WEBVTT - Bloomberg Surveillance TV: July 29, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always, on the Bloomberg 0:00:34.040 --> 0:00:37.239 Terminal and the Bloomberg Business App for everybody else. We'll 0:00:37.240 --> 0:00:39.400 be looking at a tree of central bank decisions on deck. 0:00:39.440 --> 0:00:41.840 The Fed and BOJ on Wednesday, the Bank of England 0:00:41.880 --> 0:00:44.840 JEW on Thursday. Steve England are of standard charted saying 0:00:44.880 --> 0:00:47.040 the Bank of Japan may be teeing up for a 0:00:47.120 --> 0:00:49.960 rate hike in September, saying the market will be happy 0:00:50.080 --> 0:00:52.840 enough if they give a wink and a nod. Steve 0:00:52.920 --> 0:00:54.680 joins us now for more. Steve, is that what we're 0:00:54.720 --> 0:00:57.880 looking for this week? Winks and nods to September for 0:00:57.920 --> 0:01:04.200 both the BOJ and the Federal Reserve go in opposite directions, exactly. 0:01:03.720 --> 0:01:07.120 One doing the left eye, the other doing the right eye. 0:01:07.480 --> 0:01:09.520 You know, I think the FED is going to leave 0:01:09.600 --> 0:01:13.040 the door open and sound encouraging, but they certainly don't 0:01:13.040 --> 0:01:16.200 want to sound committal. You know, they're going to wait 0:01:16.319 --> 0:01:20.000 and make sure that the data kind of are reasonably consistent. 0:01:20.240 --> 0:01:22.400 But you know, it does sound as if they would 0:01:22.480 --> 0:01:26.840 like to cut in September and justify the market's views, so, 0:01:28.120 --> 0:01:30.679 you know, with a lot of trepidation. I you know, 0:01:30.720 --> 0:01:33.639 this looks like a layup in terms of meeting market 0:01:33.680 --> 0:01:39.080 expectations and not jarring the market too much, So I 0:01:39.080 --> 0:01:40.400 wouldn't expect too much. 0:01:40.200 --> 0:01:41.280 Fireworks out of it. 0:01:42.240 --> 0:01:45.120 Boj you know, more interesting, We don't think they're going 0:01:45.160 --> 0:01:49.000 to cut, but sorry, we don't think they're going to hike. 0:01:49.960 --> 0:01:52.760 But the market only has like twelve basis points priced 0:01:52.760 --> 0:01:54.520 in for September. 0:01:54.680 --> 0:01:57.360 So if they give enough of an indication yeah that. 0:01:57.560 --> 0:02:00.680 We just don't want to talk about tapering and do 0:02:00.760 --> 0:02:02.640 a rate hike at the same meeting, we think the 0:02:02.640 --> 0:02:05.080 market will be comfortable with it as long as they 0:02:05.080 --> 0:02:06.560 don't low ball the papering. 0:02:06.880 --> 0:02:09.000 So Steve, let's take Dolly yen just short of one 0:02:09.080 --> 0:02:11.680 fifty four, a wink and knots on both sides of 0:02:11.680 --> 0:02:14.359 that currency pair sufficient to keep this trend in TAC, 0:02:14.919 --> 0:02:19.760 maintain this journey back towards one fifty and maybe below, you. 0:02:19.720 --> 0:02:22.760 Know, to really get it moving, you know, they would 0:02:22.760 --> 0:02:24.960 have to hike We don't expect that, but that's the 0:02:25.080 --> 0:02:27.960 risk I think to keep it where it is. And 0:02:28.040 --> 0:02:31.040 given that they've upped the importance of the exchange rate 0:02:32.080 --> 0:02:33.519 and you know, I think the kind of wink and 0:02:33.600 --> 0:02:36.640 nod that you know you alluded to, I think that 0:02:36.639 --> 0:02:39.320 that's going to be enough, you know, maybe to keep 0:02:39.360 --> 0:02:44.160 the end sort of slightly stronger, you know, not enormously stronger. 0:02:44.400 --> 0:02:47.400 I think for that we would need them to show that, 0:02:48.400 --> 0:02:50.840 you know, they are moving, and that they're moving, like, 0:02:51.040 --> 0:02:53.080 you know, more aggressively than it is now priced in, 0:02:53.400 --> 0:02:53.680 just to. 0:02:53.600 --> 0:02:56.040 Sort of underscore that, Steve, are you saying that they 0:02:56.040 --> 0:02:59.600 are not going to hike rates and that will sort 0:02:59.600 --> 0:03:01.680 of feel hey for the currency market, or they're not 0:03:01.680 --> 0:03:04.520 going to hike rates and that's going to be devastating 0:03:04.800 --> 0:03:06.359 for the end and it's going to go back to 0:03:06.400 --> 0:03:08.840 where it was versus the dollars say two weeks ago. 0:03:10.200 --> 0:03:12.359 Look to devastate the end, they would have to put 0:03:12.360 --> 0:03:15.639 September in question, and I don't think that's going to 0:03:15.680 --> 0:03:19.400 happen to to sort of you know, but given that 0:03:19.400 --> 0:03:21.839 the you know, if you look at the market pricing, yes, 0:03:21.880 --> 0:03:25.120 they have like five or six basis points priced in 0:03:25.200 --> 0:03:28.639 for this week, but they only have twelve in total 0:03:28.720 --> 0:03:31.480 for September. So I think if they if the market 0:03:31.520 --> 0:03:34.040 walks away saying, yeah, they didn't like we didn't really 0:03:34.080 --> 0:03:36.360 expect them to, but they're good for September, I think 0:03:36.400 --> 0:03:39.200 that's going to be fine for the end. You know, 0:03:39.360 --> 0:03:42.120 like a bunt single, it's not going to be a 0:03:42.200 --> 0:03:44.080 you know, a triple or a home run. 0:03:44.440 --> 0:03:46.040 How much it does a balance team matter. 0:03:46.680 --> 0:03:49.560 Pantheon Macro talking about how that could placate the market 0:03:49.600 --> 0:03:54.000 if they just stop buying as many bonds, do you agree, Well. 0:03:54.040 --> 0:03:56.800 I think they have to, given that they sort of 0:03:56.960 --> 0:04:00.960 justified doing nothing last time by promising that they're going 0:04:01.000 --> 0:04:04.200 to lay out their path, and they do have to 0:04:04.240 --> 0:04:07.040 sort of announce a significant cut if they you know, 0:04:07.440 --> 0:04:11.440 the other down or risk for yen weakening is if 0:04:11.920 --> 0:04:17.240 is if the you know, the pace of balancing reduction 0:04:17.400 --> 0:04:19.919 is so slow that the market says it's not meaningful. 0:04:20.360 --> 0:04:23.240 But again, we think that they will give enough of 0:04:23.279 --> 0:04:26.760 a you know, indication of the pace on the balance 0:04:26.760 --> 0:04:29.800 sheet front loaded enough that should be all right. 0:04:29.600 --> 0:04:31.440 For the end. I think that it's going to be 0:04:31.480 --> 0:04:33.120 consistent with market expectations. 0:04:33.279 --> 0:04:35.839 Steve. That's bond buying in Japan. It could have some 0:04:35.880 --> 0:04:38.360 implications for the kind of buying that takes place here 0:04:38.360 --> 0:04:40.880 in the United States as the supply starts to ramp up. 0:04:40.880 --> 0:04:41.159 Steve. 0:04:41.200 --> 0:04:43.599 You've seen all the articles or the studies on the 0:04:43.640 --> 0:04:48.400 so called activist Treasury issuance. Steve, what's your understanding of 0:04:48.400 --> 0:04:51.200 what ATI actually is and how much weight do you 0:04:51.240 --> 0:04:51.680 put on it. 0:04:53.880 --> 0:04:56.440 I think ATI is a modern version of, you know, 0:04:57.520 --> 0:04:59.880 what was done sixty years ago in terms of operation 0:05:00.080 --> 0:05:02.360 twists that you kind of reduced issue and set the 0:05:02.400 --> 0:05:05.840 long end, takes the pressure off the long end of 0:05:05.880 --> 0:05:07.840 the bond market. You issue at the short end, and 0:05:08.320 --> 0:05:11.280 that's you know, kind of you end up with a 0:05:11.320 --> 0:05:15.080 flatter yield curve. And you can kind of see that 0:05:15.080 --> 0:05:17.600 that's what they've been doing the last couple of years, 0:05:18.839 --> 0:05:21.239 except that they haven't been doing it the last couple 0:05:21.240 --> 0:05:24.719 of months. So it's one thing to say that they're 0:05:24.760 --> 0:05:26.719 trying to take the pressure off the long end. 0:05:27.360 --> 0:05:30.440 But given that they haven't been doing. 0:05:30.160 --> 0:05:33.400 That kind of issuing this year, it's not an explanation 0:05:33.600 --> 0:05:36.240 for why, you know, ten year bond yields are four 0:05:36.360 --> 0:05:39.520 fifteen now, down from four to seventy at the end 0:05:39.520 --> 0:05:41.279 of at the end of April. 0:05:42.400 --> 0:05:44.800 Also, I think that they overstate the. 0:05:44.839 --> 0:05:48.839 Impact or some you know, commentary overstates the impact in 0:05:48.839 --> 0:05:50.560 the sense of talking about it being equal to one 0:05:50.600 --> 0:05:57.200 hundred basis points of cuts. You know, I think that 0:05:57.200 --> 0:06:00.560 that's not quite there because what we've seen VAI that's 0:06:00.600 --> 0:06:03.320 being grown even if you assume twenty five basis points 0:06:03.320 --> 0:06:06.039 at the long end, is what if the long yield 0:06:06.080 --> 0:06:08.680 goes down by twenty five basis points and FED funds 0:06:08.800 --> 0:06:11.600 is held flat, it's not that's cut FED funds by 0:06:11.600 --> 0:06:14.160 one hundred that's going to take the long end by 0:06:14.200 --> 0:06:16.360 twenty five and that's going to have a big impact. 0:06:16.480 --> 0:06:20.279 I mean, intuitively, we've had the long end swing twenty 0:06:20.279 --> 0:06:23.520 five basis points four or five times this year, and 0:06:23.560 --> 0:06:26.080 we haven't seen any trauma in the market. 0:06:26.279 --> 0:06:28.359 You know, people like us have trauma. You know, people 0:06:28.520 --> 0:06:30.840 you know and asset markets worry about it. 0:06:30.880 --> 0:06:34.240 But it's not as if economic activity seems to be 0:06:34.360 --> 0:06:38.760 visibly affected by that kind of move at the long 0:06:38.880 --> 0:06:41.800 end as long as the Fed isn't actually moving and 0:06:41.839 --> 0:06:43.680 now the market's waiting for the Fed to move. 0:06:43.839 --> 0:06:45.880 Well, see, let's put this on his head. 0:06:46.040 --> 0:06:48.720 What if the Treasury comes out this week and says 0:06:48.720 --> 0:06:51.599 that they're much more heavily waiting the issue is going forward. 0:06:51.320 --> 0:06:52.000 To the long end. 0:06:52.400 --> 0:06:54.680 How big would the reaction be in terms of yields 0:06:54.760 --> 0:06:57.160 rising on the tenure on the thirty year. 0:06:59.600 --> 0:07:02.680 Well, you know, I think the market kind of expects, 0:07:02.760 --> 0:07:06.640 you know, to continue in the direction that they've been going. 0:07:07.800 --> 0:07:08.200 Lately. 0:07:08.360 --> 0:07:10.880 They I mean, if they do issue at the long end, 0:07:11.360 --> 0:07:14.800 you know, a locked I think it could matter, but 0:07:15.360 --> 0:07:18.520 I actually think it's more second order. I mean, it matters, 0:07:18.640 --> 0:07:20.960 but it's not you know, and it's going to matter 0:07:21.040 --> 0:07:24.440 in terms of you know, do yield stay where I 0:07:24.600 --> 0:07:28.440 just saw them like four fifteen, four seventeen, Probably not, 0:07:28.720 --> 0:07:31.120 but it's not going to take them to four seventy. 0:07:31.600 --> 0:07:36.680 It's going you know, ten basis points, twenty basis points maximum. Again, 0:07:36.720 --> 0:07:39.520 it matters, but it's it's a second order in terms 0:07:39.520 --> 0:07:40.280 of the economy. 0:07:40.560 --> 0:07:43.080 That's what about four sixty eight this morning? State it's 0:07:43.120 --> 0:07:56.240 going to catch up State England and standard chartage. So 0:07:56.280 --> 0:07:58.520 here's the latest coming into this way, Donald Trump and 0:07:58.600 --> 0:08:01.560 Kamala Harris hitting the campaign trail, Harris heading to Georgia 0:08:01.600 --> 0:08:05.320 tomorrow and Trump returning to Butler, Pennsylvania on Wednesday. The 0:08:05.400 --> 0:08:09.280 latest Wall Street Journal poll showing Harrison Trump neck and neck. 0:08:09.520 --> 0:08:13.040 Jeanette larstatigue it's a bed company joined us now for more, Janet. 0:08:13.080 --> 0:08:15.320 If the Democratic ticket was a stark, we'd call this 0:08:15.400 --> 0:08:17.760 a post Biden relief rally, and we'd all be asking 0:08:17.840 --> 0:08:19.880 questions about the earnings releases in the quarters to come, 0:08:19.920 --> 0:08:22.080 and I'd be sitting here saying, what makes it durable? 0:08:22.160 --> 0:08:25.520 Tell me the fundamentals that supports this going forward from here? 0:08:25.560 --> 0:08:28.040 Can you point to what those fundamentals would be for 0:08:28.120 --> 0:08:28.880 Kamala Harris? 0:08:30.040 --> 0:08:31.800 Well, I think the biggest thing that we've seen in 0:08:31.840 --> 0:08:35.760 this race is you know that there was this absolutely 0:08:35.880 --> 0:08:40.120 lack of momentum or enthusiasm from most Americans about the 0:08:40.120 --> 0:08:42.959 two candidates they have, and so Biden getting out of 0:08:43.000 --> 0:08:45.599 the race, we were really starting to see his numbers 0:08:45.640 --> 0:08:48.040 go down since the debate. He was really starting to 0:08:48.080 --> 0:08:51.480 go impact down ballot races across the country and that's 0:08:51.520 --> 0:08:54.080 really where we're starting to see the change. With Kamala 0:08:54.120 --> 0:08:56.120 Harris at the top of the ticket, you're seeing the 0:08:56.160 --> 0:08:57.480 pulling revert. 0:08:57.080 --> 0:08:58.880 Back to where it was pre debates. 0:08:59.000 --> 0:09:02.199 You have state it's like Pennsylvania, Wisconsin, and Michigan all 0:09:02.240 --> 0:09:02.840 within the. 0:09:04.400 --> 0:09:05.280 Margin of error. 0:09:05.440 --> 0:09:08.480 You have an enthusiasm, a gap closing, which you saw 0:09:08.520 --> 0:09:10.760 that in a poll over the weekend, and you're starting 0:09:10.760 --> 0:09:12.960 to really see people just engage all of the calls 0:09:12.960 --> 0:09:15.880 that happened over the past few days of people really 0:09:15.920 --> 0:09:18.880 getting engaged back into the campaign and the Democratic side. 0:09:19.000 --> 0:09:21.800 That's what's really changed. Obviously, it's just been one week, 0:09:21.960 --> 0:09:23.520 so we still have a lot more to see what 0:09:23.600 --> 0:09:26.480 actually happens. How does this messaging start to play out. 0:09:26.559 --> 0:09:29.160 If we do have a new debate in September between 0:09:29.160 --> 0:09:32.079 Trump and Harris, does that change the dynamic just because 0:09:32.080 --> 0:09:34.959 then you'll now actually see the policy differences between the 0:09:35.000 --> 0:09:37.440 two candidates, and that'll be important to see. But the 0:09:37.480 --> 0:09:40.120 momentum factor has really what's kind of changed the race. 0:09:39.960 --> 0:09:42.040 Here, Jeannette. With Biden at the top of the ticket, 0:09:42.200 --> 0:09:45.480 we were talking almost exclusively as one path, one path 0:09:45.520 --> 0:09:48.480 towards victory potentially, and that path was narrowing and it 0:09:48.480 --> 0:09:50.240 was a russ bout and you just alluded to it. 0:09:50.440 --> 0:09:53.200 Politico reporting over the weekend that maybe, and I think 0:09:53.240 --> 0:09:55.880 you might agree with this, we've reopened the conversation about 0:09:55.920 --> 0:09:58.320 some bout states. Would you agree with that? 0:09:59.280 --> 0:10:01.560 I would you know, we did see there was an 0:10:01.600 --> 0:10:04.960 Emerson poll that came out last week that showed Harris 0:10:05.000 --> 0:10:07.679 really closing the gap, particularly in Georgia. 0:10:07.960 --> 0:10:08.920 So that's important. 0:10:09.160 --> 0:10:10.520 So I think that's one of the states that she's 0:10:10.559 --> 0:10:12.240 really going to be looking to. We haven't seen a 0:10:12.280 --> 0:10:14.600 lot of polling coming out of North Carolina yet, but 0:10:14.640 --> 0:10:16.520 I know that that's another state that she would like 0:10:16.600 --> 0:10:17.000 to target. 0:10:17.040 --> 0:10:17.640 The Democrats. 0:10:17.679 --> 0:10:19.959 I've been targeting that for quite some time a couple 0:10:20.000 --> 0:10:21.560 of cycles, trying to see if they could flip that 0:10:21.679 --> 0:10:24.720 state from red to blue. So she does actually open 0:10:24.840 --> 0:10:27.680 up the map, she has more options if she were 0:10:27.720 --> 0:10:30.199 to win or sorry, if she were to lose one 0:10:30.240 --> 0:10:32.440 of the Blue Wall states, she could potentially win one 0:10:32.480 --> 0:10:34.320 of the Sun Belt states and that could actually still 0:10:34.320 --> 0:10:35.640 help her get over the finish line. 0:10:35.720 --> 0:10:38.960 Jenett, how important will be her running mate to determine 0:10:39.080 --> 0:10:41.840 how much she can really gain in the Sunbelts, especially 0:10:41.920 --> 0:10:44.280 given that we now have a shortlist of about three 0:10:44.480 --> 0:10:48.640 Arizona Senator Mark Kelly, Pennsylvania Governor Josh Shapiro, and Minnesota 0:10:48.679 --> 0:10:51.600 Governor Tim Waltz, Right, So, I. 0:10:51.600 --> 0:10:53.240 Mean, I think one of the things that's interesting is 0:10:53.280 --> 0:10:57.040 that general vice presidential canon does not do a lot 0:10:57.080 --> 0:11:01.000 for the presidential ticket. They can only usually but they 0:11:01.000 --> 0:11:03.560 can also subtract, but they don't usually add very much. 0:11:04.240 --> 0:11:06.560 In the past, it's been easier for a vice presidential 0:11:06.600 --> 0:11:09.280 candidate to actually win their state. That's been less true 0:11:09.280 --> 0:11:11.720 and more recent cycles. But I think Harris has some 0:11:11.800 --> 0:11:14.440 options here. She's has been looking at more of the 0:11:14.480 --> 0:11:16.640 moderate candidates along the lines of. 0:11:16.600 --> 0:11:17.880 Mark Kelly or Josh Shapiro. 0:11:18.320 --> 0:11:20.400 Tim Walls would be a little bit more progressive than 0:11:20.400 --> 0:11:22.720 the other two, so that would be a potential change 0:11:22.760 --> 0:11:24.960 if she's going to now have more of a progressive 0:11:24.960 --> 0:11:28.320 ticket than a progressive moderate ticket. But Arizona is one 0:11:28.360 --> 0:11:30.880 of the states where she's not doing particularly well based 0:11:30.880 --> 0:11:33.480 on current polling, so Mark Kelly can certainly help her 0:11:33.480 --> 0:11:33.680 with that. 0:11:34.000 --> 0:11:35.280 He also provides this. 0:11:35.240 --> 0:11:38.800 National security, this defense component that she may be lacking, 0:11:39.200 --> 0:11:41.599 which can be very helpful to her. Jos Shapiro, I 0:11:41.640 --> 0:11:44.240 think can help her deliver Pennsylvania, so she's worried at 0:11:44.240 --> 0:11:47.560 all about getting that. That is a key attribute of him, 0:11:47.720 --> 0:11:49.440 and he can also help her in the other blue 0:11:49.480 --> 0:11:52.240 Wall states like Michigan and Wisconsin. But I think that 0:11:52.280 --> 0:11:54.240 they're also thinking that Tim Walls is going to be 0:11:54.280 --> 0:11:56.880 a really good bulldog on this stage. That is something 0:11:56.920 --> 0:11:58.959 that you generally do look for and a vice president. 0:11:59.480 --> 0:12:01.600 And also he is from a state that Trump is 0:12:01.640 --> 0:12:04.480 targeting in Minnesota, and so that can help make sure 0:12:04.480 --> 0:12:06.560 that that state is shorn up, but then also help 0:12:06.600 --> 0:12:07.960 in other Midwestern states. 0:12:08.440 --> 0:12:10.719 Jenna Libby Cantrell of PIMCO came on here and said 0:12:10.720 --> 0:12:13.000 we should all just have cocktails, go away for August, 0:12:13.000 --> 0:12:14.720 to come back in September and take a look at 0:12:14.720 --> 0:12:16.840 the polls, so then we can actually discuss who is 0:12:16.840 --> 0:12:19.640 in the front seat to really be the front leader 0:12:19.720 --> 0:12:22.640 heading into the election. Michael Visus of Mark and Stanley 0:12:22.679 --> 0:12:24.800 over the weekend, the business cycle is likely to matter 0:12:24.840 --> 0:12:27.480 mortar markets in the election cycle the next few months. 0:12:27.760 --> 0:12:31.640 Jeanette from a policy perspective, why is it so important 0:12:31.640 --> 0:12:33.920 to really watch the policies at a time where you 0:12:33.960 --> 0:12:37.000 said this election is still a referendum on the speed 0:12:37.000 --> 0:12:38.000 of deglobalization. 0:12:39.600 --> 0:12:41.520 Yeah, so, I mean, I think this is really important 0:12:41.520 --> 0:12:43.760 that for one thing, that this race, now that we 0:12:43.800 --> 0:12:45.520 have Harris at the top of the ticket, it's moved 0:12:45.520 --> 0:12:48.680 from less of a referendum on Biden and his acuity 0:12:48.720 --> 0:12:51.600 to its choice about policy and so over the you know, 0:12:51.720 --> 0:12:54.040 we have less than one hundred days to go, and 0:12:54.400 --> 0:12:56.240 Harris still kind of needs to figure out some of 0:12:56.280 --> 0:12:59.160 her policy positions. Is she going to continue the policies 0:12:59.160 --> 0:13:01.800 that she had as twenty nineteen twenty twenty candidate? Is 0:13:01.840 --> 0:13:04.360 she going to potentially moderate some of those positions? And 0:13:04.400 --> 0:13:06.200 this is going to be a race to the finish line. 0:13:06.240 --> 0:13:08.679 This is much less like what you would normally see 0:13:08.679 --> 0:13:11.320 in a US election, where we have nine months of campaigning. 0:13:11.600 --> 0:13:13.320 So I do think that the next couple of weeks 0:13:13.320 --> 0:13:15.960 will be quite important. What happens at the DNC, what 0:13:16.000 --> 0:13:19.160 happens at that convention, What kind of policy proposals are 0:13:19.200 --> 0:13:21.559 you seeing, are you seeing momentum That is going to 0:13:21.600 --> 0:13:24.400 be a key component of this. But there is still 0:13:24.559 --> 0:13:28.680 vast differences between the two candidates on trade, on taxes, 0:13:28.840 --> 0:13:31.920 on regulation policy, and that's going to be really important 0:13:31.920 --> 0:13:32.600 for this election. 0:13:32.720 --> 0:13:34.719 That's what investors are really focused on. 0:13:35.080 --> 0:13:37.480 What does Trump versus Harris mean for trade, what do 0:13:37.480 --> 0:13:39.080 they mean for tax policy, and what do they mean 0:13:39.120 --> 0:13:41.320 for regulation? And I think that's where we really have 0:13:41.400 --> 0:13:44.200 to be kind of focused over the next couple of months, 0:13:44.400 --> 0:13:46.720 and you do start to see the elections start to 0:13:46.760 --> 0:13:48.640 price in. You know, we do have a metric that 0:13:48.720 --> 0:13:52.520 shows that the market can actually predict some about eighty 0:13:52.559 --> 0:13:55.600 percent of the time whether or not the incumbent party 0:13:55.640 --> 0:13:58.079 is going to win or the party out of power 0:13:58.120 --> 0:13:58.719 is going to win. 0:13:58.920 --> 0:14:00.839 And that starts around August fifth. 0:14:01.120 --> 0:14:03.360 We should do this every time, just one hundred days, 0:14:03.400 --> 0:14:05.679 just a sprint to the finish, Jeanette low as you 0:14:05.760 --> 0:14:17.120 take us, Janette, thanks you. Big week of central bank 0:14:17.120 --> 0:14:19.360 decisions coming right up with the Fed very much in focus. 0:14:19.440 --> 0:14:22.840 The FMC widely expected to keep rates on hold this Wednesday, 0:14:23.080 --> 0:14:25.720 but set the States for a September rate cup. Joining 0:14:25.760 --> 0:14:27.920 us now to discuss is James Camp of Eagle Asset 0:14:27.960 --> 0:14:30.800 Management alongside Zach Griff. It's a credit site, Jent. It's 0:14:30.800 --> 0:14:32.280 great to catch up with you both. Zach. I want 0:14:32.320 --> 0:14:34.240 to come to you first, give us a read on 0:14:34.320 --> 0:14:36.480 what you expecting this Wednesday and how it might set 0:14:36.560 --> 0:14:38.400 us up for what could happen in September. 0:14:40.080 --> 0:14:40.680 Yeah, John, we. 0:14:40.680 --> 0:14:43.160 Are looking for the Fed to make adjustments to its 0:14:43.200 --> 0:14:46.480 policy statement to indicate more of a concern in terms 0:14:46.520 --> 0:14:49.160 of the labor market, or at least dial back their 0:14:49.200 --> 0:14:51.920 assessment of strength in the labor market and continue to 0:14:51.960 --> 0:14:55.520 emphasize progress on the inflation front. We expect Sherman Pole 0:14:55.680 --> 0:14:58.760 to indicate a willingness to cut in September. We don't 0:14:58.760 --> 0:15:01.280 think he'll be very explicit and saying that they will cut, 0:15:01.400 --> 0:15:05.160 but keep options open, keep that data dependent, Mantra. We 0:15:05.200 --> 0:15:07.520 think that data supports a cut in September. 0:15:07.760 --> 0:15:09.840 James, Of course, we're all much more interested in the 0:15:09.840 --> 0:15:12.680 one hundred basis points after that. If the risk one 0:15:12.720 --> 0:15:15.760 hundred basis points after that, what is the destination you 0:15:15.800 --> 0:15:18.280 think this Fed is heading towards? And what kind of 0:15:18.280 --> 0:15:21.240 economic regime do you think we're in? The guides that. 0:15:22.920 --> 0:15:24.560 Well, good morning, good to be with you. 0:15:24.880 --> 0:15:27.040 We're in a reflation regime, right, but the anchoring that 0:15:27.080 --> 0:15:29.160 we had in the post financial crisis period up to 0:15:29.200 --> 0:15:31.120 COVID is gone, and we have a new economy, and 0:15:31.120 --> 0:15:34.480 that new economy has more stubborn inflation and we've written 0:15:34.520 --> 0:15:37.040 about on shore, We've written about pricing power, We've written 0:15:37.040 --> 0:15:39.360 about a tighter labor market. I think the FED does 0:15:39.400 --> 0:15:41.560 cut in September. This is the clearest data that they're 0:15:41.560 --> 0:15:43.840 going to have to give them that opportunity. But the 0:15:43.880 --> 0:15:46.280 base effects and some of the inflation in NURSO is 0:15:46.280 --> 0:15:47.680 going to come back in the fourth quarter. 0:15:47.800 --> 0:15:49.800 So I don't consider this a FED pivot. 0:15:50.040 --> 0:15:53.440 I consider this effect sort of getting back to sort 0:15:53.480 --> 0:15:54.800 of more normal. 0:15:54.680 --> 0:15:55.520 On the funds rate. 0:15:55.720 --> 0:15:58.640 But I wouldn't extrapolate this September meeting, which is likely 0:15:58.680 --> 0:16:01.480 to be at maybe even fifty by points, into a 0:16:01.520 --> 0:16:04.960 protracted policy adjustment over the next couple of quarters. This 0:16:05.000 --> 0:16:09.080 is a late twenty twenty five kind of phenomenon where we'll. 0:16:08.960 --> 0:16:11.680 See what the terminal rate will actually be, but that 0:16:12.160 --> 0:16:13.000 number is not immited. 0:16:13.120 --> 0:16:14.720 Well, ont a second, James, did you just say that 0:16:14.760 --> 0:16:17.160 there's a real possibility that the FED will cut by 0:16:17.160 --> 0:16:18.840 fifty basis points in September. 0:16:19.520 --> 0:16:19.720 Yeah. 0:16:19.720 --> 0:16:21.880 I do think that's the case, Lisa, because I think 0:16:21.920 --> 0:16:24.560 that this is going to be the clearest data that 0:16:24.600 --> 0:16:27.480 they'll have to give them the inflation cover and I 0:16:27.480 --> 0:16:30.040 think they've wanted to move the last couple of hikes 0:16:30.080 --> 0:16:30.800 off the table. 0:16:31.080 --> 0:16:32.320 So I think this is the window. 0:16:32.440 --> 0:16:35.080 This is kind of a little bit of spinballing with 0:16:35.120 --> 0:16:38.160 the inflation data, but we know if we look at 0:16:38.200 --> 0:16:40.720 the data series, it's not going to get easier to 0:16:40.760 --> 0:16:43.200 make the inflation case in the back half of twenty 0:16:43.240 --> 0:16:43.760 twenty four. 0:16:44.200 --> 0:16:46.320 Okay, So this is basically they have an opening. So 0:16:46.400 --> 0:16:47.480 let's go let's go full. 0:16:47.600 --> 0:16:48.960 I mean, Zach, what do you make of that? 0:16:49.120 --> 0:16:51.040 Do you think that that's a feasible possibility that the 0:16:51.040 --> 0:16:53.040 Fed's going to cut by a half a percentage point? 0:16:54.280 --> 0:16:56.760 That's not our base case, Lisa, and I think that 0:16:56.840 --> 0:17:00.320 would perhaps spook the market a little bit and terms 0:17:00.360 --> 0:17:02.640 of that big of an adjustment when just a couple 0:17:02.720 --> 0:17:05.440 weeks ago, policy makers were saying they need to see 0:17:05.440 --> 0:17:08.520 a lot more data in terms of being confident we're 0:17:08.560 --> 0:17:11.680 sustainably moving back to two percent. So I'd almost think 0:17:11.720 --> 0:17:14.160 of that as having the same impact as cutting this week, 0:17:14.240 --> 0:17:17.280 showing the market perhaps there's more to be concerned about. 0:17:17.280 --> 0:17:18.400 So that's not our base case. 0:17:18.440 --> 0:17:20.840 We do think the FED is going to be easing 0:17:21.080 --> 0:17:24.480 at a steady clip once they go in September, really 0:17:24.480 --> 0:17:27.080 trying to bring that policy rate back towards something that 0:17:27.119 --> 0:17:27.960 looks at least. 0:17:27.840 --> 0:17:29.600 A little bit more like neutral. 0:17:29.640 --> 0:17:32.040 We think we're coming from a pretty restrictive rate now, 0:17:32.200 --> 0:17:34.760 which is not what the economy needs. We're seeing signs 0:17:34.760 --> 0:17:37.320 of slowing, especially in the consumer. We expect that to 0:17:37.320 --> 0:17:39.280 be a bigger market driver in the second half of 0:17:39.320 --> 0:17:40.840 this year and into twenty twenty five. 0:17:41.000 --> 0:17:42.840 Is that just to be super clear, are you making 0:17:43.000 --> 0:17:45.560 a growth call here, non inflation coal. 0:17:47.560 --> 0:17:50.119 Well, that was a call on growth coming down. We 0:17:50.160 --> 0:17:52.719 think moving back toward below potential is what you're going 0:17:52.760 --> 0:17:55.280 to see over the next twelve months. We've had extremely 0:17:55.320 --> 0:17:58.440 strong growth and still had inflation come down quite a bit. 0:17:58.520 --> 0:18:01.119 So we think with inflation where it is, the Feds 0:18:01.160 --> 0:18:04.960 starting to ease, we're already seeing signs that the economy 0:18:05.040 --> 0:18:07.359 is cooling. We think that continues and starts to have 0:18:07.400 --> 0:18:10.680 a bigger impact from a fundamental perspective on where credit 0:18:10.680 --> 0:18:12.879 spreads go from here, which is why we're in a 0:18:12.920 --> 0:18:14.880 bit more of a defensive camp than we have been 0:18:14.920 --> 0:18:16.440 for much of the past two years. 0:18:16.520 --> 0:18:18.760 You've set us up with the market conversation. Let's go there. 0:18:18.840 --> 0:18:22.199 Let's say on it, Zach. If you're looking for wider spreads. Potentially, 0:18:22.680 --> 0:18:24.680