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Economic data continues to defy expectations · The Financial Exchange Show

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Speaker 1: Zada and Mark Vandetti.
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Speaker 2: Chuck Mark talker with you here. It is a Job's Friday,
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Speaker 2: and our top.
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Speaker 3: Story of the day is the job support for the
1:20
Speaker 3: month of April that came in with one hundred and
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Speaker 3: seventy seven thousand jobs created for the month, beating expectations
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Speaker 3: around one hundred and thirty to one hundred and forty
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Speaker 3: thousand jobs being created. The unemployment rate was unchanged at
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Speaker 3: four point two percent, and so the big headline numbers
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Speaker 3: that you look at, you say, yeah, like really good.
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Speaker 3: As far as what you're seeing there when you look
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Speaker 3: at the underlying data, I think the vast majority of
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Speaker 3: it is pretty good as well. The couple of week
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Speaker 3: points that you do see. It did have some downward
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Speaker 3: revisions to the previous two months, with February being revised
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Speaker 3: down by fifteen thousand jobs created and March being revised
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Speaker 3: down by forty three thousand jobs created. So fifty eight
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Speaker 3: thousand is the negative revision for the past two months.
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Speaker 3: That's one of the weak points. Another one that you
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Speaker 3: see continued growth in the number of people reporting long
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Speaker 3: duration unemployment that now up to one point six seven
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Speaker 3: four million, an increase of one hundred and seventy nine
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Speaker 3: thousand over the course of the month and now up
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Speaker 3: about four hundred thousand over the course of the last year.
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Speaker 3: But other than that, it's tough to find too much
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Speaker 3: to complain about in this report. Wage growth moderating a
2:31
Speaker 3: little bit, probably something the Fed would like to see
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Speaker 3: back down to a little bit more sustainable rate.
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Speaker 2: You've got good aggregate.
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Speaker 3: Payroll growth for the last year still, so Mark My
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Speaker 3: interpretation of this is, look, this is a report that
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Speaker 3: came out that basically the data was being collected the
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Speaker 3: week after tariffs were implemented, so it's unlikely to have
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Speaker 3: been impacted by them in any substantial way. But I
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Speaker 3: think it tells us that at least at that point
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Speaker 3: in time, the jobs picture in the US, for as
3:02
Speaker 3: slow as the hiring rate has been over the last
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Speaker 3: year or so, it still is a pretty stable and
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Speaker 3: solid job market overall when you look at the data
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Speaker 3: here with a few things that you might be concerned about,
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Speaker 3: but overall a good report.
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Speaker 4: Yeah, I think that's a perfect summary. When you're looking
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Speaker 4: at any economic statistic, Chuck, as you know, you try
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Speaker 4: to tease out a change in the trend. Most economic
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Speaker 4: data GDP on employment, inflation. It tends to not turn
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Speaker 4: on a dime absent a national or geopolitical emergency. Now,
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Speaker 4: in this case, we've had an abrupt change with the
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Speaker 4: prior policy in the form of very high tariffs. Will
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Speaker 4: they stay in place? Nobody knows. So we look at
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Speaker 4: data like this and ask, and you've already summarized this,
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Speaker 4: was there apparent change in the trend indicating that the
3:53
Speaker 4: economy has shifted from solid strong growth, very low unemployment
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Speaker 4: and it is still very low and relatively stable, albeit
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Speaker 4: still elevated somewhat elevated inflation. Any change apparent in that
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Speaker 4: overall status of the economy before more or less before
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Speaker 4: so called tariff liberation Day because these hiring decisions were
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Speaker 4: made before we understood the magnitude and the breadth of tariff.
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Speaker 4: So the answer is no, no apparent change, at least
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Speaker 4: not prior to that.
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Speaker 3: So I think that in looking at this report like
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Speaker 3: you get into some of the other details here, just
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Speaker 3: to again give you some context as to what we're
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Speaker 3: seeing here, manufacturing jobs did show a small contraction for
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Speaker 3: the month one thousand dollars, not thousand dollars, a thousand
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Speaker 3: fewer jobs in the course of the month, again basically
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Speaker 3: within sniffing distance of where you were in the previous month,
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Speaker 3: where there was a three thousand job gain in that area.
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Speaker 2: When you look at.
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Speaker 3: Motor vehicles and parts, this potentially, you know, showing a
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Speaker 3: little bit of a short term impact from the auto
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Speaker 3: tariffs that were imposed down forty seven hundred for the
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Speaker 3: number of jobs in that area, and then you start saying, okay,
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Speaker 3: where were most of the jobs being created. Fifty eight
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Speaker 3: thousand of them coming in healthcare and social assistance, twenty
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Speaker 3: four thousand in leisure and hospitality, twenty nine thousand in
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Speaker 3: transportation and warehousing. So some of this that transportation and
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Speaker 3: warehousing certainly feels like companies trying to front run tariffs,
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Speaker 3: and so I think that can probably account for some
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Speaker 3: of the uptick in hiring there. This is a time
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Speaker 3: of year where you typically do see strong leisure in
5:35
Speaker 3: hospitality hiring heading into the summer, so I think it'll
5:38
Speaker 3: be interesting to see if that continues or if we
5:40
Speaker 3: start to see a little bit of weakness there, given
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Speaker 3: that the airlines and hotel chains have all been warning about,
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Speaker 3: you know, some slow down that they're seeing on that
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Speaker 3: side of things. But again overall, I think that the
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Speaker 3: picture here is one where, yes, it's a slow job
5:55
Speaker 3: market with not a ton of turnover, but it still
5:58
Speaker 3: is one where overall, if you have a job, there
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Speaker 3: has been no change through April as to you know,
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Speaker 3: the pace of layoffs or anything like that. And likewise,
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Speaker 3: if you're trying to find one, it's a little hard,
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Speaker 3: but you know, you're still seeing job growth and at
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Speaker 3: a rate that is fast enough to keep up with
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Speaker 3: population growth as well. So I think overall, if I'm
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Speaker 3: grading this out, it's probably like B plus a minus.
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Speaker 3: It's tough to find too much fault in this report,
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Speaker 3: quite honestly.
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Speaker 4: No, it's what we thought the economy was in good shape.
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Speaker 4: It's been in good shape for a couple of years
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Speaker 4: since inflation eased. These reports aren't designed and this is
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Speaker 4: true of inflation data, true of GDP and other reports
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Speaker 4: you get from the federal government. They're not designed to
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Speaker 4: allow you to make snap assessments of where the economy is.
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Speaker 4: That will be like trying to, I don't know, deciding
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Speaker 4: whether or not to cut your grasp by looking at
6:48
Speaker 4: Google Earth satellite like it's stale.
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Speaker 2: You guys, don't do that.
6:53
Speaker 4: This is why your yard's a mess, Chuck. It is
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Speaker 4: I keep telling you, true, I keep telling you. So
6:58
Speaker 4: it's they're just not made for what we try to for,
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Speaker 4: what we try to twist and contort them to fit into.
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Speaker 4: They don't give us the snapshot. I mean to say,
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Speaker 4: their rare view mirror is overstating their value. This is
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Speaker 4: this is quite stale data at this point, though, I
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Speaker 4: guess it's it's good to know nothing dropped off of
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Speaker 4: a cliff in the in the weeks leading up to
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Speaker 4: when these when these hiring decisions were made, which were
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Speaker 4: probably before April early April.
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Speaker 3: Yeah, I mean, that's that's the thing is if you're
7:31
Speaker 3: if you are hiring someone in early April, which is
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Speaker 3: the period that this late March early April, because effectively
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Speaker 3: this survey was conducted during the second week in April.
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Speaker 3: So these are people that were hired, you know, between
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Speaker 3: mid March and early April. The decisions to hire those
7:48
Speaker 3: people were probably made in December, January, February, and so
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Speaker 3: I think the question is going to be, hey, what
7:55
Speaker 3: does what do we see in this data over the
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Speaker 3: coming months, and is a new trend that evolves because
8:02
Speaker 3: of the imposition of tariffs, and we're gonna have to
8:05
Speaker 3: see exactly what we get. I don't look, we may
8:11
Speaker 3: think that there is going to be a slowdown because
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Speaker 3: of the imposition of tariffs. We're hearing it, you know,
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Speaker 3: anecdotally from different companies and things like that. But the
8:19
Speaker 3: fact is, there is no one alive who has ever
8:22
Speaker 3: lived through something like this, because the last time you
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Speaker 3: saw tariff phrases, you know, in this magnitude, was one
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Speaker 3: hundred years ago, and so you basically are I'm trying
8:32
Speaker 3: to just say, hey, be open to where things could go,
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Speaker 3: and we'll have to see how the data evolves, because
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Speaker 3: I don't think any of us have you know, a
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Speaker 3: clear view on exactly what we're going to get because
8:43
Speaker 3: we've never experienced this.
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Speaker 4: Yeah, I'm a little suspicious of people calling for recession
8:50
Speaker 4: with high conviction. Now, I think it's safe to say,
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Speaker 4: if widespread tariffs remain in effect, prices are going to
8:56
Speaker 4: go up. Do they continue to go up at an
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Speaker 4: increased rate in the quarters that follow Some of that
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Speaker 4: depends on how the Fed Act. Some of that depends
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Speaker 4: on how inflation inflation expectations evolved. There's some evidence that
9:07
Speaker 4: expectations have spiked. Other surveys say it hasn't. We're gonna
9:10
Speaker 4: have to see how it plays out. But I would
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Speaker 4: beware of any high conviction, very confident assertions that the
9:17
Speaker 4: economy is heading off of a cliff or that we're
9:19
Speaker 4: heading toward hyperinflation. Nobody's using that phrase. As you say, Chuck,
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Speaker 4: we simply it's probably not good. High tariffs imposed indefinitely,
9:28
Speaker 4: but we simply don't know.
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Speaker 3: Let's take a quick break here. When we come back,
9:32
Speaker 3: we'll talk about the Fed. They have a meeting next week.
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Speaker 3: It's kind of snuck up on everyone, I think, with
9:37
Speaker 3: all of the focus on trade. But we'll talk about
9:39
Speaker 3: this job support and how it may influence what the
9:41
Speaker 3: Fed may do at next week's meeting and into the summer.
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Speaker 3: Margaret's talk a little bit about this FED meeting that
10:53
Speaker 3: we have next week, because as I mentioned in the
10:56
Speaker 3: last segment, it really has snuck up on us with
11:00
Speaker 3: all of the coverage of everything trade related. But next Wednesday,
11:03
Speaker 3: May seventh, we do have a FED meeting. The CME
11:07
Speaker 3: FED Fund's futures market is pricing in a ninety six
11:11
Speaker 3: point six percent chance that there is no change in
11:14
Speaker 3: FED policy, and I think based on the economic data
11:16
Speaker 3: that we've gotten to this point, that makes sense.
11:20
Speaker 2: I think the interesting thing is looking out over the.
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Speaker 3: Rest of the year, where the first cut is now
11:27
Speaker 3: being priced in the late July meeting on July thirtieth,
11:31
Speaker 3: with one, two, three, four cuts by the end of
11:33
Speaker 3: the year than effectively a twenty five basis point cut
11:36
Speaker 3: at each meeting in the second half of the year.
11:41
Speaker 3: When you look at how the FED typically behaves if
11:46
Speaker 3: there were a recession or slowdown, it's not usually, hey,
11:50
Speaker 3: let's cut by a quarter percent every meeting that you see.
11:54
Speaker 3: It's usually a much more rapid pace. And so I
11:56
Speaker 3: think this suggests that traders are kind of trying to
11:59
Speaker 3: weigh out the probability these here and say, Okay, maybe
12:01
Speaker 3: there's a chance that something happens in the second half
12:03
Speaker 3: of the year. But I don't think this is a
12:06
Speaker 3: path that anyone should expect the FED to take in
12:09
Speaker 3: the second half, simply because it would either be hold
12:12
Speaker 3: steady or cut much more quickly.
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Speaker 4: Agree completely the whole convention of cutting by a quarter
12:17
Speaker 4: a quarter, a quarter and then seeing what happens. That's
12:20
Speaker 4: a green Span innovation, and it's outdated. It's probably not
12:26
Speaker 4: the right framework for the current economy. Green Span in
12:29
Speaker 4: the nineties was testing how low we could cut FED funds,
12:33
Speaker 4: how low unemployment could go, and it went pretty low,
12:36
Speaker 4: low beyond anybody's expectations in that decade without stoking inflation.
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Speaker 4: So this whole idea that we should cut a little,
12:43
Speaker 4: cut a little, and then step back, almost like your
12:47
Speaker 4: I don't know you're trimming. You're trimming the hedges, and
12:50
Speaker 4: you step Did I take too much off? It's going
12:52
Speaker 4: to do a little bit at a time. I'm going
12:53
Speaker 4: to step back ten feet. This incrementalism probably doesn't work
12:58
Speaker 4: in the more adverse scenarios being gamed out by people
13:03
Speaker 4: as to the effects of tariffs, Chuck.
13:06
Speaker 3: So, I think ultimately it's something where next week's FED
13:10
Speaker 3: meeting probably gonna be pretty uneventful. Do you think Paul's
13:16
Speaker 3: got anything interesting up his sleeve at the press conference,
13:18
Speaker 3: anything that you think he might want to mention?
13:20
Speaker 4: Well, I think he, deep down, Yeah, he wants to
13:23
Speaker 4: do a lot. He wants to do and say.
13:24
Speaker 2: A lot of things.
13:25
Speaker 4: He wants to assert his independence as a point of
13:29
Speaker 4: pride and to protect his institution, as any FED chair
13:32
Speaker 4: would want to. Of course, he'll be restrained. Look, the
13:36
Speaker 4: FED tries to balance inflation and unemployment, and the evidence
13:41
Speaker 4: right now suggests that unemployment is stable and so is inflation.
13:45
Speaker 4: You wouldn't mess with your primary tool, which for the
13:49
Speaker 4: FED right now, Well, it's always the money supply, but
13:52
Speaker 4: indirectly it's the short term policy tool, the FED funds rate.
13:56
Speaker 4: Why would you mess with that if your dual mandate
13:59
Speaker 4: was more or less being satisfied, if things were more
14:02
Speaker 4: or less in balance. I think that's what the models
14:04
Speaker 4: the FED uses are telling them right now.
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Speaker 2: You mentioned the models that the FED uses. Am I wrong?
14:11
Speaker 3: And also saying that the FED spends a lot of
14:14
Speaker 3: time speaking with businesses in their various districts and they
14:18
Speaker 3: get a whole bunch of information from them as well.
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Speaker 4: Yeah, I think it's a combination of I'm never having
14:23
Speaker 4: worked there. I know only what you know and what
14:25
Speaker 4: we read in the newspapers and from former insiders. Yeah,
14:29
Speaker 4: I think it's both. But I think at the end
14:32
Speaker 4: of the day, if anecdotic green Span I'll and in voc
14:35
Speaker 4: him again famously used anecdotes in the late nineties that
14:39
Speaker 4: told him there's something really interesting going on with productivity
14:43
Speaker 4: that will allow the economy to run at levels that
14:46
Speaker 4: previously would have been considered too hot. So green Span
14:49
Speaker 4: was a master at balancing anecdote and the output of
14:54
Speaker 4: models our data. If you like, I think you need
14:57
Speaker 4: really good judgment. Chuck to pull that off. And I
15:01
Speaker 4: don't know that Powell's got We've been critical, I have
15:05
Speaker 4: personally a lot of people have been critical of Powell,
15:07
Speaker 4: so there's no need to pile on. But I don't
15:08
Speaker 4: know if he's got green span like almost mysteriously good
15:13
Speaker 4: levels of judgment. I assume that he and the rest
15:17
Speaker 4: of the a lot of academics on the FOMC too,
15:19
Speaker 4: and among the Fed presidents, governors and other FOMC members,
15:26
Speaker 4: I mean, who'll probably be inclined to trust model output
15:29
Speaker 4: more than their instincts. But I honestly don't know.
15:33
Speaker 3: What do you make of this piece from former New
15:37
Speaker 3: York Fed President Bill Dudley in Bloomberg. He's got a
15:42
Speaker 3: piece of It's titled six ways the Federal Reserve can
15:44
Speaker 3: do a better job. The six ways, I'll just rattle
15:46
Speaker 3: them off quickly. Return to a symmetric two percent inflation target.
15:50
Speaker 3: Aim for a level of employment consistent with the two
15:52
Speaker 3: percent inflation target. What's the priority inflation or employment? When
15:56
Speaker 3: the two goals are in conflict? Develop a framework for
15:58
Speaker 3: quantitative easing and fighting, published with baseline and alternative staff
16:02
Speaker 3: forecast at the conclusion of each meeting, And develop a
16:05
Speaker 3: framework for forward guidance, any of those that you want
16:07
Speaker 3: to focus on.
16:09
Speaker 4: I will point out that most of his objectives can
16:12
Speaker 4: be found in any monetary policy textbook. They're all best practices.
16:17
Speaker 4: There's disagreement among researchers as to what the right inflation
16:20
Speaker 4: target is, but generally speaking, some sort of nominal target
16:25
Speaker 4: target measured in money. It could be nominal GDP, it
16:27
Speaker 4: could be inflation, it could be commodity prices. Tying the
16:31
Speaker 4: Fed's hands to an extent, which is what an inflation
16:33
Speaker 4: target does, is viewed as a best practice. You don't
16:35
Speaker 4: want somebody just winging it unless they have a magical
16:39
Speaker 4: touch like Paul Volker or Alan Greenspan. We've been very,
16:43
Speaker 4: very lucky over the past forty years. But the rest, Chuck,
16:45
Speaker 4: I got to say, are pretty routine, and I wasn't
16:48
Speaker 4: surprised by anything, maybe except for his the way he
16:52
Speaker 4: phrased point number two aim for a level of employment
16:55
Speaker 4: consistent with the two percent target that he maybe he
16:58
Speaker 4: didn't write this, but that actually has it backwards. The
17:00
Speaker 4: economy has a natural rate of unemployment. Most researchers, most
17:04
Speaker 4: economists believe this. Any inflation rate is consistent with that
17:08
Speaker 4: natural rate as long as you keep it stable. Now,
17:11
Speaker 4: higher rates of inflation tend to be more volatile, so
17:13
Speaker 4: there's a point where that breaks down. I was just
17:15
Speaker 4: a little surprised by the way that one was worded,
17:18
Speaker 4: but otherwise all pretty conventional stuff here, I thought.
17:21
Speaker 3: The fifth one, I just want to touch on this
17:24
Speaker 3: a little bit. Publish both baseline and alternative staff forecasts
17:28
Speaker 3: at the conclusion of each meeting, And basically it's saying, look,
17:31
Speaker 3: if there were different scenarios that developed, how would the
17:34
Speaker 3: fedrict do we really need that spelled out for us?
17:38
Speaker 4: I don't like the idea. Yeah, maybe I should have
17:40
Speaker 4: picked on that too, But we seem to be in
17:43
Speaker 4: a world now where they think more transparency, even if
17:47
Speaker 4: that transparency reveals heavily contracting ideas, yeah, or something wrong.
17:53
Speaker 4: We're in this let's overshare kind of mode, maybe not
17:57
Speaker 4: just here, but in other aspects of life too, like
17:59
Speaker 4: bring your whole self to work now, thanks, just bring
18:02
Speaker 4: the productive part of yourself to work. But I digress. Uh, yeah,
18:05
Speaker 4: I'm not sure what is Larry Summers call it. He
18:08
Speaker 4: calls it a fed cacaphony. Just you know, the all
18:12
Speaker 4: these voices, some of them dissonant. It's it gets confusing,
18:14
Speaker 4: at least to me, and if it's confusing to Larry Summers,
18:17
Speaker 4: it should be to me and just about everybody else.
18:19
Speaker 4: I think we could use a little bit less less cacophony.
18:22
Speaker 2: I tend to agree.
18:23
Speaker 3: I don't think we need you know, ten FED speakers
18:26
Speaker 3: scheduled every week when they're allowed to speak. I mean, fortunately,
18:30
Speaker 3: like we've been in a blackout period right now. But hey,
18:33
Speaker 3: look I'm looking on the calendar. Here's what we have
18:36
Speaker 3: after so J. Powell speaks two thirty pm next Wednesday,
18:41
Speaker 3: and then Friday, you got Williams Goolsby, Williams Hammock, and
18:47
Speaker 3: Musalom all speaking. Five speakers two days after the FED meeting.
18:52
Speaker 3: Why do we need that? What are we doing here?
18:55
Speaker 4: Yeah? Right, I understand what they're trying to do. They're
18:58
Speaker 4: trying to improve, they're trying to keep inflation expectations stable.
19:03
Speaker 4: But when they all have slightly different opinions, arguably it's
19:07
Speaker 4: not an effective way of doing that.
19:08
Speaker 3: Right, because it goes you go through this whole thing
19:10
Speaker 3: where it's like, okay, you have to learn like the
19:12
Speaker 3: range at which you know someone normally talks about the economy,
19:16
Speaker 3: and then they're you know, kind of where they fit into,
19:18
Speaker 3: you know, the spectrum of you know, Dovis versus Hawkish
19:21
Speaker 3: on the Fed.
19:21
Speaker 2: It's like it's just a it's too much, quite honestly.
19:25
Speaker 2: Let's take a quick break here.
19:26
Speaker 3: When we come back, we have Wall Street Watch, and
19:29
Speaker 3: then we'll talk a little bit about what China said
19:31
Speaker 3: yesterday about trade talks.
19:40
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19:47
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19:53
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19:56
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20:00
Speaker 5: Markets are in rally mode. Is Wall Street sifts through
20:04
Speaker 5: the April jobs report posted this morning, where one hundred
20:08
Speaker 5: and seventy seven thousand jobs were added last month, stronger
20:11
Speaker 5: than expectations of one hundred and thirty eight thousand. Traders
20:15
Speaker 5: are also digesting more tech earnings from Apple and Amazon.
20:20
Speaker 5: Right now, the Dow is up over one percent, or
20:22
Speaker 5: four hundred and forty one points, SMP five hundred is
20:26
Speaker 5: up one and a quarter percent, or sixty nine points.
20:28
Speaker 5: Nasdaq also up two hundred and twenty two points, also
20:32
Speaker 5: one and a quarter percent higher, Russell two thousand up
20:35
Speaker 5: over one and a half percent higher, tenyure Treasure reeled
20:38
Speaker 5: up six basis points and is now at four point
20:40
Speaker 5: twenty nine percent, and crude oil off one and a
20:43
Speaker 5: quarter percent, trading at fifty eight dollars in fifty cents
20:47
Speaker 5: a barrel. Apple down by three percent after the tech
20:50
Speaker 5: giants saw its sales climb in the first quarter, driven
20:54
Speaker 5: by higher iPhone demand and the release of the low
20:57
Speaker 5: end sixteen E model. However, Apple said it expects tariffs
21:01
Speaker 5: to add nine hundred million dollars to costs.
21:04
Speaker 2: In the current quarter.
21:06
Speaker 5: CEO Tim Cook told investors that it will be very
21:09
Speaker 5: difficult to forecast the effect of tariffs on the company. Meanwhile,
21:13
Speaker 5: Amazon reported solid first quarter earnings. However, the e commerce
21:17
Speaker 5: and tech giant offered a quarterly outlook that was seen
21:20
Speaker 5: as cautious by some analysts. Dimmed by looming levies, Amazon
21:25
Speaker 5: is off by a quarter percent. Elsewhere, cash app parent
21:28
Speaker 5: company Block posted a drop in quarterly results and cut
21:32
Speaker 5: its annual guidance. Block flagged a potential shift in consumer behavior,
21:37
Speaker 5: saying users had cut back on non essentials like travel
21:41
Speaker 5: in media. Block shares plummeting by twenty one percent. Exon
21:46
Speaker 5: Mobile and Chevron posted lower first quarter earnings, hurt by
21:50
Speaker 5: narrow refining margins, weaker oil prices, and rising costs. Chevron
21:55
Speaker 5: up by half a percent, while Exon Mobile shares are flat.
21:58
Speaker 5: Airbnb said it expect Booking's growth to moderate as economic
22:02
Speaker 5: uncertainty weighs on its US business, sending shares in the
22:06
Speaker 5: Short Term Rentals Platform down by a quarter percent and
22:09
Speaker 5: shares in Take two Interactive sinking by eight percent after
22:14
Speaker 5: the video game maker announced yet another delay to Grand
22:17
Speaker 5: Theft Auto six, pushing the release date from the end
22:21
Speaker 5: of this year to May twenty six twenty twenty six
22:25
Speaker 5: next year. Grand Theft Auto six is one of the
22:27
Speaker 5: most anticipated video game releases in history, and has now
22:31
Speaker 5: been delayed multiple times. I'm Tucker Silvan, that's Wall Street
22:35
Speaker 5: watch Mark.
22:37
Speaker 2: Let's talk a little bit about what we saw.
22:40
Speaker 3: I think it was around maybe seven or seven thirty
22:43
Speaker 3: last night when the China Chinese Commerce Ministry put up
22:49
Speaker 3: a statement or put out a statement. I'll quote from
22:52
Speaker 3: it here just because it's in this Bloomberg piece as well.
22:55
Speaker 3: The US has recently sent messages to China through relevant
22:57
Speaker 3: parties hoping to start talks with China. China is currently
23:01
Speaker 3: evaluating this. So I think we're getting to the point
23:05
Speaker 3: in the game of chicken where at least both sides
23:09
Speaker 3: are starting to you know, publicly say, yeah, like this
23:14
Speaker 3: is not really fun for us anymore, and we need to,
23:18
Speaker 3: you know, figure out how to get to a more
23:20
Speaker 3: sustainable place. They're both trying to do it for their
23:23
Speaker 3: own domestic audiences in ways that save face, you know,
23:28
Speaker 3: for again obvious reasons. There are political considerations both for
23:33
Speaker 3: President Trump and President g to you know, maintain appearances
23:37
Speaker 3: that what they are doing is working. And so clearly
23:40
Speaker 3: you're not going to have, you know, either side, you know,
23:43
Speaker 3: have the appearance of caving in any specific way. But
23:48
Speaker 3: the Chinese statement then kind of answered this morning by
23:52
Speaker 3: Steve Mirron, who is the chair of the Council of
23:55
Speaker 3: Economic Advisors for President Trump. I'll quote him as well,
23:59
Speaker 3: it's in the interested both economies to lower the temperature,
24:01
Speaker 3: to create breathing space, to continue talking, to figure out
24:04
Speaker 3: how we can get to a new stable equilibrium on trade.
24:07
Speaker 3: So I would be surprised if tariff rates are where
24:09
Speaker 3: they are now, you know, within a few weeks, And
24:12
Speaker 3: this kind of dovetails with some messaging that we've heard
24:15
Speaker 3: over the last couple of weeks as well, Scott Bessont
24:17
Speaker 3: saying last week something similar at that JP Morgan conference.
24:21
Speaker 2: And so I think both.
24:24
Speaker 3: Sides clearly realize, hey, this is not where we want
24:27
Speaker 3: to be for the long term. But the question is
24:30
Speaker 3: how can you get you know, where do you get
24:32
Speaker 3: to you know, the point that you want to get
24:35
Speaker 3: to and still have both sides able to a say
24:39
Speaker 3: face But b I think for the United States and
24:42
Speaker 3: for President Trump, hey, clearly there is a you know,
24:44
Speaker 3: an in impetus to put some pressure on China and
24:46
Speaker 3: to get a change in that trade relationship. How do
24:50
Speaker 3: you do that while still keeping the Chinese side happy
24:52
Speaker 3: with whatever the you know, interim step is. Because clearly
24:55
Speaker 3: you're not going to get like a full fledged trade
24:57
Speaker 3: deal in the next few weeks. How do you, you know,
25:00
Speaker 3: so get there? I think is going to be the
25:01
Speaker 3: big question.
25:02
Speaker 4: Trade wars don't make anybody better off. Trade wars don't
25:07
Speaker 4: ultimately result in long term solutions to the trade deficit.
25:11
Speaker 4: And I don't even like putting it that way because
25:13
Speaker 4: I don't think no researcher thinks the trade deficit per
25:17
Speaker 4: se is a problem. It's a symptom of other problems.
25:21
Speaker 4: Slightly different topic, but worth reminding ourselves that fixing the
25:26
Speaker 4: bilateral deficit with China, even if it could be done,
25:29
Speaker 4: and it can't, based on what they're relatively good at
25:33
Speaker 4: producing at and what we're relative what they're relatively good
25:36
Speaker 4: at producing and what we're relatively good at producing, you
25:39
Speaker 4: can't fix it unless you want to dramatically reorganize both economies,
25:43
Speaker 4: and that ain't gonna happen probably, or at least not
25:45
Speaker 4: for a very long time. If we decided to stop
25:48
Speaker 4: trading with China, for example, we'd be worse off, they'd
25:50
Speaker 4: be worse off, as is evidenced by the initial reactions
25:54
Speaker 4: in the past few weeks, and our trade deficit would
25:56
Speaker 4: just go elsewhere. It's a symptom not of being cheated
26:00
Speaker 4: by foreigners, but by not it's a symptom of us
26:03
Speaker 4: not saving enough. The flip side to the trade deficit
26:06
Speaker 4: is the capital account. You don't hear about this, but
26:08
Speaker 4: they should report it. The capital account surplus. Those dollars
26:11
Speaker 4: get recycled into treasuries and factories and other investments here,
26:15
Speaker 4: if we saved more, we could satisfy that investment demand
26:18
Speaker 4: using domestic savings. We don't, so we have to import it.
26:21
Speaker 4: So these relationships are a little bit complicated, certainly interconnected.
26:26
Speaker 4: This may they may, in the interesta face saving, as
26:29
Speaker 4: you say, Chuck, come up with something in the short
26:32
Speaker 4: term that we can both live with. But I would
26:34
Speaker 4: not expect apps in a fundamental change in US R
26:38
Speaker 4: that is, US as citizens and federal government savings habits
26:41
Speaker 4: US to have any lower a trade deficit in three
26:43
Speaker 4: or five or ten years than we do today.
26:47
Speaker 3: When the other piece is and again just looking at
26:51
Speaker 3: this from the perspective of, you know, potential impacts to
26:54
Speaker 3: the US economy, I think part of this is also
26:57
Speaker 3: then okay, so what does this interim down look like?
27:01
Speaker 2: Is it you know, we going.
27:03
Speaker 3: Back to where we were before April second, where there
27:05
Speaker 3: was a twenty percent tariff on Chinese imports.
27:09
Speaker 2: That would seem to be kind of a big stretch.
27:12
Speaker 3: Is it more what the Wall Street Journal floated last
27:14
Speaker 3: week as a possibility, which is there were a couple
27:18
Speaker 3: different possibilities they floated, one of which was, you know,
27:20
Speaker 3: a reduced tariff right down into like that fifty to
27:23
Speaker 3: sixty five percent range, which would still be you know,
27:26
Speaker 3: a really substantial one that still allows for you know,
27:30
Speaker 3: more goods to be able to potentially be traded, but
27:33
Speaker 3: you know, not at the same level of profitability they
27:35
Speaker 3: previously were being traded at or is it something The
27:38
Speaker 3: other thing that they had floated was kind of a
27:40
Speaker 3: multi tiered approach, which is, hey, goods that have national
27:44
Speaker 3: security implementation, you know uses, those are going to be
27:49
Speaker 3: still at one hundred and forty five percent, whereas things
27:52
Speaker 3: like socks and tickle me elmos might be back down
27:55
Speaker 3: to twenty percent or something like that. And maybe you
27:57
Speaker 3: have a middle tier as well. So I think all
28:00
Speaker 3: of this, you know, affects you know, what we end
28:03
Speaker 3: up seeing from both the US economy and the Chinese
28:05
Speaker 3: one after this, just because of you know, the relative
28:07
Speaker 3: size and scale of imports in those different categories or
28:10
Speaker 3: at different rates, there still is not a ton of
28:13
Speaker 3: clarity as to what this is going to look like,
28:16
Speaker 3: even if there is a step down, and so because
28:20
Speaker 3: of that, unless you have you know, the specifics. If look,
28:23
Speaker 3: if you're someone who like knows them all right, now, okay, great,
28:25
Speaker 3: you can plan on it. But if you are a
28:27
Speaker 3: company that's trying to figure out, you know, your import
28:30
Speaker 3: plans through the summer, you still don't have a ton
28:34
Speaker 3: of clarity as to exactly what you should be doing
28:36
Speaker 3: right now.
28:36
Speaker 4: Sure, we need to get back to normal here. I'm
28:38
Speaker 4: editorializing a little bit obviously, But there's a national emergency
28:43
Speaker 4: still in place. I mean, it does doesn't feel like it.
28:46
Speaker 4: It seems like everything's okay, but we're still operating under
28:49
Speaker 4: a law that requires invocation of a national emergency. So
28:53
Speaker 4: maybe this is a bigger ask on my part, and
28:56
Speaker 4: no one's listening, and no one who can do anything
28:58
Speaker 4: about it is listening, I don't think. But we need
29:00
Speaker 4: to step back from that and then negotiate trade deficits
29:03
Speaker 4: like trade agreements, excuse me, like normal countries do. Will
29:10
Speaker 4: that soothe whatever jitters remain in markets? I don't know,
29:15
Speaker 4: but it would certainly add some coherence to this whole process,
29:19
Speaker 4: which still seems to me being driven by kind of
29:23
Speaker 4: day to day whims and other considerations that we're simply
29:27
Speaker 4: not aware of that seem to be changing.
29:30
Speaker 2: Let's take a quick break here.
29:31
Speaker 3: When we come back, we'll talk a little bit about
29:33
Speaker 3: Apple and Amazon earnings that we saw yesterday right after.
29:36
Speaker 1: This market volatility is at its highest point since the pandemic.
29:41
Speaker 1: Keep it here for the most comprehensive coverage of the
29:44
Speaker 1: global trade war. This is the Financial Exchange Radio Network.
29:48
Speaker 5: Hi, this is Mike Armstrong from the Armstrong Advice.
29:50
Speaker 1: Get up to the minute market updates with Wall Street
29:53
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29:56
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30:06
Speaker 3: All Right, a couple of big tech earnings that came
30:08
Speaker 3: out after the bell. Yes, they would start with Apple,
30:10
Speaker 3: who's down about four percent. A couple of things that
30:14
Speaker 3: we saw from Apple earnings. Sales growth was fine overall,
30:20
Speaker 3: but services came in a little bit lighter than anticipated.
30:23
Speaker 3: And also margins did get hit. I think you can
30:26
Speaker 3: draw a pretty straight line, you know, as far as
30:29
Speaker 3: the tariffs impacting margins during the quarter since they were hit.
30:33
Speaker 3: I think they dropped from like forty seven percent to
30:36
Speaker 3: forty one. So that's a pretty big shift in one quarter.
30:39
Speaker 3: But one of the things that did come out, and
30:41
Speaker 3: I'll quote it from the Wall Street Journal, Apple said
30:43
Speaker 3: that the majority of devices shipped into the US in
30:46
Speaker 3: the June quarter will originate in India and Vietnam. And
30:49
Speaker 3: so pretty much saying look, we're going to be you know, changing.
30:53
Speaker 3: It's not that they're you know, able to ramp up
30:55
Speaker 3: production in India that quickly, but much more what I
30:59
Speaker 3: think it is Mark is is, hey, the devices that
31:01
Speaker 3: are going to be produced in Indian Vietnam, prioritize sending
31:05
Speaker 3: those to the United States. The stuff that's still made
31:07
Speaker 3: in China, which is the vast majority of what Apple produces,
31:10
Speaker 3: send that elsewhere and try to ramp up production in
31:13
Speaker 3: India and Vietnam as quickly as possible so that you
31:16
Speaker 3: don't have a huge issue going forward with any extra
31:21
Speaker 3: overhang for stuff that you need to shift to the
31:23
Speaker 3: US from China.
31:24
Speaker 4: Unless the focus of the trade warriors shifts to India,
31:28
Speaker 4: it doesn't seem conceivable. We need to keep them in
31:31
Speaker 4: the fold in the event of a conflict with China.
31:34
Speaker 4: But how do you plan in an environment like this?
31:36
Speaker 4: You put one fire out. This is kind of related
31:38
Speaker 4: to the trade deficit not going away just because you
31:41
Speaker 4: fix a bilateral or a one on one or a
31:43
Speaker 4: country on country deficit, and fix is not quite the
31:46
Speaker 4: right word, but I'll stick with it. It's going to pop
31:49
Speaker 4: up someplace else. Got the trade deficit is a symptom
31:51
Speaker 4: of a savings deficit. Not entirely obvious, but take.
31:56
Speaker 2: My word for it.
31:56
Speaker 4: So how does Apple know that we're not going to
31:58
Speaker 4: start picking on Indian we already have they're subject to
32:01
Speaker 4: the tariffs as well. It just must be mentally frustrating
32:04
Speaker 4: to try to plan in an environment like this.
32:07
Speaker 3: I think it's something where and again it gets it.
32:09
Speaker 3: You know, what's the key goal of the tariffs? Is it,
32:12
Speaker 3: you know, specifically to minimize the trade deficit with any
32:17
Speaker 3: particular country or again, I've thought since we saw the
32:22
Speaker 3: first implementation back in February, remember you had, you know,
32:26
Speaker 3: Canada and Mexico and China all lumped in in February,
32:30
Speaker 3: and you know, after a day or so, it was, okay,
32:32
Speaker 3: we're not gonna do the tariffs on Canada and Mexico.
32:35
Speaker 3: We're gonna do you know, one month reprieve. But China
32:38
Speaker 3: we're gonna keep them on. And that to me was
32:40
Speaker 3: kind of the signal all along that I just have
32:43
Speaker 3: felt like China is the target. Maybe some of it
32:45
Speaker 3: is from a trade perspective, but I think quite a
32:49
Speaker 3: bit more can just be. I think that the Trump
32:52
Speaker 3: administration rightly views the Chinese government as an adversary that potentially,
32:58
Speaker 3: you know, has military designs on, you know, being able
33:02
Speaker 3: to expands its footprint of control. And so I think
33:07
Speaker 3: that that's something that is in the back of my mind.
33:10
Speaker 3: Is I'm trying to sort through, you know, how they're
33:12
Speaker 3: approaching this. I think that might be, you know, a
33:15
Speaker 3: major unsaid goal here is, Hey, we don't want to
33:19
Speaker 3: be effectively financing the military development of an adversary through
33:24
Speaker 3: capital flowing over there in order to buy Chinese goods
33:28
Speaker 3: and stuff like that.
33:29
Speaker 4: I wonder how you advanced that object If the objective
33:31
Speaker 4: is containment effectively and hamstring it is hamstringing them economically
33:36
Speaker 4: to a degree or at least preventing them from getting
33:38
Speaker 4: their hands on technologies that could be ultimately used against us.
33:42
Speaker 4: How do you achieve that other than no trade at all?
33:48
Speaker 2: Don't know, because you know, we know what's coming.
33:51
Speaker 4: He didn't we had an agreement with China and what
33:52
Speaker 4: twenty eighteen or twenty nineteen. This is not our first
33:55
Speaker 4: dance with China on this. They promised to buy more
33:59
Speaker 4: of our agriculture exports and so on. I don't know,
34:02
Speaker 4: do we ever get a report card on that. I
34:04
Speaker 4: guess because we're here again. That didn't work. How will
34:07
Speaker 4: this be different? How I will These are rhetorical questions.
34:11
Speaker 4: Will there be any real enforcement mechanisms? How will we
34:14
Speaker 4: measure its success? Are these guys just going to kind
34:17
Speaker 4: of declare victory in the hopes of moving on and
34:19
Speaker 4: everybody forgetting about the confusion of the past several weeks.
34:24
Speaker 4: I know, I've asked a lot of questions, Chuck, with
34:26
Speaker 4: no real answers.
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35:24
Speaker 2: Mark.
35:25
Speaker 3: We also saw Amazon report earnings after the bell as well.
35:29
Speaker 3: They had again another good quarter, revenue up nine percent
35:32
Speaker 3: year over year. Profit came in above expectations as well,
35:37
Speaker 3: but the second quarter had quite honestly kind of a
35:40
Speaker 3: really wide range in their profit guidance, so it's kind
35:44
Speaker 3: of like, hey, we're not entirely sure where we're going
35:47
Speaker 3: to be. They said that their operating income would be
35:49
Speaker 3: between thirteen and seventeen billion dollars, and so again that's
35:53
Speaker 3: like a twenty five percent range that you're giving us
35:55
Speaker 3: here on sales between one hundred and fifty nine one
35:59
Speaker 3: hundred and sixty four big, which was pretty much in
36:01
Speaker 3: line with expectations on the sales side of things, and
36:04
Speaker 3: so I think it's something where look, Amazon is clearly
36:09
Speaker 3: still seeing you know, good volume coming through there. They're
36:12
Speaker 3: still seeing good growth. The core business looks absolutely fine
36:16
Speaker 3: right now. But I think that they're basically admitting through this, hey,
36:19
Speaker 3: we're not sure how much we're going to see in
36:21
Speaker 3: the way of additional costs, and so because of that,
36:24
Speaker 3: we have to give this wide range of guidance on
36:26
Speaker 3: the profit side, just because we don't know what it's
36:28
Speaker 3: going to look like exactly.
36:30
Speaker 4: So for decades, the US and China have had this
36:32
Speaker 4: i'm gonna call it symbiotic or mutually beneficial relationship. We
36:36
Speaker 4: send them assets and they send us cheap stuff. We
36:43
Speaker 4: consume more than we produce as a result, and they
36:46
Speaker 4: get a better return on their assets than they could
36:48
Speaker 4: get at home. That's been the essence of the US
36:50
Speaker 4: China relationship since the nineteen nineties. And Amazon built its
36:54
Speaker 4: whole business, correct me if I'm exaggerating here, Chuck, you
36:57
Speaker 4: know a lot more about Amazon's business than I do.
36:59
Speaker 4: But they kind of built their their whole business around this.
37:01
Speaker 4: Has did a lot of companies, but especially them, around
37:03
Speaker 4: this arrangement. So if anybody's going to read now, they
37:07
Speaker 4: offer lots more services than they did fifteen years ago.
37:12
Speaker 4: But if anybody's going to rejigger quickly in the event
37:15
Speaker 4: of a new normal, it's companies like Amazon.
37:19
Speaker 3: And look, Amazon has more data than anyone else in
37:22
Speaker 3: the world about exactly how all of their supply chains
37:25
Speaker 3: are working. So yeah, I suspect that this is going
37:29
Speaker 3: to be something where you know, they're able to try
37:32
Speaker 3: to figure things out better than, you know, more efficiently
37:35
Speaker 3: than a small business that doesn't have that level of insight.
37:39
Speaker 3: But it's still interesting to me that even they're saying, look,
37:42
Speaker 3: we're not entirely sure what the next quarter is going
37:44
Speaker 3: to bring for us from a profit perspective, and you
37:48
Speaker 3: know that to me was again it basically all showed
37:52
Speaker 3: up on the cost side of the ledger because their
37:54
Speaker 3: revenue guidance was pretty much in line with what the
37:56
Speaker 3: market was expecting. It was the other piece, and this
38:00
Speaker 3: is the one that I keep coming back to, which is, look,
38:02
Speaker 3: even take away all of the macro stuff, whether or
38:04
Speaker 3: not there's a recession, take all that away, this is
38:07
Speaker 3: going to be a margin story for companies. How much
38:10
Speaker 3: margins get eaten into is big as far as where
38:14
Speaker 3: profits potentially go.
38:16
Speaker 2: And then you know the fall onto that is where
38:19
Speaker 2: stocks go take a quick break. We got our two
38:21
Speaker 2: coming up in just a little bit.