Bloomberg Surveillance: May 5, 2025 - Trade Deals, Fed Policy, and Market Outlook

Addressing Market Confidence and Trade Uncertainty

• 💡 Chris Harvey of Wells Fargo believes the administration has addressed the recent crisis of confidence by adjusting its behavior in response to market and public feedback.
• 🎯 A key focus is achieving granularity on trade deals, particularly with partners in Asia, Europe, and North America, to move beyond the current high-end range of market expectations.
• ⚠️ The administration views China as an existential threat, leading to a lack of expectation for positive developments in US-China trade relations.
• 📈 Progress on trade deals with other regions could lead to significant market gains and reduce concerns about the economy.

Market Outlook and AI Trade

• 🚀 Chris Harvey suggests the market has moved past peak uncertainty, with the administration likely avoiding a recession due to its negative implications before midterm elections.
• 💡 The AI trade is becoming increasingly attractive due to lower valuations and improved risk-reward profiles across sectors like utilities, industrials, and tech.
• 📊 The risk-reward profile for the S&P 500 is viewed positively, especially if the Fed cuts rates in the second half of the year and the economy slows without entering a deep recession.
• 💰 Potential positive catalysts include deregulation and a shift from tariffs to tax incentives.

Trade Negotiations and Global Dynamics

• 🔑 Kate Kalutkiewicz highlights the administration's incentive to negotiate deals on reciprocal tariffs, using them as leverage to bring countries to the table.
• 🤝 Purchase agreements are seen as a quicker way to achieve deals compared to long-standing non-tariff barrier negotiations.
• 🇪🇺 Negotiating with the European Union is described as exceptionally difficult due to its 27 member states and historically challenging regulatory environments.
• 🇺🇸 The US tends to approach negotiations through leader-level discussions with member states to create political pressure on the European Commission.

Federal Reserve and Economic Data

• 🏦 James Bullard, former St. Louis Fed President, believes the Federal Reserve is in a good position for its upcoming meeting, with no market expectation for a rate move.
• 📉 The Fed's previous rate cuts in 2024 and current declining inflation provide a strong position, despite potential trade war escalations.
• 📈 Bullard notes that markets are starting to price in a positive outcome from trade negotiations, leading to a constructive view on the administration's actions.
• ⚠️ The US-China tariffs are considered prohibitive and unsustainable, akin to a trade embargo, suggesting a need for resolution.

Economic Data and Consumer Sentiment

• 📊 Erin McLaughlin from The Conference Board notes that deals with other Asian economies may be struck before a resolution with China.
• 📉 Consumer confidence, particularly expectations, remains at a decade low, resembling conditions during or after the Great Recession.
• ⚠️ Consumers are nervous about inflation and potential employment deterioration, leading to reduced spending and a focus on necessities.
• 🗓️ The data may show an air pocket in the economy in approximately six to eight weeks, potentially influencing the Fed's July meeting.