Trade tensions could weigh on domestic demand and thereby also lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by pushing up import prices. A boost in defense and infrastructure spending could also raise inflation over the medium term. Extreme weather events and the unfolding climate crisis more broadly could drive up food prices by more than expected.
Looking at the financial and monetary conditions now, risk-free interest rates have declined in response to the escalating trade tensions. Equity prices have fallen amid high volatility and corporate bond spreads have widened around the globe. The euro has strengthened over recent weeks as investor sentiment has proven more resilient towards the euro area than towards other economies.
The latest official statistics on corporate borrowing, which predated these market tensions, continue to indicate that our interest rate cuts had made it less expensive for firms to borrow. The average interest rate on new loans to firms declined to 4.1% in February, from 4.3% in January. Firms' cost of issuing market-based debt declined to 3.5% in February, but there has been some upward pressure more recently.
Moreover, growth in lending to firms picked up again in February to 2.2%, while debt securities issuance by firms grew at an unchanged rate of 3.2%. At the same time, credit standards for business loans tightened slightly again in the first quarter of 2025, as reported in our latest bank lending survey for the euro area. As in the previous quarter, this was mainly because banks are becoming more concerned about the economic risks faced by their customers.
Demand for loans to firms decreased slightly in the first quarter after a modest recovery in previous quarters. The average rate on new mortgages at 3.3% in February increased on the back of earlier rises in longer-term market rates. Mortgage lending continued to strengthen in February, albeit at a still subdued annual rate of 1.5%, as banks eased their credit standards and demand for loans to households continued to increase strongly.
So in conclusion, the Governing Council decided today to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate, the rate through which we steer the monetary policy stance, is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission.
We are determined to ensure that inflation stabilizes sustainably at our 2% medium-term target, especially in current conditions of exceptional uncertainty. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.
We are not committing to a particular rate path. In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilizes sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission. We are now ready to take your questions. Thank you very much.
And to that first question goes to Annette Weisbach of CNBC and N-TV.
Thank you for taking my question. First one would be on the rate cut. So 25 basis points, has that been backed by everybody and has there been a discussion about potentially cutting by 50? And then I would like to know your assessment about the inflationary or disinflationary effect of tariffs, because there the jury seems to be still out, but you seem to rather on the side of that it has disinflationary effects. If I'm reading through your statement, perhaps you could tell me if I'm right.
Thank you so much for your two questions. I can confirm to you that the decision to cut rates by 25 basis points was a unanimous decision. Options were debated, but there was no one to argue in favor of a 50 basis point cut, for instance. So 25 basis points was definitely the rate cut on which all in the room agreed.
Looking at today, and I will happily address the issue of why we actually cut rates, because I think it's a twofold rationale. But looking at today and the tariffs debate that is going on, as well as the tariff impact that is actually happening, we know that it's a negative demand shock. We can anticipate that it will have some impact on growth, but the net impact on inflation will only become clearer over the course of time, and there are diverging views as to the short-term and the longer-term impact of the various developments.
Well, the development of circumstances, because let's be clear, we have a lot of uncertainty still today and there will be many decisions and many implementations that will take place over the course of the next few weeks and months that will be decisive to err in one direction or the other. But I think the net impact on inflation will become clearer over the course of time.
And next question goes to Jonathan Ferro of Bloomberg.
Thank you very much. In your policy statement and also in your remarks now, you no longer characterize the policy stance on the restrictive, neutral, accommodative spectrum. And I would be quite interested in why you decided to do that and what kind of conclusions we are to draw from that. And following on, I would like to know whether the direction of travel, as you so often have said, is still clear on policy ahead. And then I want to pick up on what you told Annette just now about options were debated. Would you care to elaborate a little bit more on what kind of options were debated?
Well, on your first twofold questions, right? We call it that way. So your first question, I think, is very relevant, because we did remove from the monetary policy statement a sentence that referred to the restrictiveness and in particular as lately qualified, the meaning fully restrictiveness or not. And you know why that assessment of the restrictiveness was meaningful or made sense to the extent that we were very far away from destination. It is meaningless at this point in time.
Meaningless because assessing restrictiveness relies heavily on the comparison between the policy rates and the neutral rate. And I think I had the opportunity in front of this esteemed group to give you my views. And I think the views that are shared by many of us on the Governing Council concerning the neutral rate. My view certainly is that the neutral rate, apart from the measurement issues associated with it, is a concept that works for a shock-free world. That's how it is described. And anybody in this room who thinks that we are in a shock-free world, I would suggest maybe raise their hands or have their head examined either way. But we are not in a shock-free world, that's for sure.
So that assessment of the restrictiveness is not operative anymore. And what we need to do is to determine the appropriate monetary policy stance that will actually take us to our destination. And I will not comment on the direction of travel. I will comment on the destination. But as you know, is our 2% target in a sustained manner.
I think given the cloud of uncertainty that we have, the multiple decisions that are expected or lack of it in the next few weeks and months, our stance will have to be determined by two key attributes. And the first one is readiness. We must be attentive to all the developments and in particular the development of those new shocks and be able to make the appropriate determination. That's the first one. The second one is agility.
Given the speed at which we see development, the impact they have, the spillovers that we can analyze is not going to be a question of rushing to a particular stance, but it will be a question of agility in the face of what we are seeing. And that will require a cohesive approach that will be based more than ever on the analysis of data. So when I have said repeatedly, we need to be data-dependent and we need to decide meeting by meetings and we do not have a predetermined path. I know this has been annoying for some because there is nothing like having a bit more certainty anticipating where it's going.
More than ever now, we need to be data-dependent and we need to rely on the safe, reliable data. We are going to be particularly attentive to all that at the moment. And we will decide meeting by meeting. What is certain is destination. And we are determined to take whatever measures will be appropriate and to use whatever instruments will be appropriate to arrive at that destination.
Now, you asked me about the debate. We always debate and we debate on all sides of the decision that we ultimately arrive at. And in total candor with you, there were a number of governors who a few weeks ago would have argued in favor of a skip. Uncertainty, halo of fog around our navigation, it calls for a skip. And then we will decide when we have more data. The projection exercise that is built with the central bank and the national central banks together. So that was on one side of the debate, if you will. And there were some to say, well, it might, it might for under 50. But at the end of the day, this is not what I'm arguing for. So when I say debated, but there was not any single argument in favor of arriving at 50 basis points. So it was a very strong 25 rally of everybody.
But we debate and we, you know, pathetically try to figure out what it would have been if or what it would imply if. But I can tell you that it was, I mean, I'm sure that you will all do your homework to find out who said what and all the rest of it. But I can assure you that it was unanimous about 25 basis points.
Next question. Balazs Koranyi of Reuters. Balazs, please.
Good afternoon, President. The first question is about the outlook. A couple of weeks ago in Parliament, you presented some numbers on the possible impact of a trade war. I wonder if you have an update for us whether there was such an update made in the governing council. Quite a lot has changed. I'm especially interested in what you make of the tariffs and also sharply lower energy prices, significant depreciation of the euro. These all change quite a bit for you. Second question is about your relationship with the Federal Reserve. And I'm asking this because just moments before the decision itself, of course, the US president came out and criticized the Fed, which raises questions about Fed independence and whether the Fed can remain independent. So the question for you is, do you think there is a risk that central banks around the world start to lose independence in this current environment? Also, you have a really important relationship with the Fed, with the swaps. Sorry, the swaps. Are you confident that the swaps remain in place to safe that you can rely on it? And are you making any sort of contingency plans in case the Fed changes policy on those?
That's a lot of questions. So your first one had to do with whether or not we quantify the current situation relative to previous assessment of the situation. And I will say that I will characterize it as follows. We are in the presence of a negative demand shock, no question about that. But this is not it in and of itself, because we can anticipate. And let me be clear on that. When I say we are in the presence of a negative demand shock, some of the tariffs are already in place and from an approximately 3% average tariff, we are now in the presence of a 13. And I'm not giving you the decimal, but roughly it went from three-ish to 13% in terms of custom duties on average on goods and on goods and services. So that's what we face now.
But we also have the prospect, the prospect of something that could be far more impactful, number one. Number two, there is a series of potential responses on the part of the commission. We know one or two or three of them, depending on the tactic that is adopted. I think the most obvious one, which has been commented and actually put on the table is the 0-for-0 tariff offer that has been made. So that's number one. Number two, there will likely be, and that really falls in the category of our risk assessment, there will be some redirection, rerouting of goods that will be supplied by markets that are subject to much higher tariffs, even as we speak now and possibly other destinations from which those goods could be rerouted to Europe. And third, there are, you know, other policies that are also in play and being discussed, including in particular in Germany. So fiscal policies that would see significant investments, significant fiscal imposts that would be given.
So you have a combination of either policies, threats of policies, of different categories that will obviously have an impact on the situation. Added to which, and you alluded to it and we actually refer it in the risk statement, there is the appreciation of the euro, which we mentioned specifically in the monetary policy statement, and there has been a significant decline of the price of commodities and particularly price of energy. So you have to combine all that to anticipate that there will be development, which will lead me to not actually give you a specific quantification of the impact. Suffice to say that there will be a negative impact on growth. Possibly. Possibly. And as I said, the impact on inflation is and the net impact of it on inflation is less than clear at this point in time.
So there is so much ongoing that some of which will probably settle a bit by our June meeting. But given that the 90 days will only elapse around the 9th of July and then the 14th of July, Bastille Day, we will know more on that front and on the fiscal front. Clearly, the incoming of new governments in various countries, including in Germany, will also take us to a more clarification on exactly where the situation will evolve. But we will, you know, as I said earlier, there is no better time to be data-dependent. There's no better time to rely on very strong and solid analysis by all our staff. And I'm glad that June is going to be a combined exercise of the ECB and the national central banks who will be confronting their respective viewpoint and analysis to arrive at something that will be really consolidated around our three key analytical underpinning, which are inflation outlook, underlying inflation and transmission.
Now, you asked me about the Fed. Let me just say very squarely that I have a lot of respect for my esteemed colleague and friend, Jay Powell. We have a steady, solid relationship amongst central bankers. I think that that relationship is decisive in order to have a solid financial infrastructure on which to make sure that there is financial stability. We have demonstrated in the past that we could actually operate on that basis of consultation and understanding of the financial risk. And we will continue doing so in an undeterred and unchanged manner, I'm sure.
The next question goes to Tonio. I must put you in the public eye in Italy talking up this.
Thank you very much, Mr. President. Do you think that canceling the tariffs might be enough to restore the trust in the U.S.? Now, we have seen this mistrust in the dollar, in the treasuries and so on. Or don't you think that the environment is getting worse and this is also destroying the faith in the U.S.? I'm speaking about the attack to the law firms, to judges, to universities. So the certainty of law is vanishing in America. Do you think that this is also impacting on the trust in America? And my second question is, the U.S. administration seems to have also the ambition to push a lot the stablecoins. So how dangerous might this be for the euro? If we imagine, for example, big, big, big companies like Amazon, Facebook and so on, issuing launching these stablecoins, of course, backed by the dollar.
Thank you so much for your two questions. No, there is a nice African saying which goes you never swim twice in the same water. I think for economic players, investors, consumers, employers, employees, all categories. Confidence, predictability and a reasonable level of certainty are important factors for them to make decisions. And I will concentrate on the European Central Bank in the mandate that we have of procuring and maintaining price stability. We will certainly make sure that we respect those principles. Predictability, confidence, all based on access to the data, the right data, the safe data, and in as much transparency as is possible with all of you. I think this has been recognised by many investors and this is a clear answer to your question.
On the issue of Stablecoins, you know that we have regulation in place. It's called MICA. It is effective. It's currently under review and consultation for possible improvements. And I'm delighted that this is the case because we are facing an evolution, a constant evolution of those digital payments, of those cross-border payments, of those stablecoins, which I would put in a very separate category from the cryptos. Crypto assets or however you want to call them. So the stablecoins are a different animal. And clearly having a good solid regulation that constitutes the framework within which they can operate, I think is paramount and has been understood by the European Union, by the commissions, by various authorities in charge of those matters and will be reviewed in order to make sure that it procures a safe harbor for those initiatives.
But let me take the opportunity of this to acknowledge that for the first time in our monetary policy statement, we referred to the digital euro, and that should be a clear signal that not only do we stand ready and do the hard work that is incumbent upon us, but it also acknowledges the fact that other European authorities are hopefully going to accelerate the pace at which we can deliver.
Next question goes to Well, I started off the Financial Times. What happens?
Thanks for taking my questions. I have one question on the restrictiveness or the kind of lack of description of the restrictiveness in the policy statement. Have you discussed and maybe can you share your views on your wider views on this? How much it takes for the ECB to switch into a stimulative stand over the coming months, given all the headwinds and clouds over growth? And how willing would you be to do so if necessary? And my second question is on financial stability and in particular, your views on the independence of large central banks. How key is it for financial stability that large central banks like the ECB and the Fed are and remain politically independent?
Well, thank you for your two questions. We did not the matter of stimulation. We did not discuss the matter of stimulation. And we certainly rallied around the statement that is in the monetary policy overall statement that we will take the appropriate monetary policy stance and decisions in order to make sure that we deliver on our commitment to reach target 2% medium-term sustainable. So obviously, the degree of appropriateness will be measured and exercised through these two principles. Readiness, Agility. In the face of the uncertainty and the multiple decision point that are external factors and which for some of them constitutes new shocks that are facing the European economy.
On your latter point concerning the independence, you know that within the euro area and within Europe, it is particularly important. It's actually one of the criterias that are used in the convergence assessment that applicant new members have to go through. So if a new member who applies to join the euro area does not evidence the independence of central bank, both in its legislative foundation and in its operations, that's an obstacle to joining the euro area. So for us here, independence of central banks is fundamental.
And the next question to Jean-Philippe Lacour of Agence France-Presse. I speak softly, please.
Madam President. Oh, switch to English. Of course. I just want to recall the history on this trade tensions in 2019. So your predecessor, Mario Draghi, stood here and said there are major downside risks in the face of US-China trade tensions at this time. And in September, ECB responded with a stimulus package. So my question is, given the broader conflict that we are facing, is it now just maybe a question of a matter of time before ECB will take further actions in response to these tensions? You told us about the readiness and agility, so we may be curious about it. And this second more broadly, questions since 2022 in February and the ECB have repeatedly condemned the rush, aggressive and unjustified, a quote, unjustified war against Ukraine. And you did it today in your statement. How would you characterize this war, a trade war now that has been launched by Trump against economic partners? Because you talk about trade tensions, but we journalists, we call a spade a spade. It's a trade war. So how would you characterize this kind of other war?
On your first point, we will determine our monetary policy stance on the basis of what is appropriate in order to reach our target. We will do that demonstrating effectiveness and agility. So, analyzing the nature of the shock, the kind of responses that it requires, and doing so in a prompt manner.
The downside risks are clearly stated. If you look at the paragraph now, you don't have it because it's not yet on the web page, but I read it for you earlier on. But the downside risks are clearly identified in relation to growth. Will those risks materialize? When do they materialize? Will be a factor of how decisions are made? Which decisions are made? What trade measures will be taken? What countermeasures will be adopted? Whether there is an escalation as a result. And as I addressed in earlier questions, what kind of rerouting will we be seeing? What measures will be taken to prevent this massive rerouting, if necessary? What national and European fiscal decisions will be made over what course, what period of time? You know, when you inject 800 billion in the economy or near €1 trillion, it's not a small piece. It's a serious impulse. And it has serious effect, certainly on growth and to be seen on inflation. But this will be for later and later analysis when we have more information and more data on this particular matters.
You know, I'm not going to characterize what's happening at the moment. I think that the commentators, the top-notch economists who specialize in trade matters all agree that it will have downside consequences. The consequences will differ depending on which part of the world you stand. And that really justifies the fact that monetary policy decisions are not going to be the same the world over.
Next question for Stefanovic yourself. How much to fundraise?
Good afternoon and thank you for that. Hi. My first question is on uncertainty. You used various degrees of uncertainty in your wording last time and this time as well. Would you say that we are now past peak uncertainty now that tariffs play out in the open or is it too early to tell? And my second question, if I may, is on the exchange rate, which I'm aware you are usually hesitant to comment on, but still, the movements are so big, you're even mentioning it repeatedly. So how would you characterize the recent movements in the exchange rate? Do you expect a stronger euro to last? Or is it just a temporary episode?
Thank you. Thank you for your two questions. I cannot tell you whether we are at the peak of uncertainty. I cannot. There is a negotiation which is ongoing. Players around the tables have stated their position. Proposals have been made at least on one side. But all of that could change. There's a degree of unpredictability which adds to the uncertainty. And, you know, if you add to that the incredible incredulity that we've had, certainly in the first phase where it was difficult to assess and understand because it was such a break from previous sort of conventional wisdom as to how trade relationships are organized, as was discussed by the WTO yesterday, that I don't know whether we are at the peak.
What I know for a fact is that the European Central Bank and the Eurosystem in our monetary policy decisions, we have to stand ready for the unpredictable, which is why I think it makes a lot of sense to be ready to be agile, to work on reliable data, reliable data, and to operate on a meeting-by-meeting basis. We meet about every six weeks. Think about the number of changes which have taken place in the last six weeks. There could be more changes in the next six weeks, but that's in the nature of our job to stay focused on our mandate, to analyze what is coming at us and to draw conclusions in order to make the appropriate monetary policy decision that will take us to target. But that's what we will do, and we're not going to move away from that.
You asked me another question on the exchange rate. Okay. So we are not targeting any particular exchange rate. You know, my own self may have given the same answer a thousand times here. But we do mention and we do refer, I think it's in the risk assessment in the second paragraph where we say, excuse me, increasing global trade disruptions are adding more uncertainty to the outlook for euro area inflation, falling global energy prices. This one and an appreciation of the euro could put downward pressure on inflation. So we do mention it because of the occurrence, the magnitude, and we try to account for it in the assessment that we make of our monetary policy decision. This is what happens. I think I've answered your two questions.
Next question goes to our understanding of expansion in Spain on the West Coast. Thank you.
Two questions for me. Does your inflation analysis contemplates Europe retaliating at any point or you don't to speculate about these things? And I mentioned this because I am especially worried because digital services could be targeted. And I know you're always very attentive to the service element on inflation. And my second question, it seems the ECB will be diverging again from the Fed. What are the main differences here and there at the both sides of the trade war that could allow you to keep lower interest rates and not Mr. Powell.
Thank you. Well, thank you. Thank you very much. You know, we have a methodology to take into account developments and the level of scrutiny is high. Whether it is completely legislated or so certain in its outcome that we can actually take it into our exercise and the analysis that we do when we are not too sure. We constantly do some scenario analysis to assess and estimate what the impact would be of such and such other decisions. And that exercise will be intense in the next few weeks and will, you know, give rise to some very serious results at our June projection meeting. As I said, thanks to the consolidated exercise between NCB and ECB. But currently, if you ask me about the countermeasures, they are not included in the sort of baseline that we have. And obviously we look at the entire trade balance, we look at goods, we look at services. This is pretty obvious to anyone. We cannot look only at goods or only at services. So I do pay attention to services, but I look at goods as well. The two are intrinsically the outcome of the economy and the trade movements that we have with other parts of the world. So I look at both.
You know, I think each central bank in the world does a job, its job in good conscience on the basis of its mandate and on the basis of the currency that it is in charge of and the territory in which it has competence. So that leads us to look at the euro area, not in isolated form because we are open to the rest of the world and more open than many other economies, including the United States, for that matter. But we look at that. We are focused on the euro and we are focused on our price stability mandate. The other central banks in the world have different mandate. They have a dual mandate for some of them. And clearly the macroeconomic situation is different and they will be on the receiving end of a different nature of shocks from the shocks that we will be receiving. So that leads us necessarily to drawing different conclusions. You know, it is a different situation.
That brings us to the end of our press conference today. Thank you. Oh, wait. Because I wanted to mention something that nobody asked me about. And I want to. Sorry, Wolfgang, but I know I want to call your attention to one particular segment of our monetary policy statement that you will see, which we have debated and which actually is a clear message from US Central Bank to the other European institutions. And this is the paragraph which sometimes is considered as sort of business as usual, or of course they do refer to this and this and that. This time around we do specifically mentioned with a special timetable associated with it and the swift implementation that we expect of There are three categories of structural efforts on the part of Europe. One is the competitiveness COMPAS, which is derivative of the Draghi report. Number two is the investment and saving union, which I have repeatedly called the Capital Market Union. And number three is the digital euro.
I think we've taken the view that this is a moment for Europe to not only be solid on its monetary policy and not just for us to deliver on price stability. But for the Europeans all together and the European institutions to actually focus on what opportunities there are. What changes need to take place and at which accelerated pace this should happen. So that's a strong message from us to colleagues, friends and other decision makers in Europe. Thank you very much.
That's when we see each other again, if you want. On the 5th of June. Oh, happy Easter to all of you. Exactly. Thank you. Bye bye.
That was ECB President Christine Lagarde wishing you a happy Easter. This is Open Interest. I'm Matt Miller alongside Danny Berger. And let's bring in right now Bloomberg's Lizzie Borden. She is live in Frankfurt at the ECB. So aside from a seventh cut since June, what did we learn, Lizzie?
Yeah, the focus more on the words than the action because the cut was very much priced in today given Donald Trump's tariffs. Look, we know that now this was a unanimous decision. Even the arch hawk, Robert Holzmann, got on board with this cut. Nobody wanted a 50 basis point cut. That's interesting. Even though it was mentioned, they, she says, rallied around the 25 basis point cut. And Christine Lagarde again repeated this emphasis on uncertainty, as you would expect. But we really were looking for clarity. She said that tariffs are a negative demand shock. The downside risks to economic growth have increased, but the net impact on inflation is basically to still be seen. So leading dovish and that's how the markets have read it. You've seen Eurodollar falling, although there's bets that that fall pared somewhat while she was talking but simultaneously traders boosting bets on ECB cuts ahead so now they're pricing three including at that June meeting. But the most interesting thing I have to say today out of all of this was that they dropped the language. That policy is restrictive, but they didn't make clear if rates are now neutral. So asked by our reporter Joanna Randall what we meant to take from that, she said that neutral as a word is just meaningless at this point because there are so many shocks. So there's no point talking about neutral and restrictiveness given all of this uncertainty. So effectively, they want to keep their options open.
All right. Very interesting stuff. Lizzie, thanks for that roundup. Lizzie Borden reporting live from the ECB in Frankfurt, talking about the now, I guess, uselessness of words like restrictive and neutral. Let's get a quick check on what's going on in the major averages here in the US. We do see some green on the screen, but not much. The S&P 500 right now up eight points to 5284. So after the drop of more than 2% yesterday, we are even further below the 200-day moving average. Then we were the Nasdaq, about 1/10 of 1%. I wanted to include the Dow Jones Industrial Average here, which we often don't because my co-anchors are so much younger than I am and don't care. But they're out today. So the Dow Jones Industrial Average off more than 500 points. And the reason you see a much bigger drop here than any drop on the S&P and the Nasdaq is because UnitedHealth is weighted so much more heavily on the DJIA, it's worth almost 8% of the Dow Jones Industrial Average, and it's off almost 20%. So that's why you see that drop.
In terms of the other stocks that are watching, Nvidia, obviously a big, heavy mover and it's down about one and a half percent after a huge drop for chip stocks yesterday. This was up a little bit in the premarket. And as it falls further, you may see the S&P 500 drop as well, because Nvidia is worth, I believe, 6% of the S&P 500 and maybe 9% of the Nasdaq composite index. Taiwan Semiconductor gaining two and a third percent after it maintained a bullish growth outlook and denied a potential tie-up with Intel. And as a result, Intel is down 1.6%. Now I will introduce really my co-anchor filling in for Katie.
Internally, if you care about the Dow, I feel like you've kind of implied that I am not youthful because I care about the Dow, so I'm a little bit offended this morning, but that's okay. I do care about the Dow and it is because of UnitedHealth this morning. Look how much it is down in this market, down 18%. It's cut its outlook on care costs. Mizuho analyst writing this morning that we might start talking about a management shakeup at that company because they were just so caught off by surprise. On the other side of things, Eli Lilly is posting positive results for its weight loss pill trial. Matt, I will say that, you know, Katie and Shonali are much more likely to watch the Russell 2000. They care a lot about the small caps and they're doing better than the S&P. I could argue that the Russell 2000 doesn't matter anymore anyway. All those companies have been taken private. What's left is not representative of small businesses. So there you go. There is some fodder for you next time.
All right. We'll continue to have this debate on Open Interest. Right now, I want to get to, well, it's really been a turbulent week for markets and especially for Fed Chair Jerome Powell. He faces more pressure to drop interest rates now. But earlier this week, Treasury Secretary Scott Bessent had this to say about the end of Powell's tenure, which don't forget, is scheduled still for more than a year from now in May of 2026.
Well, we think about it all the time. I think when are we going to start interviewing candidates? And that'll be sometime in the fall.
Yesterday, Powell's comments were part of what tanked the markets, added to Trump's curbs on Nvidia exports when he had this to say about monetary policy for the time being.
We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. We continue to analyze the incoming data, the evolving outlook and the balance of risks.
Now, today, President Trump lashed out at Powell, saying his termination cannot come fast enough. Bloomberg's Tyler Kendall joins us from the White House with the latest on these tensions. And Tyler, we know that President Trump wants Powell out, but we were calmed, I think, to some extent by Anne Marie's interview with Scott Bessent when he said, like, we're not going to start interviewing candidates until the fall. Is he out sooner?
Hey, Matt. Well, that's the question here. And of course, there's legal questions. Jerome Powell himself says that he doesn't think that Trump has the legal authority to fire him. And while President Trump has long been critical of Jerome Powell, this would appear to mark an escalation, at least in the rhetoric. Still, some big interpretation questions. Here was President Trump pointing to the end of Powell's term as chair in May of 2026, or was he instead calling for the Fed chair to be fired outright just one day after, as you heard Powell, his comments suggesting that the central bank will have less flexibility to cushion the economy amid the tariff fallout. President Trump has often cited that he thinks his tariff policies go hand in hand. He likes to say with lower interest rates. And we should also note that senior administration officials here at the White House have often downplayed President Trump's criticism of Powell in the past, saying, look, this is his opinion and that the White House respects the Fed's independence. But we'll have to see if any of them come out with a more stronger stance, perhaps now that the word termination is being thrown about. You mentioned Treasury Secretary Scott Bessent, who told Anne Marie on Bloomberg Television earlier this week he thinks that monetary policy is a sacred jewel box that needs to be preserved. We should just note for context, President Trump in the past has indicated that he would let Powell serve out his term. But there are big questions, Matt, about the future of independent regulators here in Washington, particularly after the administration has moved to fire some of them, such as last month, two FTC commissioners.
All right, Tyler, thanks very much. Tyler Kendall reporting live from the White House. Now let's get back to the markets. Joining us here in studio is BlackRock's global CIO of Fundamental Equities and portfolio manager of the BlackRock Large-Cap Value Active ETF, Tony DeSpirito. Tony, great to have you here. And before we get into obviously the large-cap value ETF is one that you manage. So you're looking at that universe. But what do you think about the small caps debate? If you had a dashboard with only three U.S. equity indexes on it, what would you choose?
So it would be the S&P 500, Russell Large Cap Value and Russell Large Cap Growth. And sorry on the small cap. But if you look at the total market cap of the Russell 2000, it's roughly equal to the largest market cap company in the U.S. tells you how it's become less relevant over time. I think you have a different board now. You can either shake things up.
We should pull those up. I'll tell Joe in the control room. You can pull up the Russell Large Cap Value, Russell Large Cap Growth and the S&P 500. That'll be our dashboard from now on. Can I ask you how instructive value is at this point? It's typically something that's a little bit more cyclical. You need a growth upswing for it to happen. What is the case for value right now?
So I think that's a misnomer that value has to be cyclical. In fact, I've studied a lot of value cycles over history, value versus growth, and I would say roughly half the time value cycles and half of the time that's not right. So and we all know in the GFC value did not protect you on the downside. But guess what? In 2022 it did. And but when I look at the portfolios I run, I actually run a fairly low beta portfolio in contrast to a lot of value managers. So our portfolio tends to do well and outperform in periods of downturns, and that's because we do have a focus on dividend and more importantly, dividend growth. And those kinds of stocks prove to be more resilient in tough markets. So I really think it's what is your flavour of value and that really determines how protective you are on the downside or how cyclically oriented you are.
You actually put, I think, a very interesting fact in your notes, which I wanted to mention. You track value versus growth over the last, I guess 25 years, right since the turn of the century. And I think they've changed leadership 28 times in that period. But over the past quarter century, they've performed sort of equally. How do you think that works out? Is it just that they're a great diversifier for each other?
I do think this is a really important point. Diversification, particularly if you look over that 25-year period. In the most recent period, growth has had an incredibly strong run versus value. And what that meant for investors is that their portfolios are likely out of balance, meaning growth has done really well, better than value. And so their growth overall growth weighting has probably gone up not just in their portfolios but in the indices as well. So we tracked the S&P 500 over time. And what's the value component versus the growth component? It's weighted towards growth today. So I think it's really important that investors look at their portfolio and if they are overweight growth to get back into balance with value. And those who have done that already have really benefited this year, for example, where value's had a nice comeback so far.
Does that mean if we are near something of the end of the selling that we've seen recently, that what leads us out isn't the playbook that we're used to. It's not going to be tech. It's not going to be those high-flying growth names, but it is going to be value-oriented stocks that leads this next leg higher once we're out of this period, let's call it.
Well, I definitely see the market broadening out for sure, and that's probably good for value. If you look at the earnings growth rate, take the MAG 7 as a proxy for tech and growth. If you look at 2023, the earnings growth rate of the MAG 7 versus the next 493, the gap in earnings growth rate was 40 percentage points. That's enormous. Throughout 2024, that started to moderate. This year, if you look at estimates, should be high single digits next year, even lower. Despite that, despite the converging of the earnings growth rates, the valuation gap is as large as it's ever been.
How do you define value to people that maybe aren't in the market or even someone like me when I'm asking this question? Right. Growth is pretty easy to understand. It's the shooting star on the Matrix, but value is much easier to fall into a trap, right? It could be underpriced for a reason. So how do you, what do you look at when you're putting a stock in the BCLV?
You certainly when you look at the indices, they're just going to look for statistical value, low P/E, low price to book. But as you point out, that can be a value trap, right? Just looking for stocks that look cheap. You really need to see stocks that have good earnings opportunities and that whose stock prices are low relative to that. That's where the fundamental research comes in. And it's interesting, if you look at, I think that's an advantage of being at a firm like BlackRock is, you know, I sit right next to the growth manager, right? And so I have the growth manager whispering in my ear about companies that are being disrupted and half the game in value is avoiding that disruption. So I think that's a very important, very important aspect.
Tony, it was so great to talk with you today and thank you for settling the debate that you should be looking at neither the Dow nor stock indexes. Thanks so much, Tony. That's, of course, Tony DeSpirito of BlackRock.
All right. Lots of news in the chip world today, TSMC keeping its bullish outlook for 2025 despite tariff uncertainties. At the same time Nvidia, CEO Jensen Huang is in Beijing today, just about a week after meeting with President Trump and after the U.S. barred sales of Nvidia's H20 chip to China. Bloomberg Technology's Ed Ludlow joins us now. Ed, let's start with Nvidia. What signal should we take from Jensen Huang in Beijing?
Well, let's be completely frank. It's very normal for Jensen Huang to go to Beijing. Nvidia has a sizable footprint in terms of employees in that country. He visits them specifically more than once a year. He's not wearing his leather jacket. According to two local media reports, he's in a suit. And the Chinese news agency is reporting that he met with the vice premier. So, you know, it's hard to draw a sort of causal link between the news on the license requirement. And that's the basic thing that I want to clarify. The US government is not saying the H20, this chip that Nvidia designed for the Chinese market is illegal or that it does not conform to the parameters. What the US government said yesterday is that Nvidia needs a license. And what we're inferring is that because they opted to do a $5.5 billion write-down on inventory of chips they have not yet applied for or are not going to apply for a license. Hence why they had to address on paper the cost of the inventory. So what happens next, you know, is that the timing is timing.
Danny, can we just talk on air about something you and I were messaging about yesterday, which is that in my mind, it doesn't matter if the US puts H20 export curbs on Nvidia because the Chinese Communist Party has already advised companies not to buy these chips. And right. Maybe a little bit differently than how things work in the US when the Chinese Communist Party advises you to do something in China, you do it. Or maybe you just historically, yes.
You're referring to the Chinese National Development and Reform Commission and the edict or the advisory that they gave to their domestic technology buyers of Nvidia's equipment was we don't think this conforms to rules that largely stem from energy, raw materials and supply chain composition requirements. But I think it is an advisory. You know, what we know is that very large Chinese technology companies Alibaba, Tencent, ByteDance. Were the biggest buyers of H20. I think we also know that they had built up inventory of that technology and already had them. So now the accessibility is not there. But I can't remember if we discussed this on the show yesterday. A side effect of this policy from the
United States is if they can't use H20, what are the options for those Chinese tech names? Well, Huawei has a very similar accelerator. And so inadvertently, China now has this sort of opportunity to champion its domestic option, which those tech companies may well look at. And great to get time with you. As always, Bloomberg's Ed Ludlow, a tremendous resource for technology and rocket news. And you can watch him every day at 11 a.m. on Bloomberg Technology.
Now, let's take a look at what's going on in UnitedHealth. The stock has posted a massive plunge after cutting earnings outlooks for this year. You can see here off 20% in the cash trade right now. Here with more is Bloomberg's Damian Garde. So, Damian, just tell us what led to this. I mean, they've lost a fifth of their value in today's trade alone.
Yeah. So United missed its quarterly earnings estimates for the first time in more than a decade today, which is staggering in and of itself. But I think what we're seeing in terms of the reaction is largely that this is perceived as an ominous sign for this entire sector, the health insurers and managed care organizations, because United is the largest and most complex and is perceived as kind of a bellwether. And then you have on top of that the growing concern about basically how the government is cracking down on Medicare Advantage plans, which is a huge part of United's business. It's a massive part of basically health care in this country. We've seen those things coming into pass over the past year. And then we saw Dr. Oz, who is the incoming head of the government agency that runs Medicare in his Senate confirmation hearing, taking a really fiery stance on some of the stuff that United really counts on to make its business. So there is just compounding concern about not only this company, but that sector at large.
Give me less than a minute here. But Eli Lilly, opposite side of the trade, up more than 16%. What do we know about their weight loss pill?
Yes. So Lilly had basically picture perfect clinical data from an in-development pill that would match what we see in injectables like Ozempic. But obviously with a daily oral medicine, which is kind of the Holy Grail product in this market. Now, these results don't guarantee that Lilly is going to run away with blockbuster success, but this is what investors were looking for from this readout. And so I think we'll just continue to see strength in Eli Lilly in the years to come.
All right. We're going to continue to obviously have you on because these companies are making big news and we're talking more and more about pharma as we get into these tariffs. Bloomberg's Damian Garde covers UnitedHealth and the pharma industry for us. Let's take a look at what's going on in markets right now because very little change on the S&P was what we saw right out of the gate at the open after a two and a quarter percent drop yesterday. But we're starting to see these indexes climb a little bit. The S&P now up a half a percent, the Nasdaq gaining half a percent. And we've added the small caps back in. I don't know why because Katie and Sonali aren't back just for small caps. There are three quarters of 1%, even though the entire index is Tony DiSpirito just told us is worth the same as one stock on the S&P 500 index. This is open interest.
All right. We are 30 minutes into the trading day. Welcome to Bloomberg Open Interest. I'm Matt Miller and I'm Dani Burger. Sonali Basak and Katie Greifeld are off today. Coming up, President Trump touts progress on trade talks with Japan and Mexico. Today he meets with Italy's Giorgia Meloni. And meanwhile, the president piles pressure on to Powell, calling on the Fed to cut rates and saying Powell termination cannot come fast enough. The Fed chair still has over a year left on his contract. And on the earnings front, Netflix reports today with analysts expecting it to weather the market turmoil better than its rivals.
Got a lot of good content lately. Let's get a check right now on the markets and not look at the Russell 2000. Look there I put the Dow Jones Industrial Average right up front because Katie and Charlie are off. 39,212. We're up almost 500 points, more than 1%. That is because UnitedHealth weighs so heavily on the index. It's worth more than 7% of the Dow and it's down 20% today. The S&P 500 gaining 4/10 of 1%. We opened little change, so this looks a lot better, although yesterday we were down two and a quarter percent after we heard Jerome Powell say that he really can't cut rates right now due to the uncertainty of tariffs. And the Nasdaq 100 also gaining about 4/10 of 1%. We did see Nvidia moving down and it's tough for the Nasdaq to make gains when Nvidia is a loser. The stock, the big chip maker right now worth 1.4 sorry, off 1.4% now.
President Trump is calling a number of trade meetings productive. He took to Truth Social this morning, saying he had a very productive call with the president of Mexico yesterday. He says likewise, I met with the highest level Japanese trade representatives. It was a very productive meeting. Every nation is Trump in his tweet or truth, including China, wants to meet today, Italy. This follows his talks with Japan yesterday, which he said made big progress. Joining us from the White House is Bloomberg's Tyler Kendall. So obviously, Italy is not nearly as important as Mexico and Canada, but what do we expect from Giorgia Meloni?
Yeah. Hey, Matt. Well, today this really is going to be a test on whether or not the Italian prime minister can use her personal affinity with President Trump to try to move forward trade talks when it comes to the European Union. You'll recall Meloni was actually here in Washington back in January for the inauguration, and she's largely considered to have a relatively good relationship with this White House as President Trump himself says that he will be directly involved in these talks. Now, Bloomberg News reporting earlier this week that the EU trade chief left a meeting in Washington with very little clarity on what this White House needs to get a deal done. And our understanding is Meloni is coordinating very closely with European Union officials to try to see how they could advance talks for the bloc as a whole, considering the tariffs weren't down on country by country basis, but instead the entire European Union. Sources familiar do tell Bloomberg that Meloni is expected to float to President Trump, eliminating all tariffs on bilateral trade between the EU and the US. Essentially creating a free trade zone remains to be seen if that's really something that this White House would entertain. But I will say that there is another proposal that we do know of that potentially there could be an EU-US summit that Meloni is going to float to give member states the ability to talk directly with the administration on issues as trade but also defense. And I bring that up because, Matt, as you well know, this administration has made a priority to urge these other allies to boost their own defense spending, particularly when it comes to NATO. And that's something that we could see on the table here today.
Absolutely. Tyler, thanks very much. Bloomberg's Tyler Kendall there reporting live from the White House. Joining us now is Sarah Hunt, chief market strategist at Alpine Saxon Woods. Sarah, thanks so much for coming in. Good morning. Let me ask first about the Fed's independence. How important is that to this market? Because when I saw this tweet from President Trump this morning, I was worried that we would see a bigger drop.
I think it is important and I think I mean, it's hard to tell how much of this is posturing and how much of this is real. So to the extent that people would worry that there was some change in the Fed because of that, I think that that would not help markets right now, which are not really you know, they're looking for some sort of stabilization and they're looking for some sort of information on a lot of fronts, including earnings and tariffs. And to add that to the mix, I do not think would be helpful here.
There's also this narrative that's been emerging that the U.S. is becoming more EM-like, especially when you look at last week where it's volatile, stocks yields up dollar down. Does this just add to that narrative that we're becoming more like emerging markets and therefore assets might start to trade that way?
Well, I think that the volatility was almost baked in from the beginning of the year, given the fact that we were going to have so many policy changes and that we were coming in with valuations that were very much on the high level. So I don't I don't know about that narrative. And to the extent that there's really nothing as big as the United States, I hear that a lot. And there's a part of me that just says, you know what? I can understand the intellectual argument from a from a practical standpoint, though, I don't really think so.
We have seen really a thousand points lopped off the S&P 500. And I think when people look at their 401ks lately, they're really feeling it. Does that come back? Do we make that back this year as we get more clarity and certainty from this White House, or do we not get clarity and certainty from this White House?
So I think we're going to just see a lot of volatility. I think right now it's you've got a lot of questions, right? First of all, earnings expectations for this year, a double digit growth. I think you look at something like UnitedHealth and you think, well, maybe not. So I don't know that we don't see earnings coming down some more. I think that there's going to be an up and down aspect to this market as news ebbs and flows. And to the extent that earnings could be okay for a lot of people, I think that will make a big difference. It's hard to see exactly where this goes. If I knew where it was going, it would be great. But I think that we're just going to have to see. I just expect a lot more up and down and some choppiness this year.
I got to say, even though people are feeling it in their 401k, I mean, we're not technically in a bear market. We're not down 20%. And I told Matt this during one of the breaks, the best headline I think today that I saw was from Schwab and their earnings. He said clients are both buying the dip and seeking additional help. So they're buying equities, but they're like, Oh God, please help me. I mean, does the sentiment actually match exactly what we've seen in the market?
And they have recency bias, right? We just had two back to back plus 20% years. No one's used to seeing things go down. And so there's a little bit of like, oh, my goodness, it went down. And I think the wealth effect is real. I think people do make decisions based on whether or not they feel extra wealthy or not because of the market, but that's a smaller slice of the pie than the rest of the country. And I think that, you know, it is just unusual after 2022 is the last year where we saw any any real negative hit to the stock market. And I think we've got a lot baked into that right now. And you may have to grow into those earnings, which is why I expect more choppiness.
Yeah. I mean, for people like me, I remember a 2021 22. It was just a really bad run. I don't think we've ever had three years of back to back drops like that. But not in a while. No. Right. I mean, yeah, when does the soft data start coming through in the hard that I mean, when do you when do you start to see problems in the labor market with unemployment rising, real inflation coming back maybe more than 3%. You know, spending data obviously is going to look great right now as we rush out to get stuff before tariffs hit, but after it's going to be tough.
So we were talking about this the other day, and I've been thinking about this a lot because every time you get a change in the timing of those tariffs, you can push out that period of time where people think, Oh, I better go do it now, or I better go do it now. And this expectation that it was just March, it hadn't started happening at the end of last year or the beginning of this year, makes it hard to think that you could see the hard data keep up longer than people expect it to. And I think that that's part of what we're seeing right now, but it's hard to tell.
So the level of tariffs are one thing, but there does seem to be a change in the contours of the trade. Tit for tat where you have Nvidia the UN allowed or at least needs a license to sell its H-20 chips in China, you have China saying airlines stop taking Boeing orders. If more companies specifically are coming under scrutiny. Does that change the calculus for investing?
Well, I think this is where the earnings numbers come in, right, because the growth is baked into some of the earnings growth. Some of the earnings numbers for this year is on the technology side. And if you've got folks saying like AMD and Nvidia, well, that's not going to work so well for me this year. That's going to change your earnings picture. So I don't I mean, I think that this is going to keep going until something makes it stop. Right now we don't have that yet, but I think it definitely is impacting on the earnings picture and that hurts your multiples and everything else.
Sarah, great to have you here. Thanks so much for joining us on Open Interest. Sarah Hunt there of Alpine Saxon Woods. Let's get a look now at the stocks that are moving at this hour. For that, we go to Bloomberg's Bailey Lipschultz, who's still here.
Still here. One more day until I go to Japan. But one of the biggest drivers, guys to the downside, UnitedHealth, I just want to put a little perspective on this. Right now, it's down 20%. Yes. Biggest intraday decline since September 1999, which is massive. Back in 99, the stock was worth eight and a half billion dollars. Today alone, it's lost over $100 billion in market value. This is still one of the largest, though it's not as large as it once was just a few hours ago, one of the largest U.S. health care companies. And this is such a big bellwether for the entire industry. So you're dropping expectations. We're seeing on earnings for the first time in more than a decade, you're seeing the entire managed care space under pressure because of the uncertainty around Medicare. We are really seeing kind of in real time some of the changes that the administration wants to impact, in effect on how health insurance is kind of decided and coverage is doled out playing on real time. And that's impacting the bottom line for this company.
Well, if you're a health care investor, it's not all whoa. Today, UnitedHealth is down, but Eli Lilly decisively up this morning.
It's higher. It's up. It's after I mean. That has tracked the weight loss development drug race like anyone else, right? I desperately want some Zepbound, but I've been refused twice now.
Well, now maybe you're going to need it. That's crazy. I do. You. I want. I'm older, right? I want to avoid a heart attack. And I want to stay. Are stave off like timers. And I could lose 20 pounds if I didn't eat a pint of Haagen-Dazs every night. Stop me. I don't have any willpower.
All right, part of that is diet, exercise. You know, there are a lot of things that get play into overall health, but the stock's up 15%, having its best day since 2023. This coming after a weight loss pill showed that it could rival those injectables. So you have those injectables, Zepbound, a number of medications, kind of racing for a piece of this ever growing weight loss pie. And this shows that maybe you will have a pill which is typically cheaper to manufacture, cheaper to administer, and also has kind of the benefit of maybe you don't have to stab yourself with a needle. Right.
Well, the drug companies are still going to charge us ten times as much as they charge people who live in every other country in the world. Let's talk about Taiwan Semiconductor, because kind of big news for them, but even bigger for Intel.
I think it's the big thing is, is that they they laid out second quarter guidance. It was better than expected. They had pretty solid first quarter net income maintaining their guidance for the full year. So bucking the trend that we saw ASML laying out yesterday and in kind of a bearish standpoint, but it's definitely up 1% at least trading under the ticker TSM. So maybe a bit of relief, but still down about 20% year to date. So this has been one of the many companies under pressure from the AI unwind.
Really. Thanks so much for joining us. Safe travels. Hope you get one last pint of Haagen-Dazs before you head to Japan. We should point out that Bailey is on his way to Japan as part of a job exchange program with Bloomberg. So you'll be there for three months and we'll miss you. But maybe we'll see you. Maybe you'll come to us live from Tokyo.
Live from Tokyo. There you go.
Be very late in Tokyo, but going to hold you to that very thing. So much feeling that feels there. Okay. Coming up, Blackstone beats by a wide margin, but issuing a warning about tariff uncertainty. We're going to dive into the results in today's Wall Street beat. You're watching Bloomberg Open Interest.
All right. Let's get to high interest to look at what's making headlines around the world. The trade war is spilling into ADR. The chairman of a US congressional committee on China is calling on Bank of America and JPMorgan to withdraw from working on the Hong Kong share sale of the battery maker Contemporary Amperex Technology. That's CATL. It's seen as the first step to delisting Chinese stocks in the US. Over 200 Chinese companies are listed on US exchanges with a collective market cap of around $1 trillion, by the way. ADR I think it's American Depositary receipts. Is that right?
That is right. Thank you. Thank you very much. Just so you know, homebuilder D.R. Horton is cutting its sales outlook thanks to high mortgage rates and growing economic uncertainty for potential buyers. President Trump's tariff war has dragged down consumer sentiment and increased stock market volatility. Tariffs will also squeeze profit margins for builders by driving up prices for construction materials. In similar news, U.S. housing starts fell by the most in a year. Harvard University is pushing back against the government after the president said the school should lose its tax exempt status, warning that such a move would endanger its ability to carry out its mission and threaten higher education in America. A spokesman for the elite college said there is no legal basis to rescind Harvard's tax exempt status, and doing so would have grave consequences. But Trump suggested the IRS should tax the university as a political entity.
Danny, We've got some earning news to get through, and it is your Wall Street beat. Blackstone is urging the government to resolve tariff uncertainty as quickly as possible. President John, facing a resolution will lead to better outcomes for the real economy and markets. Blackstone's first quarter results showed muted exits for key businesses due to trade tensions. Shares are higher in the pre-market 1.7%. We are joined now by Bloomberg's chief Wall Street correspondent, Sri Natarajan. What were your takeaways from the earnings?
