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>> We're to start with a quick good view

here to get to June 30th online for the

next uh 6 months from ING.

Annika Trion uh joins us, global head of

private banking and wealth with her work

out of the London School of of

Economics. Annika, have you written a

mid-year review or do you in the

Netherlands have to rewrite it given the

news flow?

>> A mid-year review?

>> Have you

>> you mean by a mid-year review?

>> In America, everybody in banking has to

write a June 30th 12-page memo that is

dead July 15th. That's [laughter] the

way it rolls. Have you written a

mid-year review or are you people

smarter than us and you don't even do a

mid-year review?

>> Well, we're not we're not doing a long

memo like that, no. We uh we're

fortunate, I would say.

>> So, Annika, what's the conversation

you're having with your clients these

days? I mean, you know, there's the

you know, the uncertainty surrounding

the geopolitics over in Iran, not to

mention Ukraine. What are your

conversations like with your clients?

>> Yeah. I think it's I mean, it's a sad

it's a sad thing, I would say, because

of all the human sort of tragedies going

on around the world, but it feels like

volatility is becoming increasingly

normalized and that's exactly what we

see with our conversation with clients.

And I mean, practically, you see it in

markets, but we see it in parallel in

clients' behavior. So, you know, post a

COVID, you saw a market reaction minus

30%, post Ukraine minus 20, post

Liberation Day minus 15, and post- the

recent Middle Eastern conflicts minus

10. So, you see that clients are just

increasingly

resilient and steadfast with what

they're doing, why they're doing it, and

sticking to convictions.

>> So, what is the conviction? One of the

the trades that we saw when, you know,

the the tariffs were initially

um put out last year was

some asset flows out of the US into

other parts of the world and

including in big way Europe. Is that

still the sentiment out there or is that

reversed a little bit in your mind?

>> Well, it's really interesting. So, I

think two things. First of all, indeed

that that that happened and I think

Europeans were very excited because it's

been a long time coming. We've been

talking about systematic valuation

mismatches between Europe, US, etc. But

then something happened and what

happened was, of course, we've had this

amazing earnings bonanza and that's

especially driven by the US, US

companies, US equities again.

Year-to-date, it's been an amazing

quarterly earnings season and I think

that is just reforged the notion that

European companies are just not able to

grow at the speed of US companies. So, I

mean, 20% earnings growth for US

equities this year is expected, 10 max

15 for Europe. So, I think that makes

things tricky.

On the other hand, what's interesting,

if you talk about Europeans and how

Europeans are deploying their capital,

number one, we're seeing a lot more

Europeans start to actually invest and

this is a really important thing. And

number two, you do see quite a home

bias. You do see that Europeans like to

buy Europe. We do notice this also this

year.

>> You know, I I I think I think this is a

brilliant, brilliant statement and in

America our understanding is that Europe

believes in American technology, Europe

believes in an

initiative, innovation, and the rest.

What's the first derivative of that

right now? Is Europe leaning into

America into 2027?

>> I think Europe I think there's two

things. First of all,

we've waited for a long time for the

continent of Europe to basically lean I

call it leaning in into capitalism,

right? Really putting capital to work.

We have trillions lying in deposits and

US versus Europe is a very different

story, right? The average European

household has less than a third of the

wealth invested. The average US

household more than half. Um so number

one, you're seeing that Europeans are

really starting to invest. We don't have

the 401K system that you have in the US.

So these are deliberate choices that are

being increasingly made also by younger

populations, [clears throat] which is

great.

Um the feeling towards the US from

Europe is talking about earnings growth.

I think what's happening is we're in a

world where, you know, we used to be

very demand-driven in the last decade.

And I think what's happening now, supply

is the new demand, right? So all these

enormous supply constraints, the need

for computes, the need for data centers,

etc. Um all the AI technology, you see

there are just these US champions and

Europe is just keen to get involved and

keen to deploy capital in that way. So I

think Europeans are very pro-US,

constructive on growth that comes out of

US companies, but they don't want to

neglect their own continents.

>> And again, one final question I want to

dive back to the economic history of the

London School of Economics.

The model is a war ends and there's like

celebration and all that as there should

be with any ending war. And then there's

a vector of disinflation

and at times outright deflation. Should

we expect, given the headlines, that

with an end of this middle war in Iran

within the Eastern Mediterranean, that

we're going to be surprised by some form

of tone of disinflation.

>> [snorts]

>> You know, it's interesting because we've

indeed been walking a disinflation path,

then this conflict spiked up pricing,

etc. We've even seen the ECB have to

adjust rates in response. But indeed, if

you know, if things are settling down,

which they seem to be, that can bring us

back to the path. What is interesting

though, AI,

which we I think we all believe will be

a disinflationary force, it does feel

like it's going to be inflationary

before deflationary. And back to what I

was saying earlier,

there is a radical issue when it

concerns supply shortages. Shortage of

power, shortage of compute, shortage of

labor in you know, in a less of a

globalized labor mobility world, etc.

And this this supply shortage, I do

still think has an inflationary edge to

it.

>> And you can thank you so much. Really,

really appreciate it this morning with

ING on the special edition of Bloomberg

Surveillance from Queen Victoria Street

in London. Stay with us. More from

Bloomberg Surveillance coming up after

this.

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>> We continue to be fortunate with Janet

Henry, global chief economist at HSBC,

and truly a wonderful student of the

linkage of the United States with a

continent and and all of these events.

Janet, you've got to rewrite your global

economics overview, unfinished business.

Get James Pomeroy to work. How do you

rewrite the HSBC midyear review?

>> Uh well, uh, like a lot of central

banks, Tom, we have been thinking about

the world with different scenarios. And

and for our base case scenario, I'd say

we actually have a a higher degree of

confidence than we did just just a month

ago because we've been working on the

basis that the straight would start to

reopen in the course of June. Uh,

we were getting nervous that that might

not happen, that we would be in our bad

or our uglier

um scenarios. So, yes, uh, we still talk

about scenarios, um, but the news could

have could have been a lot worse.

There's still a lot that can go wrong,

but at least we can look towards some

kind of gradual reopening at the moment,

um, during this 60-day ceasefire, um,

and hope that during that time some

progress is made towards, um, some kind

of a deal. So, there'll still be fallout

from it, um, but but yes, we're still in

a scenario overlay, but a little bit

more confident on that central case.

>> Speaking about this, Paul, I think we're

staggering to day 59.

The first day of the 60-day ceasefire,

and the news has changed three times.

>> It has changed three times here. I'm not

sure where we are, but, uh, so, Janet,

given, you know, some of the crosswinds

that Tom highlights here, um,

how are central banks reacting? We heard

from our Federal Reserve and our new

Federal Reserve chief this week, but,

uh, it seems like they're staying put,

but they might be

thinking about raising rates at some

point. How do you see that?

>> Uh, I think that's absolutely fair. Uh,

you know, if we go back to even January

of this year or even late last year, we

certainly never expected the Fed to cut

again. Uh, we thought there'd be 75

basis points of easing and that would be

it. The US economy is is pretty robust,

uh, and obviously we've got the tax cuts

already. And relative to the rest of the

world, and I I do talk relative, it's

relative winners and relative losers,

losers, and the US, obviously an energy

and absolutely at the forefront of this

whole AI boom that is underway

globally. So, it's a relative winner.

And no central bank at the moment is

going to give any hint

that they are not prepared to take the

kind of action that they might need to

take. Because even in a positive

environment, we haven't seen the lasting

impact of it. Best, we're going to see a

peak in inflation, but then get a hump

for some time. They've got to keep it

all expectations very anchored.

>> Janet, I've got to go to the stunning

elections that we've seen a set of

elections in the United Kingdom. The

HSBC collapse of real GDP, 4% United

Kingdom, 0.4%

United Kingdom, maybe 1.4%

out there in an inflation that goes from

9% down to 3% is well,

what kind of economy will the next Prime

Minister, whether Starmer or Burnham,

what kind of economy will they have?

>> [snorts]

>> Well, I think if we start the year

looking back on the UK, things were

finally getting to a slightly better

place. We had a fairly robust start to

the year. Without a doubt, without the

spike in oil prices, we would have seen

inflation below 2% as soon as April.

We were certainly looking for some

pretty big rate cuts in the course of

this year. So, unlike for the US, the

outlook has changed considerably

in the UK.

So, it's not an easy

palette of choices that face us, face

any of our recent Prime Ministers in the

UK, and we've had quite a few

in recent years. The fiscal dynamics are

not easy, difficult political choices

are going to have to be taken. And you

know, any Prime Minister is going to

have to get people on board with making

those necessary political decisions and

to restore global confidence in the

outlook for the UK. But actually we now

think that the Bank of England won't

actually have to raise interest rates

even if they can't tell anyone that

anytime soon.

>> HSBC has such a grasp foreign exchange.

What's your euro call here? Do we have

weaker euro from a 114 63?

>> Uh yes, actually we do now look for

slightly weaker dollar.

Obviously since the beginning of the war

dollars have the upper hand. It's been

moving with the oil prices and while

some of the oil exporting currencies

have actually weakened a little bit,

especially the likes of Norway

and others, actually the US dollar has

remained pretty firm on that whole AI

exceptionalism

story. So we look for a broad based

firmer dollar and that does include a

slightly weaker euro even from these

kind of levels.

>> Dr. Henry, thank you so much. Janet

Henry, although I have to say it. She

knows they they hate when I say this.

The Hong Kong and Shanghai Banking

Corporation.

It's so romantic. I mean it's like you

got to say it. HSBC, thank you so much.

Janet [music] Henry, stay with us. More

from Bloomberg Surveillance coming up

after this.

>> You're listening to the Bloomberg

Surveillance podcast. Catch us live

weekday afternoons from 7:00 to 10:00

a.m. Eastern.

>> Listen on Apple CarPlay and Android Auto

with the Bloomberg Business App or watch

us live on YouTube.

>> Joining us now, last time she was on

spectacular Vanya Rakova joins us here

from the London Business School with all

sorts of other good affiliations behind

it. It's prodigious mathematics from

Franklin and Marshall. I want to talk

Vanya about as you say a view from

60,000 feet on inflation persistent

slowing growth, geopolitics.

The fact is, looking backwards, Vanya, I

have a central bank regime, particularly

the Fed, in its 3% range, nowhere near a

supposed 2% range. Are we in an era

where we're losing 2% and we're going to

a higher inflation regime?

>> So, thank you so much for having me, and

it's lovely to join you from the London

office.

I do believe Kevin Warsh is laying out a

completely different playbook for the

Federal Reserve, which in many ways I do

believe is a positive change. So, we are

in the beginning of a regime change that

acknowledges that effectively the Fed

has to regain control over inflation

because it needs to be prepared for

fiscal dominance regime. And I believe

that his first speech that we witnessed

just a couple of days ago was precisely

about that. Now, the job is not going to

be easy because even though he

emphasizes the importance of regaining

control over the broad money supply, so

effectively the balance sheet of the

central bank, which is front and center

in his view of how central banks should

conduct monetary policy, one thing that

he kept mentioning during that speech is

that at the moment, the fact that we

have such high stock valuations is

probably an important driver of the

inflation that we're seeing, right? We

have a K-shaped growth in in the US

economy. the higher the stock market is,

the more demand there is by these

high-income consumers that also hold the

stock market. And even if you hike

interest rates, to the extent that the

stock market is driven by this AI boom,

you might need to hike by a lot in order

to put a dent in stock market

valuations, which will, in turn,

[clears throat]

put a lot of pressure on housing

markets, clearly the cost of borrowing

for governments. So, it is a very

difficult situation he finds him-

himself in

>> [clears throat]

>> given that getting the stock market

under control is not something that is

easy to do or he might be willing to do

but it's an important driver. This

wealth effect is an important driver for

the inflation that we see in the US at

the moment.

>> Uh Professor, we know you have some

political issues there

Prime Minister does with the election

earlier yesterday in up in Birmingham.

Talk to us about the the virgins between

kind of the past of economic growth in

the US versus the UK. What is it all AI

or what else is going on?

>> Well, sadly the UK has been hit by a

number of negative productivity growth

shocks. So first of all, the global

financial crisis impacted London and the

UK much more and much more negatively

than the US granted that the financial

sector was the main driver of growth in

in the United Kingdom. We never

recovered from that and you can see it

from the pound, right? The pound is a

very good parameter of the of the state

of the economy and after the pound

depreciated with onset of the global

financial crisis, it never really

recovered against the dollar. And the

second big shock was Brexit. So

essentially the UK hasn't really had

much of a growth since the global

financial crisis. The US is a very

different story.

We have of course the the high taxation,

the the high tax burden which doesn't

help with innovation, creating new job

retention of company startups,

attracting high talent individuals.

So yeah, the UK is in a much more

challenging position than than the US in

that sense.

>> So here one of the other phenomena over

the last several years has been

the decline of globalization, the

onshoring, maybe the friend shoring and

some concerns that that structurally

will push global inflation higher. Do

you ascribe to that thought?

>> Well, what's interesting is that yes, we

have seen inflation being higher and

probably a big chunk of that inflation

is because of deglobalization if you

wish, [clears throat] but also what's

surprising is that the global economy

has remained quite resilient. Um it is

possible that a lot has been absorbed by

firms lowering markups in in in sector

sectors and industries that are

essentially more competitive. Um but I'm

not seeing the main issue with inflation

around deglobalization at least as of

yet because [clears throat] the the

factor tariff rates are not as high yet

and hopefully will not be.

>> Vanya, I I I'm sure at Franklin and

Marshall you crushed your first exam on

dynamic stochastic general equilibrium

theory. Clarita told me that.

>> Oh, okay.

>> Said Vanya's down at Franklin and

Marshall just killing it.

>> Yeah.

>> Vanya, when you look at the mathematics

of all this, is the worst Fed going to

be as ex-post,

after the fact, is the Powell Fed, is

the bottom line is we're just going to

have to wait to see what the data is

like mere mortals who put their pants on

one leg at a time?

>> I mean, they will look at the data, but

I think they will try to use completely

new set of tools. They will try to push

unconventional monetary policy to

completely new level. I'm not talking

about forward guidance, quantitative

easing. This is old news at the moment.

I do believe he is going to try all

kinds of new instruments and you know,

it's it's no surprise that he favors the

old regime where we had required reserve

ratios that could be used to manipulate

the money supply, etc. Uh you know, he

he's a fan of essentially regaining

control of the broad money supply. So,

in principle, is that useful? Yes. The

more tools you have, you don't have to

use a single blunt instrument. Uh having

said that, it's not easy to achieve. So,

we'll have to wait and see and it's one

thing to say I want inflation to go down

to 2%. It's another thing to deliver and

you would have to show some actions

behind that interview.

>> Right. Dr. Servakhova, thank you so much

for joining us today from London

Business School. Really

I appreciate [music] it. Stay with us.

More from Bloomberg Surveillance coming

up after this.

>> [music]

>> You're listening to the Bloomberg

Surveillance podcast. Catch us live

weekday afternoons from 7:00 to 10:00

a.m. Eastern. Listen on Apple CarPlay

and Android Auto with the Bloomberg

Business app or watch us live on

YouTube.

>> honored to bring you now a gentleman who

perhaps more than any American spans

Robert D. Kaplan's the loom of time from

Morocco over to Persia.

Ambassador Puneet Talwar is the United

was former United States Ambassador to

Morocco and was directly involved with

many negotiations with Iran. Ambassador,

thank you so much for joining Bloomberg

this morning.

>> It's great to be with you both.

>> Ambassador, I look at this moment at

hand and I want you to take it back to

Albert Hourani and his definitive one

volume on the history of the Arab

people. Is the Arab world from your

Morocco to your Iran, is it blown up?

>> The Middle East has been in a period of

incredible turmoil for at least a

century, especially following the

collapse of the Ottoman Empire. So, what

we're seeing today

is really a continuation

of this cycle that has been going on for

many decades now.

It's intensified, it's quiet for periods

of time, but it has been largely in this

period of

disquiet and unrest for a long period of

time. And of course, as you know, Persia

is not Arab, but they have a significant

influence

on parts of the Arab world, especially

through their ties

to the Shia communities and their

support under this ideological Iranian

regime for non-state actors like Hamas,

Hezbollah, so including non-Shia groups.

>> When you look at Iran and you take it

from the span of the '79 revolution to

the horrific war with Iraq

and the balance between the theocracy

and maybe a middle class in Iran, where

does the theocracy of Iran place right

now versus the military that seems so

dominant?

>> That's a great question and

that still has to shake out a little

bit.

Prior to this war, the Islamic

Revolutionary Guard Corps,

the defenders of the revolution if you

will,

have had the upper hand in the Iranian

decision-making process. And that has

only been strengthened through this war,

the campaign of assassinations, the

taking out of the supreme leader who is

a theocrat, the chief theocrat if you

will, in Iran has been replaced now by

his son who's still untested. And what

we've seen is that the IRGC is in a more

dominant position. So the hardliners

have been strengthened through this war

and we have to see how this shakes out

and whether the theocracy and the

clerics will actually take more of a

not a backseat but maybe not having as

dominant a position as they once did in

the past.

>> Ambassador, can you give us an

assessment of the memorandum of

understanding? What's your view?

>> Sure.

I think it's not a very good deal, but I

think it reflects a reality, a reality

of a war that was started on faulty

assumptions, the assumption that Iran

was so weak following those massive

protests which killed thousands of

innocent protesters that a that a quick

military operation

could essentially either topple the

government or force it to capitulate.

And neither of those things happened.

So, war that started on that premise

actually has resulted in an Iran that is

in a stronger strategic position. Uh and

this memorandum essentially will for 60

days reopen the Strait of Hormuz uh

restoring it to the way it was. After 60

days, it seems to contemplate the

potential for Iran uh to collect fees.

Uh and if Iran is unhappy with this at

any time, uh they can continue to uh

regulate the flow of traffic. It's not

necessarily an on-off switch. Uh and

they're getting a significant amount of

upfront sanctions relief uh which will

undercut, I think, the leverage that the

administration will want for the second

phase of this deal uh to get into the

nuclear uh discussions.

>> So, I guess that begs the question, um

it seems like we're no better than we

were before the war, maybe worse off if

this strait is now weaponized in the

future.

How does the US move from here?

>> That's a good question. Uh we are worse

off. Uh I think Iran certainly has been

set back in terms of its conventional

military capabilities, its defense

industrial base. But the United States

has now lost two key pieces of leverage.

>> [clears throat]

>> Uh it's uh the use of force is no longer

credible because we've shown the

limitations of that. And Iran has

withstood this powerful assault. And uh

and the oil sanctions uh which were our

most powerful piece of of leverage on

the sanctions front, uh those are being

waived at this point. Uh and so, what we

have to go back to is really the drawing

board. And what the administration can

offer now to get to that uh nuclear deal

that we all want to see to constrain

their program uh and to prevent them

from getting a weapon is essentially

incentives, incentives of over fund.

Uh and we can have to try to rebuild our

alliance structures as well, which are

in bad shape in many parts of the world.

>> Ambassador to spend this from the Arab

Spring in Tunisia, in Cairo, and bring

it over to your Morocco, where you were

our representative in in uh, Marrakech

and in

uh, all of all of the king's Morocco.

How does this war destabilize

the distant Arab world? How does this

war destabilize Morocco and Mohammed the

VI?

>> Well,

Morocco, I don't think is is

fundamentally destabilized by this.

Morocco's actually, uh, this is our

250th anniversary we're going to be

celebrating this year. It's actually a

moment to remember that Morocco was the

first country to recognize American

independence. So, this is an old,

long-standing relationship. Morocco is

an incredibly stable country. It's one

of two countries in Africa that has uh,

has reached investment grade status. Uh,

and it's going in a great direction

under very progressive king. Um, now

that said, they're having some uh, some

influence from this. Uh,

uh, what we're seeing is that uh,

sulfur, for example, which is necessary

for fertilizer exports, the biggest

export earner for Morocco, those have

uh, been uh, affected. And as a result,

uh, Morocco's fertilizer exports will be

hurt this year. Uh,

moreover, uh, Morocco's no friend of

Iran. They've broken relations with them

twice. They actually have no relations

right now. Uh, part of that goes back to

the fact that they actually hosted the

Shah after he was overthrown. Um, and

so, uh, they have no love lost. And

they're probably very concerned, just

like many other allies in the region,

that Iran is is apparently emerging from

this in a stronger position. Uh, they

want to see Iran put in a corner, uh,

and uh, and uh, not have the ability to

expand its tentacles all across the

region.

>> Ambassador Tom Or, thank you so much for

joining us today. Paul Sweeney and Tom

Keene here at uh Bloomberg. The former

ambassador to Morocco, Puneet Talwar, uh

with us at Talwar

Global Strategies and of course with the

Council on Foreign

uh Relations.

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