WEBVTT - Bloomberg Surveillance TV: September 12, 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 --> 0:00:18.680 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 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.960 Terminal and the Bloomberg Business App. We begin with our 0:00:37.000 --> 0:00:40.080 top story, the latest CPI print, boosting expectations for a 0:00:40.120 --> 0:00:42.960 twenty five basis point cup from the Fed next week. 0:00:43.159 --> 0:00:46.000 Mohammad al Erin of Queen's College, Cambridge, writing on X 0:00:46.000 --> 0:00:49.120 that he sees a quote ankorless paradigm, one that is 0:00:49.159 --> 0:00:52.360 crying out for the stabilization influence that usually comes from 0:00:52.360 --> 0:00:55.760 a dominant economic narrative rather than the current ping pong 0:00:55.800 --> 0:00:58.920 one and or forward policy guidance as opposed to this 0:00:59.000 --> 0:01:03.319 era of excessive data dependency. Muhammad has a lot to say. 0:01:03.360 --> 0:01:05.279 It's whether it's the next few hours to say it. Muhammed, 0:01:05.319 --> 0:01:07.400 good morning to see it. Good morning, John, fantastic catch 0:01:07.480 --> 0:01:09.760 up with you, sir, particularly your observation yesterday about what 0:01:09.800 --> 0:01:11.880 was developing in the bomb market at the front end 0:01:11.920 --> 0:01:13.959 of the curve, the swings we saw on the two year. 0:01:14.000 --> 0:01:16.840 Can you share your observations with our audience right now? 0:01:16.880 --> 0:01:17.679 What was that about? 0:01:18.120 --> 0:01:21.399 So we saw a twenty basis points round trip in 0:01:21.480 --> 0:01:24.039 the two year. Twenty basis points. That's a lot for 0:01:24.080 --> 0:01:28.280 that maturity, and we learned two things. One is that 0:01:29.000 --> 0:01:34.800 we have excessive data point dependence. All that happened yesterday 0:01:34.800 --> 0:01:37.720 in the Infation report, as people know, is that monthly 0:01:37.800 --> 0:01:40.679 core came slightly harder than expected. Everything else was aligned, 0:01:41.160 --> 0:01:43.960 and yet we moved ten basis points up. And then 0:01:44.000 --> 0:01:46.480 we discovered a second technical, which is money on the 0:01:46.520 --> 0:01:50.760 sideline being put to work quickly, and that I think 0:01:50.920 --> 0:01:53.720 is our reality, is that we don't have a dominant 0:01:53.760 --> 0:01:57.600 economic view, so we get swung all over. But the 0:01:57.680 --> 0:02:02.560 stabilizer right now is this technical of cash on the sideline. Now, 0:02:02.640 --> 0:02:07.120 financial conditions are good stabilizers with two very important qualifications. 0:02:07.840 --> 0:02:11.960 They are volatile and they have as much perception as reality. 0:02:12.400 --> 0:02:14.919 So we are going to continue with this volatile world 0:02:14.960 --> 0:02:19.200 until we restore either dominant economic paradigm or we saw 0:02:19.240 --> 0:02:20.800 the power forward policy guidance. 0:02:21.480 --> 0:02:24.200 You could argue that even in the face of all 0:02:24.200 --> 0:02:27.960 of this volatility, it shows how strong the economic system 0:02:28.080 --> 0:02:31.960 is that there wasn't some sort of significant disruption. Isn't 0:02:31.960 --> 0:02:33.919 that sort of the ultimate stress test, that when the 0:02:33.960 --> 0:02:36.800 benchmark rate swings around by twenty basis points you don't 0:02:36.800 --> 0:02:41.000 see any massive selling, why is it more pernicious than 0:02:41.000 --> 0:02:42.280 it might seem on the surface. 0:02:42.960 --> 0:02:45.440 So I do think the financial system has been strengthened, 0:02:45.639 --> 0:02:48.560 and in particular the banks, and we are in a 0:02:48.639 --> 0:02:50.680 much better place than we were in the past. So 0:02:50.760 --> 0:02:52.799 you don't get the massive balance sheet effects. You don't 0:02:52.800 --> 0:02:56.320 get the sort of virtuous cycles good the cycles good 0:02:56.400 --> 0:02:59.680 or bad that can happen from that. But don't forget 0:02:59.760 --> 0:03:02.000 that we are the benchmark for the rest of the world, 0:03:03.040 --> 0:03:05.839 and we cause quite a few spillovers that the rest 0:03:05.840 --> 0:03:07.679 of the world says, you know what, enough, now we've 0:03:07.680 --> 0:03:09.840 had enough of this, Please get you act together. 0:03:10.360 --> 0:03:12.480 I was surprised to at Jackson Hall to your point, 0:03:12.560 --> 0:03:15.480 there wasn't more of a discussion, at least not out loud, 0:03:15.800 --> 0:03:18.080 about what the neutral rate is. Essentially that sort of 0:03:18.080 --> 0:03:20.400 paradigm shift that you're looking for, some sort of real 0:03:20.400 --> 0:03:24.280 discussion of what this Federal Reserve is willing to accept 0:03:24.280 --> 0:03:27.400 in terms of inflation and a benchmark rate that'said. It 0:03:27.400 --> 0:03:29.240 sounds like they just don't agree on one, So how 0:03:29.240 --> 0:03:30.760 can they come up with one if they don't really 0:03:30.800 --> 0:03:32.760 have that certainty? And frankly, if the market can't agree 0:03:32.800 --> 0:03:34.440 on one either, is it better just to have one 0:03:34.760 --> 0:03:35.600 even if it's wrong. 0:03:36.280 --> 0:03:38.280 So as usual, you're getting me to front run my 0:03:38.280 --> 0:03:39.840 financial times of a tomorrow. 0:03:39.960 --> 0:03:41.000 That's what you hear films. 0:03:42.920 --> 0:03:45.400 So I think, Lisa, you're absolutely right. But it's not 0:03:45.600 --> 0:03:48.320 just that we don't know what the destination is. We 0:03:48.360 --> 0:03:51.400 don't know what the journey is. We don't know what 0:03:51.600 --> 0:03:57.280 risk mitigation mindset actually means operationally. And also there's disagreement 0:03:57.360 --> 0:04:01.560 as how quickly will FED official go from backward looking 0:04:01.680 --> 0:04:05.600 data dependence to forward leaning. So we have these disagreement 0:04:05.680 --> 0:04:09.120 both within the FOMC and also between the market and 0:04:09.160 --> 0:04:12.160 the end what seems to be the consensus if there 0:04:12.200 --> 0:04:14.600 is one on the FED. So this is for me, 0:04:14.640 --> 0:04:17.080 it's a fascinating time, but it is also a very 0:04:17.080 --> 0:04:17.880 confusing time. 0:04:18.279 --> 0:04:21.159 So amongst all this confusion. What do you want to 0:04:21.200 --> 0:04:22.599 hear from J Powell next week? 0:04:23.560 --> 0:04:25.720 So what I'd like to hear and what I expect 0:04:25.720 --> 0:04:27.240 to hear is that he's going to come by twenty 0:04:27.240 --> 0:04:31.479 five basis points. Beyond that, It's more what I'd like 0:04:31.520 --> 0:04:33.640 to hear than what I expect to hear. I'd like 0:04:33.680 --> 0:04:36.279 to get a sense of where he thinks the neutral 0:04:36.320 --> 0:04:39.080 rate is. I'd like to get a sense of where 0:04:39.080 --> 0:04:43.320 he sees the balance of risks. The market right now 0:04:43.520 --> 0:04:47.960 has modeled the FED as a single mandate FED maximum employment. 0:04:49.000 --> 0:04:51.520 FED official tell us no, no, no, we do mandate FED. 0:04:51.680 --> 0:04:54.039 Let's not forget the inflation component. I'd like to know 0:04:54.080 --> 0:04:54.800 where he is on this. 0:04:55.440 --> 0:04:57.360 Do you want to hear more descent within the Fed? 0:04:57.960 --> 0:05:00.200 Yeah, I would like to. I mean, I admire the 0:05:00.200 --> 0:05:02.160 Bank of England. The last decision was five to four. 0:05:02.320 --> 0:05:04.279 You had a situation where it was six to one. 0:05:04.880 --> 0:05:09.120 I think that's important because that conveys the uncertainty. Yes, 0:05:09.200 --> 0:05:12.039 they should have more discent. I think they viewed dissent 0:05:12.160 --> 0:05:15.920 as weakness. Most of us view descent as having a 0:05:16.040 --> 0:05:19.320 really important information content that has to be priced into markets. 0:05:19.800 --> 0:05:21.359 I remember a series of votes at the Bank of 0:05:21.360 --> 0:05:23.000 England maybe a decade or so ago. I'm sure you 0:05:23.000 --> 0:05:25.960 remember this too, when the committee was out voting King 0:05:26.480 --> 0:05:28.280 a governor. King was leading the Central Bank. Think of 0:05:28.320 --> 0:05:30.200 the time. He wanted to increase QE and you had 0:05:30.240 --> 0:05:32.560 people on the MPC voting against him. Not only that, 0:05:32.560 --> 0:05:35.039 there were more people voting against him than voting with him. 0:05:35.240 --> 0:05:37.480 That's a scenario we don't see at the Federal Reserve. 0:05:37.720 --> 0:05:40.320 You had a warning coming into the September meeting, and 0:05:40.360 --> 0:05:42.560 I remember it at the start of summer. You wanted 0:05:42.560 --> 0:05:45.080 them to reduce interest rates in July, but you acknowledged 0:05:45.080 --> 0:05:48.800 that the difference between going into September versus July wasn't 0:05:48.800 --> 0:05:51.520 that great. But you had one fear if we got 0:05:51.520 --> 0:05:54.560 one hot CPI print, they might get distracted. Was that 0:05:54.600 --> 0:05:56.520 what we got yesterday? How distracted might they be? 0:05:57.160 --> 0:05:59.479 I don't think that much, because it was just one 0:05:59.560 --> 0:06:05.760 element in a broadly consistent data release that certainly was 0:06:05.839 --> 0:06:09.400 very close to consensus forecast. But if we had missed 0:06:10.080 --> 0:06:13.359 on headline, if we had missed on care, if the 0:06:13.440 --> 0:06:16.719 base effects weren't as favorable as they are right now, 0:06:17.839 --> 0:06:20.360 you would have seen a total mess in the marketplace. 0:06:20.800 --> 0:06:24.320 So That was my concern is that, as much as 0:06:24.360 --> 0:06:28.120 they don't want to admit it, they are not just 0:06:28.200 --> 0:06:32.279 data dependent. There's single point data dependent, and that's pretty 0:06:32.320 --> 0:06:34.000 scary for policy setting. 0:06:34.160 --> 0:06:36.080 That's certainly how the market sees it, because it guarded 0:06:36.120 --> 0:06:38.800 the conversation away from fifty and back to Worlds twenty five. 0:06:39.040 --> 0:06:40.960 How do you think they'll look to frame this rate 0:06:41.000 --> 0:06:44.040 cup when they deliver it a week yesterday. Will they 0:06:44.080 --> 0:06:46.360 call it a mid cycle adjustment? Will they say it's 0:06:46.360 --> 0:06:49.200 the beginning of a journey back to neutral? Whatever neutral is? 0:06:49.240 --> 0:06:50.760 How do you think they can frame this decision? 0:06:51.080 --> 0:06:54.080 I suspect it will be what's called the Douvish twenty 0:06:54.120 --> 0:06:57.239 five base points, which means this is the first of many, 0:06:58.000 --> 0:07:01.679 and we may we may be inclined to go even 0:07:03.560 --> 0:07:07.360 more if the labor market weakens. There was this phrase 0:07:07.720 --> 0:07:11.760 in the Jackson Hole speech that was really important. We 0:07:11.800 --> 0:07:14.400 don't want to see the label market get any weaker. 0:07:15.080 --> 0:07:18.960 That is a very strong statement from the FED chair. 0:07:19.320 --> 0:07:21.440 Whether everybody else is there, we don't know. 0:07:22.360 --> 0:07:24.120 Let's say they do what you want and they come out, 0:07:24.160 --> 0:07:26.040 they see this is what neutral is. This is our journey, 0:07:26.080 --> 0:07:27.920 this is our mandate, This is what we're going to do. 0:07:29.040 --> 0:07:31.440 How much have they lost control of the plot anyway, 0:07:31.720 --> 0:07:34.080 just simply because there are other factors at play. You 0:07:34.160 --> 0:07:38.240 think about, for example, fiscal coming out and potentially disrupting things, 0:07:38.240 --> 0:07:42.640 Think about international investment with an auction that's necessarily negative, 0:07:42.680 --> 0:07:45.040 that kind of forces their hand. How much do they 0:07:45.040 --> 0:07:48.400 have ability to set the narrative with such a prescriptive 0:07:48.440 --> 0:07:49.640 tone right now? 0:07:49.920 --> 0:07:52.880 So they certainly should be incorporating fiscal They must be 0:07:52.920 --> 0:07:55.960 doing this. They certainly should be incorporating q QT. I mean, 0:07:56.000 --> 0:07:58.840 we haven't talked about qt QT is ongoing on there. 0:07:59.040 --> 0:08:01.720 They should certainly should should be doing that, and that 0:08:01.760 --> 0:08:05.520 should be reflected in what they say. I hope they're 0:08:05.520 --> 0:08:07.880 doing this internally. I just think they got so burnt 0:08:08.080 --> 0:08:11.239 in twenty twenty one because they did take a forward 0:08:11.600 --> 0:08:13.880 leaning view and they were completely wrong that they don't 0:08:13.880 --> 0:08:14.800 want to make another mistake. 0:08:15.400 --> 0:08:17.920 What if they say this is a victimless crime. We're 0:08:17.960 --> 0:08:20.360 not seeing a problem from this that essentially they're getting 0:08:20.360 --> 0:08:22.840 it right and the markets are generally you hear traders 0:08:22.880 --> 0:08:26.000 actually say Ashley Powell is doing a pretty good job, 0:08:26.440 --> 0:08:30.360 so why should they change it? What would your argument be, Well. 0:08:30.240 --> 0:08:32.240 First We'll go back to the amount of volatility we've 0:08:32.280 --> 0:08:35.920 had in fixed income. It has been unusual, Lisa, I know. 0:08:36.040 --> 0:08:38.120 I know, I watched it every day. We were talking yesterday. 0:08:38.120 --> 0:08:42.400 It was crazy, okay, And that has adverse external effects. 0:08:42.440 --> 0:08:46.160 It undermines also the credibility of the US as the 0:08:46.200 --> 0:08:48.600 benchmark for many others, and we are in a world 0:08:48.679 --> 0:08:51.480 in which countries are building little pipes around the US. 0:08:51.520 --> 0:08:54.440 We don't want to enable that process further. That's the 0:08:54.440 --> 0:08:56.680 first issue. The second issue is we have a major 0:08:56.720 --> 0:09:01.440 reconciliation in our future. We have the treasury part of 0:09:01.440 --> 0:09:04.320 the fixed income market that is signaling quite a high 0:09:04.320 --> 0:09:07.880 probability of recession. We have the credit part of the 0:09:07.880 --> 0:09:11.439 fixed income market that is signaling a very high probability 0:09:11.440 --> 0:09:15.160 of a soft lending. Now, if liquidity doesn't reconcile these 0:09:15.200 --> 0:09:18.680 two things, there's going to be even more volatility in 0:09:18.720 --> 0:09:22.240 this marketplace, and at some point volatility spills back to 0:09:22.280 --> 0:09:24.600 the real economy. And the only thing keeping this real 0:09:24.640 --> 0:09:26.199 economy going right now is deliver market. 0:09:26.240 --> 0:09:28.560 I'm sitting here laughing because we need to clarify what 0:09:28.600 --> 0:09:31.320 you said. Market participants that think Powell are doing a 0:09:31.320 --> 0:09:34.040 great job, they're the bullish once. Let's be very clear 0:09:34.040 --> 0:09:36.280 about that. Accually are still their all time highs. If 0:09:36.280 --> 0:09:38.000 we weren't there, I think they'd have something different to 0:09:38.000 --> 0:09:38.840 say about where we were. 0:09:39.000 --> 0:09:40.559 Maybe they're data point to pedant as well. 0:09:40.920 --> 0:09:43.320 There's data pointment is the S and P five hundred. 0:09:43.840 --> 0:09:45.880 You mentioned where the bond market is and where markets 0:09:45.920 --> 0:09:47.360 are and how their price they want to pick up 0:09:47.360 --> 0:09:49.400 on the amount of demand we've seen for some issuance. 0:09:49.640 --> 0:09:52.080 We had a Guild issue last week, Record order Book 0:09:52.240 --> 0:09:55.040 had an Italian issue this week, Record order Book. We've 0:09:55.080 --> 0:09:57.920 seen a similar dynamic in US high grade corporate debt 0:09:57.920 --> 0:10:00.920 in America, particularly last week's he very busy days, lots 0:10:00.920 --> 0:10:03.960 of demand. Credit spread said very very tight. Can you 0:10:04.040 --> 0:10:06.719 reconcile what each part of the fixed income market is 0:10:06.760 --> 0:10:09.400 talentis right now and whether you can make sense of it? 0:10:09.720 --> 0:10:13.320 And we had yesterday a treasury auction with massive indirect demand. 0:10:14.040 --> 0:10:16.360 I can only reconcile it by the tone of cash 0:10:16.400 --> 0:10:18.880 US on the sideline and the fear that if you 0:10:18.880 --> 0:10:22.240 don't get into and lock indust rates now, you will 0:10:22.240 --> 0:10:26.160 lose interest income in the future. So every time we 0:10:26.200 --> 0:10:28.720 have a backup in rates, people wash back in I 0:10:28.720 --> 0:10:32.360 mean yesterday's dynamic was fascinating for me, that the speed 0:10:32.520 --> 0:10:35.640 of the round trip was significant. 0:10:35.679 --> 0:10:37.840 We've seen it a few times in the last week. Muhammad, 0:10:37.880 --> 0:10:49.600 We're lucky to have you says similar reaction to this, 0:10:49.640 --> 0:10:52.280 and cross Server. It's a Lindsay pie of stephol Lindsay 0:10:52.280 --> 0:10:55.000 your thoughts on the data this morning, the data yesterday 0:10:55.000 --> 0:10:56.640 this morning, and how this sets us up for the 0:10:56.679 --> 0:10:58.120 Federal Reserve next week. 0:10:59.040 --> 0:11:01.360 Well, I think coupled with you yesterday's hotter than expected 0:11:01.400 --> 0:11:04.679 read on the core CPI this morning slightly hotter than 0:11:04.720 --> 0:11:06.120 expected read on the PPI. 0:11:06.880 --> 0:11:07.719 It's not enough to. 0:11:07.679 --> 0:11:10.480 Negate the Fed's intentions to open the door for rate 0:11:10.559 --> 0:11:13.600 cuts next week, but it is a welcomed reminder of 0:11:13.640 --> 0:11:17.960 the Fed's ongoing focus on inflation, as price stability is 0:11:18.000 --> 0:11:22.640 not yet met and with this lingering uncertainty on evenness 0:11:22.679 --> 0:11:26.200 in terms of the disinflationary trend, I think this underscores 0:11:26.240 --> 0:11:30.320 the Fed's need to remain on a very patient, tempered 0:11:30.360 --> 0:11:34.199 approach as we do embark on this policy pathway back 0:11:34.240 --> 0:11:38.479 towards neutral. Now the market has seemingly removed the expectations 0:11:38.520 --> 0:11:41.800 for a larger, more aggressive fifty basis point cut next week, 0:11:42.120 --> 0:11:44.240 but I would argue it was never really on the table. 0:11:44.600 --> 0:11:47.480 If the FED did take that more aggressive move, I 0:11:47.520 --> 0:11:50.080 think that would send the wrong signal to investors, or 0:11:50.120 --> 0:11:54.040 investors would interpret it that incorrectly as the FED maybe 0:11:54.040 --> 0:11:56.840 taking an intention to rapidly reverse us back to an 0:11:56.880 --> 0:12:00.240 accommodative stance. But at this point with the econ me 0:12:00.400 --> 0:12:04.679 still solid, slowing but still solid, I think the Fed's 0:12:04.720 --> 0:12:08.200 intentions is simply to remove policy firming and get us 0:12:08.200 --> 0:12:10.920 back to a more neutral state in terms of policy. 0:12:11.679 --> 0:12:15.520 So lindsay, let's go beyond next week. I completely agree 0:12:15.559 --> 0:12:17.640 with you. The FED has been stressing to the markets 0:12:17.880 --> 0:12:21.240 we are a dual mandate central bank, and the market 0:12:21.280 --> 0:12:25.079 has been responding, no, you're not, your single mandate central bank. 0:12:25.240 --> 0:12:30.000 And the employment part is critical. So now that the 0:12:30.120 --> 0:12:34.120 data has reminded us that they should remain a dual 0:12:34.200 --> 0:12:36.920 mandate central bank, how do you see the west of 0:12:36.920 --> 0:12:40.160 the curve, in particular, what's fristained all the way out 0:12:40.240 --> 0:12:43.240 to September of next year evolve in the next few weeks. 0:12:43.960 --> 0:12:46.480 Well, I do think investors got ahead of themselves, and 0:12:46.520 --> 0:12:48.720 I think the downward momentum that we've seen on the 0:12:48.760 --> 0:12:52.960 longer end does have some wiggle rooms, some room to 0:12:53.559 --> 0:12:57.240 reverse course, not necessarily push us back to earlier highs 0:12:57.280 --> 0:12:59.360 that we saw at the start of the year, but 0:12:59.400 --> 0:13:02.360 certainly gain at least ten twenty basis points on the tenure, 0:13:02.559 --> 0:13:06.280 putting us back into line with a more realistic pathway 0:13:06.600 --> 0:13:09.480 of the Fed's trajectory back to neutral. Again, I do 0:13:09.559 --> 0:13:12.440 think a base case is twenty five basis point cuts 0:13:12.679 --> 0:13:16.320 and not necessarily at every meeting. The FED is going 0:13:16.360 --> 0:13:20.440 to remain data dependent, and if we see inflation stumble 0:13:20.559 --> 0:13:23.400 for back to back months as we saw in yesterday's 0:13:23.400 --> 0:13:26.319 in today's reading, I think they're very likely and very 0:13:26.360 --> 0:13:29.240 willing to skip a meeting. And so I do think 0:13:29.280 --> 0:13:33.120 that again, the market's expectation for this rapid reduction back 0:13:33.160 --> 0:13:36.160 to neutral or even falling below the neutral range by 0:13:36.200 --> 0:13:39.079 mid of next year, is well beyond what the FED 0:13:39.240 --> 0:13:41.000 is realistically willing to do. 0:13:41.440 --> 0:13:45.320 Lindsay, what in the specifics of the inflation data gives 0:13:45.360 --> 0:13:49.080 you pause about just how much inflation is coming down? 0:13:49.120 --> 0:13:52.080 In other words, what are the sticky components that you 0:13:52.160 --> 0:13:53.040 worry most about. 0:13:54.320 --> 0:13:56.920 One of the biggest worries is the housing component, and 0:13:56.960 --> 0:13:59.800 we saw that in yesterday's a CPI report, one of 0:13:59.840 --> 0:14:03.600 the primary drivers of that hotter than expected read. If 0:14:03.600 --> 0:14:06.960 we continue to see the shelter component rise or rise 0:14:07.000 --> 0:14:11.800 above expectations given the sizeable weighting that housing has, not 0:14:11.880 --> 0:14:14.440 just in the CPI, but even in the PCE, that's 0:14:14.480 --> 0:14:17.400 going to be very difficult for the FED to maintain 0:14:17.440 --> 0:14:21.120 a two percent target or achieve that two percent target 0:14:21.160 --> 0:14:24.040 on a sustainable basis. So housing is one of those 0:14:24.200 --> 0:14:27.720 very sticky components that we're focused in on. That being said, 0:14:27.800 --> 0:14:30.560 even when we do strip out housing and we look 0:14:30.600 --> 0:14:33.560 at one of the more narrow measures of inflation, the supercore, 0:14:33.600 --> 0:14:37.200 so we're talking core services excluding housing, we still see 0:14:37.200 --> 0:14:39.320 that that's a read above four percent, so more than 0:14:39.360 --> 0:14:42.360 double the feds intended target. So there are still a 0:14:42.440 --> 0:14:46.080 number of underlying components and underlying measures that are not 0:14:46.200 --> 0:14:48.760 yet cooperating quite as much as the FED would like, 0:14:49.080 --> 0:14:51.800 as they are nearing presumably that first round rate cut 0:14:51.880 --> 0:14:52.360 next week. 0:14:52.560 --> 0:14:54.680 Lindsay, we've got to leave it that appreciate it, LINDSAYPX 0:14:54.760 --> 0:15:06.280 that stathl Let's ask pri did you come right at 0:15:06.320 --> 0:15:08.600 taivy securities that question right now? Perd You welcome to 0:15:08.640 --> 0:15:10.680 the show. I'm sure you heard that question from Mohammad. 0:15:10.720 --> 0:15:13.320 Your thoughts on it plays, Oh. 0:15:13.160 --> 0:15:16.440 Thank you, so yes, easib as expected right now and 0:15:16.480 --> 0:15:18.280 I think, as you mentioned, this is the key question. 0:15:18.440 --> 0:15:21.120 If they are seeing inflation to be at target in 0:15:21.160 --> 0:15:24.520 twenty twenty five, why this slow approach? I think from 0:15:24.800 --> 0:15:28.120 ECB's perspective, the question right now is pretty but basically 0:15:28.280 --> 0:15:31.160 the wage inflation and which is actually standing at five 0:15:31.200 --> 0:15:34.000 point one percent, and this is much about what we 0:15:34.040 --> 0:15:36.720 have seen in the twenty nineteen level, which was around 0:15:36.800 --> 0:15:40.400 two percent. So so far, Laggard has always talked about 0:15:40.400 --> 0:15:44.760 this WPP model, which is wages, productivity and profit margins, 0:15:44.960 --> 0:15:46.920 and I think that's where she will be asked, is 0:15:46.960 --> 0:15:51.440 productivity actually increasing that can help to reduce these wages, 0:15:51.640 --> 0:15:54.200 which doesn't seem the case right now, So I think yes, 0:15:54.280 --> 0:15:57.400 definitely a very key question for Laguard right now is 0:15:57.720 --> 0:16:00.760 if you are seeing inflation at target, why is this 0:16:00.920 --> 0:16:05.080 five percent in wage inflation still being so sticky and 0:16:05.120 --> 0:16:07.040 why are they not cutting rates more aggressively? 0:16:07.800 --> 0:16:13.840 In UWPP, she will be speaking today in the context 0:16:13.920 --> 0:16:16.760 of the Drug Report, and the Drug Report basically says 0:16:16.800 --> 0:16:21.920 without major policy actions that aim at improving the way 0:16:22.080 --> 0:16:25.800 the economy functions, there are no productivity gains that can 0:16:25.840 --> 0:16:27.720 be sustained. Do you agree with that view? 0:16:28.920 --> 0:16:31.200 Yes, no, totally. I think even when you look at 0:16:31.200 --> 0:16:34.360 the weakness in Germany, it's more for structural weakness and 0:16:34.400 --> 0:16:38.160 not a cyclical weakness. So cutting rates does not help 0:16:38.320 --> 0:16:40.640 German growth. And I think I do agree with Graggy's 0:16:40.680 --> 0:16:43.440 model and that we do need that investment, that productivity 0:16:43.480 --> 0:16:46.760 coming from Europe. But we also know that that's a 0:16:46.760 --> 0:16:49.160 long process that cannot happen in one day. And I 0:16:49.240 --> 0:16:52.240 think ECB at this state really needs to think about 0:16:52.280 --> 0:16:55.240 do they just go by the survey data which are 0:16:55.360 --> 0:16:59.600 basically suggesting that wages will reduce aggressively in twenty twenty 0:16:59.600 --> 0:17:02.680 five six, or they stick to the current heard data 0:17:02.720 --> 0:17:05.360 which tells you that if pages are very sticky. 0:17:06.440 --> 0:17:08.120 What do you think would happened in markets? And I'm 0:17:08.119 --> 0:17:10.440 wondering about the market reaction function in addition to the 0:17:10.480 --> 0:17:14.119 ECP reaction function. What would happen in markets if Christie 0:17:14.160 --> 0:17:17.919 mcgoth came out and talked about a more aggressive rate 0:17:18.000 --> 0:17:22.440 cutting pass, particularly the time where the euro is baking 0:17:22.480 --> 0:17:25.600 in sort of the FED and the ECP moving in Tanda. 0:17:27.560 --> 0:17:30.640 So again, if they tell us more aggressive path, yes, 0:17:30.680 --> 0:17:32.800 the front end rallies, we are not prime. We were 0:17:32.840 --> 0:17:35.160 pricing in one and a half rate cuts, so possibly 0:17:35.280 --> 0:17:38.560 going closer to two. But we also know the time 0:17:38.760 --> 0:17:41.640 until the October meeting is basically five weeks, so there's 0:17:41.680 --> 0:17:46.400 nothing much that's changing right now from ECB's data perspective, 0:17:46.440 --> 0:17:49.440 So I think they would have a big downside risk 0:17:49.480 --> 0:17:52.040 to grow at this meeting, which doesn't seem the case 0:17:52.040 --> 0:17:54.760 when we read the statement, So I doubt they are 0:17:54.760 --> 0:17:58.840 going to be very open about the October cut. But 0:17:58.960 --> 0:18:03.200 what is more like is ECB sounding more optimistic about 0:18:03.359 --> 0:18:06.880 reaching the inflation targets, especially given the fact that global 0:18:06.880 --> 0:18:10.800 growth is actually a negative right now across the board, 0:18:10.840 --> 0:18:14.000 especially when we look at US and China, which means 0:18:14.040 --> 0:18:17.480 markets should start pricing more cuts and more aggressive form 0:18:17.520 --> 0:18:21.080 of cuts in twenty twenty five and pull forward this 0:18:21.160 --> 0:18:22.720 neutral rate which is around two. 0:18:22.640 --> 0:18:25.720 Percent, which how difficult is the guard's job in the 0:18:25.760 --> 0:18:28.560 sense that inflation is quite different while you look at 0:18:28.560 --> 0:18:33.000 Central Europe or the periphery. 0:18:33.160 --> 0:18:35.919 Yeah, no, that is the key issue for ECB. I 0:18:35.920 --> 0:18:37.960 think when it comes to EACP, they do have to 0:18:38.000 --> 0:18:42.000 take Europe as aggregate, So even if German growth is 0:18:42.680 --> 0:18:45.280 minus zero point three, they still need to actually look 0:18:45.280 --> 0:18:48.240 at the entire euro growth which is still above stagnation. 0:18:48.440 --> 0:18:51.240 So this is a tricky job as long as financial 0:18:51.240 --> 0:18:54.879 conditions are seen across the board, which has been the 0:18:54.960 --> 0:18:58.520 case since twenty twenty. I think ECB will not go 0:18:58.760 --> 0:19:01.640 a country by country, but look at the total target 0:19:01.960 --> 0:19:05.679 because even like when you said, in Europe, creation negotiations 0:19:05.720 --> 0:19:08.479 work very differently from country to country, so they cannot 0:19:08.520 --> 0:19:12.199 actually say by October they'll have the right number of 0:19:12.240 --> 0:19:14.960 wages for the entire euro area. So I think they 0:19:15.000 --> 0:19:17.560 do need to work more on surveys and Europe as 0:19:17.600 --> 0:19:18.000 a whole. 0:19:18.600 --> 0:19:20.520 Poga, We've got to leavey there. We appreciate it. Pog, 0:19:20.520 --> 0:19:32.440 you come around there. Of TD Security, Michael Shout joins 0:19:32.480 --> 0:19:35.280 US now as Ion Asset Management. Michael, good morning to you, sir. 0:19:35.400 --> 0:19:37.400 Good morning base case. At the moment, the doves won't 0:19:37.440 --> 0:19:39.840 get their fifty, can they achieve the same outcome by 0:19:39.960 --> 0:19:42.080 leaning very heavily on the top plot. 0:19:42.480 --> 0:19:44.960 Yeah, I mean I think we'll probably see a big 0:19:45.000 --> 0:19:49.160 dispersion in the dot plot. You know, at this week's meeting, 0:19:49.320 --> 0:19:51.040 I think that's the way that people are going to 0:19:51.160 --> 0:19:54.040 really say, you know, we think we should be doing more, 0:19:54.240 --> 0:19:56.159 we think we should be we think we should be 0:19:56.200 --> 0:19:58.720 doing less. And then the sort of third part of 0:19:58.760 --> 0:20:01.160 this is which way is j Powell going to lean 0:20:01.200 --> 0:20:04.720 when he talks publicly following the meeting. Is he going 0:20:04.760 --> 0:20:07.720 to be, you know, pointing towards the doves or you know, 0:20:07.880 --> 0:20:09.120 more in the middle of a pack. 0:20:09.560 --> 0:20:12.520 So too far off questions immediately one is giving you 0:20:12.600 --> 0:20:16.320 expectations of more dispersion or right to look at the median. 0:20:17.600 --> 0:20:17.800 Or not? 0:20:17.960 --> 0:20:21.240 And second, isn't it obvious which way Chair Powell is 0:20:21.240 --> 0:20:21.720 going to lean? 0:20:23.680 --> 0:20:26.840 I would probably say no and no, you know, you know, 0:20:27.080 --> 0:20:30.560 it's it's really not clear, you know, which side is 0:20:30.600 --> 0:20:33.960 going to really dominate. I think it's not clear exactly 0:20:33.960 --> 0:20:36.440 who the doves are and who who the hawks are. 0:20:36.720 --> 0:20:40.480 I think Powell sensibly is trying to steer a middle 0:20:40.480 --> 0:20:43.200 path between both bodies, and I think he's happy to 0:20:43.280 --> 0:20:45.919 jump ship to the left or the right, depending on 0:20:46.000 --> 0:20:48.160 what you know. He's probably the most data driven part 0:20:48.160 --> 0:20:48.680 of the FED. 0:20:49.440 --> 0:20:51.720