Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. Christian Melting the global
Speaker 2: Chief Investment Officer at Deutsche Bank Private Bank. Writing with
Speaker 2: inflation appearing contained and labor market cracks emerging, the FED
Speaker 2: is bound to pivot from its courtious stants and begin
Speaker 2: easing in September, Christian.
Speaker 3: Joins us now for more. Christian. Welcome back to the
Speaker 3: program Sir. I think we all understand.
Speaker 2: They'll be coming interest rates on Wednesday, all looking for
Speaker 2: that twenty five basis point reduction.
Speaker 3: Christian.
Speaker 2: The question we've all got is what happens after that?
Speaker 2: What are they allowed? What can they ultimately forecast and
Speaker 2: guide to for twenty twenty six?
Speaker 4: Yeah?
Speaker 5: So I think we all agree on this probably cut.
Speaker 5: The question is twenty five or fifty. I would be
Speaker 5: really in the camp of twenty five, because why would
Speaker 5: you surprise the market, to be very honest, and if
Speaker 5: you go for fifty this time, I would say the
Speaker 5: market could also argue, do they know more about the
Speaker 5: labor market?
Speaker 4: Is that weeker than expected? So I think it's twenty five.
Speaker 5: And then, as you rightly say, there's more to come,
Speaker 5: I think there's room for the Fed to cut. We
Speaker 5: would expect over the next twelve months, way into twenty six.
Speaker 5: As you're saying, we expect five cuts, a bit less
Speaker 5: than the market because we think there's still some inflation pressure,
Speaker 5: not massively going higher. But I would say it's five
Speaker 5: cuts over the next twelve months, and the market is,
Speaker 5: if I look at Woomberg, six cuts.
Speaker 2: Christian, forgive me for getting stuck in some of the
Speaker 2: small print, but I think we've got to We'll all
Speaker 2: go to the Summary of Economic Projections on Wednesday, the
Speaker 2: guests delivered alongside the statement, and in that at the
Speaker 2: moment for twenty twenty five, they've got unemployment for year
Speaker 2: rundo four point five percent, and I'm just wondering how
Speaker 2: much has actually changed. For a lot of people on
Speaker 2: the committee looking at the labor market, they don't forecast payrolls,
Speaker 2: they have to forecast unemployment.
Speaker 3: Has that picture changed that much?
Speaker 4: Yeah?
Speaker 5: I agree, right, it still looks very close to being
Speaker 5: at say, full employment in the US. But I think
Speaker 5: if you look at the trend, it's weakening a little bit.
Speaker 5: I'm not saying it's massively going higher, but I think
Speaker 5: what the market is also prising is the fact is
Speaker 5: doing something not a recession, but they want to cut now,
Speaker 5: and from that perspective that should be positive for the economy.
Speaker 5: And from that perspective, yes, we don't talk. And that's
Speaker 5: the big difference Johnson to other cycles. Normally you cut
Speaker 5: into a feared recession. That's not the case. And that's
Speaker 5: one reason why we say it's probably only five cuts,
Speaker 5: still a lot from my point of view, compared to
Speaker 5: the market, who's maybe saying six or even more.
Speaker 6: Christian from an investment standpoint, does this make you more
Speaker 6: willing to go into US assets because of the prospect
Speaker 6: potentially a faster growth or free because of the potential
Speaker 6: for faster inflation.
Speaker 5: I think if you look at this year twenty twenty five,
Speaker 5: it's very interesting. So it started with being here in
Speaker 5: Europe with a nice outperformance of Europe for the first
Speaker 5: time in many years. I would say that has changed
Speaker 5: in the second quarter, where the US came back. It's
Speaker 5: a lot about of course technology AI in the US.
Speaker 5: I think that doesn't change from my point of view.
Speaker 5: I'm not fleeing US equities at all. My question is
Speaker 5: rather do we see a change in Europe, and maybe
Speaker 5: there's more room for upset in Europe as well, because
Speaker 5: if you look at rate cuts which are anticipated, which
Speaker 5: normally is good for the market. If you look at
Speaker 5: earnings in the US quite decent, right up eight percent
Speaker 5: expected for twenty twenty five, and Europe is down one percent.
Speaker 5: And we do still hope for and expect some fiscal
Speaker 5: spending maybe coming from Germany. There's a lot of debate
Speaker 5: in Parliament this week, so maybe you see some results
Speaker 5: and that could be also positive for Europe, not only
Speaker 5: for the US.
Speaker 6: Hope doesn't necessarily they'll get their returns. And I am
Speaker 6: wondering how much you're seeing people double down on this
Speaker 6: Europe at at a time where the US potentially could
Speaker 6: grow a lot faster because of ray cuts, and then
Speaker 6: you've got France getting downgraded over the weekend. You have, yes,
Speaker 6: this potential spend by Germany, but even the ECB is
Speaker 6: talking about a one percent one point three percent growth
Speaker 6: rate over the next number of years. Are you suggesting
Speaker 6: clients double down on that European story or are you saying,
Speaker 6: let's just hold out, watch and keep hoping love.
Speaker 5: I would say we suggest to double down on Europe
Speaker 5: because we do expect fiscal spending. I agree the absolute
Speaker 5: number one point three one point two percent growth doesn't
Speaker 5: sound very compelling, but if you think of the potential
Speaker 5: growth in Europe is roughly zero point four percent, much
Speaker 5: lower than the US, by the way, and maybe you
Speaker 5: can bring this a little bit up with fiscal spending.
Speaker 4: I think there's room for performance.
Speaker 5: And as we see, Europe is clearly underinvested in many
Speaker 5: many client portfolios, from the US, from the rest of
Speaker 5: the world, from Asia, and interestingly, I get a lot
Speaker 5: of requests to explain about euro and normally that comes
Speaker 5: with some money which is then invested later. But it
Speaker 5: needs a trigger, and I would say now debates on
Speaker 5: fiscal spending, especially from Germany, could be a trigger that
Speaker 5: this gets more intention and that probably could lead to
Speaker 5: some money flows as well.
Speaker 2: Christian language is important, you said, especially from Germany. Is
Speaker 2: it exclusively from Germany?
Speaker 5: I think most is coming from Germany because obviously in
Speaker 5: France there's not so much room. Yeah, I would say
Speaker 5: look at Germany first, but it's the large economy in
Speaker 5: the European Union. So from that perspective, I would expect
Speaker 5: some money to go into Germany because that should be
Speaker 5: in the news with the budget discussions this week and
Speaker 5: next week as well. So from that perspective, maybe start
Speaker 5: with Germany. That's what we also tell the clients who.
Speaker 2: And what do you think benefits from that fiscal spending
Speaker 2: in Germany. We've already seen a monster rally in the
Speaker 2: European banks earlier this year.
Speaker 5: Yeah, if you look from that perspective, right, So here
Speaker 5: the picture is a bit different, right. We do expect
Speaker 5: from the ECB, not as many cuts as we do
Speaker 5: expect from the fat max of one where, if at all.
Speaker 5: So it's a lower level of course, ECB being a
Speaker 5: two percent feed for much higher of course, but if
Speaker 5: you look, we still have some inflationary pressures, not too much,
Speaker 5: but there's still a steep curve and that's positive for financials.
Speaker 5: So that call we made quite some time ago is
Speaker 5: still on. From that perspective, we thing it's quite interesting
Speaker 5: to still look into this and many banks are still
Speaker 5: training below book value, so from that perspective it remains
Speaker 5: quite interesting given the interest rate environment we are in
Speaker 5: here in Europe.
Speaker 6: That's the medium term this week. I'm curious about the
Speaker 6: reaction function markets. If we do get a signal from
Speaker 6: the Fed that they're going to cut more steeply, do
Speaker 6: you go out.
Speaker 3: And buy gold?
Speaker 5: We have already a lot of gold in the portfolios.
Speaker 5: To be very honest, I still like it. Our forecast
Speaker 5: also to give you a number three eight hundred, so
Speaker 5: up from here. Again, it has been quite a call
Speaker 5: because there's so much discussions which currency you want to investment.
Speaker 5: Of course dollar, but everything in Europe probably also not everything.
Speaker 4: We know.
Speaker 5: That's why people look into buying gold. We think that's continuing.
Speaker 5: Central banks are buying gold, but also retail investors are
Speaker 5: looking into this. I think the trend will continue. But
Speaker 5: we have already quite a portion of gold and enjoying
Speaker 5: quite a nice ready. But as I said, we think
Speaker 5: that could continue as well, with our forecast being three
Speaker 5: thy eight hundred.
Speaker 6: Underlying that question is this question about government bonds and
Speaker 6: just the develop markets whether they still count as the
Speaker 6: haven asset. Do you view the rally that we've seen
Speaker 6: in long term bonds, particularly in the United States, not
Speaker 6: necessarily in Europe, as reaffirming this quality of the securities
Speaker 6: at a time where they have had a lot of questions.
Speaker 4: Yeah, I think it's quite interesting.
Speaker 5: I've just discussed with a lot of clients that also
Speaker 5: if you look at corporates, that's quite interesting, right, look
Speaker 5: at the size of some corporates and then the discussions
Speaker 5: about higher debt levels. What's quite interesting for me what
Speaker 5: we have seen is the US year is not moving
Speaker 5: higher in Europe. You have seen some years moving higher
Speaker 5: also in Asia. So there seems to be a lot
Speaker 5: of discussion about the US government bonds. But maybe at
Speaker 5: one point in time, I think if years were to
Speaker 5: go to hire, maybe some FED action can also be expected.
Speaker 5: On the other hand, if you look at Europe, France
Speaker 5: of course moving higher better today, but there was also
Speaker 5: a downgrade. So I think, yes, it's still an anchor,
Speaker 5: but I think clients should also take into count the
Speaker 5: power of a lot of corporate bonds, and from that perspective,
Speaker 5: investment great corporate bonds, I think is a very important trait.
Speaker 4: Clients should also debate.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this,
Speaker 2: Trader spelling with there certainty the Federal Reserve or cut
Speaker 2: interest rates by twenty five basis points this week, joining
Speaker 2: us to discuss the former New York Fed President Bill Dudley.
Speaker 2: But welcome back, So let's go straight to it. What
Speaker 2: are you expecting to say this coming Wednesday, right.
Speaker 7: Along with everybody else, I expect a quarter point cut.
Speaker 7: It's baked in the cake. I'd be surprised if that
Speaker 7: they do anything else.
Speaker 3: Do you think they'll guide much beyond that?
Speaker 7: Well, they'll be guide in because they're going to publish
Speaker 7: the Summary of Economic Projections, which shows their interest rate
Speaker 7: outlook for the rest of the year and into twenty
Speaker 7: twenty six and twenty twenty seven. And I think the
Speaker 7: big debate there is do they show one more cut
Speaker 7: after September or do they shoot show two more cuts?
Speaker 7: And I think it's going to be a very close
Speaker 7: call between those two outcomes.
Speaker 2: Yeah, Bill, I think we should build on that that's
Speaker 2: the interesting piece of information for me. At the last meeting,
Speaker 2: the last round of forecasts, if you will, they were
Speaker 2: forecasting two cuts and they had unemployment year end at
Speaker 2: about four point five percent, and Bill, we could have
Speaker 2: this really strange situation where people are basically looking for
Speaker 2: the unemployment rate to stay study in the forecast, but
Speaker 2: all the dots to come down. Just what's happening there?
Speaker 2: What is actually driving the outlook for rate cuts. If
Speaker 2: it's not unemployment, what is it.
Speaker 7: I think you're right that the forecast is evolving pretty
Speaker 7: close to what they had last summer of our economic
Speaker 7: projections in June. So if they're on the same forecast track,
Speaker 7: where would they pencil in more recuts? Thing that's changed
Speaker 7: is the just this weakness of the labor market in
Speaker 7: the sense of perial employment growth. So I've been thirty
Speaker 7: thousand a month over the last three months, and you
Speaker 7: see a lot of indicators that the labor market is
Speaker 7: continuing to soften. So I think it's more the softness
Speaker 7: of a lot of the labor market indicators that are
Speaker 7: getting them concerned that the libor market could continue to deteriorate.
Speaker 7: So I think they think that's the biggest risk right now,
Speaker 7: and so that's what's causing them to have a little
Speaker 7: bit greater urgency bill.
Speaker 8: Doesn't the market agree with them?
Speaker 6: Isn't that the takeaway from the rally that we've seen
Speaker 6: in the long end of the yield curve?
Speaker 4: Yeah?
Speaker 7: Absolutely, I mean market is an agreement that rates are
Speaker 7: coming down not just this year, but in twenty twenty
Speaker 7: six and twenty twenty seven. In fact, the market you
Speaker 7: look at the federal funds futures market, it's has rates
Speaker 7: coming all the way down to about three percent on
Speaker 7: the federal funds rate the end of end of next year.
Speaker 7: So there's a lot of rate cuts priced in. I think,
Speaker 7: you know, personally, I think it's not quite so clear
Speaker 7: that they're going to go that far over the medium
Speaker 7: to longer term, because the financial conditions are already very
Speaker 7: very accommodative and the economy is not falling out of bed.
Speaker 7: I also think we haven't seen the full effects of
Speaker 7: the tarifts in terms of prices yet, so I think
Speaker 7: inflation is going to stay sticky over the next six
Speaker 7: to twelve months.
Speaker 1: So I want to dig a little bit deeper into
Speaker 1: what you just said.
Speaker 6: The idea that the long end of the yield curve
Speaker 6: is pricing in steeper cuts. You could make the argument
Speaker 6: that if the economy isn't falling out of bed, that
Speaker 6: any steeper cuts would cause a reacceleration and inflation and
Speaker 6: potentially some.
Speaker 1: Deterioration and the dollar.
Speaker 3: That could cause kind.
Speaker 6: Of the opposite in a long end in terms of
Speaker 6: a selloff and a yield curve steepening. What's your understanding
Speaker 6: of why the market doesn't seem concerned about that?
Speaker 7: Well, I think they think that the reasons for cutting
Speaker 7: now are actually quite compelling, given that the inflation path
Speaker 7: through from terrace has been smaller than expected and the
Speaker 7: weakness in the labor market has been at least as
Speaker 7: large as expected.
Speaker 4: So I think the market is shares the view of J.
Speaker 7: Powell that the downside risk to the labor market outweigh
Speaker 7: the upside risk to the inflation, so therefore redcuts are warranted.
Speaker 7: But I think the question is how far are they
Speaker 7: going to go over the medium to longer term. That's
Speaker 7: where the markets I think, maybe a little bit ahead
Speaker 7: of themselves now. Some of this it's hard to factor
Speaker 7: in how much is the pressure of the Trump administration
Speaker 7: on the Fed, and some risks that the Trump administration
Speaker 7: could compromise the independence of the FED. Now, obviously, if
Speaker 7: the Trump administration is successful in doing that, that's gonna
Speaker 7: be lower rates, but it's also going to be higher inflation.
Speaker 2: Well, just to talk about what we might get from
Speaker 2: the news conference as well with Sham and Pal, how
Speaker 2: difficult is it going to be for him to establish
Speaker 2: a consensus at this meeting. If you go back to
Speaker 2: the last dot plot, and things may have changed, but
Speaker 2: in the last dot plot, there were a big group
Speaker 2: of individuals that saw no cuts in twenty twenty five,
Speaker 2: And I'm just wondering how much has changed, not just
Speaker 2: for Sham and Pal. He's indicated a lot has changed
Speaker 2: based on the last few times we've heard from him,
Speaker 2: but for other members of the committee.
Speaker 7: I think most people are going to go along with
Speaker 7: what Chirpowell wants because they're not in disagreement about direction
Speaker 7: of rates. They're just to maybe be we have a
Speaker 7: small disagreement about timing. Should we start in September? Shall
Speaker 7: we wait a little bit longer. So the fact that
Speaker 7: they are all in agreement that rates are going to
Speaker 7: be coming down, I think they're going to give the
Speaker 7: chairman what he wants it.
Speaker 4: This means, so I'm.
Speaker 7: Actually expecting very few descents on the side of no
Speaker 7: rate cuts, maybe zero or one the other side of
Speaker 7: the equations that are going to get fifty people supporting
Speaker 7: a fifty bas appoint raycut. I think one person I'm
Speaker 7: expecting there and perhaps is Steve Moran if he gets
Speaker 7: confirmed and is sitting on the FLUC on Wednesday afternoon.
Speaker 6: Bill, do you think that it's healthy to have a
Speaker 6: character like Stephen Marian Meran on the Federal Reserve on
Speaker 6: the Board of Governors to really foster a robust debate
Speaker 6: about not just whether to cut twenty five or fifty
Speaker 6: basis points, but the overarching framework that the FED is
Speaker 6: operating in.
Speaker 7: I think it's good to have a diversity of views
Speaker 7: on the Federal Reserves to debate a lot of the framework.
Speaker 7: I think the FED could do quite a bit more
Speaker 7: in terms of developing a framework for quantitative easing and
Speaker 7: quantity tight and I've written about that over the last
Speaker 7: few months, so I think there are things for the
Speaker 7: FED to do. I think it's a little odd as
Speaker 7: someone that's essentially on loan from the administration for four
Speaker 7: months to vote at two or three meetings. So and
Speaker 7: I don't think that you know, Steve rant is going
Speaker 7: to get a lot of difference at the meeting this
Speaker 7: coming week.
Speaker 2: For people who aren't familiar with the meeting, a meeting
Speaker 2: that you've been a part of many many times, can
Speaker 2: you describe to them what that kind of room will
Speaker 2: look like, that situation, how the meeting actually progresses, who
Speaker 2: runs things, and what kind of opportunity Steven Mann would
Speaker 2: have as he sits around that table to make his points.
Speaker 7: So the meetings typically are obviously chaired by the chairman,
Speaker 7: and there's a typically a discussion about the economy. Everybody
Speaker 7: goes around and gives their views out of the economy,
Speaker 7: and then there's a discussion about monetary policy. Everybody goes
Speaker 7: around the room and talks about their views on monetary policy.
Speaker 7: So Steve Rann will have a chance to speak on
Speaker 7: both of those, but he's going to be only one
Speaker 7: of nineteen people speaking. So you know, the idea that
Speaker 7: he would go there and dominate the media, I don't
Speaker 7: think he's I think his influence is gonna be quite small.
Speaker 3: But will you take it in turns?
Speaker 2: Are there any kind of debates at all or do
Speaker 2: you just go around one by one by one around
Speaker 2: nineteen individuals.
Speaker 7: Now, there's there can be some back and forth. You know,
Speaker 7: people do respond to what other people said say. But
Speaker 7: I mean, remember, everybody's looking at the same set of information,
Speaker 7: So the disagreements tend to be small, you know, more
Speaker 7: at the margin rather than large, because everybody's looking at
Speaker 7: the same set of information and hearing the same staff
Speaker 7: for work ask evaluating the same economic information.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Abaga one if ups rights in the following here's the quote.
Speaker 2: We expect the FMC wants to signal a series of
Speaker 2: rate cuts. We expect a total of one hundred basis
Speaker 2: points of rate cuts this year. Abigail joined us now
Speaker 2: for more Abigail, good morning, this year as in the
Speaker 2: rest of twenty twenty five. Yes, okay, quick math some
Speaker 2: a simple point. The three meets, So it's one hundred
Speaker 2: basis points. You expect a fifty.
Speaker 9: Yeah, So we've been expecting the Fed would deliver one
Speaker 9: hundred basis points of using this year since April. So
Speaker 9: we had after the Liberation Day tariff announcements, we felt
Speaker 9: that you know, we would see it come to the
Speaker 9: four that the Fed would have to make this decision
Speaker 9: essentially between kind of the potential for an uplift and
Speaker 9: inflation versus the weakness in the labor market. We thought
Speaker 9: that would become most acute at this September meeting. And
Speaker 9: you know, we continue to expect that we'll see the
Speaker 9: twenty five basis point cut delivered this week. Our expectations
Speaker 9: for the fifty you know, we do have that penciled
Speaker 9: in for December. I think our senses that we continue
Speaker 9: to see this weakness in the economy persisting, and it's
Speaker 9: something that you know, could actually accelerate as we go
Speaker 9: into the kind of fourth quarter of the year. I
Speaker 9: think one of the key things you know it obviously
Speaker 9: retail sales, right. I think for us, one of the
Speaker 9: things that I would know is, you know, you've seen
Speaker 9: a relatively weak consumer this year, it right, You've seen
Speaker 9: the consumer running below trend so far this year.
Speaker 1: You saw July popping a little bit higher.
Speaker 9: So I do think that August print is going to
Speaker 9: be an important one just in terms of getting a
Speaker 9: sense of how this consumer is vary.
Speaker 6: So is twenty twenty five going to be a mirror
Speaker 6: image of twenty twenty four when it comes to one
Speaker 6: hundred basis points of rate cuts into data that only
Speaker 6: gets better economically.
Speaker 9: Yeah, So I think it's interesting because you know, we
Speaker 9: are expecting to see kind of more weakness in the
Speaker 9: labor market side. Right if we remember the kind of
Speaker 9: layoff program from the federal government side, you've got a
Speaker 9: slug of around seventy seventy five thousand workers that are
Speaker 9: expected to come off the payroll at the end of
Speaker 9: the fiscal year.
Speaker 1: So that's going to dent your average right through the
Speaker 1: end of the year.
Speaker 9: So I do think there are signs that you'll continue
Speaker 9: to see that weakness in the labor market data. I
Speaker 9: think the key thing to note here is you've seen
Speaker 9: that weakness in the consumer but you've not seen the
Speaker 9: impact of tariffs yet.
Speaker 1: Right, We're just.
Speaker 9: Starting to see some of those price increases coming through
Speaker 9: for consumers. We saw reports obviously from Walmart recently around
Speaker 9: potentially passing through some price increases in August.
Speaker 1: So I think that's why we're watching very closely.
Speaker 9: You know, what's happening in this retail sales data this week,
Speaker 9: because you've not seen the kind of impact from the tariff.
Speaker 9: Yet on the consumer, you've already seen a slow consumer.
Speaker 9: So the question is kind of when that kind of
Speaker 9: feeds through, it's kind.
Speaker 1: Of weaker real disposable income.
Speaker 9: As you start to see inflation reaccelerating, how does the
Speaker 9: consumer then respond?
Speaker 1: Could you see a job less reaccelerating?
Speaker 6: And I ask this, given the fact that you've got
Speaker 6: companies that are investing more in automating different things, creating
Speaker 6: greater efficiencies, especially in the face of uncertainty with respect
Speaker 6: to policy, could you see a pretty sluggish labor market
Speaker 6: even as corporate profits expand, even as people continue to spend.
Speaker 4: Yeah.
Speaker 9: Look, I think our senses that we continue to see
Speaker 9: the labor market weaken through the end of the year,
Speaker 9: but then we think you will see a little bit
Speaker 9: of a turning point and into twenty twenty six.
Speaker 1: I think there's a number of things to look to in.
Speaker 9: Terms of the potential for kind of a more positive
Speaker 9: growth outlook through twenty twenty six. I just think that
Speaker 9: the kind of bite of the kind of tariff policies
Speaker 9: with the inflation pass through, will be fouled through the
Speaker 9: kind of fourth quarter and into the end of the year.
Speaker 9: Our expectation then is, you know, potentially start to see
Speaker 9: some of the kind of fiscal impulse from the One
Speaker 9: Big Beautiful Bill Act kind of coming through. We should
Speaker 9: see that, you know in the April tax refund season.
Speaker 9: You know, that's something we're watching out for, just to
Speaker 9: see how that feeds into consumer balance sheets, see how
Speaker 9: that helps consumers potentially whether some of the price increases
Speaker 9: we expect to kind of come through.
Speaker 2: I have to say, I think that final point is
Speaker 2: still really underappreciated because for a lot of people, they
Speaker 2: view the Tanks Bill as an extension of current policy.
Speaker 3: Can you just sort of build that out for us?
Speaker 3: Why is that still so important? What kind of refunds
Speaker 3: out be expecting and why?
Speaker 1: Yeah.
Speaker 9: So, I think there's a number of kind of consumer
Speaker 9: policies around kind of child tax credits, you know, some
Speaker 9: of the focus from the campaign around tip income deduction,
Speaker 9: standard standard deductions for seniors being boosted. I think there's
Speaker 9: a number of different elements where you could see that
Speaker 9: potentially feeding through into a little bit stronger consumption through
Speaker 9: that period. I think the question is how sustainable that is.
Speaker 9: I think it would be kind of an impact through
Speaker 9: the second quarter. Say, we have a little bit of
Speaker 9: a bound higher in terms of the pace of consumption
Speaker 9: in our forecast and the second quarter, but then it
Speaker 9: doesn't necessarily mean that that will be sustained. I think
Speaker 9: the other element that people are watching is obviously what's
Speaker 9: happening in terms of the investment side. When we look
Speaker 9: at the investment dynamics in the US just now, you know,
Speaker 9: we are seeing kind of a very concentrated increase in
Speaker 9: investment in kind of AI related goods, and not necessarily
Speaker 9: a broad based.
Speaker 1: Increase in investment.
Speaker 9: So I think the question is whether some of the extension,
Speaker 9: as you say, of some of the expensing provisions, does
Speaker 9: that then feed into stronger investment next year potentially, You know,
Speaker 9: we're a little bit hesitant just given the extent of
Speaker 9: the response you saw in twenty seventeen, but you know,
Speaker 9: that's another potential kind of boost that you could see.
Speaker 9: But overall, you know, we still expect a relatively muted
Speaker 9: pace of growth next year.
Speaker 1: You know, we're still below trend. We've got a one
Speaker 1: point six percent rate of growth next year.
Speaker 3: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. Looking ahead to
Speaker 2: the rest of this week, Great Peters, a PGM has
Speaker 2: this to say, us macro base case is a muddle
Speaker 2: through well downside tails remain, There is a chance of
Speaker 2: a mild recession. We see limited crash risk. Great joins
Speaker 2: us now for more, Greg, welcome back. I'd love an
Speaker 2: update on where you are now because the last time
Speaker 2: we spoke you talked about the risk of a repeat
Speaker 2: of last year the FED was going to come and
Speaker 2: maybe the long end sold off. We to see some
Speaker 2: stability returned to the long end of the curve. Greg,
Speaker 2: Do you take some comfort from that?
Speaker 8: Yeah, there's definitely been a reversal.
Speaker 10: The steady, unrelenting kind of steep nur trade kind of
Speaker 10: reverse itself for the past week or so. But I'm
Speaker 10: not convinced that that is kind of how it's going
Speaker 10: to continue to play out. You know, I still think
Speaker 10: the risk in the system is for steeper curves, not
Speaker 10: flatter curves. You know, you look at kind of where
Speaker 10: we are economically. You have you know, just talked about,
Speaker 10: you know, the fiscal lift that I think you'll see.
Speaker 10: You'll see more monetary stimulus. You're seeing the effects of
Speaker 10: tariffs come through. You see a lot of you know,
Speaker 10: kind of the breaking down at institutional norms. You know,
Speaker 10: all these types of factors I think will lead to
Speaker 10: more pressure on the back end. At the same time,
Speaker 10: though everything will get pulled down. The question is how
Speaker 10: will the back end kind of get pulled down with
Speaker 10: it will be one to one or kind of one
Speaker 10: to a half that sort of ratio.
Speaker 6: I just don't know, you know, this is something that
Speaker 6: we've been talking about here. How much is it just
Speaker 6: crowded positioning getting stopped out in terms of the yield
Speaker 6: curve flattening. I'm just wondering about the reaction function to
Speaker 6: Wednesday's announcement. If there is a real Dubvish bias to
Speaker 6: what the Fed does, do you see that curve steepening
Speaker 6: reinstating itself or do you think that right now the
Speaker 6: market's just in a different frame of thought.
Speaker 10: You know, I think the answer is both, Lisa. So
Speaker 10: I do think there's an expectation that the Fed will
Speaker 10: just do twenty five. But you know, I don't think
Speaker 10: anyone will be completely shocked by, you know, a more
Speaker 10: Aduvish bias here. That's where the markets are leaning, so
Speaker 10: that should largely be in the price. But I think
Speaker 10: It's important to note that the inflationary effects haven't really come.
Speaker 8: Through yet, you know, from a tower standpoint.
Speaker 10: And then if in fact this administration and this FED
Speaker 10: is trying to kind of goose housing, then.
Speaker 8: That's the area that has actually pulled down inflation.
Speaker 4: Right.
Speaker 10: It's been a disinflationary environment on the housing front. So
Speaker 10: if you kind of do programs and policies to reignite housing,
Speaker 10: that that should all seq will put pressure on the
Speaker 10: back end.
Speaker 8: Of the curve. So what do you like right now?
Speaker 6: Are you just going into high old bonds and cash.
Speaker 10: Well, you know, we like what we continued to like
Speaker 10: all along, and that's kind of the safe carry trade.
Speaker 10: So I think economically the environment's in pretty decent shape.
Speaker 10: There is this risk that you can actually overheat and
Speaker 10: hear just given all the policies we've just talked about.
Speaker 8: But for me as a credit investor, I just don't
Speaker 8: see a lot of value right. Credit spreads are pretty tight.
Speaker 10: So the bet that you're making to be really long
Speaker 10: credit in a beta way is that you have to
Speaker 10: go through all time types, which is a heroic bet
Speaker 10: in my mind. So it's about safe carry kind of
Speaker 10: front to you know, intermediate part of the curve, and
Speaker 10: I still think the back end of curves are quite susceptible.
Speaker 4: Here.
Speaker 2: Great, before you go, I'd love your response to this.
Speaker 2: It just came in from No downta of run Mac
Speaker 2: just send me a message and said, the market is
Speaker 2: the Fed going to neutral two years before the Fed
Speaker 2: has it? They can't meet those expectations. Greg, would you
Speaker 2: agree with that? It's not the risk into Wednesday?
Speaker 10: Yeah, but I think that's kind of a persistent risk, right.
Speaker 10: Markets always are ahead where central bankers, you know, tend
Speaker 10: to be.
Speaker 8: So I don't think that's a complete shock.
Speaker 10: You know, you look at one year forward, you kind
Speaker 10: of have a three percent, which is you know, quite
Speaker 10: in the neutral range, if you know, even maybe a
Speaker 10: little lower than neutral.
Speaker 8: So I think gift to neutral. See how the economy responds.
Speaker 10: The markets have a tendency of getting ahead of itself
Speaker 10: our usual well, and I don't.
Speaker 8: Think this is any different this SUMMERUD.
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