. Chuck Mike Tucker
1:14
Speaker 2: with as we round out the week, and top story
1:19
Speaker 2: continues to be the status of tariffs and where we
1:24
Speaker 2: go from here on the tariff situation. On Wednesday evening,
1:30
Speaker 2: around six fifteen, the US Court of International Trade, or
1:36
Speaker 2: USCIIT as it's known in the biz, they came out
1:41
Speaker 2: and they said, Hey, all these tariffs, not all of them,
1:43
Speaker 2: but a lot of them. The ten percent blanket tariffs,
1:48
Speaker 2: the fentanyl trafficking tariffs, those are all all gone.
1:52
Speaker 3: You can't do those anymore.
1:54
Speaker 2: Yesterday it was I don't know the exact time, but
1:59
Speaker 2: yesterday day it was some time in the afternoon the
2:04
Speaker 2: Federal Circuit Court of Appeals said, hey, we're going to
2:09
Speaker 2: issue a stay on this pending the appeal. So the
2:13
Speaker 2: tariffs are actually still in effect while that appeal is
2:17
Speaker 2: going to be held. The timeline for that appeal is unclear.
2:22
Speaker 2: So they issued to stay on the stay. Is what
2:23
Speaker 2: you're saying, No.
2:25
Speaker 3: They should just stay on the injunction.
2:27
Speaker 4: Ah, yes, okay, got it.
2:28
Speaker 2: It's a sting junction, got it, which is different from well,
2:32
Speaker 2: I'm not going to get into it in any case.
2:35
Speaker 2: So right now, the tariff situation is the exact same
2:40
Speaker 2: as it was until Wednesday at six fifteen. So these
2:43
Speaker 2: tariffs are still in place, they are at the same
2:46
Speaker 2: rates they were apt prior to that time period, but
2:51
Speaker 2: we don't know exactly what is going to happen with
2:55
Speaker 2: them as this case makes its way through that appeal
2:59
Speaker 2: and potentially, you know, up to the Supreme Court, depending
3:02
Speaker 2: on exactly how this ends up going. But that's a
3:06
Speaker 2: process that could take at the very least weeks and
3:09
Speaker 2: potentially months. And so I think the big place that
3:12
Speaker 2: I continue to get to is there is no certainty
3:16
Speaker 2: for anyone to plan on when it comes to where
3:19
Speaker 2: tariff rates are going to be July fourth, Labor Day
3:24
Speaker 2: January first, next year. I think there's a very wide
3:27
Speaker 2: range of outcomes as to where these could be.
3:30
Speaker 5: Yeah, I don't know. I tend to think it's going
3:32
Speaker 5: to move faster now that this court. I know it
3:35
Speaker 5: took a couple of months for this.
3:37
Speaker 4: Court to rule.
3:39
Speaker 5: I tend to think the Supreme Court in this repeals
3:42
Speaker 5: court rule faster than that, given how quickly they issued
3:44
Speaker 5: this day. But no real idea the other feast here, Chuck,
3:48
Speaker 5: that matters is right that the administration is making contingency plans, obviously,
3:53
Speaker 5: but from all reporting I've seen, they don't really want
3:56
Speaker 5: to go end. So if you're the Trump administration and
3:59
Speaker 5: you're arguing court, hey, we have a case here to
4:02
Speaker 5: be able to use these tariffs, you don't want to
4:04
Speaker 5: go around and say, okay, but also we are implementing
4:07
Speaker 5: a new set of tariffs on different rules because we're
4:10
Speaker 5: worried about this getting slapped down. And so let's say
4:13
Speaker 5: that does take a few months. You're collecting these tariff revenues.
4:15
Speaker 5: Sixteen point three billion dollars was collected in April of
4:19
Speaker 5: twenty twenty five. If the administration loses this court case,
4:22
Speaker 5: then the Treasury has to go and reimburse all those
4:24
Speaker 5: tariffs that were collected.
4:25
Speaker 2: Presumably potentially it's it's unclear at this point. Ryan Peterson,
4:29
Speaker 2: who is the CEO of Flexport, who's a logistics company,
4:34
Speaker 2: I'll quote from an ex post from him. This is
4:38
Speaker 2: from May twenty ninth, So this was from let's see
4:42
Speaker 2: what time it was. This was at three twenty five
4:44
Speaker 2: am yesterday, okay, which tells you how you know logistics
4:47
Speaker 2: companies are dealing with this. When the CEO of a
4:50
Speaker 2: pretty big one is, you know, tweeting at three twenty
4:52
Speaker 2: five am, it's like, okay, it's all hands on deck.
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Speaker 3: Quote.
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Speaker 2: I just talked to a highly regarded customs lawyer who
4:58
Speaker 2: thinks Trump's team will lose the appeal and tariffs will
5:01
Speaker 2: be overturned and refunded. Because it's not just that, Hey,
5:04
Speaker 2: the tariffs get overturned and you collected what you collected.
5:07
Speaker 2: If the tariffs were imposed illegally, the collection of those
5:10
Speaker 2: tariffs then has to be refunded back to the people who.
5:14
Speaker 5: Paid them, right, And that number was sixteen potenttionally three
5:17
Speaker 5: billion dollars in April, but only some of it would
5:21
Speaker 5: have been deemed illegal. Some of it was legal because
5:23
Speaker 5: it was based on steel and aluminum and a bunch
5:26
Speaker 5: of things like this court did not throw out.
5:30
Speaker 3: So this is again kind of messy.
5:33
Speaker 2: And as we talked about yesterday, there are a few
5:35
Speaker 2: different avenues that the Trump administration could go down if
5:38
Speaker 2: in fact, the US Court of Appeals for the Federal
5:42
Speaker 2: Circuit says no, you can't do this, and then the
5:44
Speaker 2: Supreme Court either you know, affirms that or decides just
5:47
Speaker 2: not to take the case. In that case, you'd have
5:50
Speaker 2: to refund all these tariffs. But the Trump administration doesn't
5:53
Speaker 2: want to move on these backup plans because, as you noted, hey,
5:58
Speaker 2: if if you're trying to present the case that hey,
6:00
Speaker 2: we did things, you know, legally, and this is the
6:02
Speaker 2: right way, you don't all of a sudden go and
6:04
Speaker 2: start imposing all kinds of other tariffs through other means,
6:07
Speaker 2: because it's basically an admission then that you didn't do
6:10
Speaker 2: it the way you were supposed to.
6:12
Speaker 4: Yeah.
6:13
Speaker 5: Look, they chose this path because it is expedient. It
6:17
Speaker 5: required the least amount of research on countries that might
6:20
Speaker 5: be violating terms. It did not require anyone to be
6:23
Speaker 5: designated or any product to be designated in national security concern.
6:28
Speaker 5: It was expedient, it was easy, and the downside was
6:34
Speaker 5: that it might not It might have been an overreach
6:36
Speaker 5: of executive authority. And we will find out. I did
6:40
Speaker 5: not chuck you. You apparently read through the what do
6:44
Speaker 5: we call it the court case the judgment from the
6:47
Speaker 5: the judges. From what I understand, they cited some specific
6:52
Speaker 5: cases that were thrown out by the Supreme Court over
6:56
Speaker 5: the last few years, including the Biden administration's attempt to
6:59
Speaker 5: wipe out students debt. And so look, this court panel
7:05
Speaker 5: for the Trade Court did not do this blindly and
7:09
Speaker 5: clearly knew where this was going to end up. And
7:12
Speaker 5: I think, you know, attempted to make their case to
7:14
Speaker 5: the Supreme Court too that hey, you know our ruling
7:16
Speaker 5: is correct on this.
7:17
Speaker 2: And in terms of the timeline on this, the US
7:22
Speaker 2: Court of Appeals for the Federal Circuit has asked that
7:25
Speaker 2: the companies that challenge the terifs the plaintiffs to file
7:29
Speaker 2: their brief before June fifth, and the Justice Department to
7:32
Speaker 2: reply by June ninth. So you're probably getting a hearing
7:36
Speaker 2: later in June. Again exactly when I don't think we know.
7:42
Speaker 2: The piece that is interesting is normally so these these
7:46
Speaker 2: different appeals courts, they typically have like these three judge
7:51
Speaker 2: panels that sit. It's like it's a random draw and
7:53
Speaker 2: it's just okay, whoever's number is up is going to sit.
7:57
Speaker 2: The interesting thing, and I don't know what to make
8:00
Speaker 2: of this exactly, is that the the used Court of
8:04
Speaker 2: Appeals for the Federal Circuit they have decided to hear
8:08
Speaker 2: this with the full bench of eleven judges participating.
8:13
Speaker 3: I don't know why exactly. That's not normal.
8:18
Speaker 2: Typically you'll have a a smaller group of judges participating
8:22
Speaker 2: on this, but in this case, it is going to
8:25
Speaker 2: be the full suite of judges here.
8:30
Speaker 3: So I think that you know.
8:32
Speaker 5: What lends the rule whatever the ruling is a bit
8:35
Speaker 5: more credibility on appeal. I would I would think, right,
8:38
Speaker 5: if you have you know, any political bias concerns or
8:42
Speaker 5: any of those types of things.
8:43
Speaker 4: If you have the eleven panel.
8:44
Speaker 5: Court ruling, it, I would think gives the ruling ultimately
8:48
Speaker 5: more credibility for appeal. I guess maybe legal scholars.
8:54
Speaker 2: So that's what we have in terms of the timeline
8:57
Speaker 2: on the legal matters there. So I think think the
9:01
Speaker 2: earliest movement that we get is probably a hearing in
9:04
Speaker 2: maybe two weeks, maybe two.
9:06
Speaker 3: And a half, and a ruling.
9:09
Speaker 2: I mean, again, assuming that they move as quickly as
9:12
Speaker 2: they possibly can. So June ninth, I'm just looking at
9:14
Speaker 2: the calendar here. June ninth is a Monday. I can't
9:19
Speaker 2: imagine that you're just gonna have like the hearing happened
9:21
Speaker 2: the day after that. So maybe the hearing is like
9:25
Speaker 2: the sixteen seventeen, Maybe you get something.
9:27
Speaker 3: By July fourth.
9:29
Speaker 2: Yeah, that's kind of the quickest that I think this
9:32
Speaker 2: move's maybe a week sooner than that. You know, maybe
9:34
Speaker 2: you get it like that week of June twenty third.
9:37
Speaker 2: But again that's assuming that they hold this hearing, you know,
9:41
Speaker 2: as quickly as they can. And either way, we're still
9:44
Speaker 2: probably looking like another two to three weeks at a
9:47
Speaker 2: minimum before you get a ruling, and it could be
9:51
Speaker 2: meaningfully longer. I have no idea exactly what the timeline's
9:54
Speaker 2: going to be on when this thing actually gets hurt.
9:56
Speaker 4: So item spinning around in my brain.
9:57
Speaker 5: I mean one other than countries that are facing different
10:02
Speaker 5: sets of tariffs, maybe not even China here, I don't
10:07
Speaker 5: know where you get a trade deal done. I don't
10:09
Speaker 5: know that any trade deals are possible to get done
10:12
Speaker 5: while this is going through appeal, Like.
10:13
Speaker 2: How can you You don't know if you are the EU,
10:16
Speaker 2: just as an example, what are you negotiating, right? You
10:20
Speaker 2: don't know what you're negotiating against.
10:22
Speaker 5: Right, So you just there are no trade deals to
10:25
Speaker 5: get done, and so any optimistic announcements like we saw
10:29
Speaker 5: from the UK and the US the other day.
10:32
Speaker 3: We're going to cover later.
10:34
Speaker 5: President Trump and Scott Besson's concerns about negotiations with China,
10:37
Speaker 5: like those really can't progress until this moves its way
10:40
Speaker 5: through the courts. And while yesterday I was thinking, well,
10:43
Speaker 5: the Trump administration can just pivot and go with a
10:46
Speaker 5: different tariff rule, not really while they are filing this appeal,
10:50
Speaker 5: unless they want to really give up the chance of
10:53
Speaker 5: winning on appeal. And so yeah, it seems to me
10:56
Speaker 5: that anything trade related is really at a standstill for
10:59
Speaker 5: the next few months.
11:01
Speaker 2: Like it, just as an example, so you mentioned the
11:03
Speaker 2: UK the agreement between the United States and the.
11:07
Speaker 5: UK, which was not a written agreement. It was a
11:09
Speaker 5: framework for some sort of agree. No, it was written,
11:12
Speaker 5: but it was non binding. Yeah, so like they wrote
11:14
Speaker 5: down the terms of it, but it was non binding.
11:17
Speaker 5: Does the UK like at this point just say what
11:21
Speaker 5: do you want us to.
11:21
Speaker 3: Do with this? I get about it, you know, I mean,
11:25
Speaker 3: I don't know what you do. Actually, it's I.
11:29
Speaker 2: Don't know what you do if you are a counterparty,
11:32
Speaker 2: given the potential for these tariffs to end up being
11:35
Speaker 2: rolled back, you know, pending this appeal.
11:37
Speaker 3: So we'll see where that goes. Let's take a quick break.
11:40
Speaker 2: When we come back, let's talk a little bit about
11:41
Speaker 2: the state of play between the US and China.
11:43
Speaker 3: Right after this.
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12:43
Speaker 2: Yesterday evening, Scott Best, the US Treasury Secretary, was on
12:47
Speaker 2: Fox News and when asked about the current state of
12:51
Speaker 2: negotiations between the United States and China, he said quote,
12:54
Speaker 2: I would say they are a bit stalled and that
12:58
Speaker 2: they would need to have further toscussions over the next
13:00
Speaker 2: few weeks. And also, I quote, I think given the
13:03
Speaker 2: magnitude of the talks, given the complexity, this is going
13:06
Speaker 2: to require both leaders to weigh in with each other.
13:09
Speaker 4: This morning, at eight a m.
13:11
Speaker 5: The President posted on truth Social do you want me
13:13
Speaker 5: to read the whole post?
13:15
Speaker 3: Yeah, because it's a good one.
13:17
Speaker 4: Yeah.
13:17
Speaker 3: Quote.
13:18
Speaker 5: Two weeks ago, China was in grave economic danger. The
13:21
Speaker 5: very high teriffs I set made it virtually impossible for
13:24
Speaker 5: China to trade into the United States marketplace, which is
13:27
Speaker 5: by far number one in the world. We went in
13:30
Speaker 5: effect Cold Turkey with China, and it was devastating for them.
13:33
Speaker 5: Many factories closed, and there was, to put it mildly,
13:36
Speaker 5: civil unrest. I saw what was happening and didn't like
13:39
Speaker 5: it for them, not for us. I made a fast
13:41
Speaker 5: deal with China in order to save them from what
13:43
Speaker 5: I thought was going to be a very bad situation,
13:45
Speaker 5: and I didn't want to see that happen. Because of
13:48
Speaker 5: this deal, everything quickly stabilized and China got back to
13:51
Speaker 5: business as usual.
13:52
Speaker 4: Everybody was happy. That is the good news.
13:54
Speaker 5: The bad news is that China, perhaps not surprisingly to some,
13:57
Speaker 5: has totally violated its agreement with the U. I'm stressing
14:01
Speaker 5: that point because it's all in caps. So much for
14:04
Speaker 5: being mister nice guy. So I don't know, unsurprising in
14:09
Speaker 5: terms of, you know, what we get from the President
14:11
Speaker 5: when it comes to things like this. But the question
14:14
Speaker 5: mark in my mind a these tariffs were part of
14:20
Speaker 5: what was struck down by this court. So the tariffs
14:23
Speaker 5: on China, which were justified at least in part by
14:26
Speaker 5: the fentanyl trade, are specifically what the court called out
14:30
Speaker 5: and struck down, if I'm not mistaken correct, It.
14:32
Speaker 2: Called out that, which is the original twenty percent tariffs
14:35
Speaker 2: on China that were imposed this year, and then also
14:38
Speaker 2: the ten percent reciprocal tariff as well, So that entire
14:41
Speaker 2: thirty percent is in question here.
14:44
Speaker 5: And so yes, the Trump administration could ultimately levy different
14:48
Speaker 5: tariffs on China. They could do different export restrictions and
14:52
Speaker 5: plenty of other ways to escalate trade with China. But
14:55
Speaker 5: right now, if you are China, you sit back and relax.
15:00
Speaker 5: There's not really much in the wave teeth on this,
15:02
Speaker 5: I think.
15:05
Speaker 2: So it's a maybe like no one has any idea Yeah,
15:09
Speaker 2: let's be honest, no one has any idea what is
15:13
Speaker 2: going to happen with the legality of those tariffs. From here,
15:18
Speaker 2: I will say, the market is not buying any material change.
15:23
Speaker 4: True.
15:24
Speaker 2: S and P five hundreds down seven points right now, yep,
15:27
Speaker 2: even like immediately after the S and P sold off
15:31
Speaker 2: like half a percent and recoup that, you know, within
15:33
Speaker 2: the hour, So that the market is basically not buying
15:37
Speaker 2: this for one or two reasons, either saying A, You're
15:40
Speaker 2: not going to be able to impose any new tariffs
15:43
Speaker 2: or any more additional measures along those lines, or B
15:47
Speaker 2: you're not actually going to it.
15:49
Speaker 5: Is pretty important right now too, because there as we
15:53
Speaker 5: speak are presumably a lot of products moving from China
15:57
Speaker 5: to the United States that were produced and shipped after
16:02
Speaker 5: the president you know, put in the tariff relief down
16:05
Speaker 5: to thirty percent and businesses started saying, yeah, let's let's
16:08
Speaker 5: manufacture and get going, and so real consequences to this
16:11
Speaker 5: potentially heating up and a reimposition of tariffs if that's
16:14
Speaker 5: where things go, or reimposition of higher tariffs.
16:17
Speaker 3: The market's not buying it. No, It's like that.
16:20
Speaker 2: And part of this is look, last Friday is when
16:23
Speaker 2: we got you know, the EU tariffs going to fifty
16:25
Speaker 2: percent June first, Yeah, by Monday that was a non factor.
16:29
Speaker 4: Yeah.
16:29
Speaker 5: But frankly, that's what concerns me about all of this, Like,
16:33
Speaker 5: this is a post, This is a frustrated post from
16:36
Speaker 5: the president.
16:36
Speaker 4: Am I wrong?
16:38
Speaker 6: No?
16:38
Speaker 3: I don't think you're wrong. And so, look, he's.
16:42
Speaker 5: Aware that he is losing credibility in markets, He's aware
16:47
Speaker 5: that he's losing some credibility with China and with these
16:49
Speaker 5: other trade negotiations, and so that's kind of what concerns
16:54
Speaker 5: me is I do think that the president of the
16:56
Speaker 5: United States needs to have credibility when it comes to
16:59
Speaker 5: negotiating trade deals, and I think he recognizes he's lost
17:03
Speaker 5: a fair bit of it. And so what do you
17:05
Speaker 5: do in that position? I think is the big question
17:07
Speaker 5: that I have. And I don't have any answers to that,
17:09
Speaker 5: but clearly there's some frustration boiling over right now from
17:12
Speaker 5: the White House.
17:13
Speaker 2: There is I think the the piece in terms of
17:15
Speaker 2: you know, what will the market actually, you know, buy
17:19
Speaker 2: on this? I think is an interesting question because you know,
17:22
Speaker 2: a key difference here is okay that there aren't even
17:24
Speaker 2: any details that are laid out in this post as
17:27
Speaker 2: far as you know, here's what I'm going to do now.
17:30
Speaker 5: It's just I'm frustrated and I'm not going to be
17:32
Speaker 5: mister nice guy anymore.
17:33
Speaker 2: Which on one hand, you look at and you're like, okay,
17:34
Speaker 2: there's no details. So like before we even get nervous,
17:37
Speaker 2: we got to see some details. The counter to that is, hey,
17:41
Speaker 2: if there's no details, what could be coming is anything,
17:44
Speaker 2: And so there's a wide range of you know what,
17:47
Speaker 2: what could potentially be considered, you know, more punitive measures
17:50
Speaker 2: on China. And by the way, this is something that
17:52
Speaker 2: we we covered a little bit yesterday where China still
17:55
Speaker 2: has not you know fully you know.
17:58
Speaker 3: Uh spun up.
18:00
Speaker 2: It's exports of things like rare earth minerals, which which
18:03
Speaker 2: is bothering the US right for obvious reasons.
18:05
Speaker 4: That's part of this.
18:06
Speaker 5: Right, Ford had to shut down and explore manufacturing facility
18:10
Speaker 5: because they literally couldn't get their hands on the magnets
18:12
Speaker 5: they needed to build their cars.
18:14
Speaker 2: Right, So the US then responded by saying, hey, we
18:17
Speaker 2: are not going to allow you to import you know,
18:20
Speaker 2: some of the jet engine parts and some of the
18:23
Speaker 2: chip design exports and stuff like that. Like that's not
18:26
Speaker 2: going on so like that there's some stuff that there's
18:28
Speaker 2: real meat here in terms of you know, disagreements on
18:32
Speaker 2: where things actually need to go as far as a
18:35
Speaker 2: return to normal. And I do want to stress like
18:39
Speaker 2: this is not just being you know, made up, like
18:41
Speaker 2: there are some very real issues that are present here.
18:44
Speaker 2: What the response is going to be, I think is
18:46
Speaker 2: what the market is questioning right now. And again the
18:50
Speaker 2: two reasons are A, under what authority is the president
18:54
Speaker 2: going to be able to impose any you know, additional
18:58
Speaker 2: tariffs or other restrictions on And B if the president
19:03
Speaker 2: finds a way to do so, is there the wherewithal
19:06
Speaker 2: you know, to actually go and do it? Because quite honestly,
19:09
Speaker 2: like we saw this Friday and by Monday, it was
19:11
Speaker 2: resolved after a couple phone calls over the weekend. And
19:16
Speaker 2: after going through that experience, like how many people want
19:18
Speaker 2: to be sitting there short through the weekend when it
19:20
Speaker 2: could just be a couple of phone calls and you're
19:22
Speaker 2: back to normal Monday.
19:23
Speaker 3: Yeah, just take a quick break.
19:26
Speaker 2: When we return, we'll do a little bit of Wall
19:30
Speaker 2: Street Watch, and then we got some inflation data this morning.
19:33
Speaker 3: We'll tell you the good news about what it showed.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
Speaker 1: Watch a complete look and what's moving market so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 6: On the final trading day of May, markets are mostly
20:02
Speaker 6: quiet and in mixed territories. Investors monitor the on again
20:06
Speaker 6: off against status of Trump's tariffs, in addition to the
20:09
Speaker 6: Fed's preferred measure of inflation, the core PC index, which
20:13
Speaker 6: came in line with estimates. Right now, the Dow is
20:16
Speaker 6: up by only fifty points, about a tenth of a percent.
20:19
Speaker 6: S and P five hundred is down by seven points.
20:21
Speaker 6: NASDAC off by sixty eight points, or about a third
20:24
Speaker 6: of a percent. Russell two thousand is off about six
20:28
Speaker 6: tenths of a percent. Ten year Treasure reeled down by
20:31
Speaker 6: one basis point now at four point four zero percent.
20:34
Speaker 6: In crude oil is down two thirds of a percent.
20:36
Speaker 6: Trading it's sixty dollars in fifty three cents a barrel.
20:39
Speaker 6: Marvel Technology is down by five percent, despite the chip
20:43
Speaker 6: maker swinging to a quarterly profit and log to jump
20:46
Speaker 6: in sales driven by AI demand. Meanwhile, Dell Technologies hiked
20:51
Speaker 6: its earnings guidance as demand for its AI server boosts sales,
20:56
Speaker 6: Dells down by one percent. Over to the retail sector,
20:59
Speaker 6: where Gap shares are sinking by over nineteen percent after
21:03
Speaker 6: the clothing retailer forecasted flat quarterly sales and up to
21:07
Speaker 6: one hundred and fifty million dollars in tariff costs after
21:11
Speaker 6: mitigation efforts this fiscal year. Another retailer in American Eagle Outfitters,
21:16
Speaker 6: up by about half a percent today after it swung
21:19
Speaker 6: to a quarterly loss and withdrew its outlook. Alta Beauty
21:23
Speaker 6: shares jumping by fourteen percent after the cosmetics retailer raised
21:28
Speaker 6: its annual outlook and posted higher than expected quarterly sales. Elsewhere,
21:33
Speaker 6: at Costco reported a higher profit in outlined tariff mitigating
21:37
Speaker 6: measures it says have helped the warehouse club avoid price hikes.
21:41
Speaker 6: Costco up by three percent, Zscaler jumping by eight percent
21:45
Speaker 6: after the cybersecurity company reported higher quarterly revenue and nudge
21:50
Speaker 6: its full year guidance, and shares an Airbnb pulling back
21:54
Speaker 6: by about a third of a percent after Truest Securities
21:57
Speaker 6: downgraded the short term vacation home run mental company to
22:00
Speaker 6: a cell rating where the analyst said that investors haven't
22:05
Speaker 6: fully accounted for soft summer leisure trends in both the
22:09
Speaker 6: US and Europe. On Tucker Silva and that's Wall Street Watch.
22:13
Speaker 2: Mich Let's talk a little bit about the PCEE data
22:16
Speaker 2: that we got this morning. Pc stands for personal consumption
22:19
Speaker 2: expenditure and we get inflation data as well as personal
22:23
Speaker 2: spending and income data. Where do you want to start
22:25
Speaker 2: because it was mostly good news on the inflation front.
22:28
Speaker 5: Yeah, let's start with the inflation piece because the President
22:31
Speaker 5: sat with jo and Powell, was it just yesterday in
22:34
Speaker 5: a private meeting, and so certainly inflation and growth risks were.
22:38
Speaker 4: On the dock at the other day.
22:40
Speaker 5: But the PCPE price index in April came in a
22:44
Speaker 5: month over month increase of point one and same when
22:47
Speaker 5: you strip out food and energy, it was, like you mentioned,
22:50
Speaker 5: pretty muted.
22:51
Speaker 4: Overall. Are we still perfectly down to the Fed's inflation target?
22:56
Speaker 4: Not quite?
22:57
Speaker 5: Year over year inflation according to this is between two
23:01
Speaker 5: one and two five, depending on whether or not you're
23:03
Speaker 5: including the benefits from gas prices being lower, and so
23:07
Speaker 5: overall not enough to probably insist that Jerome Powell cut
23:13
Speaker 5: interest rates, but also really nothing of concern to speak
23:16
Speaker 5: of in this report.
23:17
Speaker 2: Now, if you look at like your three major inflation
23:19
Speaker 2: and disease that people watch, uh headline CPI is at
23:22
Speaker 2: two three for the last year. Headline uh PCE is
23:27
Speaker 2: at two one. Headline PPI is at two four. So overall,
23:32
Speaker 2: like you look at it, you're like, okay, we're in
23:33
Speaker 2: like at two point two to two point three percent.
23:36
Speaker 2: Headline inflation environment CORE, which again stripping out food and fuel,
23:39
Speaker 2: which you know, food, sorry, fuel costs have been coming
23:42
Speaker 2: down over the last year. Core CPI is at two eight.
23:47
Speaker 2: Core PC is at two five. Core PPI is at three,
23:50
Speaker 2: So you figure you're close to like two and three quarters.
23:52
Speaker 2: As we've said many times, there is no extended period
23:56
Speaker 2: of time where US inflation has you know, been at
23:59
Speaker 2: two percent. You're perfectly fine with an economy that is running,
24:04
Speaker 2: you know, somewhere in the mid twos or even you know,
24:07
Speaker 2: you get to like three percent on inflation and you're
24:11
Speaker 2: fine there.
24:11
Speaker 5: So long as growth is still reasonable. I think it's
24:14
Speaker 5: totally reasonable, you know, totally reasonable to have low threes inflation.
24:17
Speaker 3: Yeah, Well, here's the.
24:19
Speaker 2: Thing growth is not really a growth is going to
24:21
Speaker 2: be a function of two things population growth and productivity,
24:24
Speaker 2: and ultimately, like those, those are going to happen regardless
24:27
Speaker 2: of what's going on with the inflation piece.
24:29
Speaker 3: Yep.
24:30
Speaker 2: I think the the piece that you do need to
24:33
Speaker 2: watch for is look, how much longer can you know
24:36
Speaker 2: you continue to see energy costs being you know, a
24:39
Speaker 2: major driver downward because even though they affect, even though
24:42
Speaker 2: they're directly in headline, they do flow through to some
24:45
Speaker 2: things in core as well. You know, when you look
24:48
Speaker 2: at what's in there, you know, things like transportation services,
24:51
Speaker 2: those become more expensive as you know, fuel costs rise,
24:54
Speaker 2: even though it's not directly captured there. And so I
24:57
Speaker 2: do think that the the you know, interesting thought exs
25:00
Speaker 2: mean is Okay, for the last twelve months, energy costs,
25:03
Speaker 2: gas prices are down, you know, eleven point eight percent,
25:06
Speaker 2: fuel oil down nine point six Could you see a
25:09
Speaker 2: world in which those you know, end up increasing ten percent?
25:12
Speaker 2: Not necessarily this year, but you know some point in
25:14
Speaker 2: the future. And now your headline CPI has gone from
25:17
Speaker 2: you know two three to three five? Okay, Like, are
25:21
Speaker 2: we comfortable you know with that? And how do we
25:23
Speaker 2: manage through that situation. So I think we are.
25:26
Speaker 5: I mean, maybe I'm not, and I wouldn't want to
25:29
Speaker 5: see my gas prices go back up to four bucks
25:31
Speaker 5: a gallon and my fuel loyal to jump, But I
25:33
Speaker 5: don't know.
25:34
Speaker 4: That that gives the FED a whole lot of pause.
25:37
Speaker 5: If they're still seeing core inflation in the two and
25:40
Speaker 5: a half to three range, well that's probably the snare
25:43
Speaker 5: you would get to.
25:44
Speaker 2: And this is the piece where the tariffs come into play, yep,
25:46
Speaker 2: because ultimately April has still appeared where and there's a
25:50
Speaker 2: bunch of data that's out on this now.
25:53
Speaker 3: There really was not any.
25:54
Speaker 2: Effective pass through of tariffs in April because anything was
26:00
Speaker 2: being sold in April was bought before then by the suppliers,
26:03
Speaker 2: by the by the retailers and whoever it might be.
26:07
Speaker 2: It's going to be May, June, July, August. That kind
26:10
Speaker 2: of four month ramp up period is where you're going
26:12
Speaker 2: to see it. And I think the question that the
26:14
Speaker 2: FED is asking is, look, we don't know how much
26:16
Speaker 2: is going to be passed through. We don't know if
26:18
Speaker 2: this is going to be you know, a transitory, one
26:20
Speaker 2: time thing or inflation expectations embedded is this something you know,
26:24
Speaker 2: that really bites further. And so that's something that I
26:28
Speaker 2: think has the FED. That's why, quite honestly, the FED
26:32
Speaker 2: has not made any further moves to the downside right now.
26:35
Speaker 2: In my opinion, I don't think they would have done,
26:37
Speaker 2: you know, big cuts or anything, but I think absent tariffs, yeah,
26:41
Speaker 2: maybe a quarter percent cut in June is on the table.
26:44
Speaker 3: Yeah, like little things like that. I don't think you
26:47
Speaker 3: have anything big that's out there.
26:50
Speaker 2: The other pieces of data that we got for the
26:53
Speaker 2: data release this morning, personal income and personal spending. Personal
26:56
Speaker 2: spending came in basically online with expectations grewing point two
27:00
Speaker 2: percent for the month. Personal income was a big move
27:05
Speaker 2: to the upside, coming in at point eight percent versus
27:08
Speaker 2: consensus estimates of point three to point four. So you say, why,
27:12
Speaker 2: you know what's going on there. Parker Ross, who is
27:15
Speaker 2: the global chief economist at Arch Capital, had a great
27:20
Speaker 2: thread on X about this, and basically, if you actually
27:24
Speaker 2: go through and read what the Bureau of Economic Analysis
27:28
Speaker 2: indicated on this, because they're the ones who put this
27:30
Speaker 2: data series out and they tell you what's going on.
27:34
Speaker 2: The big driver on this was a one time thing
27:38
Speaker 2: that also happened in uh in March to a certain extent. Mike,
27:43
Speaker 2: you remember the Social Security Fairness Act that was passed
27:45
Speaker 2: last year. Sure gives people who receive state pensions. It
27:52
Speaker 2: removes the offsets, the WEB and the what's the other
27:54
Speaker 2: one GPO the GP. It removes those going forward, but
27:59
Speaker 2: also gives pay retroactive for last year as well. And
28:03
Speaker 2: the increase in compensation here, apparently is the large number
28:08
Speaker 2: of individuals that are receiving those back payments for last year,
28:12
Speaker 2: and that is the big driver of this topside beat
28:15
Speaker 2: in personal income. It's not that everyone is seeing a
28:19
Speaker 2: huge jump in their wages, but rather it's these one
28:22
Speaker 2: time payments that are being made to state employees who
28:27
Speaker 2: add you know, offsets because of state pensions and things like.
28:31
Speaker 3: That, that would do it. Yeah, so I find that
28:33
Speaker 3: kind of interesting.
28:33
Speaker 5: A number of people across New England who got pretty
28:36
Speaker 5: big deposits back then, and uh yeah, that would that
28:39
Speaker 5: would move the needle.
28:41
Speaker 2: Let's take a quick break here when we come back,
28:46
Speaker 2: should we talk a little bit about CEO confidence?
28:48
Speaker 3: Now, sure, let's do that. When we return.
28:52
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28:54
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28:57
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28:59
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29:05
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29:13
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29:16
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29:20
Speaker 1: This is the Financial Exchange Radio Network, Mike.
29:28
Speaker 2: We get a piece of data every quarter from the
29:32
Speaker 2: Conference Board. It's called the Measure of CEO Confidence with
29:35
Speaker 2: a trademark on it, by the way, and what it
29:40
Speaker 2: showed was that during this survey of one hundred and
29:42
Speaker 2: thirty three CEOs who participated from May fifth through May nineteenth,
29:48
Speaker 2: that CEO confidence fell by twenty six points from a
29:52
Speaker 2: reading of sixty down to a reading of thirty four.
29:55
Speaker 5: That was the largest drop since they started the survey,
29:58
Speaker 5: which is not recently used back in nineteen seventy six
30:01
Speaker 5: when the survey started.
30:03
Speaker 2: So interestingly, the pier that I noted that the survey
30:06
Speaker 2: was conducted May fifth or May nineteenth basically perfectly brackets
30:10
Speaker 2: the May twelfth announcement of the reduced China tariffs. Confidence
30:16
Speaker 2: Board notes this as well and says quote CEOs responding
30:20
Speaker 2: before and after May twelfth reported similar very negative views
30:23
Speaker 2: about the current state of the economy in their own industries. However,
30:26
Speaker 2: the CEOs who responded after May twelfth tend to be
30:29
Speaker 2: somewhat less pessimistic about the future, and fewer expected a
30:32
Speaker 2: deep recession, which I think is messes with what you
30:35
Speaker 2: would expect to see. I think the question on this
30:39
Speaker 2: is does this matter?
30:43
Speaker 5: But one, I don't know of anyone that has any
30:45
Speaker 5: model that uses this to predict things like layoffs, so
30:50
Speaker 5: I don't want to jump to any conclusions there. I
30:53
Speaker 5: think it would be irresponsible to say, oh, wow, look,
30:55
Speaker 5: eighty two percent of CEOs said economic conditions were worse
30:58
Speaker 5: than six months ago, and so look out, layoffs are happening.
31:03
Speaker 5: I don't think there's any evidence whatsoever to support that.
31:06
Speaker 5: But I do think you filed this in the same
31:08
Speaker 5: category as several other reports that say, yeah, confidence across
31:13
Speaker 5: both consumers and leaders of companies has slumped in the
31:17
Speaker 5: most recent readings, and even after this importantly was conducted
31:21
Speaker 5: well after the Trump administration rolled back their reciprocal terists
31:25
Speaker 5: from Liberation Day. So you are still pointing to some
31:29
Speaker 5: pessimism from major leaders of companies. So yeah, I think
31:35
Speaker 5: it matters, but I don't know that I can conclude
31:38
Speaker 5: that it points to anything directly on employment or recession.
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32:57
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32:59
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33:02
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33:05
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33:07
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33:08
Speaker 3: Mike, we got a piece in Bloomberg.
33:10
Speaker 2: It's titled Trump's tax bill has a nasty surprise in
33:13
Speaker 2: salt fine print for some rich Americans. And I guess
33:19
Speaker 2: I'm just not sure that there's any meat on this bone.
33:22
Speaker 2: You don't think so, So let's talk about like what
33:27
Speaker 2: is outlined in here. Two changes are mentioned here. The
33:31
Speaker 2: first is there's something called the Qualified Business Income Deduction,
33:34
Speaker 2: the QBI deduction, which allows business owners to deduct it's
33:41
Speaker 2: currently twenty percent of business income correct yes, from their taxes.
33:45
Speaker 2: This would bump it up to is it twenty three
33:47
Speaker 2: or twenty four? In the I don't recall to twenty three. Okay,
33:51
Speaker 2: so it's it's bigger. But what it does is there
33:57
Speaker 2: is a set of businesses that basically are you know,
34:02
Speaker 2: services related businesses that are excluded from being able to
34:08
Speaker 2: take that deduction. And pretty much what this is saying is, hey,
34:10
Speaker 2: because the value of that deduction is going up, expanding
34:13
Speaker 2: from twenty percent to twenty three, that group of businesses
34:16
Speaker 2: is going to miss out even more. Okay, but they've
34:20
Speaker 2: already been missing out. It's not like it's you know,
34:22
Speaker 2: raising taxes on them unexpectedly.
34:25
Speaker 5: I read this differently. So the additional piece that I
34:28
Speaker 5: read into this was a special loophole that was created
34:32
Speaker 5: by a whole bunch of states Massachusetts, Connecticut, New York,
34:36
Speaker 5: New Jersey, and others that allowed business owners to effectively
34:42
Speaker 5: work around the salt cap. So this is a bit technical,
34:46
Speaker 5: but imagine for a minute that you are a small
34:48
Speaker 5: business operating in Massachusetts and you make a profit of
34:53
Speaker 5: a million dollars as the business owner on that on
34:58
Speaker 5: that busines, you would owe a state income tax of
35:03
Speaker 5: let's call it fifty thousand dollars, right that for that
35:07
Speaker 5: profit that the business made.
35:08
Speaker 4: If you are you know, a pass through entity.
35:12
Speaker 5: What the loopholes were that were created were, Hey, look,
35:15
Speaker 5: if I go and pay this individually because of the
35:17
Speaker 5: salt cap, I'm not going to be able to deduct
35:19
Speaker 5: it on my federal taxes, and so I'm going to
35:21
Speaker 5: be paying you know, Feds as well as state and
35:24
Speaker 5: I can't I can't deduct it. The loophole that was
35:28
Speaker 5: created allowed that business to say, I'm the business is
35:31
Speaker 5: going to pay the owner's state tax bill for them,
35:35
Speaker 5: therefore reducing the company's profit, therefore reducing their federal income
35:38
Speaker 5: tax bill. That is the loophole that I assumed was
35:41
Speaker 5: being closed as part of this tax bill. And if so,
35:46
Speaker 5: that's a pretty big change that might cause some senators
35:49
Speaker 5: to flip their vote on this thing.
35:50
Speaker 2: So I didn't see that it said that that was
35:52
Speaker 2: being closed. So like it mentioned that it existed previously,
35:57
Speaker 2: but this didn't say that it closed as it.
35:59
Speaker 5: So I read where I saw it was the House
36:02
Speaker 5: bill quashing those loopholes described as those set up by
36:06
Speaker 5: the legislatures of New York, New Jersey, Connecticut, and dozens
36:09
Speaker 5: of other states. It could be a misread on my part,
36:13
Speaker 5: but I think that that's what this is trying to
36:16
Speaker 5: state from Bloomberg here that the bill actually closes those
36:20
Speaker 5: loopholes that the states created to get around the salt cap,
36:24
Speaker 5: which were again significant loopholes that got created and saved
36:28
Speaker 5: big business owners a lot of money.
36:31
Speaker 3: This is why I don't even like getting into the
36:32
Speaker 3: weeds on this. The Senate's going to do what they do,
36:34
Speaker 3: and this might not even be relevant, I know, three
36:36
Speaker 3: weeks from now.
36:36
Speaker 4: Yeah, I'm with you.
36:37
Speaker 5: I'll try and do a little bit of research on
36:39
Speaker 5: my own here as to whether or not this bill
36:41
Speaker 5: attempts to close that. But it would be a significant
36:44
Speaker 5: way of paying for some of this stuff because it
36:47
Speaker 5: was big tax savings to business owners across dozens of states.
36:52
Speaker 3: Yep.
36:52
Speaker 2: The other piece is the expanded salt cap. This pushes
36:55
Speaker 2: it up to forty thousand that's deductible from ten thousand.
36:59
Speaker 2: It phases out of five hundred thousand in annual income
37:03
Speaker 2: and so just on you know, personal tax returns, there
37:06
Speaker 2: would not be any enhanced deduction there. I'm not sure
37:11
Speaker 2: that that's a huge problem, right, I mean, what are
37:17
Speaker 2: we trying to do here?
37:19
Speaker 3: Am I wrong?
37:20
Speaker 5: No, it's not. It's really not worth talking about. So,
37:24
Speaker 5: but all of this state stuff for you know, some
37:30
Speaker 5: of these salt changes were pretty critically important to those
37:34
Speaker 5: Republican members of you know, states like New York and
37:39
Speaker 5: New Jersey. So any changes to it, you know, could
37:43
Speaker 5: put this thing in dangerous territory.
37:47
Speaker 2: Well see again, you know my view on any legislation
37:50
Speaker 2: until it's done, don't get too worked up about any
37:52
Speaker 2: of it.
37:53
Speaker 3: Yep.
37:53
Speaker 2: You know, it's like it's it's gonna do what it's
37:55
Speaker 2: gonna do, and we'll see what the final bill looks like,
37:59
Speaker 2: probably in the next one hundred years, somewhere in that
38:05
Speaker 2: time frame, John, I think realistically we're probably looking at,
38:07
Speaker 2: you know, a final bill sometime in the next three months,
38:09
Speaker 2: maybe four.
38:11
Speaker 3: But we'll see.
38:12
Speaker 2: In any case, let's take a quick break. We got
38:14
Speaker 2: our two coming up in just a little bits.