Iran Wavers on Peace Talks After US Seizes Ship

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This is the Bloomberg Surveillance Podcasts Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. The next guest writes, geopolitical shocks usually fade, but this one matters near term because it's an energy shock. Boy, that makes a lot of sense to me. Steve Parker joins us. Co-head of Global Investment Strategy at J.P. Morgan, Private Bank.

Steve, what's the conversation you're having with your private bank clients here these days about this Black Swan event and what it might mean to their portfolio, like a short term and maybe longer term? Yeah, you know, I think clients have done a good job because we've trained them well. over the last couple of years to recognize, as you just said, that geopolitics rarely have long-lasting impact. So the first thing that we're seeing is the clients are staying disciplined, they're sticking with their plan,

and that's been the right move. I think the bigger question and the thing that matters longer term in the conversations that we're having is recognizing that we're in a world where it's not just this energy shock, but it's this shift towards global fragmentation, which means that inflation is probably a bigger part of the story going forward.

The floor on inflation is probably higher, the volatility of inflation is probably greater. So thinking about the diversification part of your portfolio is not just about bonds, but also thinking about things like infrastructure, real assets, commodities as part of that inflation story. And also, Steve, supply chains, I think, right, are going to be reshaped because of not only COVID, which is, I think, what's sort of raised the flag, but now this war. And how does that have you thinking about opportunity? Yeah, I think you're right. We went through a multi-decade period of globalization where it was. was all about the efficiency and low cost nature of your supply chain.

That was great for margins and earnings and inflation. But I think between the pandemic, what's gone on in Ukraine and what's happening now, you know, there's a recognition of this shift towards, as I said, more fragmentation. Countries and companies are going to focus more on the reliability and security of supply chains more so than the cost of supply chains. One of the interesting opportunities that we've been talking about with clients is this idea of investing in national champions and strategic. industries because I think whether it's infrastructure and power in the U.S., security and defense in Europe, the technology sector in Asia, you're going to see much more of a focus on developing domestic champions as part of the supply chain story.

Steve, before the war, probably the the driving force for these markets and sentiment was AI, artificial intelligence, and I guess the market had evolved from simply, I'm just throwing money in anything that's remotely close to an AI, to now I'm trying to discern maybe winners and losers. What's the conversation you're having these days? Yeah, I think that's right. And I think that shift really happened towards the end of last year when you saw a shift from these hypers funding a lot of this capital spending from free cash flow to starting to engage credit markets. And I think that caused investors to take a step back and say, you know, we need to decipher not just every spend is good spend, but rather what's going to be effective spend. And I think that that's

what we're seeing now. And I think you're going to continue to see that. The good news is we're continuing to see earnings revisions move higher. Valuations, as we've seen a bit of a pause in these stocks, have now gotten more attractive. So perhaps heading into this earnings season, the bar is a little bit lower, even with the rally we've seen in the last week. But the backdrop to all this, right, is possibly higher oil for longer? What is your outlook for oil? I mean, in terms of just how we experience it day to day when we go fill up, I mean, now

we've got Treasury Secretary Scott Bessent saying gas should hang around $3 a gallon for the summer, but yet you got the energy secretary saying we might not dip below $3 a gallon until next year. Yeah. Our base case is that we do see oil prices continue to gradually move lower, call it $80 a barrel over the next three to six months. I think that's a good environment for growth. Inflation picks up a little bit, but that's something we can manage. We also do a scenario analysis where we ask ourselves, what happens if we stay around this $100 level? What happens if we see a spike higher? And at the $100 level, it's a little bit trickier for markets because stocks potentially feel some pressure from a growth slowdown, bonds feel some pressure from higher inflation.

That's where you need to look at some of those diversifiers we talked about. Where this becomes more of an economic story is at that $120, $140 a barrel for a while, then you're looking at a scenario where modest growth year and outlook turns into potentially a modest recession. And that's what we're focused on. But we think that's a low probability outcome. What are you telling your clients to do in the bond market here? I've got a two-year treasury, get paid $3.75 for sitting in a two-year treasury.

That's not a bad living, but what do you get credit risk above and pay on that? So, one, we don't see, you know, major issues in the credit markets. We still think that there's opportunities focusing on higher quality credit. But opportunistically, where we've been focused, as you said, is on some of the shorter-term bonds, whether that's treasuries or investment grade. Long-term rates have been rather stable, despite the pickup in oil prices, where we've seen a huge move is on the short end of the curve. The markets went from pricing two or three Fed cuts to a Fed on hold. Outside of the U.S., markets are now pricing central bank hikes between now and the end of the year. And so for our clients who are sitting on a lot of cash, using this as an opportunity to extend duration a little bit, pick up and take advantage of some of that move that we've seen is an interesting opportunity. We're talking to Damien Sassauer earlier about emerging markets.

And we're seeing a lot of interest also in Africa as we talk about investments in renewable energy. What are your thoughts on EM in this environment? So we think EM is one of the most compelling opportunities out there. Really? We think the story in EM is really one focused on earnings growth and revisions, which have moved sharply higher, particularly when you think about Asia, particularly when you think about markets like Korea and Taiwan that are really essential to this AI capital spending story.

And at the same time, even with the outperformance that you've seen in emerging markets over the last 12 to 18 months, valuations are still at a pretty substantial. substantial discount. And while we don't have a specific view around Africa, I do think that this you know, de-globalization story and this, you know, reorientation of supply chains, diversifying resources, you know, natural resources and things, is going to benefit places like Latin America, which is an interesting investable opportunity. Alternative investments. I used to think a reasonable allocation to alternative investments would be like 5%. But that's like no way. People are allocating a lot more to alternative investments.

How about the sleepy people at JP Morgan Private Bank? I mean, you're there to preserve my capital here. You know, I think the first thing is really getting an understanding of investment horizon and objectives, right? And the nice thing for a lot of our clients who are wealthy and they're thinking not just about short-term capital needs and liquidity, they're really thinking about long-term multi-generational wealth. And that's where alternatives do play a much bigger role. When you can give up some of that liquidity in exchange for either, you know, potentially enhanced returns or diversification within your portfolio.

We did a family office survey recently where we talked to the family offices of our largest clients. And on average, they've got about 40% of their portfolio and alternatives. But again, that's because they're thinking out over decades and centuries. For our other clients,

we do think that introducing alternative allocations is important, as I said, both to enhance returns in places like private equity and real estate, but also to give you some diversification in things like infrastructure. Real quick, is an alt investment in your mind?

So crypto is a, you know, sort of a, not a new category, but it's an increasingly focused on category in our client, with our client conversations. We haven't taken kind of a strategic view on incorporating crypto into our portfolios. You know, it introduces a lot of volatility. And when you're thinking about diversifiers, that's not necessarily where we want to focus our incremental dollar. But it's an area that we're doing a lot of work on and we're continuing to focus on. Steve, thanks so much. Appreciate it. Steve Parker, co-head of Global Investment Strategy, J.P.

P. Morgan, Private Bank, and he Prog Redger of the Com School, School of Commerce at the University of Virginia. Stay with us. More from Bloomberg surveillance coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks. on your behalf. Just describe what you want to do in plain English. Like if the VIX hits 25, buy a put option on the S&P 500. Or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market,

watching for your conditions, and executing your strategies exactly as defined, an investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by public investing.

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You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube. Joining us here in studio, Isabel Mateo and Lago, chief group, economists, B&P Paribati offices in Paris are just awesome, by the way. Isabel, thanks so much for joining us here. What are the conversations you're having with your clients today? it all about the war? Can they look past the war and try to think about economic fundamentals

in the economy? What are the conversations you're having with your clients these days? Good morning, Paul. That's an excellent question. And I think by and large, the clients are trying to look not through, but beyond the war. I think there's a sense that we've been hit by shocks coming out of the U.S. and at some point in the end, and then life resumes. Well, at some point there and good or bad, but, and so there's an intense desire to not get waylaid by the noise and the constant, yeah, shocks that, you know, resolve themselves and focus on, you know, what's really happening in the underlying economy. And the answer is, well, there's a lot of really interesting transformation. There's the AI story. There's the supply chain rewiring story.

There's a defense story. So there's actually quite a lot of ventures. genes of resilience there. Earning season is kicking into high gear this week. We've got about 20% of the S&P 500 companies going to report, including some big names, Tesla, Boeing, Intel, GE, the list goes on. Isabel, how much are earnings driving the performance for equities at the moment? A lot. I think, you know, I was in Washington, D.C. last week for the IMF meetings,

and a lot of the conversation was around the apparent disconnect between how, you know, well markets, stock markets have performed. I mean, we're above where we were at the start of the war in the U.S. markets today versus this really enormous uncertainty about the war and the impact it's going to have on the economy. And I think the reason for that is exactly earnings, which so far have been very strong. Earnings, expectations have been revised up, not down. And I think this is, again, an indication that people think the damage from the war is going to be contained. Including companies if they're revising up.

Yeah, including companies. The problem with that is that it's not a certainty. It's just a bet that people have obviously confidence in. And that was also the mood, you know, last week in Washington. But what I would say is that people from the region were the ones sounding a note of caution of saying, look, this is going to be complicated. Even if a peace deal is signed today, it's going to take a while for things to normalize. And so, you know, maybe hold your horses, all of you out there who are bullish.

But for now, this bullishness, I think, dominates. Isabel, when this war started, I think the economic concerns, given the shock that we've seen to the energy space, would be perhaps slower economic growth, higher inflation. Have you adjusted your numbers at all to reflect that? Or what are you seeing out there? So we're waiting for the ceasefire to publish our new numbers, and it's been a bit of a moving target. But yes, the direction of travel. I think it's hard to argue with this.

Growth revised lower, inflation revised higher. The quantum is what we're still waiting to see. But, you know, by and large, we're very aligned with the IMF numbers and others, which is, you know, we were starting from a position of strength with fairly good growth momentum everywhere, and that growth momentum is going to be slower. But, you know, we're not looking at a recession, again, unless things re-escalate in the Gulf. And the inflation shock is going to be meaningful, but, you know, not something that would require central banks to, you know, hike interest rates by as much as they did in 2022. I want to ask about the disconnect between Europe and U.S. traders because I'm looking at the W.EI screen here on the terminal showing me year-to-date percentages for the major indexes.

S&P 500 up 4% year-to-date. The Dax in Germany down about a third of a percent. So are European investors seeing this? war and its implications differently than the way U.S. investors are? So I think it's just a reality of the components of the respective stock markets. You know, the U.S. stock market is tech heavy and the U.S. economy in general is less exposed to this energy shock just because, you know, U.S. is a net energy exporter. Germany, out of all the European economy, is the most industrial and the most, you know, carbon energy intensive. So, yes, it is going to be hit disproportionately. And that's what you see in the performance of the Dax that you just.

mentioned, but everything considered being down, what did you say, a quarter of a percent, is a bit of a shrug, frankly, compared to what could be the scale of the shock. So I think it's telling you that even in Europe, and that's definitely true in Germany, there is a lot of resilience, and there are a lot of other drivers of growth, notably the infrastructure and defense public investment effort that is underway in Germany that is going to continue to power growth through this shock. That's kind of where I wanted to go is about the positive economic development starting last year from the tariffs of investment on the part of Germany and maybe even some other European countries in defense in just infrastructure. Now that's got that offset a little bit,

which is, boy, the higher energy costs here. So what's the economic outlook broadly defined for Europe right now? So look, we were expecting Europe to grow at around one and a half percent before the war. We're going to revise that down by exactly how much I can tell you, but we'll still be, roughly around 1%. And that's because there are these other drivers of growth. Investment in the energy transition was already there. I would expect this will accelerate. And then there's also a lot of investment into tech modernization. Some of it is AI. Some of it is more plain vanilla automation. But, you know, all of that has to continue. This is what we're hearing from our clients in the real economy. And that's going to be a factor of resilience. And do your clients see the U.S. dollar as still

sort of the gold standard of safety, safe haven assets? Well, I think you know the answer in the way you ask the question. So it's not been the gold standard ever since 1973, was it? But no, I think it's fair to say that looking at the behavior of both the dollar and U.S. Treasuries in this recent market wobbles, it's very clear that while they retain a lot of reasons to feature in portfolios, they're not the all-weather risk hedge that they once were. And so people are looking to diversify from the dollar as a safe haven and to find other ways to introduce safety in their portfolios.

And interestingly, and that's something, again, I heard a lot around Washington last week, is this is creating appetite for European assets and for certain, emerging market assets. Isabel, thank you so much for joining us. Really appreciate it. Isabel Mateos I Lago, group chief economist for B&P Paribat based in Paris, but we appreciate getting her in our studio here today in New York City. 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 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg business app. Or watch us live on YouTube. You know, during the volatility so far this year, particularly around the Iran War, it felt like trading in the equity markets, in the bond markets, it wasn't panicked.

It seemed like it was pretty reasonable. It did. And kind of reflecting what's going on out there in the marketplace. But now we've got stocks hitting new time, all-time highs here. we've got the bond market sitting right where it was seemingly before 10-year treasury 4.26% in that 4 to 4.5% range. Here's somebody who does this stuff for a living, actually makes a living off of the fixed income market. Mack Resniewski, head of Fixedum, client portfolio management at Vanguard.

Matt, your market has been rock steady, it seems like. Talk to us about what you're seeing in your fixed income market over the last six, seven, eight weeks. Well, thanks for having me today. and good morning on this early Monday morning. Look, the bond market in some way, and think about credit markets in general, maybe have been sitting like an elephant in a little bit. There's a lot of resilience under the hood.

And when you start to look at the returns in the bond market so far this year, you're up close to a percent, close to a percent in a number of areas of the market, which is quite interesting. A lot of that's coming because of the income that you're getting in the bond market. So yield is kind of driving the story for the bond market. Yeah, I'm looking the benchmark 10-year treasury yield up 14% since the start of the war.

What could change this? I mean, are you looking at the Fed meeting really being the next catalyst? Because things just seem so, I just keep coming back to that word chaotic this morning with regards to the war. Chaotic. I have two little boys, so I think about bedtime here, right? You know all about chaotic. It's whether, you know, I need more water. I need this.

I need that. We're going back and forth. But I think when you kind of peel the onion back and you look at the market right now, it is all about the price of oil right now, and it's all about the geopolitical headlines that we're getting right now. We got some, you know, kind of a shift in tone over the weekend, the shift in tone of weekend after an exuberant Friday. But again, we're still in this environment where the bond market hasn't really moved all that much. Credit spreads in the investment grade index are, you know, 79 basis points, high yield or inside of 300 basis points or so. you're clipping around 5% and that's something that we think is really compelling for investors.

So in the credit space, how much credit risk do you want to take these days? Because I can sit there in a two-year treasury and get 3.7% or something. How much credit risk are you in your clients taking these days? Look, it's important to have just the right amount of credit risk. There's a key thing I'd say here is it's better to do something than do nothing. But what we really like a lot of is higher quality investment-grade corporates. You know, there's a lot of value in, say, financials. We've gone through, you know, this amazing stretch of bank earnings.

And what did the banks tell us? It's that the consumers in a pretty good spot. But beyond that, looking at lending, we're seeing, you know, loan books on banks continue to expand. So overall, when we think about clipping a coupon getting around 5% or so, that's something that we think is quite compelling in this environment in a way to kind of power through some of the noise you're getting in the market. I'm so glad you brought up banks because I was looking at smaller or the regional banks. They're actually outperforming the major banks. I know we heard from them last week in terms of

earnings, but the KBW NASDAQ regional bank index. So this tracks about 50 regional banks. It's up 10% so far this year. Does that tell you that, I mean, I guess their business is driven by investor loans, more than retail investor loans. Yeah, I mean, this is coming back to a story as a bond investment standpoint. Selection is what really, really is important. You're bringing up so what's going on the equity market. You know, one of the things that we've been talking about a lot is that this is a bond pickers market. We've moved from this beta trade in fixed income. The beginning of the conflict started this catalyst with all of these issues we're going on, whether it's AI, concerns, geopolitics, whether it's, you know, worries about private credit. All of this has kind

of created this environment where there's a lot of the dispersion. You look under the hood, the spread moves in investment-grade corporates have been interesting, but also beneath that, the moves between energy and financials are something really worth watching. So again, selection is what you want. You want to work with a very well-resourced active manager in this particular juncture to find good resilient income in this enduring environment for fixed income. We've seen technology companies who are typically aren't big issuers in the credit market. Boy, they've become big issuers in the credit market. How do you view them? How do you view those issues? They seem like, if I were an investor, I'd be like, keep it coming, you know?

I would say the new kids on the block into some way. There's a lot of new issuance in the market, all the big names, whether it's meta, it's alphabets, Oracle. You know, we're thinking about how these can play within portfolios. But again, under the hood, you look at the performance so far, they've actually lagged a little bit, you know, from a spread perspective. You look at returns, you know, the best performance have actually been energy so far within the corporate credit index so far. So again, it's a selection story. It's something you want to have a position in. But it's all about sizing. That's the real, that's the real key right now, how you're thinking about things. All right. Matt Rezneski.

Resnesty, yes. Right. Is Resnesty. All right. Head of Fix Income over at Vanguard. Matt, what are your expectations for next week's Fed meeting? We're very focused on, you know, a couple of key things. The read on how they're responding to the data and the data in particular as we get more understanding and closer through this geopolitical risk that we're going through. Again, the inflation numbers, the headline inflation numbers were really, really focused on because that's where. starting to see some of the pickup of some of the energy worries and some of the risks there.

But ultimately, it's all about data at this point. How much duration risk are you taking? How far out do you want to go on the curve here these days? Look, we think a neutral position is quite important. And when we think about client portfolios, and we have a chance, too, within our advisor business, looking at hundreds and hundreds of investor portfolios, a couple of things are kind of interesting. The first thing I'd say is, on average, four to five portfolios, and we have, you know,

that we look at have a duration shorter than the ag. And about half of portfolios have a duration that's at least one year shorter than the ag. And the point here is this is an enduring environment for bonds. People have been putting money in cash, looking at flows so far this year. Ultra short has been something that's, you know, gained a lot of interest from investors who are looking to park some money on the sidelines. We're really focused on getting investors at the right part of the curve.

We say the smart part of the curve today, it's really the belly of the curve. You have a lot of resilient income. You also have some potential price appreciation if you get a bit of a rally in the market. But this is the sweet spot for us overall today. What has demand been like or money flows into muni bonds at the moment? Muni bonds. One of my favorite things to talk about. Look, Paul Sweeney, too.

Really? Really? I had a nickname one point called Muni Matt. But look, the muni market has been kind of sopping up demand from investors here. Obviously, we've gone through the March period as the month. the market is notoriously known for some volatility around tax season. But what's interesting about Munis is this is a steep yield curve. The Muni market continues to have an even steeper yield curve than the Treasury market.

So what does that mean is you could pick up attractive income and roll down the curve, going to profit over the passage of time. When we look at the Muti bond market, this is something that we say the Muni curve is steep and cheap relative to Treasury. So if you're looking at income, you want to get some really attractive coupon that's tax advantaged. This is a really great opportunity for investors that, you know, have taxes on the mind. As I raised my hand there, Matt Resniewski. Thanks so much for joining us, Matt Rosneseke. Head of Fixed Income Client Portfolio Management at Vanguard.

Stay with us. More from Bloomberg surveillance coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English.

Like, if the VIX hits 25, buy a put option on the S&P 500. Or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks.

You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokred services by Open to the Public Investing Inc. Member Finra and SIPC. Advisory services by Public Advisors LLC SEC Registered Advisor. Complete disclosures available at public.com slash disclosures.

Any team that's tested AI tools for data has seen the pattern already. AI gives a different number than your BI tool. Metrics don't match across teams. And inevitably, users lose trust. It turns out, turning on AI is easy, but making it work on data is not. Hex AI was built to solve this. The key is nailing context. Hex is built to unify and curate your data context for agents.

Data teams can observe, govern, and continuously improve every AI answer, so answers get smarter the more your team asks. The result? Your entire organization asks data questions in natural language and trusts the answers, not because the AI got lucky, because it knows your business and its data. because that's what an AI analytics platform should do. Join data teams from cursor, lovable, ramp, AWS, and over 2,000 more at hex.a.i. Let's talk about health care for a second.

It doesn't always work the way people expect it to. If you've ever waited on a prescription refill or had a hard time getting the care you needed, you know the feeling. The system should just work better for everyone. That's exactly what the people at Optum are trying to do every day. They're a health care company linking patient care and pharmacy services and using data and technology to drive the whole system. So care is connected, not complicated, for patients and providers. Things like making it easier to get care that looks at the whole person, from primary care doctors to mental health support and even in-home care,

and then using technology to make sure they all work together. Technology designed to help doctors spend less time on busy work and more time with their patients. And those prescriptions, Optum is working to bring costs down, save patients money, and make it easier to get refills. Little by little, Optum is helping make health care work as one for everyone. Head to business.optim.com to see how.

You're listening to the Bloomberg Surveillance Podcast. Heidi, Cribble Reddiker joins us here, senior fellow for bioeconomics, the Council of Foreign Relations. Heidi, what is doing? What's the thing's going on at there? Why is that disconnect so great? Because we do, in fact, have a hot war in Iran. Yeah, I think, I mean, I am of the policy community that is not so bullish. But, you know, I also, I speak with and watch markets closely. And so I think it was really, it was the question that every conversation started with. And part of it, I think, is exactly what you just reported on, which is that earnings are coming in, looking extremely positive. You have this overarching understanding that AI is going to revolutionize the way we do business and that will mean an increase in productivity. But I mean, traders are also

trading on misleading tweets. So you have statements from Trump. You have statements from Iran. And a lot of them are just are trading tweet to tweet and expecting a short duration of the conflict. But the actual fallout will dominate world politics for months and possibly years and will weigh pretty heavily on the global economy. So you have Europe and Asia and Africa preparing right now for sustained energy shocks, feeding into all of their different industries. And, you know, in particular, you look at Europe with jet fuel shortages. Asia, the same thing. It's going to impact travel and tourism, food scarcity and inflation. So I think we're looking at an absolute disconnect.

When you look at the Gulf, people at the World Bank meetings last week, we're talking about the Gulf needing to reevaluate its business model. So it's not just having to claim force major on exports and commitments, but beyond commodities, the Gulf was really building itself up as a safe haven, as an airline hub, as a data center. hub, and then you have the hit to maritime navigation and what the Asian powerhouses are looking at. So Japan, Australian, Philippines gearing up for, you know, potential disruptions and enclosures of maritime navigation in the Indo-Pacific. So there's not a lot of optimism out there

for a swift resolution to the crisis. And yet you have markets buoyant and reaching all-time highs. And yet, Heidi, speaking of safe havens, you have investors globally sort of questioning the dominance of the U.S. dollar. And you say at this meeting, it was the first time real questions about dollar centrality were actually discussed by what you call serious people. What are the implications there? So, I mean, it's been an enduring question, the dollar as the world's reserve currency. and from time to time there have been, you know, questions about how durable that dollar dominance is. But there were some more serious people talking about the dollar centrality in the system. And I don't personally predict any kind of imminent end to the dollar dominance.

But it's clear that countries are increasingly seeking alternative issuance options. payment mechanisms beyond dollar and euro to ensure some redundancy. And what's happening with the choke hold on the Strait of Hormuz is really forcing countries and companies to look to other currencies to be able to transact in. I mean, you look at the dollar as a reserve currency. It's a store of value. It's a medium of exchange and transaction. And it's also a unit of a close.

account. So it's not just, it's not just the money. It's actually, it's the infrastructure that's built in and underpins global trade. But this is really, this is a time when we're watching capital flows pretty closely out of the U.S. dollar and dollar assets. And then the counter to that is really there's no other deep, liquid, safe market and with the potential for growth that we are anticipating in the United States. Heidi, I'll be interested to hear about kind of the folks you talk to. What are they saying about China here? Because obviously all eyes are on what's happening with Iran.

But the U.S. and China are still set to meet, I think, May 14th and 15th, President Xi Jinping and President Trump. Assuming that's still on, what's the expectation there for the U.S.-China relations going forward? Well, that meeting was always going to be a precarkey. balancing act of what was originally on the, I think, the president's, President Trump and President Xi Jinping's agenda, which was trade and critical minerals and rare earths and basically a maintenance of stability and what deliverables could be on both sides. Right now, we're talking about choking off China's purchases of oil coming.

out of the Gulf. They buy 80% of Iranian oil. And this office, with the management of the oil shipments coming out of the Strait of Hormuz and the blockade that the U.S. has put on the Iranian blockade really directly impacts China and its oil purchases. So I think that's going to be an interesting. All right, Heidi, thank you so much. We really appreciate it. Heidi Kribeau-Redeker. She's a senior fellow for GeoEconomics on Council for Foreign Relations. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern on Bloomberg.com, the IHeartRadio app, tune in, and the Bloomberg business app. You can also watch us live

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