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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
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Speaker 2: This morning, the Federal Reserve hitting pause on rad cards
Speaker 2: for the first time since July, pointing to a steadying
Speaker 2: labor market and improving economy. Cludiasalm of New Century Advisors, writing,
Speaker 2: there are reasons to be cautiously optimistic about the labor market,
Speaker 2: reduce rates, fiscal support, and solid consumer spending. Claudia joins
Speaker 2: us now for more, Claudia. It was the least anticipated
Speaker 2: FED meeting in quite a while. In that regard, Chairmen
Speaker 2: Powd did not disappoint. It was an absolute snooze, Claudia.
Speaker 2: They seem to have this confidence in the outlook, a
Speaker 2: better route. Look, how much way should they put on
Speaker 2: recent day set?
Speaker 3: Right?
Speaker 4: Well, I think there was a cautious optimism.
Speaker 5: Right there was a path forward where there's stabilization in
Speaker 5: the labor market that had been when it motivated the
Speaker 5: cuts before, concerns about the labor market.
Speaker 4: So there are some signs.
Speaker 5: Didn't want to overplay it, but some signs, and Powell
Speaker 5: did sketch out a path for inflation to start turning
Speaker 5: back down. But there wasn't full conviction, right, There wasn't
Speaker 5: you know, enough conviction in that outlook to actually see cuts.
Speaker 4: They're still going to want to wait and.
Speaker 5: See the data, but poll is painting the picture of
Speaker 5: further progress on inflation, further potential cuts in rates, just
Speaker 5: not yet.
Speaker 6: Claudia, there was an element of that meme where there
Speaker 6: is someone sitting in a room saying everything is fine
Speaker 6: and there's burning all around them. This question of all
Speaker 6: the questions that he wouldn't answer going forward and kind
Speaker 6: of FED give forward guidance if there isn't a sense
Speaker 6: of who is going to be the next FED chair
Speaker 6: and what some of the response are to some of
Speaker 6: these pretty significant questions that were asked about Fed independence,
Speaker 6: about the dollar, about a lot of other issues that
Speaker 6: were I have no comment. I've got nothing for you
Speaker 6: for that.
Speaker 2: Right.
Speaker 5: So, in terms of the questions about the investigation from
Speaker 5: Department of Justice, the Supreme Court hearing on Lisa Cook, like,
Speaker 5: those are questions the FED will be answering. So I
Speaker 5: think we should remember the press conference is really a
Speaker 5: window into the two days of deliberations about the monetary
Speaker 5: policy decision. He really needed to keep it to the
Speaker 5: economics because that's what they talked about for two days. Soon,
Speaker 5: Pow will be going to Congress for his semi annual
Speaker 5: Humphrey Hawkins hearings, and that is absolutely appropriate place to
Speaker 5: be answering these questions about politics. Paw even gave a
Speaker 5: hint to it in very Fed speak where he said,
Speaker 5: you know, Congress is the window to democratic accountability for
Speaker 5: the FED. That's where the FED goes and has to
Speaker 5: answer those tough questions. So we're going to more on that.
Speaker 5: Is just trying to get the timing right in the.
Speaker 4: Forum, right.
Speaker 5: Yes, it was really for him to speak for the
Speaker 5: committee on these deliberations, and I think he did a
Speaker 5: good job on that. But you know, the politics are
Speaker 5: there and they're going to have to address this more fully.
Speaker 6: There was another issue, another aspect of this press conference,
Speaker 6: and frankly the decision more importantly, and that is one
Speaker 6: of the descents. There were two descents. One of them
Speaker 6: was Chris Waller, the FED governor who is in contention
Speaker 6: to be the next FED chair. Did you see this
Speaker 6: as a more political type of dissent or one that
Speaker 6: actually did come with consistency in terms of some of
Speaker 6: the rationale and previous decisions.
Speaker 5: So I expect to hear from Governor Waller for his
Speaker 5: thinking on his descent, But it does fit a pattern.
Speaker 5: Waller was early to sound alarms about the labor market.
Speaker 5: He may be late to saying all's clear or signs
Speaker 5: are clear. I think it would be very consistent for him
Speaker 5: to still have concerns about, you know, how much stabilization
Speaker 5: really is there in the labor market and on that front,
Speaker 5: and also this piece about the inflation outlook. I mean,
Speaker 5: Waller is a forecaster to the core. He may have
Speaker 5: more conviction that those tariffs. You know, we've seen the
Speaker 5: tarif rights that are there, We're going to have a
Speaker 5: textbook case of them rolling off. And he feels like
Speaker 5: it's an it's worth going ahead and pulling some more
Speaker 5: restriction out of the economy. So I think there's a
Speaker 5: clear economic case that is consistent with not just Waller
Speaker 5: of the past year when he has been in potential
Speaker 5: running for fedchair, but really Waller over his whole career.
Speaker 5: So I would really be hesitant to jump to the
Speaker 5: politics in this moment.
Speaker 1: This is consistent. But to the same time, he is
Speaker 1: in the running to be a FED chair and we
Speaker 1: immediately saw his chances spike up because of that. Do
Speaker 1: you think because he did dissent that actually his chances
Speaker 1: are in fact better today than they were twenty four
Speaker 1: hours ago.
Speaker 5: I have no insights on who will be the next
Speaker 5: FED chair really.
Speaker 4: Now I don't. I mean in the.
Speaker 5: Market, the you know, prediction market response that makes a
Speaker 5: lot of sense. And yes, you know he's pushing for cuts,
Speaker 5: but you know it's the This has been a really
Speaker 5: complicated process. The President clearly has you know, struggled to
Speaker 5: kind of come up with the person that he wants
Speaker 5: to see in that FED chair position. I think, you know,
Speaker 5: big picture, we should step back. Yesterday it was a
Speaker 5: ten to two vote in terms of pausing the FED
Speaker 5: chair is not the swing vote on the committee, right
Speaker 5: whoever goes into that position, there would have been a
Speaker 5: pause yesterday. So I think, you know, I understand the speculation,
Speaker 5: and maybe it did help Waller's odds yesterday, But I
Speaker 5: just we want to fed that's focused on the economic
Speaker 5: conditions and making its decisions and pulling the politics into
Speaker 5: it any more than is absolutely necessary.
Speaker 4: It's just it's a really risky path for us to
Speaker 4: go down.
Speaker 2: Stay with us. More Blomberg surveillance coming up after this, METSA,
Speaker 2: Microsoft reaffirming commitments to record AI spending, most Street rewarding
Speaker 2: one sech giant, punishing the APHA. Angela Zino of CFRA
Speaker 2: has a by rating on Meta and a strong buy
Speaker 2: on Microsoft. Angela joins us right now for more. Angela
Speaker 2: a lot of spending, two very very different looking price
Speaker 2: moves in the pre market. What explains the difference between
Speaker 2: Meta and Microsoft?
Speaker 7: Yeah, John, So I would say, you know, first off,
Speaker 7: we're not surprised by the higher than expected spending from
Speaker 7: these companies. I think most anticipated that going into the
Speaker 7: print here.
Speaker 8: I would say.
Speaker 7: Meta's spending definitely more, even more than we anticipated. But
Speaker 7: that being said, you know, at this point in time,
Speaker 7: you're looking at a guidance of essentially thirty percent top
Speaker 7: line growth here for Q one, and that really is
Speaker 7: what explains it, right, This is a case where it
Speaker 7: seems like Wall Street is willing to bid your SOT
Speaker 7: higher if you're showing the top line growth. And it's
Speaker 7: really phenomenal in terms of the type of growth you
Speaker 7: are seeing at Meta at disappoint in time. It really
Speaker 7: kind of demonstrates the fact that, hey, listen, maybe all
Speaker 7: these investments that Zuckerberg has made here over the last year.
Speaker 8: Is starting to pay off.
Speaker 7: I think Zuckerberg in many respects is treating his company
Speaker 7: like a startup, pumping a ton of money into it.
Speaker 7: You're looking at capital intensity ratio now closer about forty
Speaker 7: five to fifty percent in twenty twenty six, So we've.
Speaker 8: Got some enormous fend going on here.
Speaker 7: We'll see what the products look like as they trickle
Speaker 7: through twenty twenty six. But as we kind of look
Speaker 7: at the performance here at least for today, the street likes.
Speaker 2: What they say at one point six twenty dollars startup,
Speaker 2: It's not bad, is it? Angelo. I want to talk
Speaker 2: about Microsoft. Sometimes sentiment is just shaken, and there's a
Speaker 2: dark cloud that hangs over a stock and an ecosystem
Speaker 2: software named at the moment, Angelo to your hires point struggling,
Speaker 2: what's behind it?
Speaker 7: Yeah, yeah, I mean, and when you look at Microsoft,
Speaker 7: right they are the king of the you know, the
Speaker 7: enterprise king of software in many respects. But whether it
Speaker 7: be a service now that reported last night and SAP
Speaker 7: and others that are probably going to report this earning season,
Speaker 7: and just the numbers we've seeing over the last couple
Speaker 7: of weeks, this is a dark cloud over the SaaS space.
Speaker 7: And you know, as far as what we've seen from
Speaker 7: Microsoft posting the December quarter results the March quarter guide,
Speaker 7: it was very solid in nature. And if there's a
Speaker 7: company that could navigate some of the uncertainties that are
Speaker 7: out there and where you know, the enterprise space should
Speaker 7: continue to buy their offerings, it should be on Microsoft
Speaker 7: side of things, right, So we do think that Microsoft
Speaker 7: is well positioned to navigate some of the uncertainties the
Speaker 7: low visibility across the SaaS space.
Speaker 8: Here over the next couple of years.
Speaker 7: But nonetheless, that's just the narrative that's going on right now.
Speaker 7: And you know, there are other negatives. I think from
Speaker 7: the print here in the December quarter, whether it be
Speaker 7: the higher open Ai concentration risk, whether it be the
Speaker 7: lower expected you know, a cloud gross margin guide for
Speaker 7: the March quarter. I think some of that also seeping
Speaker 7: into the negative reaction you're seeing from Microsoft.
Speaker 4: Angela.
Speaker 6: Let's dig into both of those things. This question around
Speaker 6: just to CLI computing growth and the pace seem to
Speaker 6: miss some of the more lofty estimates and the dependence
Speaker 6: on open Ai. There was one stat for the first
Speaker 6: time Microsoft disclosed that forty five percent of a six
Speaker 6: hundred and twenty five billion dollars book of future cloud
Speaker 6: contracts was from open Ai. How much of a concern
Speaker 6: is this to you, this concentration risk and the likes
Speaker 6: of Microsoft.
Speaker 7: Yeah, I mean, I think it's something you've got to
Speaker 7: be mindful of. But you know, in the same respect,
Speaker 7: their non open Ai RPO is still growing at a
Speaker 7: fairly healthy clip.
Speaker 8: I think, out of about.
Speaker 7: Twenty eight percent or so in the quarter. It's going
Speaker 7: to be lumpy here over the next couple of years.
Speaker 7: I do think that forty five percent figure, you know,
Speaker 7: while large in nature, likely comes down here over the
Speaker 7: next couple of years. So yeah, I mean, on the surface,
Speaker 7: it's concerning. I don't think it's as concerning as you know,
Speaker 7: a oracle type of situation. You know, clearly the fact
Speaker 7: that you know, the Microsoft, if they don't get it
Speaker 7: from open ai here over the next couple of years,
Speaker 7: should see it from other enterprise related vendors. But nonetheless, yes,
Speaker 7: I mean on the surface here, the narrative again is
Speaker 7: one where the street is very concerned about open Ai
Speaker 7: at this point in time. I do think that funding
Speaker 7: around will probably help the narrative in terms of the
Speaker 7: cohort of names tied to open Ai like a Microsoft.
Speaker 8: So again, we'll we have to wait and say.
Speaker 6: With respect to the Azure side of things in the
Speaker 6: cloud computing, how much is this an issue that Microsoft
Speaker 6: just can't meet the incredible demand as quickly as some.
Speaker 4: People would have hoped.
Speaker 6: And how much is this truly competition from Alphabet from
Speaker 6: the likes of Amazon that both report next week.
Speaker 7: You know, I personally think it's more of the supply constraints.
Speaker 7: I mean, they did highlight the fact that, hey, listen,
Speaker 7: they could have grown their numbers in north of forty
Speaker 7: percent if they had the supply, So you know, so
Speaker 7: I do think it is more supply constraint in nature,
Speaker 7: but in the same respects, this is a company that's
Speaker 7: going to see also much more difficult comparisons on the
Speaker 7: Azure side of things over the next couple of quarters.
Speaker 8: You know, two quarters from now, you're.
Speaker 7: Going to have to lat numbers like thirty nine percent
Speaker 7: year of the year of growth. So I would expect
Speaker 7: the numbers to potentially even decelerate further, let's pull it
Speaker 7: into the mid thirties range as we kind.
Speaker 8: Of progress through the year.
Speaker 7: But nonetheless, I mean, these are still pretty phenomenal type
Speaker 7: of growth numbers from Azure, and in fact that actually
Speaker 7: ended up being beating our expectations.
Speaker 4: Just taking a step back.
Speaker 1: What caught my eye overnight was Jensen Wong talking about
Speaker 1: how we don't have the energy potentially there's going to
Speaker 1: be constraints in Taiwan when it comes to chip making
Speaker 1: into United States and into Europe. Are these CAPAX now
Speaker 1: numbers so big that actually the energy demand, the physicality
Speaker 1: of building it out doesn't actually work yet?
Speaker 8: I mean, well, we've got to see.
Speaker 7: I mean, at this point in time, you know, energy
Speaker 7: bottlenecks are clearly a risk out there. I mean, I'd
Speaker 7: say personally, at this point in time, the street is
Speaker 7: probably more concerned about some of the memory bottlenecks and
Speaker 7: to you know, to be honest, I mean, when you
Speaker 7: start thinking about the higher plants cap xpland it probably
Speaker 7: takes into account some of the higher boosts in memories
Speaker 7: in memory prices as well. But as far as you know,
Speaker 7: the energy bottlenecks are concerned, it's going to get lumpy
Speaker 7: in nature here.
Speaker 8: They're going to be more challenges and certainties.
Speaker 7: I think that's going to be more of a twenty
Speaker 7: twenty second, second half of twenty twenty seven event and thereafter.
Speaker 8: But nonetheless definitely something to be mindful.
Speaker 2: Just as a market analyst and a market participant, Angela,
Speaker 2: you've witnessed markets for a long time. If you can
Speaker 2: get away from these names just for a moment, I
Speaker 2: think Lisa's doing a great job this morning. You're talking
Speaker 2: about the constraints in the physical world. Do you think
Speaker 2: that's to trade so far of the year that people
Speaker 2: are just chasing that story cross asset.
Speaker 7: I mean, it seems to be you know, I definitely
Speaker 7: think there's you know, there's definitely something to be said
Speaker 7: about that. You know, you kind of look at really
Speaker 7: where the narrative is across the tech ecosystem, right, it
Speaker 7: continues to pile up in a number of these ship
Speaker 7: related type of names that would benefit from that physical
Speaker 7: AI world, as well as hardware related names as well.
Speaker 7: So yeah, maybe not be as exposed to some of
Speaker 7: the constraine tie time memory, but nonetheless, I mean you
Speaker 7: kind of look at the play here at least across
Speaker 7: the tech ecosystem and it would support that thesis here
Speaker 7: and I don't know if it lets up here, you know,
Speaker 7: in the near term you'll definitely get some choppiness. But
Speaker 7: over the next three to five years, you know, when
Speaker 7: you start thinking about the shift for an AI world,
Speaker 7: it is going to be dictated more on the physical
Speaker 7: AI opportunities, where there's also you know, greater uncertainties tied
Speaker 7: to this, you know, SaaS oriented trade. And we've kind
Speaker 7: of seen this accelerated shift away from chef sas to
Speaker 7: kind of the the more you know, chip making related
Speaker 7: names here, even over the last couple of weeks.
Speaker 2: Stay with us Mulplinberg Savanas coming up off to this.
Speaker 2: Jeanette loves to take us rights in this any shutdown
Speaker 2: would likely be shortlived or shore lived.
Speaker 1: Cham of Pale, I think please don't okay, right, that
Speaker 1: was a short lived issue.
Speaker 2: Thank you pronunciation short lift, particularly if they Senate does
Speaker 2: not strip out the Humeland Security funding bill. Jeanette joined
Speaker 2: us now for more Jenet apologies to get en off
Speaker 2: track there, Let's get back on track going into the weekend.
Speaker 2: Is this shutdown avoidable?
Speaker 3: Yeah, I mean it looks right now like we're going
Speaker 3: to again, as Tyler mentioned, have a short term shutdown
Speaker 3: over the weekend, which would be less impactful than obviously
Speaker 3: if it was lasting much longer than that. There is
Speaker 3: this issue about the fact that they are not going
Speaker 3: to do a separate legislative vehicle. As Tyler said, it
Speaker 3: does seem like they want to the Democrats want to
Speaker 3: use the funding bill as the vehicle for some of
Speaker 3: these changes on immigration enforcement, and so that's why we're probably.
Speaker 4: Going to have to have this shutdown now.
Speaker 3: Obviously, this could you know, we could have at least
Speaker 3: a continuing resolution to cover the Home Security bill once
Speaker 3: the House comes back in on Monday.
Speaker 4: So this could be very short lived. It could last
Speaker 4: only three days.
Speaker 3: But obviously depending on how this plays out, this could
Speaker 3: have good, big implications.
Speaker 4: A shutdown would only be a partial shutdown.
Speaker 3: Six appropriations bills were passed, but this is still about
Speaker 3: seventy five percent of the government funding and it includes
Speaker 3: important things. Depending on how this plays out, do they
Speaker 3: pass the defense spending bill, because we obviously are trying
Speaker 3: to threaten and ran with action right now, so that
Speaker 3: is not exactly good to have a shutdown when we're
Speaker 3: trying to have a very strong US national security strategy.
Speaker 4: What happened to IRS funding.
Speaker 3: We're in the middle of tax refund season, so that
Speaker 3: could have a really big impact. And then obviously labor
Speaker 3: as well, so if that's not taken care of, we
Speaker 3: could actually miss another jobs report at the end of
Speaker 3: next week. So I do think that Congress has been
Speaker 3: on a path to avoid a shutdown.
Speaker 4: They will probably try.
Speaker 3: To get these five bills passed immediately and get that
Speaker 3: taken care of, and then we'll be dealing with this
Speaker 3: Homeland security bill, and it would be a partial shutdown
Speaker 3: that may last, hopefully just a short amount of time.
Speaker 4: And that is our overall.
Speaker 1: Thinking, Well, let's deal with the Homeland security bill, because
Speaker 1: that's going to be where the huge debate is going
Speaker 1: to a lie. What is Senator Schumer actually asking the
Speaker 1: Republicans to amend in that bill?
Speaker 3: Yes, I mean they want to obviously tack on some
Speaker 3: policy provisions as Tyler mentioned, where they want to make
Speaker 3: sure that there's no use of masks, there's the use
Speaker 3: of body cameras, there's a code of conduct to things
Speaker 3: of that nature. So obviously this would have to go
Speaker 3: back to the House. There are there was some options.
Speaker 3: You know, you heard some Republicans saying that they were
Speaker 3: open to this, but then you've started to hear others
Speaker 3: start to say that there have a disagreements particular about
Speaker 3: the mask issue and things of that nature, and.
Speaker 4: So this could be a little bit of a friction point.
Speaker 3: But obviously the administration does know that something needs to
Speaker 3: be done in the wake of what has happened over
Speaker 3: the weekend with the shooting of a US citizen, they
Speaker 3: do realize that they need to make some changes here.
Speaker 3: I think they will ultimately push to get this bill
Speaker 3: done one way or another.
Speaker 1: Jeanett, though, if the Republicans do decide to go along
Speaker 1: with these Democrats wants to pass that bill, are they
Speaker 1: basically acknowledging then that their strategy when it comes to
Speaker 1: DHS and ICE hasn't actually worked.
Speaker 4: Not necessarily.
Speaker 3: I mean, I think you've heard from a lot of
Speaker 3: Republicans the way they've framed the issue, that they can
Speaker 3: say that there's been less safety for everyone involved. There
Speaker 3: are ways that they can show that just the tactics
Speaker 3: have maybe become a little bit too strident and they
Speaker 3: need to make some changes.
Speaker 4: So I think that they can do this in a.
Speaker 3: Way that creates not a losing message for the Republicans.
Speaker 6: Jenett, Is it a good strategy to hold government funding
Speaker 6: hostage to try to get some leverage? I mean, this
Speaker 6: seems like voters are not particularly pleased with that. The
Speaker 6: last time around, it didn't really work out for Democrats.
Speaker 6: There were a lot of concerns around air traffic, and
Speaker 6: we're chill still trying to work through the lack of
Speaker 6: data releases. I mean, is this something that's sort of
Speaker 6: running out of power in terms of the voter base.
Speaker 8: Yeah.
Speaker 3: I mean one of the things that obviously when we
Speaker 3: came into let's say, last Friday, there was an effort
Speaker 3: to have this bill done, have funding completely taken care
Speaker 3: of before the deadline tomorrow evening but what happened with
Speaker 3: the shooting was obviously a stark change. It created the
Speaker 3: need to find some sort of leverage to change tactics Otherwise,
Speaker 3: I think both parties were completely against having other shutdown.
Speaker 3: They felt the pain on both sides of that forty
Speaker 3: three day shutdown that we had last fall. But there
Speaker 3: is the concern obviously that if they try to do
Speaker 3: a separate legislative bill, there's a worry that maybe it
Speaker 3: passes the Senate, but it never passes the House, and
Speaker 3: so there's also this fear that that ruins their own
Speaker 3: leverage on the Democratic side if they have to give
Speaker 3: up the option to try to hold the government funding hostage. Obviously,
Speaker 3: I don't think people would want a long term shutdown.
Speaker 3: I don't think the White House, the Republicans, or the
Speaker 3: Democrats want a long term shutdown. I think they do
Speaker 3: want to find a solution here and hopefully this will
Speaker 3: just last a few days to get this over the
Speaker 3: finish line.
Speaker 4: Jene you mentioned something else.
Speaker 6: If the administration understands that something needs to be done,
Speaker 6: I just wonder if you expect other personnel decisions to
Speaker 6: be made from either the cabinet level or beyond to
Speaker 6: try to address some of the unrest.
Speaker 4: You know.
Speaker 3: I mean, it's obviously always an option. Can't necessarily say
Speaker 3: whether or not we see that happening at this time. Obviously,
Speaker 3: the one big move is to move Tom Holman into Minnesota.
Speaker 3: That was obviously a strategic decision to try to change
Speaker 3: the tactics that are being used in to do some
Speaker 3: de escalation. We'll see if other things come out of this.
Speaker 3: Obviously it's been just a week. We'll have to see
Speaker 3: how some of this plays out and see if there
Speaker 3: are other ramifications that happen down the line.
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