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Speaker 3: Here's the view from Wall Street this morning. Tiffany McGee
Speaker 3: of Pivotal Advisors, running markets are sensitive to any changes
Speaker 3: in energy flows or escalation risk. The recent movement equities
Speaker 3: reflects relief around geopolitics, but not a full resolution. Tiffany
Speaker 3: joins us now for more so, Tiffany, when it comes to.
Speaker 4: The two key points going to the weekend.
Speaker 3: We have inflation data at eight thirty and then of
Speaker 3: course these talks on Saturday. What do you think the
Speaker 3: market's going to be more focused on?
Speaker 1: Well, I think you know a good example of this
Speaker 1: is we can look at what happened yesterday, right and
Speaker 1: so you know, yesterday looked like a strong day on
Speaker 1: the surface, but the details kind of really tell a
Speaker 1: more nuanced story.
Speaker 5: So you had stocks.
Speaker 1: Hire, but yields were also moving up a little over
Speaker 1: like four point three percent, and oil back to near
Speaker 1: one hundred dollars, And so this really wasn't a clean
Speaker 1: risk rally at all. It was really more markets adjusting
Speaker 1: to uncertainty and not pricing it away. So I think
Speaker 1: as we kind of go into the weekend, we still
Speaker 1: have a lot of uncertainty. So that's something that we
Speaker 1: really need to need to continue to watch.
Speaker 6: How much of all of this this tiffany is just positioning.
Speaker 6: This is something I've been asking constantly over the past.
Speaker 4: Week, because the market moves.
Speaker 6: Yes on ceasefire hopes but otherwise have been odd. For example,
Speaker 6: software stocks plunged five percent over the past three days
Speaker 6: alongside energy. There's no logical reason for software to be
Speaker 6: falling in a ceasefire unless.
Speaker 5: It's just hedge funds re upping.
Speaker 6: On their short positions just because this allows them to
Speaker 6: go back to the bets they had before. So how
Speaker 6: much of this market is not really being priced on fundamentals,
Speaker 6: but it's just simply positioning.
Speaker 1: Well, I think it's a combination of both, you know,
Speaker 1: and so we've got I think that we are really
Speaker 1: in an headline environment, and so that's really moving the markets.
Speaker 5: You know.
Speaker 1: We can look at even what's going on over the
Speaker 1: past few weeks with the price of oil, with the
Speaker 1: fact that even about you know, two weeks ago, we
Speaker 1: see we saw all this volatility market, but yet earnings
Speaker 1: expectations continue to continue to increase, and that's one thing
Speaker 1: we'll also kind of be looking at going in heading
Speaker 1: into like earning season. We are really in a fundamentals
Speaker 1: driven market right now. It's really not about hype anymore.
Speaker 6: Big of America's Michael Hartnett is out with a note
Speaker 6: this morning saying that investors should flock into commodities for
Speaker 6: the next few years, eat things, that a surge in
Speaker 6: commodities is going to last for that a few years,
Speaker 6: and that in importance, it might even supplant popularity around equities,
Speaker 6: that this becomes a big chunk to diversify away from bonds.
Speaker 6: Do you think commodities deserve that big shiny place in
Speaker 6: a portfolio as well?
Speaker 1: Listen, so our clients are institutional investors and so you know,
Speaker 1: a diversification is really the key for us when we
Speaker 1: think about positioning, We're really focused on our client's strategic
Speaker 1: acid allocation and making those technical moves. Commodities do have
Speaker 1: a place in a portfolio. We'd like to really invest
Speaker 1: in real assets. We have a combination of ural assets, infrastructure, commodities,
Speaker 1: all of those things act as a diversifier to traditional
Speaker 1: dots and bonds, and so yeah, I definitely do think
Speaker 1: that they have a place in a portfolio.
Speaker 6: What place does gold have in the portfolio? Tiffany that
Speaker 6: this should be to a political angst concern about what
Speaker 6: the FED is.
Speaker 4: Going to do.
Speaker 6: It seems like a good time to be piling into
Speaker 6: the precious metal, but it's been trading a lot, just
Speaker 6: like a momentum trade.
Speaker 1: It has, so you know, when I think about how
Speaker 1: we position portfolios for our clients, again, we set that
Speaker 1: strategic acid allocation. First. Gold is always a portion of
Speaker 1: our client's portfolio, but we do so through a fun
Speaker 1: structure where we have exposure to other metals as well,
Speaker 1: So we don't have a ton of direct exposure to gold,
Speaker 1: but that's how we'd like to play it. We like
Speaker 1: to play it in a more diversification, in a more
Speaker 1: diversified position.
Speaker 6: So if there aren't enough for as headlines today with
Speaker 6: CPI talks and negotiations, over the weekend, next week we
Speaker 6: really get into the earning season in earnest. It'll kick
Speaker 6: off with Goldman Sachs on Monday, Tiffany, what are you
Speaker 6: looking out for? What signals are you hoping to hear
Speaker 6: from the big banks in order to understand where we
Speaker 6: are in this American economy and in the financial sector.
Speaker 1: Yeah, so I think as we head into earning season,
Speaker 1: I think the numbers really matter, but the messaging matters more.
Speaker 1: So we're watching a few things. We're definitely looking at margins.
Speaker 1: Can companies really absorb the higher energy costs or are
Speaker 1: they passing them through to their customers. We're also, you know,
Speaker 1: on the AI front, looking for that AI payoff. So
Speaker 1: you know, we know AI is driving growth, but are
Speaker 1: we seeing real return yet? That's really important, And so
Speaker 1: we'll also be paying attention to guidance and so you know,
Speaker 1: with much uncertainty, right we're in this period of uncertainty,
Speaker 1: you know, forward guidance really matters more than the quarter
Speaker 1: to us. And also we're looking at consumer sensitivity. You know,
Speaker 1: our higher prices, our higher energy prices starting to impact demands.
Speaker 1: So it's really like a show me earning season, not
Speaker 1: a tell me earning season.
Speaker 5: Stay with us.
Speaker 2: Mulble Impock surveillance coming up.
Speaker 5: Off to this.
Speaker 3: Under surveillance this morning, all eyes on the straight of
Speaker 3: her moves. Should her mom be able to charge a
Speaker 3: toll for the straight upons they're charging some vessels to
Speaker 3: go through.
Speaker 5: Or should they be able to?
Speaker 7: I mean they shouldn't be able to.
Speaker 4: They're doing it a little bit.
Speaker 5: I don't know.
Speaker 7: Look, the capability is a lot less than it was
Speaker 7: two weeks ago. And with every week and every day
Speaker 7: frankly guests less and less, all I can tell you
Speaker 7: is they're begging to make a deal. So let's see
Speaker 7: what happened.
Speaker 3: Here's the latest, President Trump demanding Iran reopened the straight
Speaker 3: up for moves, warning Tehran against charging fees for passage.
Speaker 3: Joining US now is Maha Yahya, a director of the
Speaker 3: Middle East Tenter at the Carnegie Endowment for International Piece. Maha,
Speaker 3: the fact that they're meeting is that basically the success
Speaker 3: of this weekend.
Speaker 8: In short, Yes, the fact that they're meeting but I
Speaker 8: don't think any of us are holding our breath, so
Speaker 8: to speak. It's very clear that the maximum Iran is
Speaker 8: willing to offer does not meet the minimum of what
Speaker 8: President Trump is requiring. They're speaking at each other, not
Speaker 8: with each other, and a lot of the news that
Speaker 8: has come out over the last few days just point
Speaker 8: to that between President Trump saying he's through the ten
Speaker 8: point plan, the garbage, uh, the Iranians saying the ceasefire
Speaker 8: includes Lebanon, and you know, and we've seen a lot
Speaker 8: of confusion, strategic confusion. I would say, so we'll wait
Speaker 8: and see what happens.
Speaker 5: But I just I.
Speaker 8: Don't see these talks at least leading somewhere. It's positive.
Speaker 8: It gives everyone a breather for now, and we have
Speaker 8: to wait and see where this goes.
Speaker 4: Do you think it's a breather to more escalation.
Speaker 8: It could be, it could be. I mean it's very
Speaker 8: clear that uh, the you know, the the IRG see
Speaker 8: the demands of the Iranian regime control over the Straits
Speaker 8: of almost as your reporters said, their nuclear capacity, negotiating
Speaker 8: over their partners and proxies across the region. I mean,
Speaker 8: these are non starters for the United States, let alone Israel,
Speaker 8: which is a major player in this, in this UH
Speaker 8: and the maybe between the US and Iran, that's where
Speaker 8: these are the to negotiating parties, at least upfront. But
Speaker 8: the real partner in this is Israel. And already we've
Speaker 8: seen rumbles of discontent because from what we understand, President
Speaker 8: Trump announced the ceasefire without really consultation with his partner,
Speaker 8: Benjamin san Yahoo. So it is a breather. We may
Speaker 8: see escalation again, but it is a breather for now.
Speaker 6: And just just on that note, Maha, one of the
Speaker 6: big areas, if not the biggest area of concern with
Speaker 6: this ceasefire on the side of the Iranians was Israel
Speaker 6: continuing to attack Lebanon. We learned yesterday that they're going
Speaker 6: to be holding direct talks. Wall Street Journal reporting this
Speaker 6: morning that their preparatory talks. It's happening at the ambassador level.
Speaker 6: How big of a factor is this going to be
Speaker 6: heading into the weekend and as a separate thing, that
Speaker 6: could derail any hopes of a ceasefire.
Speaker 8: Look, the talks themselves, I think are important in the
Speaker 8: sense they really break a decades all taboo in the
Speaker 8: past When Israel and Lebanon have negotiated, they've always negotiated
Speaker 8: via third parties, never face to face. So this is
Speaker 8: the first time that you have direct talks between a
Speaker 8: Lebanese representative and an Israeli representative. Will these lead anywhere?
Speaker 8: Not at the moment, No, it's a It's very difficult
Speaker 8: to negotiate with someone that's bombing you on that. On
Speaker 8: one hand, the Lebanese government itself is trapped between the
Speaker 8: rock and a heart place because the decision to stop
Speaker 8: any kind of military activity rests elsewhere, not with the government.
Speaker 8: You have to bring Iran into the game. And frankly,
Speaker 8: for Benjamin Latagil, he has no interest in stopping the
Speaker 8: conflicts in Lebanon. It's it's a war that is popular
Speaker 8: with his own base uh and with the broad Dan.
Speaker 8: According to the polls we're seeing, the war is quite
Speaker 8: popular politically. He promised residents in the north that he
Speaker 8: is not it's not about stopping the attacks. He wants
Speaker 8: to completely destroy in dismantle Hezbola, something he promised in
Speaker 8: Gaza and hasn't been able to do with Hamas. So
Speaker 8: it's very difficult to see how they're going to again uh,
Speaker 8: they will not go for a ceasefire, and Hesbella saying
Speaker 8: we will not, uh, you know, we want to complete
Speaker 8: cease fire. Iran is saying the same thing. So it
Speaker 8: puts everybody in a very murky situation. What we might
Speaker 8: see is again another breather in the sense that the
Speaker 8: conflict is ongoing in the South. The bombings has not
Speaker 8: has not, has not stopped in the South at all.
Speaker 8: But we may see Lebanon spare another black Wednesday. What
Speaker 8: we saw two days ago of an entire complete blitz,
Speaker 8: one hundred air strikes in the space of ten minutes.
Speaker 8: It was absolutely terrifying. To this moment, you know, it's
Speaker 8: more than three hundred people killed, thousands injured, and to
Speaker 8: this moment, it just doesn't make any rhymemen reason or
Speaker 8: reason beyond terrorizing the country.
Speaker 2: Stay with us multile IMPERG surveillance coming up after this.
Speaker 3: Matt Lazetti is joining us around the table now of
Speaker 3: Deutsche Bank.
Speaker 4: Matt, just what's your reaction for the CPI.
Speaker 9: Yeah, I think, as Mike highlighted, you want to kind
Speaker 9: of disentangle some of the stickier items from the volatile items,
Speaker 9: and I think for this print, it is important that
Speaker 9: rent to know we.
Speaker 5: Are we're stronger.
Speaker 9: That does tell you either a little bit higher than
Speaker 9: we expected. Maybe on a four looking basis, those things
Speaker 9: tend to be a little bit more persistent. Used car
Speaker 9: pricesly materially weaker than I think we were anticipating.
Speaker 5: You had the decline that Mike had noted.
Speaker 9: I think over the next seven months, THO should be
Speaker 9: picking up given what we see from wholesale prices.
Speaker 5: You did see airfares rose pretty strongly.
Speaker 9: Maybe that's reflecting a little bit of the rising jet
Speaker 9: fuel prices as we look ahead, but.
Speaker 5: Overall very strong.
Speaker 9: Headline print, core print weaker than expected, but we'll have
Speaker 9: to see over the next seven months, probably get a
Speaker 9: pick up.
Speaker 4: But this isn't the worst case scenario, is it.
Speaker 2: No.
Speaker 9: I think for the FED, you can look through a
Speaker 9: particular month, particularly driven by by gas prices. I think
Speaker 9: more important for the FED would be yesterday's print, which
Speaker 9: was core PC that is running at three percent year
Speaker 9: every year. It's a percentage point above their own target.
Speaker 9: Now they think that fifty to seventy five basis points
Speaker 9: of that is from tariffs.
Speaker 5: But the starting point is just not good.
Speaker 9: When you're overlaying another energy price shock on top of that.
Speaker 6: So you have those two in hand the market, and
Speaker 6: Marie was just pointing this out to me that you
Speaker 6: do have markets starting to price in more bets of
Speaker 6: a cut or something around twenty percent. Odds we get
Speaker 6: one by the end of this year, given what you
Speaker 6: were just saying, is this a setup where you can
Speaker 6: get cuts?
Speaker 9: So our baseline is that we will get a cut
Speaker 9: in the back half of the year, but kind of
Speaker 9: confidence in that has waned, I think, and the story
Speaker 9: and narrative to get there, I think has changed. So
Speaker 9: coming into the year, we thought that we would see
Speaker 9: some meaningful disinflation over the back half of the year,
Speaker 9: core PC falling below two and a half percent, and
Speaker 9: with that the FED being able to cut rates, you know,
Speaker 9: potentially as you get a more dubbish reaction function under
Speaker 9: a Kevin wash led FED. We're not there yet, obviously,
Speaker 9: but I think that story has changed. Inflation is now
Speaker 9: too high. I think the probability that we get enough
Speaker 9: disinflation this year where the FED cuts on an inflation
Speaker 9: story alone is less likely, and you likely need to
Speaker 9: see some weakness in the labor market to get the
Speaker 9: FED to cut later this year. As we saw the
Speaker 9: last Friday's jobs report, we don't see that weakness. You
Speaker 9: have a labor market that looks very resilient. The unteployment
Speaker 9: rate is actually declining a little bit, payroll gains are
Speaker 9: picking up, and so I do think the market, yes,
Speaker 9: we're pressing a little bit of a cut, but the
Speaker 9: probably is pretty low at this point.
Speaker 6: And this is where, and Lisa's talked about this a lot,
Speaker 6: where scenario analysis becomes kind of the only thing you
Speaker 6: can do considering how big the left tail is. We're
Speaker 6: talking to Bob McNally wrap it in earlier, who was
Speaker 6: saying one of his scenario is not his base case,
Speaker 6: but one scenario is where you get a huge hit
Speaker 6: to growth because of higher energy prices and you need
Speaker 6: to start talking about recession. For you, what is the
Speaker 6: level where that can come into the picture.
Speaker 10: Yeah.
Speaker 9: I think the way that we think about oil prices
Speaker 9: is there is this strong historical parallel between oil price
Speaker 9: shocks and recessions. I think nine out of the eleven
Speaker 9: recessions that we had after World War Two were coincided
Speaker 9: with a meaningful.
Speaker 5: Oil price shock.
Speaker 9: But the structure of the economy has changed materially over
Speaker 9: the past ten years. We're now a net energy exporter
Speaker 9: record production that we're seeing. Households still take a hit,
Speaker 9: but households are buffered given the.
Speaker 5: Tax cuts that we see.
Speaker 9: So the price level that we are kind of worried
Speaker 9: about would be about one hundred and fifty dollars per
Speaker 9: barrel for oil. That would eliminate the benefits that households
Speaker 9: have from the Trump tax cuts. We're not there, and
Speaker 9: obviously we've moved away from those levels over the past week.
Speaker 3: I just want to bring in Mike McKee another mo home.
Speaker 3: I always been digging into the data. Mike, what else
Speaker 3: are you seeing.
Speaker 10: Well, we've got some interesting surprises and some not so
Speaker 10: surprising news. You look at airline fares, they were up
Speaker 10: two point seven percent. Of course, the airlines raising prices
Speaker 10: to keep up with the fuel problem that they have,
Speaker 10: but it's also the season where they start to raise
Speaker 10: prices going forward for summer vacations. But some areas did
Speaker 10: not rise, and that is a bit of a surprise.
Speaker 10: Medical care services we're pretty much flat down two tenths
Speaker 10: on the month after a series of big increases. We
Speaker 10: also see motor vehicle insurance flat on the month that
Speaker 10: had been going down. So some offsetting moves in things
Speaker 10: that actually will show up in the PCE when we
Speaker 10: get to that later in the month. But overall, kind
Speaker 10: of as Matt said, expected in terms of inflation, and
Speaker 10: we get the usual volatility in various individual categories. The
Speaker 10: question is how strong is underlying and going forward that's
Speaker 10: the Fed's job to figure out.
Speaker 3: Right, So there are some really negative pockets, but Mike
Speaker 3: is pointing even Matt to some decent improvement when it
Speaker 3: comes to inflation in some scenarios. I guess the FED
Speaker 3: could breathe somewhat of us sigh relief because they knew
Speaker 3: the gas lean shock was going to be there.
Speaker 5: Yeah, you knew the gas line shock was going to
Speaker 5: be there.
Speaker 9: You got some weakness in medical care, commodities, use car prices.
Speaker 9: I think the one thing is as you look ahead,
Speaker 9: the fact that rent and oer are stronger is important.
Speaker 9: Those are very persistent components. They are much larger share
Speaker 9: of CPI than the RFPC. But nonetheless is if those
Speaker 9: pick up, you building a little bit more inflation as
Speaker 9: you look ahead. And then again some of the weakness
Speaker 9: and use car prices where we have pretty high confidence
Speaker 9: that over the next several months those are going to
Speaker 9: bounce back given what we see from wholesale prices. The
Speaker 9: key question remains how much passed through do you have
Speaker 9: from this oil and energy price shock to core components.
Speaker 9: The FEDS modeling on that reaches different conclusions. The FED
Speaker 9: staff's model suggests that you have very little pass through
Speaker 9: to core inflation.
Speaker 5: They had some other modeling that.
Speaker 9: They did after the twenty twenty two oil price shock
Speaker 9: which suggests that you get a more persistent past there.
Speaker 5: So I think that's the key question for the FED.
Speaker 6: I still just go back and you're great on this,
Speaker 6: just the setup that the setup wasn't great for this
Speaker 6: then PCE. We saw this rise come before and the
Speaker 6: sticky inflation. If we couldn't get inflation down to target
Speaker 6: for the past sixty months, even before the outbreak of
Speaker 6: war in another energy shock, how do we even get
Speaker 6: there at this point?
Speaker 9: Yeah, And I think that's the real issue for the FED,
Speaker 9: right because even before this shock, the core PC inflation
Speaker 9: was still a percentage point above their target. We are
Speaker 9: now five six years into the initial inflation shock that
Speaker 9: we saw after COVID. Yes, there are reasons why this
Speaker 9: time inflation is higher than it should be, and tariffs
Speaker 9: the culprit at this point. But I think what you've
Speaker 9: seen is just more FED officials growing kind of frustrated
Speaker 9: with the progress or lack of progress that they've seen
Speaker 9: on the inflation front. So even if you were to
Speaker 9: exclude another energy price shock and the fact that that
Speaker 9: could lift inflation on a four looking basis, you still
Speaker 9: are left with very little inflation progress over the past
Speaker 9: eighteen months and a labor market that looks very close
Speaker 9: to the Fed's targets.
Speaker 5: In that environment, I.
Speaker 9: Think the Fed it would be leaning towards keeping rates steady,
Speaker 9: and even in a normal environment, could be thinking about
Speaker 9: that they are not restrictive enough to bring inflation down
Speaker 9: and the potential for rate hikes. Now, we don't think
Speaker 9: that that's a baseline, but I think it's a normal
Speaker 9: environment where growth is solid, the labor market is resilient
Speaker 9: and close to target, and inflation is a percentage point
Speaker 9: above target.
Speaker 3: We just had the Vice president depart for these talks
Speaker 3: in Islamabad.
Speaker 4: What are you looking forward to this weekend?
Speaker 9: Yeah, I think the market has taken this view that
Speaker 9: both sides have just shown their hand and wanting to
Speaker 9: de escalate right now. The path between here and a
Speaker 9: full reopening of the straight orform moves seems to be
Speaker 9: very unclear, and we've.
Speaker 5: Had very little progress on that front so far.
Speaker 9: But I think as long as the market sees continued
Speaker 9: progress or movements in that direction, then we will see
Speaker 9: oil prices that I think remain somewhat more subdued. The
Speaker 9: markets can remain more buoyant, and the market will be
Speaker 9: a little bit less worried about rate hikes.
Speaker 5: You know. Speaking with clients, I.
Speaker 9: Think that they have really meaningfully taken down the view of.
Speaker 5: The risk scenarios around us.
Speaker 9: I think they think that the peak market impact of
Speaker 9: this event is behind us. So there could be some
Speaker 9: complacency on that front, and so you do worry a
Speaker 9: little bit about that that we just because we have
Speaker 9: had these headlines, we believe that the escalation is going
Speaker 9: to be in place, and that we're a little bit
Speaker 9: too complacent around escalations.
Speaker 3: The market is really holding on to the idea that
Speaker 3: this ceasefire can last.
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