Impact Of Currency & Energy Declines.. And Market Reality Check On China 3/5/25

0:00Live from the Nasdaq market site in the heart of New York City's Times Square. This is fast money. Here's what's on tap tonight. Dollar doldrums, the greenback sinking sharply this week, hitting levels not seen since the election. What is behind this pullback and what's it mean for the markets? And Musk backlash has been hitting Tesla stock and its showrooms. What the CEO's political positions could mean for the company at home and abroad. Plus, China sets an ambitious new growth target. But how will tariffs play into its outlook? Apple shares flirt with correction territory and liquor maker Brown Forman gets spirited after earnings.

0:32I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Dan Nathan, Guy Adami, and Lori Calvacina, head of U.S. Equity Strategy at RBC. We start off with two major moves taking hold of the market this week. First up, crude oil dropping for a third straight day, hitting its lowest level since May 2023. Trump's tariffs and OPEC production increases, pushing Texas Tea toward its worst weekly performance in five months. Texas Tea, the Beverly Hillbillies. The move in oil crushing the energy sector now negative on the year and on pace for its worst week since October 2023.

1:07Slowdown fears also gripping the green back. The U.S. dollar index falling more than a percent today on pace for its worst week since November 2022. The euro, yuan, Mexican peso, yen, Canadian dollar all gaining steam as currency traders bet that the U.S. economy is in for a bumpy ride. So what do these downward moves in both the dollar and oil? mean for the broader markets, Guy? I think, well, first thing you know, old Jed's a millionaire. Yeah, that's great reference. I mean, unbelievable. And he's been doing it by shorting a couple things. Crude oil. But more importantly, I think the dollar, and you have a pretty good memory, I think the rest of us do as well.

1:43It was August 5th that the market sold off in a meaningful way. And if you recall, the backdrop is what's going on with dollar-yen, and the yen was strengthening in a meaningful way. And it all started with a CPI report in July. I only mention that because very quietly, the yen has been strengthening right before our eyes. And we might be on sort of the precipice of another types of those events, but it speaks to a weakening dollar, weakening commodities, I think a growth concern, something that Tim's been talking about. I think the market's waking up to it. Yeah. Laurie, how do you interpret this?

2:13So look, another time that we saw the dollar just absolutely slide was back in the fourth quarter of 2018. And what else happened back in the fourth quarter of 2018? Companies had started to warn investors that Trump's tariffs, that the China trade war was going to have an adverse impact. We saw that absolutely happen in that September conference season. And as I think back, you know, the last week or so talking to investors, it's not just tariffs they're concerned about. It's all the disruption coming out of Washington and the ripple effects. And we're finally starting to see investors question whether or not those tariffs are, you know, not just a negotiating tactic, if they're actually going to stick around.

2:47You're starting to see, you know, glimmers of problems in the job market that investors are taking notice of. And so growth is being questioned. And I think that's pressuring both of those right now. I tell you, I'd say only 20 percent of the dollar move is tariffs and weakness. I'd say 80 percent of it is foreign policy. And I would link back also the weakness in oil to what's going on with the dollar. I mean, look at what happened in Germany. You have a country making a historic announcement in terms of what they're going to do in terms of raising debt and going on high growth. That rallies the euro.

3:16That rallies. Bundy yields obviously sells off their debt. But this is all about the euro rallying against the dollar. This is all about the Saudis siding with the U.S. and Russia and cutting out the rest of Europe, talking about Ukraine. This is about cutting an oil deal with the Saudis so OPEC decides they're going to increase production. To me, this mosaic, and it is, there are all these pieces, there are related, and Trump's impacting all these corners of the market. And I think it's not just about the economic data, which has been weaker. I think that is part of it. I think tariffs are a big concern.

3:46But what's going on in Europe and the reaction to U.S. foreign policy right now has major implications for the dollar and major implications for global bond yields. You guys know me as like the silver lining guy, right? So what I would say about this dollar weakness is like, OK, U.S. multinationals, especially the big tech guys who have a lot of stuff overseas, maybe it's pretty good. You know, we've seen S &P 500 earnings expectations come down over the last quarter. So it's not something we saw a whole heck of a lot in 2024. I think we came in the year with like 13 percent expected year over year growth.

4:17And that's been ratcheted down, right, a little bit. So maybe this is the sort of thing that helps buoy, you know, some of these mega cap tech stocks that have had a tough time year to date, that sort of thing. So, again, we're almost done with the quarter. And, you know, we're going to get very focused on Q1 earnings really soon. So maybe that is something of a tailwind. Yeah, I'm glad that you mentioned the European investment, I mean, the German investment. Oh, it's massive. It's huge. 500 billion euro for a tight-fisted fiscal austere country for so long. Now, you know, we're going to go pedal to the metal.

4:45And we're going to spend it on defense. And we're going to spend it on technology around defense. And, like, Europe is in a scramble right now. And there's no question the most important economy in Europe just went from a GDP estimate for 2025 of eight-tenths of a percent to, at this rate, people are saying 2 percent. Just on today alone. Again, this is historic. We haven't seen this kind of a move in Bundyields in 27 years or something like that. And again, the Germans who are known for fiscal austerity, this is a breakout. This is something that I think is actually fantastic for European stocks, something we've been talking about now for a long time.

5:17Even at highs. Yes. Yeah. I mean, I think this is massive, but I think it is tied to oil. And again, it's about refocusing some of the geopolitics. Whether you like it or not, it's having an impact on these major asset classes. I think Tim's on to something really important regarding Europe. We saw peak bearishness on Europe back in December, early January, when I think about my meetings and my colleagues' meetings with our clients there. And what we're actually noticing in the funds flow data is that you are finally starting to see money go back into Western European equity funds, going back into German funds in particular.

5:49You're not seeing it in the U.K. or not seeing it in France. So I think there's something specific to Germany going on. But it's very, very much. I mean, we're not even in early days. We're in early minutes of that trade. Early minutes of the trade. It's barely perceptible. We've had 15 years of relative underperformance of the Euro stocks 50 to the S &P. I mean, there is a lot of catch up here. There's still a lot of value, at least if you look at pure valuations of where Europe's trading in the U.S. Yeah, we're going to get to Chris Verone in Europe later on in the show. But in terms of, I mean, if the world is going to, you know what, in a handbasket.

6:21No, you can say hell. The greenback should be. There are other words you can't say. You can say hell in a handbasket. But if you would say, if you can't say something hitting the face. I think it was the S &P, maybe hell in a bucket. My point is the greenback is safe haven. Theoretically. So are we going to see that kick in? Well, you know what? There are a lot of people out there, a lot smarter than I am, which is not a high bar, that think that maybe that trade is sort of getting long in the tooth and sort of the scope of a dollar being a safe haven. So there's a scenario, by the way, where the dollar continues to sort of go lower against these currencies.

6:52And bond yields here in the United States start to go higher. And you saw glimpses of it today. I mean, 10-year yields were 411 a day and a half, two days ago. It's 425 now. Now, obviously, I don't want to make a huge deal yet, but you start seeing the unraveling of the bond market against a weaker dollar, and you're seeing something you haven't seen in a very long time. I would just say on the safe haven point, I think that has been true in the past. But what I've really noticed with the international investment community in particular is there is just a failure to understand the logic of policy.

7:18And I think that calls into the question whether or not. The logic of the policy that is being pursued right now. Yeah, whether it's tariffs, you know, I think there's maybe a little bit more, you know, sort of skepticism with tax and things like that that are going to happen. There was some initial excitement on Doge, and I think that's really evaporated at this point. But I think on tariffs in particular, you know, I hear people talk about game theory, and I hear them talk about the logic and the damage it's going to do to the economies and just really kind of questioning why these policies are being put into place.

7:45And I think when there's just a lack of understanding and a lack of really understanding why things are happening, that safe haven status comes under question. All right. For more on where the dollar could be headed next, BK Asset Management's Cathy Lean joins us now. She's the managing director of FX Strategy. Cathy, great to speak with you. We've been talking about a lot of the factors pushing the dollar the direction it's going, and I'm wondering what you think is the strongest force behind the dollar going forward. Well, I think a lot of the points that were just made were very, very valid.

8:12But I think the greatest factor driving the dollar right now is really the movements in the bond market, as well as general risk appetite. We've seen the VIX reach its highest level this year. I think that that's a sign of anxiety in the markets. What's really interesting is that stocks are not responding the same way, because even though we're seeing high volatility, it seems like the equity traders are still cautiously optimistic that a lot of the concerns that are posed by the tariffs are not going to be as severe. I'm certainly not in that camp. I'm worried about it. And so I think it's a factor that is driving the U.S.

8:48dollar right now, and it's going to continue to be a main driver of U.S. dollar flows. So right now, this growth scare, that's the predominant force in your view, Kathy. And in your view, I mean, I know that you're partial, obviously, to the FX market. But, I mean, do you believe what the bond market, what the FX market is telling us versus the equity market? It sounds like you don't know why the equity market is doing what it's doing. I do. And I think it's really hard to imagine that the warnings that we're getting from the corporate sector talking about having to raise prices, talking about implementing layoffs, talking about a weaker growth season, is not going to manifest itself in the stock market.

9:28I think that stocks are due for a more significant correction. I think we've lost our opportunity to buy puts cheaply. I think that a lot of people are looking to buy protection these days. I think there's a lot of reasons why stocks could see a more significant correction. And for my world, NFX, that means risk aversion. So while we are seeing the euro rally significantly today, the Australian dollar, Canadian dollar, many of the major currencies up against the greenback, I still think that there's a significant risk of correction in the markets that will lead to a correction in currencies. Kathy, is there a level in dollar-yen where you get concerned so much as what we saw last summer and the effect that it had on our markets here?

10:09Well, I mean, last summer, we did have significant weakness, significant moves in dollar yen. I think in terms of dollar yen itself, the Bank of Japan is really watching the 140 level. I think they haven't really come in any degree size. They are also watching to see the ramifications of the tariffs, which is why they've been kind of very cagey on when the next interest rate hike will happen. So there's a lot of things at play here. But we do see momentum in Japan's economy, which should justify strength in the Japanese yen and further interest rate hikes. But the tariff is a huge uncertainty for everyone in the region, even if Japan is not targeted right now.

10:48And I think they're kind of in wait and see mode. Kathy, it's Tim. I guess I think this move and my question to you, isn't this move all about dollar euro? That's 60 percent of the Dixie. what we've had across Europe over the last couple of days and the news out of Germany, not only historic is the word we're using here, but this is a case where you've had a major reassessment. Remember, the euro was possibly overshooting to the downside around the new year. So let's put this in perspective. How much of this do you think is tariffs? How much do you think of this is just all about Europe? Well, today, it's certainly all about Europe, Because today, as you said earlier, with a huge package, fiscal suspending package that was announced.

11:31So today, this move is certainly about Europe. But I don't think that if we look forward, it's just going to be about Europe. I think there's still going to be a central focus on the dollar. This move could be erased if Trump kind of provides details on when the timing of the European Union tariffs are going to happen. So there's a lot of volatility that can happen, a lot of back and forth in the euro. I don't think that the pure stimulus package that we've gotten from Germany is the only thing that investors should be focusing on. Does safe haven status save the dollar from a significant slide or does that not kick in this time?

12:07That's really interesting that you say that, Melissa, because I heard the earlier segment that a lot of your other guests do not believe that the dollar is going to retain a safe haven status. I think that we're going to see, you know, more of a safe haven bid in the greenback. I think we haven't seen the correction yet, but I think we will. And when we will, it'll be hard for those currencies to avoid selling off as well. Kathy, great to speak with you. Thank you. Kathy Lean, BK Asset Management. Tim, you really got that. And I want to be clear about this. I don't think the dollar is even close to losing reserve currency status.

12:40It's not even it's not even. I understand theoretically. I understand we've disrupted a lot of strong allies and trading partners. I understand there's been an argument for years. This is why Bitcoin is doing what it's doing. why I say you should buy gold. But if you're telling me that ultimately the tactical moves by the administration, whether they're right or wrong, that have greatly impacted this move in the dollar and certainly caused a lot of uncertainty, which has also impacted the dollar, is suddenly putting the dollar in question when you look around the world. It's not even close. So I actually, I don't think we should mess around with reserve currency status and our credit rating and the things that I think we do talk about.

13:16But there's nothing about this move here that has me concerned that the dollar is losing. I think it's ridiculous. I mean, in terms of safe haven, though, like a bid for safety, not reserve currency. OK, well, I mean, again, it's not time for safe haven. You know, we haven't seen dislocation in markets. I understand we've had volatility. We've had five days in a row. We've had intraday 2 % vol. That's it's not time for safe. Yeah, and it's more like the other asset classes away from equity that have seen some pretty extreme volatility. But, you know, I'll just say this with the uncertainty about policy.

13:44I mean, this is going to stick around if we keep doing this, like putting the tariffs in place, but then, you know, giving exemptions for this for a month or whatever. It's the sort of thing that you can't, if you're like the C-level suite for a lot of these companies, you can't just turn it back on, right? If you get really kind of cautious about this sort of thing and you're worried about growth and you're worried about global growth, and, you know, to me, it just seems a bit silly. It looks like they're literally playing chicken with our economy, maybe the global economy, for politics, not exactly for policy.

14:11And so it goes back to what Tim was saying about geopolitics. There's some real rifts that are becoming with our biggest allies right now. And I don't think what's different about this than 2018, it was really focused on China now. But I think some of these other like I think Europe is becoming emboldened a little bit. I think the without NATO, Europe has to scramble. There's a lot of different things going on. And you're right. I mean, I think I think it's dangerous to play around with these things. I still look at the much bigger picture, which is I don't think anything can change. Yeah, I'm not making a comment on the reserve currency issue.

14:42But what I will tell you is that international investors do not understand what is going on. And we are really starting to smell the risk of a growth scare coming back into this market. So what do I mean by that? A garden variety pullback is about 5 to 10 percent, right? We're in the middle of that now. Your next tier of fear tends to be a 14 to 20 percent drawdown where real concerns, where people just don't understand what's going on. Think back to the S &P debt downgrade that we had, you know, back in the early days after the financial crisis. 2018, we had a 20 % drawdown peak to trough. Those are areas where market participants have really questioned whether there was something systemic starting to happen or if we were really on the brink of a recession.

15:23And that's what I, you know, my base case is that we bottom out around, you know, kind of in that 5 to 10 % mark. But if we go to something next, and, you know, frankly, we're starting to see cracks in the labor market emerging in survey data. We got the ADP report today. There's a real question about growth in the U.S. starting to emerge. And when that happens, the U.S. is not your safety trade. In the meantime, stocks snapping a two-day losing streak with a sharp midday rally, the Nasdaq leading the gains up a percent and a half, though all three major indices still down for the week. The move coming after President Trump said he would put off tariffs on the auto industry for one month.

15:56Car stocks taking a big leg higher on that news as well. The very latest, let's get to our Megan Casella in Washington. Megan. Melissa, that sigh of relief from the automakers coming after White House Press Secretary Caroline Levitt told reporters The one-month exemption was at the request of the automakers in order to ensure they were not at an economic disadvantage. It comes after Trump spoke yesterday with the leaders of Ford, GM and Stellantis. And that's the good news, but there is much more to come here on the tariff front. Cars made up a big chunk of trade with Canada and Mexico, maybe 15 or 20 percent, but tariffs still remain in place on everything else.

16:30Canada's foreign minister also said in the last hour that conversations are still ongoing with the U.S., but that they are very fluid and that Canada could potentially use oil and gas exports as a lever if tariffs continue, suggesting potentially more retaliation to come there. And we also have two big dates to watch. One is next week's steel and aluminum tariffs. Those are set for March 12th, and they have already been signed into law. Canada and Mexico will be deeply impacted by those, are likely to retaliate. The auto industry also going to get caught up there as well. The other date is April 2nd.

17:02Those are the reciprocal tariffs. And Commerce Secretary Howard Lutnick. He said today Canada and Mexico will be targeted with those and that while the reciprocal tariffs will start on the second, they could continue to trickle out over weeks or even months. So when it comes to the tariff front, guys, we may be just at the start of all of this. Melissa. All right, Megan, thank you. Megan Casella. So reprieve for the automakers for now. Inventory is pegged at 84 days of inventory in the United States, according to CarGuru. So They have a few months. Maybe if they can pull forward some production now, they can be covered for longer.

17:36So a couple things from this. So we had a conversation about GM last night. We actually said, you know what, it just traded down the levels we saw in October. It's a logical place for it to stop and potentially bounce from. It happened today, and I think it will continue to move higher. The other thing is the broader market, and it's, in my opinion, not coincidence. Look at where we stopped today in the S &P, 5 ,700 basically. Go back and look at where the S &P was on Election Day, 5 ,700. Don't think for a minute that this administration doesn't have that sort of peg somewhere as sort of a benchmark as to how low they'll allow the market to go in the short term.

18:08Yeah, I would say today's rally was not particularly impressive. You look at the S &P up 1 percent. You look at the weakness in banks on a relative basis. We already talked about energy. It just didn't seem that broad base. We saw some stuff that's gotten really hit hard, probably more for fundamental reasons if you look at some of the mega cap tech over the last few weeks. So not a particularly impressive rally, in my opinion. Yeah. What do you make about the weakness of banks? You know, I've been at the RBC Financial Conference for the last couple of days, and I'll tell you, the tone was very constructive.

18:35I mean, they're acknowledging the impact that tariffs are having on dialogue. But in terms of credit, things still look really good. In terms of day-to-day business activity, they're not really seeing any problem develop. So I came away from the last two days thinking the plumbing of the economy is pretty good. I have liked banks. I've liked financials. And I've liked banks over cap markets, and I'm sticking with that. Yeah, look, the rhetoric on M &A and slowdown and deal flow, So, I mean, that's been the big headline over the last couple of days. But the bottom line is D-Reg for banks is a great story right now.

19:02Watch the yield curve, though. It is flat neck. Yeah. Coming up, souring on Apple. The tech giant briefly falling into correction territory today. What it could mean if the last MAG 7 holdout falls even further. And speaking of the MAG 7, Tesla's been in a tailspin since the inauguration. It's now more than 40 % off its own record. Will global backlash to see how Elon Musk continue to threaten the EV maker? Don't go anywhere. Fast Money's back in tune. Welcome back to Fast Money. Apple flirting with correction territory, now more than 9 % off the 52-week high. It hit December 26. At its lows of the day, it had been nearly 12 % below its record.

19:38The iPhone maker is currently the only stock among the so-called Magnificent 7, less than 10 % off highs. Tesla, NVIDIA, Alphabet seeing the steepest corrections among the group. Now, Apple had some news. They revealed a new iPad. LightShed came out with a pretty damning—I don't know if you saw it, Dan. No. No, okay. Can you forward it to me? I'll try and forward it with the email, right, using the email. Or carrier pigeon. Basically, can it innovate before it gets disrupted, saying that they're not innovating enough at this point? Yeah, no doubt. I mean, this is something that we were all pretty skeptical.

20:12Last June, when they announced this Apple intelligence, you know, it really didn't do what a lot of analysts or investors thought it was going to do, which is cause an upgrade cycle for the hardware, right? If they're not upgrading hardware that has these new chips that are going to power these AI apps in the future, then, you know, I mean, it's just they're going to get left behind. Now, one of the reasons why it might have been outperforming on a relative basis is if you look at Q4 earnings and we heard the CapEx by Amazon, by Google, by Microsoft, by Meta. When you had decelerating revenue growth and higher than expected CapEx, investors kind of punished them.

20:44Well, Apple's not doing that right now. They're not building out data centers or at least not now. They talked about that$500 million investment that they're going to make going forward. So to me, I think Apple is not particularly interesting here. Expectations for high single-digit earnings growth, mid-single-digits sales growth, unless they have an upgrade cycle this year, that's not happening. It's only a few more months of the anniversary of the WWDC where the AI enthusiasm was completely ignited. Stock was 193. That thing was June 10th. 193, it closed that day, went sort of nowhere in the aftermarket.

21:17A month and a half, two months later, was trading in the mid-220s, was off to the races. So I was not overwhelmed by that. Gene Munster came on the show that day and said it was transformative. He was right. But there's a universe where we could round trip the entire thing. And again, a valuation of concern in today's market. Apple shouldn't be more expensive, in my opinion, than a Facebook or even a Microsoft, which is actually now below valuation of Apple. I mean, I disagree just because I think we haven't seen Apple be the beneficiary of some of the fluff that these other companies have. And I understand the dynamic around the top line that's under some pressure.