Trump Ramps up Japan Threat, Powell Cheered at Sintra | Bloomberg The Pulse 07/02

Trump Ramps up Japan Threat, Powell Cheered at Sintra | Bloomberg The Pulse 07/02

♪ >> NEWSMAKERS AND MARKET
MOVERS, THIS IS “THE PULSE WITH FRANCINE LACQUA.” FRANCINE:
GOOD MORNING AND WELCOME TO “THE PULSE.”
THE ECB FORM HERE IN CENTRAL PORTUGAL AND THESE ARE YOUR TOP
STORIES. PRESIDENT TRUMP SAYS HIS JULY 9
GLOBAL TARIFF DEADLINE WILL NOT BE EXTENDED AS HE WRAPS UP
CRITICISM OF TOKYO. THE FED CHAIR SAYS RATES ARE ON
HOLD BECAUSE OF THE U.S. TARIFFS.
HE DOES NOT RULE OUT A CUT IN JULY. >> WE WENT ON HOLD WHEN WE SAW
THE SIZE OF THE TARIFFS AND ESSENTIALLY ALL INFLATION
FORECAST FOR THE UNITED STATES WENT UP MATERIALLY AS A
CONSEQUENCE OF THE TARIFF. FRANCINE: TRUMP’S TAX BILL FACES
RESISTANCE IN THE HOUSE AHEAD OF A VOTE LATER AFTER NEARLY
PASSING THE SENATE. PRESIDENT TRUMP’S TARIFFS HAVE
BEEN A MAJOR TALKING POINT HERE AT EUROPEAN CENTRAL BANK’S
ANNUAL CONFERENCE. TRUMP HAS SAID HE IS STICKING
WITH HIS JULY 9 DEADLINE WHILE RENEWING HIS THREAT TO CUT OFF
TALKS AND SLAB DUTIES ON VARIOUS NATIONS, INCLUDING
JAPAN. THE WORLD’S MOST IMPORTANT
CENTRAL BANKERS DISCUSSED THE IMPACT WHEN THEY TOOK THE STAGE
DURING A PANEL I HOSTED YESTERDAY HERE INS.
JAY POWELL ARE REPEATED U.S. CENTRAL BANK PROBABLY WOULD
HAVE CUT RATES FURTHER THIS YEAR IF IT WEREN’T FOR TRUMP’S
EXPANDED USE OF TARIFFS. >> IN EFFECT WE WENT ON HOLD
WHEN WE SAW THE SIZE OF THE TARIFFS AND ESSENTIALLY ALL
INFLATION FORECAST FOR THE UNITED STATES WENT UP
MATERIALLY AS A CONSEQUENCE OF THE TARIFF.
WE DID NOT OVERREACT. WE DID NOT REACT AT ALL.
WE SIMPLY ARE TAKING TIME — AS LONG AS U.S.
ECONOMY IS IN SOLID SHAPE, WE THINK THE PRUDENT THING TO DO
IS WAIT AND LEARN MORE AND SEE WHAT THOSE EFFECTS MIGHT BE.
THEY HAVEN’T REALLY SHOWN UP. SO FOR NOW WE ARE WAITING.
FRANCINE: ALSO WEIGHING ON U.S.
POLICYMAKERS HAS PRESIDENT TRUMP’S MULTITRILLION DOLLAR
TAX BILL. IT SQUEAKS THROUGH THE SENATE
ON VICE PRESIDENT JD VANCE TIE-BREAKING VOTE BUT IT IS NOW
RUNNING INTO REPUBLICAN RESISTANCE IN THE HOUSE AS
MODERATES AND ULTRACONSERVATIVE LAWMAKERS THREATENED TO DEFY
THE PRESIDENT AND SYNC HIS DOMESTIC AGENDA.
AS THE BILL CONTINUES TO DIVIDE OPINION COME HERE IN CENTER OF
FED CHAIR REPEATED A WARNING FOR WASHINGTON STEP PATH. >> U.S. FEDERAL FISCAL PATH IS NOT A
SUSTAINABLE ONE. AT THE LEVEL OF THE DEBT IS
SUSTAINABLE BUT THE PATH IS NOT. WE NEED TO ADDRESS THAT SOONER
OR LATER. SOONER IS BETTER THAN LATER.
THAT IS WHAT I SAID LAST YEAR. THERE IS NOT A LOT MORE I CAN
SAY. FRANCINE: JAY POWELL SPEAKING HERE AT
SINTRA YESTERDAY. WE WILL HEAR FROM SOME OF THE
OTHER LEADER CENTRAL BANKERS LATER.
ECB VICE PRESIDENT TOLD US YESTERDAY THAT IN ADVANCE IN
THE EURO BEYOND 120 COULD PROVE TRICKY FOR POLICYMAKERS.
HE SAYS CURRENT LEVELS ARE NOT THE CAUSE FOR CONCERN. >> THE QUESTION IS, SHOULD TRY
TO AVOID ANY OVERSHOOTING. MUCH MORE THAN THE SPEED OF —
117, 120 IS NOT SOMETHING — WELL, WE CAN OVERLOOK A LITTLE
BIT. SOMETHING BE THAT, IT WILL BE
MUCH MORE COMPLICATED. 120 IS PERFECTLY ACCEPTABLE.
FRANCINE: THERE EUROS FORTUNE HAS BEEN A
HOT TOPIC OF DISCUSSION HERE AT SINTRA AND BEYOND THE FORUM.
LET’S GO TO ANNA EDWARDS WITH A VERY SPECIAL GUEST. ANNA:
GOOD MORNING. BECKER IN LONDON, STEFAN HOOKS
JOINS US –STEFAN HOOPS JOINS US. AS FRANCINE WAS JUST SETTING
OUT FROM THE STRENGTH OF THE EURO, QUITE A TALKING POINT AT
THE ECB CONFERENCE IN PORTUGAL. I WONDER HOW THAT IS FACTORING
INTO INVESTOR CONVERSATIONS, CLIENT CONVERSATIONS YOU’RE
HAVING, THE STRENGTH OF THE EURO AT 11776 AGAINST THE
DOLLAR. NOT OVER 120. STRENGTHENING, SEEMINGLY COME
ALL THE TIME. >> THE SPEED THIS YEAR HAS BEEN
VERY FAST. IT STRENGTHENED $.14 VERSUS THE DOLLAR JUST HERE TO
DATE AND THAT IS SIGNIFICANT. THE DISCUSSIONS ARE TWOFOLD.
IT HAS AN IMPACT ON A COMPANY REVENUE.
FOR THE EURO STRENGTHENED, MIXED EUROPEAN PRODUCTS MORE
EXPENSIVE ACROSS THE GLOBE SO IT WILL HAVE AT SOME POINT
IMPACT ON THE UNDERLYING PROFITABILITY.
AT THE SAME TIME, INVESTORS ACROSS THE GLOBE LOOK AT THE
STRENGTHENING OF THE EURO AND IT COMES ON TOP OF
STRENGTHENING OF THE DAX FOR EXAMPLE OF STOCKS.
THEREFORE, IT IS TWOFOLD TO SOME EXTENT, UNDERLYING
PROFITABILITY IS PROBABLY GOING TO TAKE IT SOME POINT.
AT THE SAME TIME, REMAIN INCREDIBLY ATTRACTIVE. ANNA:
FRANCINE WAS TALKING TO SOMEONE SAYING THE STRENGTH OF THE EURO
IS PERHAPS DRIVING MORE INVESTMENT INTO EUROPE,
ATTRACTING MORE INVESTORS INTO EUROPE AS THEY WORRY ABOUT
WHERE THE DOLLAR IS GOING TO GO. IS THAT WHAT CLIENT
CONVERSATIONS LOOK LIKE TO YOU? >> THINK ABOUT STOCKS IN DOLLAR
TERMS. THE S&P 500 WENT UP 5% FOR SIX MONTHS OF THE YEAR.
THE DAX WENT UP 20 AND ON TOP YOU HAVE THE 14 SINCE I’VE EURO
APPRECIATION. IF YOU ARE A EURO INVESTOR, YOU
HAVE SIGNIFICANT INCREASE. WHAT WE HAVE SEEN SO FAR IS
INSTITUTIONAL INVESTORS ARE QUITE INTERESTED IN EUROPEAN
ASSETS. THERE IS A REALLOCATION AWAY
FROM THE DOLLAR, NOT OVERNIGHT, BUT LONG-TERM OVER TIME.
AND TOWARD EUROPE. FOR U.S. INVESTORS, THEY CONTINUE TO BUY
U.S. STOCK SO I GUESS THAT IS WHAT
THEY LIKE. WE HAVE SEEN A SIGNIFICANT
REPATRIATION OF EUROPEAN REGION MONEY BACK FROM THE U.S.
INTO EUROPEAN STOCKS. ANNA: DOES THAT MAKE IT A GOOD TIME
TO LOOK INTO STABLECOINS THAT ARE PERHAPS PEGGED TO THE EURO
AND NOT TO THE DOLLAR? I THINK YOU HAVE NEWS ABOUT
THAT THIS MORNING. >> THANK YOU FOR BRINGING IT UP.
WE JUST ANNOUNCED OUR JV WE FORMED WITH GALAXY DIGITAL AND
FLOW TRADERS, WE GOT THE LICENSE YESTERDAY TO ISSUE THE
FIRST EURO STABLECOIN OUT OF GERMANY.
THE FIELD STABLECOINS WE YOU THINK ABOUT THEM MANY USE CASES
IT HAS NOT TODAY BUT WAY MORE IN THE FUTURE, IT IS QUITE
SIGNIFICANT. ANNA: DOES EURO STRENGTHENED AND
DOLLAR WEAKNESS PLAY INTO THE TIMING OF THIS?
DOES IT MAKE IT A GOOD TIME TO LAUNCH THIS KIND OF PRODUCT? >> I WOULD HAVE A MORE
LONGER-TERM PERSPECTIVE. YOU’VE HAD DOLLAR STABLECOINS
FOR SOME KIND AND CIRCUIT JUST IPO DATA SHOW THERE IS
TREMENDOUS INTEREST IN STABLECOINS.
SO FAR WE DID NOT HAVE A DIGITAL EUROPE.
ECB, THEY WILL WORK OUT OF IT THEY WILL TAKE A FEW MORE YEARS
SO WE NEED TO BRIDGE INTO A DIGITAL EURO. OUR UNITY WILL BE THE FIRST
PROBABLY REGULATED STABLECOIN OUT OF GERMANY.
WE FEEL IT IS SIGNIFICANT. ANNA: WHAT GAP IS THAT FILLING, NOT
CUT A PRODUCT? — THAT PRODUCT? >> TODAY IS TO KEEP IT MOVING
FROM YET TO GET A CURRENCY ON CHAIN TO THAN BY CRYPTO.
TO SOME EXTENT, JELL-O, EURO, WHATEVER.
— I THINK OVER TIME, THERE WILL BE WAY MORE USE CASES.
ARE WE GOING TO USE WHILE IT TOILET STABLE TO PAY FOR CAP OR
— LINE ONCE IT GOES TO BEING ABLE TO DO 24/7, WILL BE ONE OF
THOSE FOR YEARS TO COME. ANNA: ONE THING DOMINANT SO FAR AND
DRIVEN BY A LOT OF THE NEWS FLOW OUT OF GERMANY, INVESTMENT
IN THE DEFENSE SECTOR SEEMS TO BE A REAL HOT TOPIC THAT A LOT
OF INVESTORS WANT TO TALK TO US ABOUT.
CEOS ARE THINKING ABOUT WHETHER THEIR BUSINESS IS ARE OFFERING
THOSE OPPORTUNITIES. HOW IS DWS THINKING ABOUT
INCREASE IN DEFENSE SPENDING? WHAT ROLE DO YOU PLAY IN THAT? >> FIRSTLY, THIS IS GOING TO BE
REVERSAL. THE EUROPEAN COUNTRIES ARE
CLEARLY COMMITTED TO SPEND A LOT MORE ON DEFENSE.
THIS TRAIN HAS LEFT THE STATION. YOU HAVE SIGNIFICANT
INVESTMENTS IN A LOT MORE GOING INTO EUROPEAN COMPANIES BECAUSE
OF WE SHOULD PROCURE LOCALLY. WHEN YOU THINK ABOUT WHO CAN
BUY DEFENSE STOCKS, SO FAR THERE WAS A CAP ON NOT BUYING
DEFENSE STOCKS FOR PRETTY MUCH ANY FUND.
WHAT WE ARE GOING TO SEE GOING FORWARD IS ESG FUNDS WILL
CONTINUE TO NOT INCLUDE DEFENSE, HOWEVER, FUNDS WHICH
ARE NOT ESG SO FAR WERE RESTRICTED BECAUSE OF THE
SELF-IMPOSED RESTRICTION BY GOING FOR THEY WILL INVEST IN
DEFENSE. ANNA: IS THAT WE DWS FUNDS WILL LOOK
LIKE? THERE WILL BE MORE INVESTING IN
DEFENSE? HAS STARTED ALREADY? >> IT TOOK SOME TIME.
THERE WAS RESTRICTION THAT HAD TO BE LIFTED, PERSPECTIVES THAT
HAD TO BE CHANGED. MONTHS AGO WE GAVE THE GREEN
LIGHT TO OUR PMS FOR THE NON-ESG FUNDS TO BE ABLE TO
INVEST. ONE IMPORTANT QUESTION IS WHAT ABOUT ALL OF THOSE
NON-TRADED COMPANIES? YOU SEE THE BIG COMPANIES BUT
YOU HAVE ABOUT 400 MID-CAP COMPANIES THAT ESSENTIALLY THE
DEFENSE SUPPLY CHAIN. AS A NUMBER OF ORDERS WITH BIG
NUMBERS GO UP COME THE SMALLER NONPUBLICLY TRADED COMPANIES
ALSO NEED TO INCREASE CAPACITY. WE THINK ABOUT IMPACT FOR
PRIVATE CREDIT FOR EXAMPLE, IT WILL BE A LOT OF PRIVATE CREDIT
FOR THOSE NONPUBLICLY TRADED DEFENSE COMPANIES AND ALSO
SOMETHING WHICH DWS IS FOCUSED ON. ANNA:
WHAT ROLE DO YOU THINK TWO U.S. WAS TO PLAY IN THE PRIVATE
CREDIT SPACE TO FIND THAT MEDIUM-SIZED AND SMALLER SIZED
BUSINESS IN THE DEFENSE BASE? >> THIS IS WHERE OUR
COLLABORATION WITH DEUTSCHE BANK COMES IN.
ACROSS THE BANKS, THEY HAVE — THEY FINANCE ALL OF THOSE
COMPANIES. X IS SOMETHING WE WOULD LIGHT
THROUGH A PARTNERSHIP WITH DEUTSCHE BANK THAT MAKE
ACCESSIBLE AND AVAILABLE FOR OUR GLOBAL INVESTORS. ANNA:
WHAT KIND OF BUSINESS IS ARE WE TALKING ABOUT HERE?
WHAT OTHER TYPES OF BUSINESS PRIVATE CREDIT MIGHT BE THE
ANSWER FOR? >> ARGUABLY, ANYONE WHO IS NOT
PUBLIC TRADED AND NEEDS MATERIALLY INVEST SORT OF
DISRUPTION-LED TREND OR INCREASE CAPACITY.
IF YOU’RE NONPUBLICLY TRADED, YOU DO NOT HAVE ACCESS TO
CAPITAL MARKETS. YOU COULD IPO BUT IT IS LENGTHY
AND TAKES A LOT OF TIME. THOSE COMPANIES WHO GET GROWTH
CAPITAL FROM 70 LIKE DEUTSCHE BANK AND THEN WE ARE THE ONES
ESSENTIALLY PROVIDING THAT FUNDING THROUGH OUR INVESTOR
BASE, THAT IS ONE OF THOSE THINGS. ANNA:
WHICH TYPE OF COMPANY’S CAN BE FUNDED?
FOR EXAMPLE, DOES THAT MAKE NUCLEAR WEAPONS?
ARE THESE STILL OPEN QUESTIONS FOR EUROPEAN INVESTORS, FOR
PEOPLE SUCH AS YOURSELVES OR HAS THIS BEEN SETTLED?
YOU TALKED ABOUT REWARDING. >> THEIR DEFINITIONS OF WHAT
YOU WOULD NOT FIND. THERE ARE A VARIETY HAVE THE
HORRIBLE WEAPONS THAT CLEARLY YOU WOULDN’T WANT TO BE ANY
PART OF IT. HOWEVER, OVERALL, DEFENSE IS
SOMETHING THAT IS CRITICAL FOR COUNTRIES.
THEREFORE GOING TO BE IN FOCUS. ANNA:
THANK YOU FOR JOINING US ON THE PROGRAM THIS MORNING, STEFAN
HOOPS, CEO OF DWS GROUP. FRAN SAID, BACK TO YOU IN
SINTRA . FRANCINE: SO INTERESTING.
THANK YOU SO MUCH. COMING UP, PLENTY MORE FROM
SINTRA. WE WILL SPEAK TO ISABELLE
MATEOS Y LAGO FROM BNP PARIBAS AND HER KEY TAKEAWAYS.
THIS IS “BLOOMBERG.” ♪ FRANCINE: THE ECB CENTRAL FORM
UNDERSCORED A SHARED PREFERENCE FOR PATIENTS DUE TO CONTINUED
UNCERTAINTY BUT ALSO REVEALED A GROWING DIVERGENCE IN THE PATH
FORWARD FOR FIVE OF THE WORLD’S MAJOR CENTRAL BANKS.
FOR MOST OF THEM COME ADDITIONAL INTEREST RATE CUTS
ARE PROBABLY COMING THIS YEAR AS THE IMPACT OF U.S.
TARIFFS BECOMES CLEARER. THE BANK OF JAPAN IS MOVING IN
THE OPPOSITE DIRECTION. IT’S TIME ALSO CLOUDED BY TRADE
POLICY. I ASKED HIM WHAT IMPACT TARIFFS
WERE HAVING. >> WE FACED MASSIVE AMOUNT OF
SHOCKS, COMPOUNDED SHOCKS OCCASIONALLY. WE ARE NOW TO THAT
DISINFLATIONARY PROCESS THAT WE HAVE CONDUCTED OVER THE LAST
TWO YEARS. YES, WE ARE FACING A LOT OF
UNCERTAINTY. YES, WE ARE FACING THE RISK OF
FRAGMENTATION INCREASING. YES, WE ARE FACING A POLITICAL
DEVELOPMENTS THAT ARE WORRYING GENERALLY, BUT THAT ALSO
CAUSING TO SIDE RISK TO INFLATION.
WE HAVE TO CONTINUE TO BE EXTREMELY VIGILANT.
WE HAVE TO CONTINUE TO BE COMMITTED TO DELIVERING ON
TARGET. I THINK WE ARE AT THIS POINT IN
TIME IN A VERY GOOD POSITION TO DO THAT. WE ARE WELL-EQUIPPED TO
NAVIGATE THE TORMENTED WATERS WE SHOULD ANTICIPATE. FRANCINE:
WHAT CAN CENTRAL BANKS DO SHIELD ECONOMIES FROM THE
IMPACT OF TRADE TARIFFS? >> ACTUALLY, OUR CURRENT INFLATION IS
STABILIZED AROUND 2% AND WE BELIEVE TARIFFS IS DEFLATIONARY
FOR THREE REASONS. IT CREATES NOT LIKELY TO USE
RETALIATORY TARIFF. SECOND, WE IMPORT 22% OF OUR
IMPORT FROM CHINA. THIS IMPACTS PRICE OF CHINA HAS
BEEN FALLING AT FIBER OF HIS SENT A YEAR — 5% A YEAR.
AT THIS MOMENT, OUR GROWTH A PERCENT WHICH IS WELL BELOW OUR
POTENTIAL GROWTH RATE. PRESSURE IS MUCH LOWER.
OUR PROBLEM IS NOT INFLATION BUT THE GROSS IMPACT OF TARIFF. >> IT IS A BIT TOO SOON I THINK
TO SEE THE PRICE EFFECTS COMING THROUGH FROM THE TARIFFS ACTION.
WE MADE A POINT OF SAYING ALSO THESE ARE TWO-SIDED.
THEY COULD GO EITHER WAY. COULD BE WEAKER DEMAND, COULD
SEE SUPPLY CHAIN DISRUPTIONS. THE SECOND THING, SOME OF THESE
EFFECTS — OIL PRICE. IT IS GONE, COME DOWN.
WILL’S REACH FOR THE LEXICON OF THIS POINT TO MOVE.
WE ADDED A PREDICTABILITY TO UNCERTAINTY. FRANCINE:
WHAT YOU SEE AS FINE MENTAL CHANGES IN YOUR ECONOMY THAT
MAKE INFLATION MORE PERSISTENT? >> LET ME SAY TO PUT IT SIMPLY,
AS YOU SAY, HEADLINE INFLATION HAS BEEN ABOUT 2% FOR ALMOST
THREE YEARS. WHILE WHAT WE CALL UNDERLYING
INFLATION IS STILL SOMEWHAT BELOW 2%.
THAT IS A SITUATION WE ARE IN. IF I COULD DECOMPOSE IT
FURTHER, THERE IS PROBABLY ABOUT THREE COMPONENTS TO IT.
FIRST, UNDERLYING INFLATION DICTATED BY WAGE PRICE DYNAMICS
WHEREBY INCREASES IN PRICES AFFECT WAGES WHICH FURTHER
AFFECT PRICES. HELPED BY RESILIENT DOMESTIC
DEMAND. THIS COMPONENT HAS BEEN GOING
UP SLOWLY. AS I SAID, IT IS STILL SOMEWHAT
BELOW 2%. THERE IS GOING TO BE PERHAPS
THE SECOND COMPONENT WHICH WILL BE THE EXPECTED NEGATIVE
EFFECTS OF POSSIBLE TARIFFS ON THE ECONOMY AND ON PRICES.
WE THINK THE FIRST COMPONENT AND A SECOND COMPONENT WILL
PRODUCE SLOW INCREASE IN UNDERLYING INFLATION TOWARD 2%
BY 2026 OR 2027. FRANCINE: SOME OF THE WORLD’S LEADING
CENTRAL BANKERS THIS WEEKEND SPEAKING TO US.
FOR MORE ON THIS WE ARE JOINED BY ISABELLE MATEOS Y LAGO.
THANK YOU SO MUCH FOR JOINING US. YESTERDAY WAS A VERY
INTERESTING PANEL BECAUSE OVER AN HOUR YOU WERE UNDERSTANDING
THE DIFFERENCES IN THE FACT THE ROAD IS MUCH MORE IN CERTAIN
THAN WE THOUGHT. DO YOU SEE A REAL DIVERGENCE ON
HOW CENTRAL BANKS WILL PLAY THIS? >> GOOD MORNING.
THANK YOU FOR HAVING ME. YOU DID A BEAUTIFUL JOB GETTING
INTERESTING ANSWERS OUT OF THESE LEADING CENTRAL BANKERS.
YES, I THINK WHAT STRUCK ME WAS MOST OF THEM ARE ON A VERY GOOD
PATH TO DELIVERING ON THEIR MANDATE TO REACHING THEIR
TARGETS. THE ECB ALREADY HAS LANDED ON
2%. THE OTHERS ARE NOT QUITE WHERE
THEY WANT TO BE. YOU WOULD HAVE THOUGHT THERE
WOULD BE MUCH MORE SELF-CONGRATULATORY IN WAY AND
THEY WERE NOT. THEY EXPRESSED CONFIDENCE THAT
THEY WERE ON THE RIGHT TRACK BUT INDEED THE MOOD WAS MORE
CONCERNED ABOUT THIS KIND OF VEIL OF UNCERTAINTY AND
DOWNSIDE RISKS MOSTLY THAT ALL OF THEM SAW ON THE HORIZON.
FRANCINE: LET’S TAKE EACH CENTRAL BANK
ONE BY ONE. IF YOU LOOK AT THE ECB
YESTERDAY, THEY TOUCHED THE 2% INFLATION TARGET.
THIS WAS ALSO HELPED BY YOUR. AT WHAT POINT DOES IT BECOME A
PROBLEM FOR THE EUROPEAN CENTRAL BANK? >> EURO HAS BEEN FEATURING A
LOT OF THE CONVERSATIONS, INCLUDING OF PANELS.
HONESTLY, I THINK ONE SHOULD NOT HAVE TOO MUCH BIAS HERE.
120, AND WE ARE NOT EVEN THERE, IS NOT A PARTICULARLY HIGH
LEVEL FOR THE EURO. IF YOU LOOK AT THE ENTIRETY OF
ITS HISTORY. OK, IT HAS APPRECIATED
MEANINGFULLY AGAINST THE DOLLAR SINCE THE START OF THE YEAR,
MORE OR LESS 10% BUT MOST CURRENCIES IN THE WORLD HAVE
APPRECIATED AGAINST THE DOLLAR. IF YOU LOOK AT THE REAL
EFFECTIVE RATE, IT HAS A MOVE THAT MUCH.
OBVIOUSLY, IF WE WERE TO SEE MUCH LARGER MOVES FROM HERE AT
SOME POINT IT WILL BECOME A PROBLEM.
BUT I DON’T THINK WE ARE IN THAT ZONE YET. FRANCINE:
THE VICE PRESIDENT YESTERDAY TOLD US 1.20 COULD BE
PROBLEMATIC. WAS HE OVERSTATING IT?
IS THERE RISK THE MARKET TRIES TO TEST IT? >> THERE’S ALWAYS A RISK WHEN
YOU GIVE THE MARKET A TARGET THAT IT TRIES TO TEST IT.
BUT I DON’T THINK THERE IS ANY PARTICULAR MAGIC VALUE TO 1.20.
PEOPLE LIKE TO SIT AROUND — SET GROUND TARGETS.
IF YOU LOOK AT OUR PUBLISHED FORECAST FOR THE YEAR END, IT
IS ALSO 1.20 BUT THERE’S NOTHING PARTICULARLY MAGICAL
ABOUT IT. I’VE NOT SEEN OR HEARD ANY
PARTICULAR RESEARCH SAYING 1.20, IF YOU GO ABOUT THAT, IT
IS A PROBLEM. IN FACT, I THINK THE HISTORICAL
AVERAGE LONG-TERM IS ABOVE 1.20. I DON’T THINK IT IS AN ISSUE.
FRANCINE: WHAT ARE YOU EXPECTING THE ECB
DO DO, ONE CUT? >> WE ARE EXPECTING ONE CUT.
OBVIOUSLY, NOT IN JULY BUT BY THE END OF THE YEAR. I THINK IT IS NOTEWORTHY THAT
DESPITE INFLATION BEING BACK AT 2% LIKE CHRISTINE LAGARDE SAID,
I’M NOT DECLARING WE SHOULD ACCOMPLISH, THERE IS A SIGNAL
THERE, AND WHEN YOU LOOK AT THE BALANCE OF RISK OVER THE NEXT
THREE TO SIX MONTHS I THINK THEY ARE CLEARLY ON THE
DOWNSIDE. THAT IS WHAT YOU HEAR AS WELL.
THE ECB LONG FORECAST HAS INFLATION IN 2026 BEING WELL
BELOW 2%, 1.6, WHICH PROBABLY MEANS IT IS GOING TO BE LOWER
THAN THAT EVEN FOR A FEW MONTHS. AND SO THE RISKS TO ACTIVITY,
THE RISKS — THE EXCHANGE RATE SIDE, COMMODITY PRICES SIDE ARE
REALLY PRIMARILY ON THE DOWNSIDE.
I THINK ONE CUT MAKE SENSE BUT THE TIMING OF THAT WE HAVE TO
SEE. ANFRANCINE:
JAY POWELL DOES NOT HAVE AN EASY JOB.
HE WAS REALLY MUCH IN A WAIT AND SEE LIKE LET’S SEE IF THE
INFLATION CHANGES BECAUSE OF THE TARIFFS AND OTHERWISE THEY
WILL READJUST. WHAT DID YOU FIND HIM? >> I THOUGHT HE WAS INCREDIBLY
DELIVERING A MESSAGE OF A STEADY HAND OR EXACTLY WHERE
YOU NEED IT, EXTREMELY FOCUSED ON GIVING A MESSAGE THAT
DOESN’T MAKE HIM HOSTAGE TO ANY KIND OF POLITICAL
INTERPRETATION. BUT ALSO IN THE CONTRAST WITH
ANDREW BAILEY, THERE WAS — ANDREW BAILEY HAD NO PROBLEM IN
SAYING THE DIRECTION OF TRAVEL IS CLEARLY CUTS.
JAY POWELL DID NOT SAY THAT. JAY POWELL SAID THERE ARE MANY
PATHS POSSIBLE FROM HERE AND I’M NOT RULING ANYTHING IN OR
OUT. SO — WHICH WAS APPROPRIATE GIVEN THE CIRCUMSTANCES OF THE
U.S. ECONOMY. IT WAS MORE THAN NUANCE I THINK
BETWEEN THESE TWO CENTRAL BANKS WHICH STILL HAVE VERY ELEVATED
INTEREST RATES. FRANCINE: WE HEARD FROM PRESIDENT LAGARDE
YESTERDAY SAYING SHE WOULD DO THE SAME AS JAY POWELL. >> I THINK I SPEAK FOR MYSELF
WHEN I SPEAK FOR ALL CLICKS ON THE PANEL I THINK YOU WOULD DO
EXACTLY THE SAME THING AS OUR COLLEAGUE JAY POWELL DOES COME
THE SAME THING. RIGHT? >> YES. [LAUGHTER] FRANCINE:
THERE WAS A SENSE OF THE CENTRAL BANKERS RALLYING AROUND
JAY POWELL. I DON’T KNOW IF IT WAS TO GIVE
THEM COURAGE. THERE’S A LOT OF UNKNOWNS IN
THE U.S. ECONOMY, A LOT OF SHOCKS THAT
MAKE SENSE FOR HIM TO LOOK AT SCENARIOS RATHER THAN MAYBE
GIVE GUIDANCE FORWARD. >> THAT’S RIGHT.
IT’S NOT JUST A CENTRAL BANKERS RATTLING AROUND JAY POWELL, IT
IS EVERYBODY WHO CARES ABOUT CENTRAL BANK INDEPENDENCE WHO
FEELS FOR HIM EVERY TIME THERE IS AN ATTACK AND ADMIRES HIS
PROFESSIONALISM AND HIS STEALING AS IN STAYING FOCUSED
ON DOING THE JOB — STEELINESS IN STAYING FOCUSED ON THE JOB.
WITH THE PUBLIC NEEDS IS DID NOT GET CAUGHT UP IN POLITICS
BUT FOR THE CENTRAL BANK TO DELIVER ON THEIR MANDATES AND
THEY ARE DOING THAT WELL. OBVIOUSLY, JAY POWELL FACES THE
TOUGHEST CIRCUMSTANCES. FRANCINE: DO YOU SEE SOME OF THE
INFLATION CONCERNS MATERIALIZE IN DATA?
IS IT NORMAL IT IS TAKING THIS LONG? >> IT HAS SURPRISED AS THAT IT
HAS TAKEN THIS LONG TO SHOW UP IN THE DATA.
WE HAVE PRETTY STRONG CONVICTION IT IS GOING TO START
SHOWING UP THROUGH THE SUMMER MONTHS.
IF YOU THINK ABOUT IT, IT IS NOT ALL THAT SURPRISING GIVEN
THE CONTINUED UNCERTAINTY ABOUT WHAT IS GOING BE THE FINAL
LEVEL OF TARIFFS, THAT COMPANIES WILL BE CAREFUL IN
CHANGING PRICES. ALSO WE KNOW THEY HAD
ACCUMULATED A LOT OF INVENTORY SO THEY WERE RUNNING THROUGH
THAT INVENTORY SO THEY DID NOT REALLY NEED TO PUSH UP PRICES
PREEMPTIVELY. THERE IS EVERY REASON TO EXPECT
PRICES TO SHOW UP IN THE COMING MONTHS.
EVEN AS THEY DO, YOU WILL STILL HAVE A DEBATE BETWEEN
REASONABLE PEOPLE, INCLUDING ON THE — OTHERS WILL BE WORRIED
IT COULD BE LONGER-LASTING. I THINK THE STATE OF THE LABOR
MARKET WILL BE KEY IN MAKING THE JUDGMENT WHETHER IT IS OK
TO EASE MONETARY POLICY A LITTLE BIT OR INDEED IF IT IS
NECESSARY TO EASE MONETARY POLICY IF THE LABOR MARKET
SHOWS SIGNS OF EXCESSIVE WEAKNESS.
OR WHETHER ON THE OTHER HAND A SECOND ROUND IS IN DANGER OF
MONETARY POLICY NEEDS TO STAY RESTRICTIVE. FRANCINE:
ISABEL, THANK YOU FOR JOINING US, ISABELLE MATEOS Y LAGO A
BNP PARIBAS. WE WILL HAVE TO GET YOU BACK ON
TO TALK ABOUT THE THINK OF JAPAN.
THERE’S A LITTLE BIT OF WIND HERE. IT IS OK.
IT IS NOT A HURRICANE. IT FEELS LIKE IT BUT WE ARE
FINE. COMING UP, THE CHIEF ECONOMIST
OF BERENBERG HOLGER SCHMIEDING JOINS US TO TALK ABOUT ECONOMIC
OUTLOOK BUT ALSO TRADE AND CERTAINTY. THAT IS NEXT.
THIS IS “BLOOMBERG.” ♪ FRANCINE:
GOOD MORNING AND WELCOME TO “THE PULSE.” WE ARE AT THE ECB FORM OF
CENTRAL BANKING. PRESIDENT TRUMP SAYS HIS JULY 9
GLOBAL TARIFF DEADLINE WILL NOT BE EXTENDED AS HE WRAPS UP
CRITICISM OF TOKYO. IN SINTRA, FED CHAIR SAYS RATES
ARE ON HOLD BECAUSE OF U.S. TARIFFS BUT DOES NOT RULE OUT A
CUT IN JULY. TRUMP’S MULTITRILLION DOLLAR
TAX BILL FACES RESISTANCE AHEAD OF A VOTE LATER AFTER NEARLY
PASSING THE SENATE. THE EUROPEAN CENTRAL BANK IS IN
NO HURRY TO REDUCE INTEREST RATES FURTHER FOLLOWING EIGHT
CUTS IN THE SPACE OF A YEAR. HE ALSO TOLD ME WE DIPPED GROWTH
IS A REAL CONCERN. — HE ALSO TOLD ME WEEK GROWTH
IS ALSO REAL CONCERN. >> THIS IS KIND OF THE
TECHNICAL BUT IT MEANS WE ARE AT OUR POTENTIAL IN TERMS OF
GROWTH. THE LABOR MARKET IS ALSO — WE
ARE NOT THERE YET IN TERMS OF GROWTH.
FOR THE SYSTEM, FOR EVERYTHING TO BE CLEAR AND NEUTRAL FOR
INTEREST RATES WILL BE AN IMPORTANT CONCEPT.
WE HAVE A HISTORY OF VERY LOW INFLATION. I DID SEE THE FUNDAMENTALS FOR
THAT TO BE CHANGED AS MUCH AS WE CAN COMFORTABLY ONLY — THIS
DOESN’T MEAN WE NEED TO RUSH INTO THAT. WE NEED TO SEE DATA. WE NEED TO LOOK AT WHAT ARE THE
DEVELOPMENTS THE SECOND QUARTER FIGURE FOR GDP WILL BE VERY
IMPORTANT. IF IT CONFIRMS THE FIRST QUARTER NUMBER, IF WE TUMBLE A
BIT THAT WILL RAISE CONCERNS IN MY VIEW ABOUT HOW SUSTAINABLE
THE 2% INFLATIONARY — FRANCINE: SHOULD WE WORRY ABOUT THE
INFLATION NUMBERS GOING DOWN SIGNIFICANTLY? >> THAT IS PRECISELY MY POINT
WAS HER FRIEND THINK ABOUT THEM GOING DOWN MORE THAN UP? >> YES.
THAT IS THE PROFILE FOR OUR FORECAST. WE WILL BEGIN 2026
WITH A LOW NUMBER. THERE ARE BASE EFFECTS.
THE HISTORY OF EUROPE, IT IS NOT ONE OF HIGH INFLATION.
SO WE NEED TO BE CAUTIOUS ABOUT THAT. FRANCINE:
THAT WAS THE GOVERNOR OF THE BY GOING TO. CHRISTINE LAGARDE STOPPED SHORT
OF CALLING IT MISSION ACCOMPLISHED. >> WE ARE AT 2%.
THIS IS THE LATEST READING. THIS IS ALSO THE TARGET WE HAVE
HAD IN THIS IS THE PROJECTION THAT OUR STAFF IS INDICATING
FOR THE MEDIUM-TERM WHICH IS EXACTLY WHAT WE HAD ANTICIPATED.
I AM NOT SAYING MISSION ACCOMPLISHED BUT I SAY TARGET
REACHED. FRANCINE: CHRISTINE LAGARDE WAS SPEAKING
ON A PANEL OF CENTRAL BANK CHIEFS HERE IN SINTRA.
HOLGER SCHMIEDING JOINING US NOWHOLGER SCHMIEDING,.
IS IT MISSION ACCOMPLISHED FOR THE ECB? >> IT IS NOT MISSION
ACCOMPLISHED, FOR ONCE WE ARE TARGET, PROBABLY CLOSE FOR THAT
THE ROUGHLY 12 MONTHS. THE ECB WILL FACE TWO TOUGH
CHALLENGES. FIRST OF ALL, HOW TO REACT TO
THE TARIFF NOW. KNOWING WHATEVER THE ECB DOES
TO MONETARY POLICY WILL HAVE ITS MAJOR EFFECT SAY 12 TO 15
MONTHS FROM NOW. MONETARY POLICY WORKS — THE
SECOND CHALLENGE IS TO FIGURE OUT WHAT IS GOING TO HAPPEN TO
THE LABOR MARKET. WE KNOW DEMOGRAPHICS.
WE KNOW WE WILL HAVE — DOES THAT MEAN RATES IN THE FUTURE
ACTUALLY HAVE TO BE HIGHER TO COMBAT WAGE PRESSURES WHICH AT
THE MOMENT ARE LOW BUT WILL LIKELY PICK UP ONE OR TWO YEARS
FROM NOW AGAIN. THERE MIGHT BE AN ARGUMENT FOR THE ECB TO SSAY DON’T CUT TOO
MUCH NOW OTHERWISE WE MIGHT HAVE TO HIKE THEM IN 2027.
FRANCINE: ARE YOU EXPECTING A HIKE FROM
THE ECB THIS YEAR? >> I DON’T EXPECT A RATE CUT
THIS YEAR. I DO ASSUME TRUMP AND THE TARIFF RIGHTS, THAT HIS FIGHT
WILL BE WORSE THAN THE BARK. WE ARE AT THE PARK PERIOD AND
PUTTING PRESSURE ON EVERYBODY TO GET SOMETHING DONE BY JULY 9.
IF THE TARIFF SUBSIDE A BIT OVER THE SUMMER, THEN PROBABLY
ECONOMIC INDICATORS WILL SUGGEST THE EUROZONE ECONOMY
WILL START TO RECOVER LATE THIS YEAR.
AND WITH INFLATION OUTLOOK, WE ARE AT 2%, WILL REMAIN CLOSE TO
2% AND DON’T SEE A REASON TO CUT.
I WE LOOK AT EURO LEVELS COME THIS HAS HELPED WITH INFLATION.
WE SPOKE TO THE VICE PRESIDENT OF THE ECB YESTERDAY AND HE
SAID 1.1 IS A DANGER. DO YOU WORRY IF EUROPE BECOMES
TOO HIGH AND BECOMES A REAL PROBLEM FOR CENTRAL BANKS? >> I THINK IT IS A MODEST
PROBLEM PULSE OF CURRENCY MOVES WE HAVE SEEN THIS YEAR BY
HISTORIC COMPARISON ARE NOT REALLY VERY DISRUPTIVE.
THE ECONOMIC EFFECT OF WHAT WE SEE NOW DOLLAR EURO IS PROBABLY
IN THE RANGE OF 0.1 PERCENTAGE POINTS ON YOUR ZONE GDP.
IT IS A BIT OF YOUR ZONE INFLATION BUT IT IS NOT REALLY
IN MY VIEW THE BIG GAME CHANGER. IF WE NOW GO RAPIDLY 1.20 AND
THEN ABOVE 1.20, THE MERE SPEED OF THE RISE OF THE EURO WOULD
BE A CONCERN. SO FAR, THIS IS HIS ONLY
ADJUSTMENT TO NEW CIRCUMSTANCES IN THE U.S.
THAT’S POPULAR WITH INVESTORS FOR ONE REASON, TRUMP. FRANCINE:
WHEN YOU LOOK AT THE STRATEGIC REVIEW, IS IT EASIER TO
UNDERSTAND — THEY ARE MOVING OR THINKING ABOUT MOVING IN
SCENARIO-BASED EXPECTATIONS. IS IT EASIER TO DEAL WITH TRUMP
TARIFFS AND TRY AND UNDERSTAND I GUESS THE DIAGRAM OF THE
DIFFERENT DECISIONS THAT COULD TAKE PLACE? >> IT DOESN’T REALLY MAKE THE
DECISION MUCH EASIER BUT IT DOES INFORM THE DEBATE.
IT IS GOOD THE ECB DOW HAS ORGANIZED WHAT IF DEBATE
BECAUSE IN THIS WORLD, THERE A LOT OF “WHAT IF’S”
BUT IT BASICALLY MEANS THEY THINK AHEAD OF TIME WHAT MIGHT
HAPPEN IF. IT DOESN’T MEAN THE DECISION AT
THE MOMENT WHEN YOU DON’T QUITE KNOW WHAT IS GOING TO HAPPEN IS
REALLY INFORMED BY THAT ARE STRUCTURED BY THAT.
I FIND IT A NICE EXERCISE. HAVING SAID THAT, HE DOESN’T
GIVE US MUCH OF A CLUE ABOUT WHAT HAPPENS IN THE FUTURE
BECAUSE IT SEEMS TO CODIFY THE WAY IN WHICH THE ECB DEBATE HAS
INDEED MOVE OVER THE LAST YEARS ANYWAY. FRANCINE:
IT IS TOUGH BEING THE FED GOVERNOR RIGHT NOW, THE FED
CHAIR RIGHT NOW GIVEN ALL OF THE UNCERTAINTIES ON THE
ECONOMY. WHEN YOU THINK WE START SEEING
A LITTLE BIT OF ANXIOUSNESS ACTUALLY SHOW UP IN THE DATA? >> FED CHAIR POWELL SAID HE
EXPECTS TO SEE SOME INFLATION IMPACT OVER THE SUMMER.
THIS IS ROUGHLY IN LINE WITH OUR VIEW AND IF YOU HAVE MANY
OTHERS. EVENTUALLY, THE INVENTORY BUILDUP WE HAD, WILL BE THROUGH
AN PRICES ARE LIKELY TO RISE SOMEWHAT OVER THE SUMMER —
WHICH IS ONE REASON WHY I THINK IN THE END, TRUMP WILL PREFER
TO STRIKE DEALS RATHER THAN TO EXPLAIN TO CONGRESSMAN, THE
PUBLIC, PRICES ARE HIGHER, WHY IS THAT? FRANCINE:
IS A POSSIBLE U.S. ECONOMY IS MUCH MORE RESILIENT
THAN WE THOUGHT? >> U.S. ECONOMY IS RESILIENT.
WE HAVE SAID THAT FOR A LONG TIME. DON’T BET ON THE U.S.
CONSUMER GOING DOWN. DON’T BET ON ANYTHING LIKE THE
U.S. RECESSION. TRUMP WOULD HAVE TO GET MUCH,
MUCH WORSE OR PRECISELY HE WOULD HAVE TO FOLLOW THROUGH ON
HIS WORST TARIFF THREATS TO REALLY SINK THE U.S. ECONOMY.
U.S. HOUSEHOLDS, THEY HAVE GOOD JOBS.
THEY DO HAVE SIGNIFICANT WEALTH EFFECT FROM EQUITY MARKETS.
THEY ARE USED TO SOME POLITICAL NOISE. FOR NOW, IT LOOKS LIKE
ACCELERATION OF U.S. GROWTH BUT ANYTHING WORSE THAN
THAT. FRANCINE: COMPANIES ARE STRONG.
IS IT POSSIBLE TO ABSORB SOME OF THE INFLATION COST BEFORE
PASSING THEM ON? SO THE DELAY IS MUCH LONGER
THAN WE THINK? >> THAT IS POSSIBLE.
STILL, WITH CONSUMER DEMAND — I WOULD BE SURPRISED IF U.S.
COMPANIES TAKE MUCH OF THE DAMAGE FROM THE TARIFFS
FOR A LONG TIME. I WOULD ALSO BE SURPRISED IF
EXPORTERS FROM THE REST OF THE WORLD SIMPLY JUST TOOK THE HIT.
IT WOULD BE VERY MUCH AGAINST ECONOMIC EXPERIENCE.
ULTIMATELY, THE CONSUMER PAYS. FRANCINE:
LOOK, I HAD A REALLY QUITE INTERESTING AND FUN TIME
MODERATING THE PANEL. IS THERE ANYTHING THAT
SURPRISED YOU THE MOST? THE INTERPLAY BETWEEN BANK OF
JAPAN BUT ALSO BANK OF KOREA FOR ME WAS QUITE TELLING. >> FIRST OF ALL, IT WAS A WELL
MODERATED MODERATED PANEL. FRANCINE:
I WAS OUT FISHING FOR A COMPLEMENT. >> WHAT I FOUND MOST TELLING IS OF COURSE JAY POWELL, THE WAY
HE CLEARLY SAID WE ARE ON HOLD BECAUSE OF TARIFFS.
THE CLARITY OF THE STATEMENT SURPRISED ME AND ALSO THE
CLARITY OF MANY OTHER STATEMENTS I FOUND, OK FOR
CENTRAL BANKERS SPEAKING PUBLICLY, THAT’S UNUSUALLY
CLEAR. AS OF THE BANK OF JAPAN, OF
COURSE THEY DON’T QUITE KNOW INTERESTING INTERPLAY BETWEEN
THEM AND THE KOREANS. BUT THE BASIC MESSAGE SEEMS TO
BE PROBABLY WE WILL HAVE TO HIKE RATES AGAIN IN THE
FORESEEABLE FUTURE BUT WE OF COURSE HAVE TO WAIT ON WHAT
HAPPENS WITH TRUMP TARIFFS AND JAPAN TRUMP TARIFFS ARE AMONG
THE ISSUES OF THE DAY. FRANCINE: THERE WAS A SINCE THEY HAD A
PURPOSE, THAT THEY FELT LIKE THIS WAS AN IMPORTANT MOMENT IN
HISTORY WHERE THEY HAD TO PLAY THE ROLE. THANK YOU SO MUCH.
I AM BLUSHING. NO ONE MAKES ME BLUSH.
HOLGER SCHMIEDING. COMING UPCOMING U.K.
PRIME MINISTER KEIR STARMER ABANDON HIS WELFARE REFORMS
AVOIDED CRUSHING COMMENTS DEFEAT BUT AT WHAT COST?
WE WILL BREAK DOWN THE IMPLICATIONS NEXT.
THIS IS “BLOOMBERG.” >> THE LEVEL OF HOUSEHOLD AND
CORPORATE DEBT IN THE U.K. IS LOWER THAN WE WOULD HAVE
EXPECTED IT TO BE. BASED ON PAST EXPERIENCE.
AGAIN, THAT PETE’S THROUGH INTO HOW RESTRICTIVE POLICY IS AN
GIVEN INTEREST RATE SOMEWHAT LESS RESTRICTIVE PROBABLY THAN
IT WOULD HAVE BEEN HISTORICALLY. FRANCINE:
ANDREW BAILEY, BANK OF ENGLAND GOVERNOR SPEAKING IN SINTRA.
TO THE U.K. WHERE AFTER MARKETS U.K.
PRIME MINISTER STARMER ABANDON HIS FLAGSHIP WELFARE REFORMS TO
AVOID HIS FIRST EVER PARLIAMENTARY DEFEAT.
BUT AT WHAT COST TO HIS AUTHORITY IN THE NATION’S
FINANCES? LIZZIE BORDEN JOINS US NOW FOR
MORE. IT WAS RATHER UNEXPECTED HE
ABANDONED IT. HOW WEEKEND IS THE PRIME
MINISTER? >> REALLY WEAKENED.
HE HAD AN UGLY CHOICE BEFORE HIM. ON THE ONE HAND, COULD’VE
ACCEPTED HUMILIATING DEFEAT IN THE COMMONS.
HE SHOULD BE ABLE TO PASS HIS LEGISLATION WHEN HE HAS THE
MAJORITY. THE OTHER HAND,, HE COULD HAVE
MADE THIS EMBARRASSING — HE WENT FOR THE U-TURN WHICH MEANT
HE HAD TO DROP THE MOST CONTENTIOUS PART OF THE WELFARE
BILL, SOME CALLED IT DICKENSIAN BECAUSE IT WAS ALL ABOUT
RESTRICTING BENEFIT PAYMENTS TO DISABLED PEOPLE.
AS YOU SUGGEST, THE COST IS BOTH POLITICAL AND ECONOMIC
BECAUSE IT MEANS HE HAS GIVEN UP ALL THE SAVINGS HE WOULD
HAVE GOT FROM THE REFORM. THAT MEANS IT IS MORE LIKELY WE
WILL HAVE TAX RISES OR LOOSER FISCAL RULES BY THE AUTUMN.
THAT MEANS THE CHAINS OR SHOPS ON THE LINE, THE PRIME MINISTER
IS WEAKER, AND ALL THE GOVERNMENT IS STILL BILLIONS IN
THE RED. FRANCINE: LIZZIE, THERE IS BAD NEWS FOR
THE CHANCELLOR FROM THE FISCAL WATCHDOG. >> YES. D.O.B.
ARE ADMITTING YESTERDAY — THE OBR ADMITTING IT IS MORE
OPTIMISTIC THAN IT COMES TO ITS MEDIUM-TERM GROWTH OUTLOOKS. BAD NEWS FOR REEVES BECAUSE BY
THE AUTUMN WHEN SHE PUTS OUT HER BUDGET, IT COULD BE THE OBR
DOWNGRADES ITS GROWTH FORECAST AND THAT MEANS SHE HAS LESS
HEADROOM. WE KNOW HER HEADROOM ALREADY IS
A WAFER THIN MARGIN AGAINST HER FISCAL RULES.
EVEN MORE LIKELY SHE IS GOING TO HAVE TO RAISE TAXES, WHICH
DOESN’T HELP THE GROWTH PICTURE. THAT MEANS THE U.K.
AND A DOOM LOOP. IT LEAVES VERY FEW OPTIONS FOR
REEVES AND KEIR STARMER WHEN IT COMES TO MAKING UP THAT GROWTH
SHORTFALL. DO THEY NEED TO MAKE EVEN
CLOSER TIES WITH BRUSSELS? NOT GOING TO BE POPULAR.
FRANCINE: THANK YOU SO MUCH, LIZZY BURDEN
WITH A ROUND UP U.K. POLITICS. PRESIDENT TRUMP SAYS HE IS
STICKING WITH HIS JULY 9 TRADE DEAL DEADLINE WHILE RENEWING
HIS THREAT TO CUT OFF TALKS AND SLEPT DUTIES ON VARIOUS NATIONS
INCLUDING JAPAN. PRES. TRUMP: WRITING LETTERS TO A LOT OF
COUNTRIES. I THINK YOU DON’T UNDERSTAND
THEIR PROCESS. WE HAVE DEALT WITH JAPAN.
I’M NOT SURE WE WILL MAKE A DEAL. THEY ARE VERY TOUGH.
YOU WILL PAY 30%, 35% OR WHATEVER THE NUMBER IS THAT WE
DETERMINED BECAUSE WE ALSO HAVE A VERY BIG TRADE DEFICIT AS YOU
KNOW. FRANCINE: JOINING US NOW IS OUR EMEA NEWS
DIRECTOR ROS MATHIESON. DO WE HAVE A RESPONSE FROM
JAPAN? COULD THERE BE A COMPROMISE ON
RICE? >> IT IS DIFFICULT TO SEE
WHETHER COMPROMISE MIGHT BE. AS YOU ARE NOTING, JAPAN IS THE
COUNTRY VERY MUCH IN THE CROSSHAIRS WITH DONALD TRUMP ON
TRADE. WE DID HAVE A RESPONSE FROM THE
PRIME MINISTER OVERNIGHT BUT IN A WAY WHAT HE WAS SAYING IS
JUST REMINDING U.S. THAT JAPAN IS THE BIGGEST
INVESTOR IN THE U.S. THERE IS A LOT AT STAKE HERE
FOR THE U.S. AS WELL. JAPAN HAS ADOPTED A POLICY HERE
IT’S NEGOTIATIONS ARE BEING FIRM BUT PRETTY FRIENDLY.
THE QUESTION IS, DOES IT SUSTAIN , DOES IT TAKE HARDER
APPROACH? THE IDEA FROM THE PRIME
MINISTER SEEMS TO BE HE WOULD PREFER NO DEAL AT ALL VERSUS
RUSHING TO DO A BAD DEAL. HE HAS DOMESTIC FACTORS HERE
VERY MUCH FRONT OF MINE. THERE IS AN UPPER HOUSE
ELECTION IN JAPAN IN THE NEAR FUTURE THIS MONTH.
HE HAS TWO KEY LOBBIES TO THINK ABOUT.
THE AUTO SECTOR AND FARMERS. THE AGRICULTURAL SECTOR. RICE ASIDE, AND THE CAR SECTOR,
WAS 10% OF JAPAN’S GDP. 8% OF THE WORKFORCE.
VERY IMPORTANT PART OF THE JAPANESE ECONOMY TO TAKE CARE
OF. RICE, FARMERS ARE INCREDIBLY IMPORTANT.
LOBBY GROUP AND VOTING BLOCK IN JAPAN.
THAT IS WHY FOR MANY DECADES YOU HAVE SEEN JAPANESE
GOVERNMENTS SUCCESSIVELY TAKE A LOT OF CAREFUL CARE OF THE
FARMING SECTOR. VERY HARD TO SEE MOVEMENT ON
RICE, ON CARS. THE QUESTION IS, IS THERE
ANYTHING THAT JAPAN CAN SEED — CEDE TO GET A DEAL? FRANCINE: IF YOU LOOK AT TRUMP’S ATTACKS
ON SPENDING BILL PASSING THROUGH THE SENATE, IT
HEASD BACK TO THE HOUSE. ARE THERE ANY MORE HURDLES
THERE? >> THERE QUITE A FEW HURDLES
STILL TO GET ON. THIS BILL HAS SQUEAKED ALL THE
WAY THROUGH SO FAR. IT GOT TO THE HOUSE IN ITS
INITIAL STATE BY ONE VOTE. IT GOT TO THE SENATE WITH A
TIE-BREAKING VOTE OF THE U.S. VICE PRESIDENT JD VANCE.
IT IS STUCK IN THE HOUSE BUT IN DIFFERENT FORM.
THE REPUBLICANS CAN ONLY LOSE THREE MEMBERS WITH THIS TO PASS.
IF ALL THE DEMOCRATS VOTE AGAINST IT.
AND THAT IS A VERY SLIM MARGIN BECAUSE WE ARE ALREADY HEARING
REPUBLICANS ARE NOT HAPPY WITH THE VERSION THEY ARE PRESENTED
WITH IN THE HOUSE. THE CHALLENGE IS, HAVE
MODERATES WHO ARE SAYING, HANG ON, YOU’RE CUTTING TOO MUCH IN
THIS BILL, PARTICULARLY AROUND THINGS LIKE MEDICAID.
YOU HAVE SOME REPUBLICAN SIDE, YOU’RE NOT CUTTING ENOUGH,
YOU’RE SPENDING TOO MUCH MONEY, WE HAVE TO FIND MORE.
SQUARING THAT WE HAVE TWO VERY DIFFERENT GROUPS HERE AND
MAKING SURE ALL THOSE REPUBLICANS ARE WILLING TO GET
OVER THE LIGHT IS VERY DIFFICULT.
THAT WOULD BE THE CHALLENGING PART IS THE ONLY HAVE THREE
SPOTS THEY CAN LOSE. AT LEAST TWO ARE VERY MUCH
AGAINST THIS BILL IN THE CURRENT FORM.
IT WILL BE A NEGOTIATING EXERCISE.
DONALD TRUMP IS THE PERSON PUSHING THIS HIMSELF.
HE IS OUT ON SOCIAL MEDIA SAYING TO HIS REPUBLICANS, IF
YOU GO AGAIN SAYS, WATCH OUT. THERE’S A LITTLE BIT OF
LEVERAGE POTENTIALLY THEIR FROM DONALD TRUMP HIMSELF JUST USING
HIS OWN INFLUENCE TO TRY AND GET THIS OVER THE LINE. IT WILL BE QUITE — FRANCINE:
THANK YOU SO MUCH, ROS MATHIESON, OF WHAT WE CAN
EXPECT IN THE NEXT COUPLE OF DAYS.
AS ELON MUSK MOVES TO SHORE UP TESLA POLITICS, HIS
RELATIONSHIP WITH U.S. PRESIDENT. WE SAW THE TWEETS. TRUMP HAS SUGGESTED DOGE MUSK
SET UP COULD BE UNLEASHED ON THE SUBSIDIES FOR THE
BILLIONAIRE BUSINESS. WE ARE JOINED BY BLOOMBERG’S —
I HAVE TO SAY, IT IS LIKE A TELENOVELA.
UNFOLDED REALLY UGLY WAYS, JUST WHEN IT APPEARED MUSK AND TRUMP
HAD ENTERED A KIND OF DETENTE, NEW WAR OF WORDS.
WHAT IS GOING ON? >> I THINK THERE IS A LOT OF
REASON TO THINK THESE TWO BOTH HAD A LOT TO LOSE TO CONTINUE
TO BE AT EACH OTHER’S THROATS AND HERE WE WERE AGAIN
YESTERDAY WITH MUSK REALLY CONTINUING I THINK A DAYS LONG
SORT OF DIATRIBE AGAINST THE SPENDING BILL.
ADD TRUMP REALLY THROWING SOME FIRM BRUSHED PICTURES AND
THREATENING THE SUBSIDIES FOR HIS COMPANIES.
TESLA IN PARTICULAR IS VULNERABLE.
THERE’S ONLY SO MUCH ONE WOULD RECKON THE U.S.
CAN DO TO SPACEX WHEN IT IS SO RELIANT ON THAT COMPANY FOR ITS
LAUNCH BUSINESS AND FOR PRODUCTS LIKE STARLINK.
TESLA IS IN THIS POSITION AS WE HAVE KNOWN FOR MONTHS BEING
REALLY IN A TOUGH SPOT WHEN TRUMP HAS MADE IT VERY CLEAR
THAT HE IS NOT A FAN OF BIDENS POLICIES TO INCENTIVIZE
ELECTRIC VEHICLE PURCHASES. THE WRITING WAS ON THE WALL
READ IT SEEMED AS THOUGH MUSK WAS WILLING TO OVERLOOK THAT AS
HE WAS WILLING — REALLY RADICALLY BEHIND THE PRESIDENT
AND AS PUSH HAS COME TO SHOVE, WE HAVE SEEN HIM CARE CRITICAL
OF THIS BUDGET — WHICH WOULD PRETTY SIGNIFICANTLY PULLBACK
ON SUPPORT FOR EB PURCHASES AND POTENTIALLY HURT INCENTIVES AS
WELL FOR MANUFACTURING A BATTERIES, WHICH I THINK A LOT
OF PEOPLE SORT OF OVERLOOK WHEN THEY TAKE STOCK OF ALL THE
SUPPORT THAT HAS BEEN PUT IN PLACE TO GET THE EV THIS IS
GOING IN THE U.S. FRANCINE: CRAIG, THERE IS — ANOTHER TOP
EXECUTIVE HAS LEFT TESLA. WHAT DOES IT MEAN FOR THE
COMPANY? CAN HE HOLD IT TOGETHER? >> IT IS INTERESTING READ LAST
WEEK, BLOOMBERG BROKE THE NEWS ONE OF MUSK’S LONGTIME DEPUTIES
HAD LEFT THE COMPANY AND THIS WAS A BIG CHANGE BECAUSE HE HAD
A LOT OF RESPONSIBILITIES, A LOT OF REPORTING LINES THAT NOW
HAVE TO BE DIVVIED UP. ONE OF THE THINGS WE REPORTED
JUST YESTERDAY IN A FOLLOW-UP STORY IS THAT MUSK WILL TAKE
RESPONSIBILITY FOR SALES IN THE U.S. AND EUROPE.
THERE IS SOME IRONY IN THAT MUSK — I THINK A LOT OF PEOPLE
HAVE CONCERNS TO WHAT EXTENT HE IS THE PROBLEM HERE.
ADD A BIG FACTOR IN WHY THIS COMPANY IS HAVING SO MUCH OF AN
ISSUE SELLING VEHICLES. WE WILL GET A BETTER SENSE OF
JUST HOW MUCH THIS COMPANY IS IN TROUBLE FROM THAT
PERSPECTIVE LATER TODAY WHEN THEY REPORT VEHICLE DELIVERIES.
THE EXPECTATION IS FOR ANOTHER DECLINE SORT OF IN LINE WITH
THE 13% DROP IN THE FIRST QUARTER.
THAT WOULD LEAD THEM IN A PRETTY BIG HOLE TO DIG OUT OF
TO AVOID A SECOND CONSECUTIVE ANNUAL DROP. FRANCINE:
CRAIG, THANK YOU SO MUCH. WE WILL ALSO HAVE A TALK ABOUT
DEPORTATION THREATS THAT WE WILL GET UNDER THAT LATER.
BACK TO THE ECB’S ANNUAL CONFERENCE HERE INS.
MOST OF THE POLICYMAKERS WE HAVE HEARD THAT ADDITIONAL RATE
CUTS ARE PROBABLY AHEAD THIS YEAR IS THE IMPACT OF U.S.
TARIFFS BECOME CLEAR. FOR MORE ON THE MAIN TAKEAWAYS,
WE HAVE ALEX. SO GOOD TO SPEND TIME TOGETHER. GET YOUR THOUGHTS ON WHAT
CHRISTINE LAGARDE SAID YESTERDAY.
SHE DID NOT CRY VICTORY BUT THE ECB SEEMS TO BE IN A MUCH
BETTER PLACE THAN THE OTHER CENTRAL BANKS. >> THERE IS DEFINITELY THE
SENSE THAT POLICYMAKERS FEEL THEY ARE IN A COMFORTABLE SPOT.
AS IF TO UNDERLINE THE INFLATION READING CAME IN AT 2%
YESTERDAY SO THAT WAS HELPFUL FOR THE MESSAGE SHE SENT ON THE
PANEL. IT IS SUPPOSED TO COME IN A BIT
BELOW THAT LEVEL IN THE COMING MONTHS, BUT STILL, POLICYMAKERS
FEEL — MONITORING THE VARIOUS. A BIT OF PARANOIA TO SEE HOW
THINGS PAN OUT ON TRADE. THE SITUATION IN THE MIDDLE
EAST . THINGS CAN STILL GO WRONG.
FRANCINE: THIS IS A LOADED QUESTION, BUT
HOW MUCH IS THE EFFECT THEY CUT EIGHT TIMES AND SO NOW THEY
WERE IN A BETTER PLACE AND HOW MUCH OF IT IS LUCK OF THE DRAW?
THEN THE EURO ON THEIR SIDE, NUMBER OF THINGS STRUCTURALLY
THAT MEANS A LITTLE MORE COMFORTABLE BEING IN EUROPE
RIGHT NOW COMMITTING A CENTRAL BANKER TO EUROPE THAN THE REST
OF THE WORLD? >> THAT IS A TOUGH QUESTION.
FOR THE ECB, THEY’RE RUNNING A VICTORY LAP.
THEY FEEL LIKE IT WAS DOWN TO THE ECB TO A LARGE EXTENT.
OF COURSE, THEY WERE HELPED BY ENERGY COST. JUST LIKE ENERGY
COSTS PUNISH THEM WHEN INFLATION WAS RISING.
WHEN IT CAME DOWN, IT WAS A LOT DUE TO THAT FACTOR.
ON THE OTHER HAND, THE SIGNIFICANT — THE HAWKISHNESS
DID SEND A MESSAGE TO COMPANIES, LABOR UNIONS THAT
THE ECB IS ON THE JOB. SO THE WAGES ARE BIG PART OF
THE STORY. IT IS DIFFICULT TO SAY.
THEY PROBABLY WOULD HAVE UNFOLDED DIFFERENTLY HAD THE
ECB STAYED ON THE SIDELINES. FRANCINE:
WHAT WOULD BE THE MAIN TAKE AWAY FROM SINTRA?
A LOT OF THE FOCUS HAS BEEN ON JAY POWELL AND HE COULD SPEAK
TO PEERS AND UNDERSTAND THE PRESSURES HE’S GOING THROUGH
EVEN IF HE GETS ATTACKED BY PRESIDENT TRUMP ON A DAILY
BASIS. >> IT IS TRUE FOR THE ECB, WE
DID NOT LEARN A WHOLE LOT OF NEWS ON THE RIGHT PATH.
IT SEEMS CLEAR THERE’S GOING TO BE A HOLD IN JULY.
POSSIBLY CUT FURTHER IN THE FALL.
THE MOST INTERESTING BID WAS PERHAPS THE COMMENTS ON THE
EURO. USUALLY, THE ECB IS VERY HESITANT TO COMMENT ON THE
EXCHANGE RATE. THEY DON’T WANT TO BE SEEN AS
TARGETING A CERTAIN LEVEL. THIS TIME WAS A BIT DIFFERENT. THERE WERE EXPLICIT COMMENTS ON
CONCERN ABOUT WHAT THIS MEANS FOR THE ECONOMY COULD WAY DOWN,
COULD FURTHER DEPRESS PRICES. THIS IS SOMETHING THAT COULD
TIP TO FURTHER CUTS IF THE EXCHANGE RATE CONTINUES TO
DEVELOP AS WE HAVE SEEN, IF THE EURO KEEPS STRENGTHENING.
FRANCINE: THANK YOU SO MUCH, ALEX. COMING UP, PLENTY MORE
INTERVIEWS IN SINTRA. THOSE INTERVIEWS COMING UP IN
THE NEXT HOUR. UP NEXT, “BLOOMBERG BRIEF.”
THIS IS “BLOOMBERG.” ♪

US President Donald Trump threatened Japan with tariffs of up to 35% as he ramped up tensions for a third straight day, fueling fears of a worst-case scenario among market players and raising doubts over Tokyo’s tactics in trade talks. Japan should be forced to “pay 30%, 35% or whatever the number is that we determine, because we also have a very big trade deficit with Japan,” Trump said, again flagging the possibility that across-the-board tariffs could go much higher than the 24% initially penciled in for July 9. “I’m not sure we’re going to make a deal. I doubt it with Japan, they’re very tough. You have to understand, they’re very spoiled.”
Today’s guests: Stefan Hoops, DWS Group CEO, Isabelle Mateos y Lago, BNP Paribas Chief Economist, Holger Schmieding, Berenberg Chief Economist.

Chapters:
00:00:00 – The Pulse With Francine Lacqua
00:00:32 – Trump Sticks With July 9 Tariff Deadline While Criticizing Japan
00:11:23 – Hoops: Germany Defense Sector is Opportunity
00:16:28 – Ueda: Tariffs Could Add to Inflation in 2026
00:36:35 – Starmer Emerges From Welfare Bout Weaker and Billions in Red
00:41:11 – Trump’s 35% Tariff Threat Feeds Japan’s Worst-Case Scenario Fear
00:43:19 – Trump, Musk Feud Again After Tax Bill Criticisim
00:46:49 – Uncertainty Dominates ECB’s Annual Retreat
——–
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