WEBVTT - Surveillance: Big Week for Central Banks 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Ferrell and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.640 --> 0:00:32.520 With us around the table, you've got a sneak peak 0:00:32.520 --> 0:00:36.200 of there. Sandrew Bors, Global Fixed Incomes CIO at PIMCO. Andrew, 0:00:36.200 --> 0:00:38.159 good morning, good to be here, thanks for ten year. 0:00:38.240 --> 0:00:40.960 Fantastic to be with you. Four thirty four on a 0:00:41.040 --> 0:00:43.920 ten year yield this morning. To build on what Lisa said, 0:00:44.040 --> 0:00:46.440 is this a moment in time, bye bye bye, lock 0:00:46.520 --> 0:00:47.640 it in before it goes away? 0:00:47.760 --> 0:00:48.599 Or can we live with this? 0:00:49.479 --> 0:00:51.720 So I think it looks pretty attractive. We're in the 0:00:51.720 --> 0:00:54.040 middle of our forum discussions which we had in London 0:00:54.080 --> 0:00:57.160 as well, actually, so we're still talking about this with 0:00:57.200 --> 0:00:58.120 the investor. 0:00:58.200 --> 0:01:00.520 It's a head start, but it looks it looks. 0:01:00.160 --> 0:01:04.000 Pretty attractive here if you have a high quality bond 0:01:04.000 --> 0:01:08.679 fund five six percent yield in US dollars with more 0:01:08.720 --> 0:01:11.080 credit kind of seven percent maybe seven and a half 0:01:11.120 --> 0:01:15.200 percent yield, This looks very attractive. Equities have done very 0:01:15.240 --> 0:01:19.240 well this year. Looking forward, you know, six and a 0:01:19.280 --> 0:01:21.240 half five and a half percent type yield for a 0:01:21.240 --> 0:01:22.720 bond fund looks very good to us. 0:01:22.840 --> 0:01:25.399 There are two points here. One is does this look 0:01:25.440 --> 0:01:29.880 attractive now? And the second is where is the next rate? 0:01:30.280 --> 0:01:32.440 Where does the move come from? Is it higher or 0:01:32.480 --> 0:01:35.160 is it lower? But two different discussions right how sticky 0:01:35.160 --> 0:01:35.840 this is going to be? 0:01:36.720 --> 0:01:37.920 How big is the. 0:01:38.000 --> 0:01:40.640 Argument right now? In some of these meetings at PIMCO. 0:01:41.120 --> 0:01:43.360 Well, I think you were talking about real yields and 0:01:43.440 --> 0:01:45.600 I was nodding. When you look at real yields and 0:01:45.600 --> 0:01:49.680 look at long term history, it's starting to look attractive. Here. 0:01:49.720 --> 0:01:52.680 We had this period after two thousand and eight quantity 0:01:52.680 --> 0:01:55.800 of easing and at all of that and depressed real yields. 0:01:55.800 --> 0:02:00.480 But you're now seeing real yields its attractive levels and 0:02:00.560 --> 0:02:06.000 nominal yields I was quoting before, look pretty good to us. 0:02:06.440 --> 0:02:08.639 You have you know, in the outlook, you have inflation 0:02:08.800 --> 0:02:12.560 still stubbornly high at the core level, improving much faster 0:02:12.639 --> 0:02:15.919 in the US compared with Europe. I think the jury 0:02:16.040 --> 0:02:19.320 is still out there, but then don't forget the recession risk. 0:02:20.080 --> 0:02:25.200 We have had very significant global tightening across the world, 0:02:25.360 --> 0:02:29.520 and yes the data has been better expected than expected, 0:02:29.520 --> 0:02:32.240 particularly in the US this year, but as we all know, 0:02:32.400 --> 0:02:36.079 these central bank tightening takes time to feed into the 0:02:36.760 --> 0:02:40.680 real economy. So looking forward, the jury still out on inflation, 0:02:40.760 --> 0:02:44.120 but that recession risk remains significant. 0:02:43.480 --> 0:02:46.560 Critical question for PIMCO, and it's not only the heritage 0:02:46.560 --> 0:02:49.359 of PIMPO from Bill and Muhammad forward. A great call 0:02:49.440 --> 0:02:52.520 you people made a number of years ago. You've got 0:02:52.560 --> 0:02:55.519 the advantage of the former Vince chairman, Richard Claired, I believe. 0:02:55.360 --> 0:02:56.160 Darkens the door. 0:02:56.520 --> 0:02:59.120 I can just see balls and clarity in a debate 0:02:59.720 --> 0:03:02.480 over where we're going to reset on our start, and 0:03:02.520 --> 0:03:04.760 almost on a global our start. 0:03:04.960 --> 0:03:06.480 Do you sense within all the. 0:03:06.440 --> 0:03:09.320 Great work you do, Andrew, that we're going to reset 0:03:09.480 --> 0:03:12.560 in a new rate regime, something that. 0:03:12.520 --> 0:03:14.000 We've never experienced before. 0:03:14.120 --> 0:03:16.520 So I think it's an interesting debate. Rich and I 0:03:16.600 --> 0:03:20.760 tend to agree, and on this point that as you 0:03:20.800 --> 0:03:26.000 look forward beyond this inflation episode, the cyclical rise in 0:03:26.080 --> 0:03:29.600 policy rates we've seen, there's good reasons to think that 0:03:30.880 --> 0:03:34.240 our star neutral rates are at the low levels that 0:03:34.280 --> 0:03:37.080 we've seen for the last several years. We'll see this 0:03:37.200 --> 0:03:40.800 in the fed's projections this week, but that the chances 0:03:40.840 --> 0:03:42.600 are the FED we'll also see two and a half 0:03:42.680 --> 0:03:45.840 percent is their long dot. So compare the four and 0:03:45.880 --> 0:03:48.960 a half percent for four point three percent four point 0:03:49.000 --> 0:03:51.440 four percent for the ten year treasury, or look at 0:03:51.440 --> 0:03:55.480 the forward rates and compare it with that that neutral anchor. 0:03:55.840 --> 0:04:00.720 We believe that anchor remains the correct way to do analysis, 0:04:00.760 --> 0:04:03.760 and then the long term outlook versus that then looks 0:04:03.840 --> 0:04:04.480 very attractive. 0:04:04.520 --> 0:04:07.280 I'd say, does the guard Heaven our start? Does you 0:04:07.360 --> 0:04:09.520 wait to have an our star? Dare I say, does 0:04:09.560 --> 0:04:10.600 Bailey have an our star? 0:04:10.920 --> 0:04:13.720 They all have their They all have the variations on this. 0:04:13.800 --> 0:04:15.760 I think, you know, the FED maybe is a bit 0:04:15.800 --> 0:04:20.240 happier to talk about it sometimes. But again, looking at 0:04:20.240 --> 0:04:25.160 bund yields now, even in Japan, you are getting too 0:04:25.240 --> 0:04:27.920 levels in terms of you know, the ten year yield 0:04:28.000 --> 0:04:31.520 where it's starting to look more interesting control for volatility 0:04:31.560 --> 0:04:34.960 return per unit of volatility, and it becomes a little 0:04:34.960 --> 0:04:39.080 bit once we get beyond the YCC, once we get 0:04:39.080 --> 0:04:42.040 beyond the yield curve, control. So if you think that 0:04:42.080 --> 0:04:44.800 you have that anchor, and we do, then look at 0:04:44.800 --> 0:04:48.360 your five year, five year forward rates to isolate the 0:04:48.960 --> 0:04:52.760 long term expectations beyond this central bank cycle, and you 0:04:52.800 --> 0:04:55.320 know that's the environment. When it's it's much easier to 0:04:55.360 --> 0:04:58.120 come in and be positive like I am today compared 0:04:58.120 --> 0:04:59.960 with the lows of the COVID period. 0:05:00.000 --> 0:05:02.200 We don't spend nearly enough time talking about this. 0:05:03.040 --> 0:05:05.839 How different this regime is to the regime of the 0:05:05.880 --> 0:05:07.480 last decade before the pandemic. 0:05:07.960 --> 0:05:09.559 How different is it for you and the team? 0:05:09.760 --> 0:05:11.279 What have you had to change just in terms of 0:05:11.279 --> 0:05:15.560 approach away from zero rates and QY forever towards potentially 0:05:15.640 --> 0:05:17.880 the Bank of Japan hike and interest rates the you 0:05:17.920 --> 0:05:20.160 see be going too levels. I never thought they'd get 0:05:20.200 --> 0:05:22.240 to I thought maybe they go back to zero, but 0:05:22.279 --> 0:05:23.360 here we are at four percent. 0:05:23.560 --> 0:05:25.640 How different is this view and the team? Well, I 0:05:25.640 --> 0:05:29.880 think it's very different. And I think as a bond 0:05:29.920 --> 0:05:32.600 manager you like to see these high yields at the 0:05:32.600 --> 0:05:35.680 front end of the curve. It becomes really interesting the 0:05:35.720 --> 0:05:39.400 relative value at the front end of the curve. You know, 0:05:39.680 --> 0:05:46.360 zero yields, Remember those something that hopefully we've consigned to history. 0:05:46.680 --> 0:05:49.040 I think one important thing looking forward different to the 0:05:49.120 --> 0:05:52.480 last ten years is uncertainty year round inflation. So we 0:05:52.520 --> 0:05:56.440 see inflation coming down towards central bank targets a little 0:05:56.440 --> 0:05:59.680 bit above, but coming down over the course of next year. 0:06:00.240 --> 0:06:03.200 But I think clearly there's much more uncertainty in the 0:06:03.240 --> 0:06:05.880 inflation picture for the last for the next few years 0:06:05.920 --> 0:06:10.680 compared with the last decade. And so back to the 0:06:10.720 --> 0:06:13.840 discussion before you should be getting term premium. You should 0:06:13.839 --> 0:06:17.680 be getting paid appropriate term premium for holding the ten 0:06:17.800 --> 0:06:21.920 year part of the curve. But again comparing our forward 0:06:21.960 --> 0:06:24.760 rates with our expectations for our start, it looks like 0:06:24.800 --> 0:06:28.680 you're getting fair compensation after a period when with quantitative 0:06:28.680 --> 0:06:32.160 easing and all these risk premiums, who are really compressed. 0:06:32.360 --> 0:06:34.359 What about in credit though, I mean, given the fact 0:06:34.560 --> 0:06:38.400 that you're looking at greater vulnerability to an oil price shock, 0:06:38.640 --> 0:06:42.279 or a unionization shock, or a technological shock, some of 0:06:42.320 --> 0:06:44.200 these things that become that much more important when you're 0:06:44.240 --> 0:06:46.240 cushion is that much smaller. 0:06:47.000 --> 0:06:48.720 So I think, I mean, I think the baseline for 0:06:48.800 --> 0:06:52.440 credit looks fine. I think credits should do well in 0:06:52.480 --> 0:06:56.119 an environment where you avoid the tails. Not just about 0:06:56.120 --> 0:06:59.920 recession but you know, real recession, not just a technical recess. 0:07:00.200 --> 0:07:02.920 And on the upside case, if inflation is coming back 0:07:02.960 --> 0:07:07.000 inter line with that fairly benign middle path, then credit 0:07:07.040 --> 0:07:10.080 should be fine. From our perspective, though we want to 0:07:10.120 --> 0:07:13.760 guard against the tails. And if we do get deeper 0:07:13.800 --> 0:07:17.160 than expected economic downturn, you know that's going to be 0:07:17.160 --> 0:07:20.280 painful in credit. So I think up in quality ig 0:07:20.520 --> 0:07:26.040 looks attractive versus high yield, avoid cuspier credits, avoid any 0:07:26.120 --> 0:07:31.000 kind of exposure to real default risk in what remains 0:07:31.000 --> 0:07:34.160 a really uncertain environment. It's not often you have these 0:07:34.160 --> 0:07:38.040 sorts of tightening cycles globally to such an extent. And 0:07:38.080 --> 0:07:40.000 then the final thing, there's lots of other stuff we 0:07:40.080 --> 0:07:43.160 can do in the world. US agency mortgages very very 0:07:43.200 --> 0:07:48.080 high quality instrument term, very attractive in terms of the valuation. 0:07:48.200 --> 0:07:49.760 So again, if you can get to the kind of 0:07:49.760 --> 0:07:55.160 five six percent type yields on core bonds, looks pretty. 0:07:54.840 --> 0:07:57.480 Good to us in terms of the next few years. 0:07:57.640 --> 0:08:00.200 Andrew always a privilege, thank you, sir, Andrew Ball, that 0:08:00.640 --> 0:08:01.320 of Pincott. 0:08:12.160 --> 0:08:14.040 What we're gonna do right now, this is really important. 0:08:14.040 --> 0:08:16.160 We're trying to piece together with a trip to London 0:08:16.160 --> 0:08:19.320 the credit conference will be doing on Thursday. We're really 0:08:19.360 --> 0:08:23.000 trying to piece together twenty twenty four. They're the political 0:08:23.040 --> 0:08:24.600 conventions in America and that. 0:08:25.320 --> 0:08:27.640 But front center for Bramo, John. 0:08:27.440 --> 0:08:30.760 And myself is we need tickets to the Paris Olympics. 0:08:31.200 --> 0:08:34.240 The only reason he's with us now with AXA Investments Paris, 0:08:34.480 --> 0:08:37.920 Gilmoek is with us here give us an update right now, 0:08:38.080 --> 0:08:41.719 mister McCraw axe in the Paris boom you're going to 0:08:41.760 --> 0:08:44.840 see can Paris get any more boomier than it is now? 0:08:45.120 --> 0:08:46.520 Off the Olympics next summer? 0:08:46.720 --> 0:08:47.520 Right, it's looking good. 0:08:48.120 --> 0:08:51.800 I guess toysm is helping it lost So yeah, I 0:08:51.800 --> 0:08:55.160 mean the city's having a good run. Gus is going 0:08:55.200 --> 0:08:58.640 to continue to tell the Olympics. Now, the country around 0:08:58.679 --> 0:09:01.120 Paris it can be a bit more complicated. We have 0:09:01.720 --> 0:09:04.679 good first half of the year. Things are starting to 0:09:04.720 --> 0:09:07.440 look a bit more complicated. So there's a lot of 0:09:07.520 --> 0:09:10.000 positivity at the moment in France because if you compare 0:09:10.040 --> 0:09:13.480 yourself to Germany, things are so much better. Even the 0:09:13.520 --> 0:09:17.120 German stellar staff now, so it's quite unusual. But actually 0:09:17.120 --> 0:09:19.880 if you look at the latest business confidence survey, it's 0:09:19.920 --> 0:09:22.280 not as bad as in Germany, but it's also heading south. 0:09:22.360 --> 0:09:24.680 This is really important because I think to our listeners 0:09:24.679 --> 0:09:27.959 and viewers, particularly in America, when we say we went 0:09:28.000 --> 0:09:30.319 to France, we went to three R and D small 0:09:30.520 --> 0:09:34.439 wrapped around Notre Dame and the wonderful repair of that cathedral. 0:09:34.920 --> 0:09:37.960 We don't have a real picture here of the greater 0:09:38.120 --> 0:09:42.520 European economy. We just see the boom of European tourism. 0:09:43.040 --> 0:09:46.840 Separate the European tourism from your caution and the rest 0:09:46.840 --> 0:09:48.160 of the European economy. 0:09:48.840 --> 0:09:51.720 Yeah, I mean the definitely the weakness in the euro 0:09:51.960 --> 0:09:54.400 is helping from the point of view, so tharism is 0:09:54.480 --> 0:09:57.719 actually a function of of that weakness, the rebound in 0:09:58.280 --> 0:10:02.160 the US, I think the appetite for traveling to Europe 0:10:02.200 --> 0:10:06.480 at the moment, but even in the most tourism sensitive 0:10:06.520 --> 0:10:09.280 countries in the year Zone, it's what fifteen to twenty 0:10:09.280 --> 0:10:11.600 percent of GDP at most, and the rest is, you know, 0:10:11.720 --> 0:10:15.800 the usual stuff that is dependent on either world demand 0:10:15.960 --> 0:10:20.160 in the generic sense of the meaning, or on constant spending. 0:10:20.679 --> 0:10:23.800 And constant spending in France, for instance, has been contracting 0:10:23.880 --> 0:10:26.960 for two quarters in a row. So we have to 0:10:27.000 --> 0:10:31.120 be yes a bit broader in our assessment situation. 0:10:30.880 --> 0:10:31.880 It takes us to the ECB. 0:10:32.080 --> 0:10:34.920 So let's be slightly provocative in this question three shate 0:10:34.960 --> 0:10:37.959 two thousand and eight three twenty eleven. Should we add 0:10:38.440 --> 0:10:42.439 leguard September twenty twenty three to those. 0:10:42.640 --> 0:10:45.640 Well, they're trying hard not to fall in that trap, 0:10:45.720 --> 0:10:48.800 because actually, if you compare this with either weight and 0:10:48.800 --> 0:10:51.840 with twenty eleven, there was not a great sense of 0:10:51.960 --> 0:10:54.240 quotient at the time when they actually hike, and there 0:10:54.240 --> 0:10:56.600 was a sort of self righteousness. So we are definitely 0:10:56.640 --> 0:10:59.120 delivering what we need to. I'm probably going to continue, 0:10:59.400 --> 0:11:03.080 whereas this time it feels very much like it's the 0:11:03.240 --> 0:11:07.600 last hike that we probably need, maybe for technical reasons 0:11:07.600 --> 0:11:10.600 internally to get the hawks on board, also because I 0:11:10.760 --> 0:11:13.440 think it's true there is a resilience of inflation which 0:11:13.480 --> 0:11:15.920 is more tangible in Europe than it is in the US. 0:11:16.440 --> 0:11:17.959 But the entire. 0:11:17.679 --> 0:11:21.720 Bloody language from from Crinstila Gal last week was about, yes, 0:11:21.760 --> 0:11:26.200 they're now selling the long for the high for long sorry, 0:11:27.120 --> 0:11:30.120 but in terms of further hikes, we've probably done. And 0:11:30.160 --> 0:11:31.960 I think yes, what happened in a way to what 0:11:32.000 --> 0:11:35.040 happened in twenty eleven must be on their minds, and 0:11:35.120 --> 0:11:37.800 even the Hawks are getting a bit less vocal. 0:11:37.840 --> 0:11:39.240 I would say I've noticed the same thing. 0:11:39.679 --> 0:11:41.360 It begs the question about what we can learn from 0:11:41.400 --> 0:11:43.720 the European experience on the other side of the Atlantic. 0:11:43.760 --> 0:11:46.400 Do you think the rounding lessons you see Germany essentially 0:11:46.440 --> 0:11:49.400 go into recession and inflation is still a problem. Growth 0:11:49.400 --> 0:11:53.000 in Europe essentially stagnate and inflation is still a problem. 0:11:53.080 --> 0:11:55.679 It's softer growth the cure for what we're experiencing at 0:11:55.679 --> 0:11:56.080 the moment. 0:11:56.800 --> 0:12:00.439 Well, I know that lots of economists, clearly myself have 0:12:00.520 --> 0:12:03.440 been wrong on that for the last year. But history 0:12:03.480 --> 0:12:05.840 would tell you that it's very, very very hard to 0:12:05.920 --> 0:12:09.640 get this inflation without proper pain in the reread economy, 0:12:09.720 --> 0:12:13.840 especially when inflation is no longer about exhausgenous forces and 0:12:13.840 --> 0:12:18.120 so about your domestic forces. So as long as proved otherwise, 0:12:18.160 --> 0:12:19.840 I would say that what's happening in the Europe is 0:12:19.840 --> 0:12:22.280 probably a lesson for what might happen in the US, 0:12:22.400 --> 0:12:26.160 even if, yes, the US resilience is amazing at the moment, 0:12:26.280 --> 0:12:29.240 I guess a big difference between between the two is 0:12:29.320 --> 0:12:33.559 thus there's I think in Germany a more structural issue, 0:12:33.600 --> 0:12:36.040 which is coming back to buy them at the moment, 0:12:36.120 --> 0:12:40.319 which is to some extent disconnected from military policy. There 0:12:40.360 --> 0:12:44.479 would be probably in a softer patch anyway that is dragging. 0:12:44.120 --> 0:12:45.200 The years and average down. 0:12:46.000 --> 0:12:49.000 But you want to heal inflation, especially when it started 0:12:49.040 --> 0:12:53.000 to get entrenched in wage negotiations, you probably need to 0:12:53.000 --> 0:12:56.240 engineer some sort of softening of demand. There is not 0:12:56.360 --> 0:12:58.400 a lot in the textbook that would tell you otherwise. 0:12:59.320 --> 0:13:02.600 Ispletely different than the US when it comes to how 0:13:02.640 --> 0:13:06.400 well it can withstand the oil shock, or just perhaps 0:13:06.480 --> 0:13:09.200 the oil price is going back to something more normal 0:13:09.200 --> 0:13:10.880 on an inflation adjusted basis. 0:13:11.800 --> 0:13:13.800 Well, our big problem for the last two years has 0:13:13.840 --> 0:13:16.959 been gas rather than rather than than oil. But on 0:13:17.720 --> 0:13:20.959 average we tend to be more sensitive to old shocks 0:13:21.240 --> 0:13:24.840 than the US for complicated reasons, due to the fact 0:13:24.880 --> 0:13:29.960 that even if we are less oil intensive than the US, 0:13:30.080 --> 0:13:34.640 the actual price of a gallon of gas in Europe 0:13:34.760 --> 0:13:36.760 is much higher than in the US, and people are 0:13:36.760 --> 0:13:42.760 probably more sensitive to that particular item. But it were 0:13:43.200 --> 0:13:45.720 if it was just about oil prices, I don't think 0:13:45.760 --> 0:13:50.319 we would be really concerned. I think most observers at 0:13:50.360 --> 0:13:52.760 the moment are more focused on what's going on with 0:13:52.840 --> 0:13:56.960 food prices. Hopefully it will continue to slow down at 0:13:57.000 --> 0:13:58.920 least this is what all sale markets would tell you 0:13:58.960 --> 0:13:59.480 for most. 0:13:59.280 --> 0:14:00.880 Of that and gas. 0:14:00.960 --> 0:14:04.719 And we went through last winter much more positively than 0:14:04.720 --> 0:14:07.680 what was expected. We need to do it again this winter, 0:14:07.960 --> 0:14:09.880 and to some extents being our control. 0:14:09.640 --> 0:14:12.920 Which feeds into the whole discussion of wage virals, especially 0:14:12.920 --> 0:14:15.160 in light of some of the labor movement that we've 0:14:15.200 --> 0:14:17.320 seen in the US but also around the world. Maybe 0:14:17.400 --> 0:14:19.960 taking a page from Europe, if anything, how much do 0:14:20.000 --> 0:14:23.160 you think that that's more noise than signal or vice 0:14:23.280 --> 0:14:27.800 versa in terms of wages staying sticky and labor power 0:14:28.120 --> 0:14:29.920 continuing to be stronger than it has been. 0:14:30.640 --> 0:14:36.200 I think there's something profound happening there is there has 0:14:36.240 --> 0:14:39.320 been an outside change in the balance of power between 0:14:39.320 --> 0:14:40.479 employees and employers. 0:14:40.480 --> 0:14:41.720 And it's very trivial to say that. 0:14:41.920 --> 0:14:46.080 But in Europe, where we have in most countries a 0:14:46.160 --> 0:14:50.440 collective wedge bargaining system, what we tend to have is 0:14:50.520 --> 0:14:54.680 more inertia in the way wages react. In the US, 0:14:54.720 --> 0:14:59.200 you could make the case that wage accelerate when people 0:14:59.240 --> 0:15:03.280 actually can leverage the job opportunities and go back to 0:15:03.320 --> 0:15:05.920 their employer and ask for a pair raise. It's not 0:15:05.960 --> 0:15:07.720 really the way it works in Europe, and some of 0:15:07.760 --> 0:15:10.800 it obviously happens, but most of the pay increases here 0:15:11.240 --> 0:15:14.360 happen as a result of collective bargaining. And it always 0:15:14.400 --> 0:15:17.280 takes a while for, for instance, the unions to realize 0:15:17.280 --> 0:15:21.280 that maybe the economy has become softer, job opportunities are falling, 0:15:21.360 --> 0:15:24.240 maybe it would be time to move back towards wage moderation. 0:15:25.160 --> 0:15:28.480 But you need actually a proper proof that the labor 0:15:28.560 --> 0:15:32.080 market is softening. And even in Europe, and that's actually 0:15:32.080 --> 0:15:34.280 one of the big positives of our current situation is 0:15:34.680 --> 0:15:37.680 even in countries which have been used to mass unemployment 0:15:37.680 --> 0:15:40.640 for decades, the current situation of the lby market is 0:15:40.680 --> 0:15:42.680 more than okay, I mean, you take France, my country, 0:15:43.240 --> 0:15:45.560 un employment rate at seven percent. If you had told 0:15:45.560 --> 0:15:49.520 me that France would be able to deliver that ten 0:15:49.600 --> 0:15:50.840 years ago, I wouldn't have believed you. 0:15:50.880 --> 0:15:52.280 Okay, eight ways to go here. 0:15:52.520 --> 0:15:55.920 But just because the time then, can you stay Europe 0:15:55.920 --> 0:15:58.280 has vaulted beyond eurosclerosis? 0:15:59.120 --> 0:15:59.920 I think clear. 0:16:01.480 --> 0:16:04.160 I think in many cases what we have is sort 0:16:04.200 --> 0:16:07.120 of magnified version of what happens in the US in 0:16:07.160 --> 0:16:09.840 terms of demographic changes, for instance, we are a sort 0:16:09.880 --> 0:16:11.400 of more acute version of what. 0:16:11.360 --> 0:16:13.240 Is going to happen in the US anyway. 0:16:13.560 --> 0:16:15.760 But one point on which I think Europe at the 0:16:15.800 --> 0:16:16.920 moment is doing better than. 0:16:16.880 --> 0:16:19.120 The US, it's on participation. 0:16:19.680 --> 0:16:21.320 The big positive. 0:16:20.960 --> 0:16:23.760 Right now in Europe is that our participation rate is 0:16:23.840 --> 0:16:26.600 rising and has been rising through the pandemic, is today 0:16:26.680 --> 0:16:30.160 much higher than it was before COVID. It's exactly the 0:16:30.160 --> 0:16:32.480 opposite of what's been happening in the US. Even if 0:16:32.520 --> 0:16:35.080 there has been a catch up. Recently, we've put more 0:16:35.120 --> 0:16:40.080 young people, more older people back to work. And basically 0:16:40.160 --> 0:16:42.960 I think we are benefiting from structural reforms which have 0:16:43.000 --> 0:16:45.440 been pushed through in Europe for the last twenty thirty years. 0:16:45.440 --> 0:16:49.280 Not spectacular ones, but gradually I think we have a 0:16:49.360 --> 0:16:52.080 much better functioning labor market than what we had twenty 0:16:52.160 --> 0:16:54.720 thirty years ago, and it's definitely positive. 0:16:54.880 --> 0:16:57.680 Jill, that is a bright spot. Thanks for famous, Jill 0:16:57.720 --> 0:17:05.959 Maak of ACA Investment Managers the Jeff you joined US 0:17:05.960 --> 0:17:08.439 now Senior market strategistic bim Y Mallan, Good. 0:17:08.280 --> 0:17:08.800 Morning, Jeff. 0:17:08.800 --> 0:17:11.359 I appreciate it's going to see it yields at five 0:17:11.359 --> 0:17:13.439 percent at the front end, pushing cycle highs on a 0:17:13.480 --> 0:17:16.280 ten year Dare I say it is this the new normal? 0:17:16.320 --> 0:17:17.479 Are we getting comfortable with this? 0:17:17.520 --> 0:17:20.240 Well, let's go back to Tom's point about real yields. Okay, 0:17:20.359 --> 0:17:23.080 you can deflate via CPI headline CPI. What if we 0:17:23.160 --> 0:17:27.760 deflate nominal yields by wage gains or potential wage gains. 0:17:27.880 --> 0:17:30.720 So then if you take the twenty percent or between 0:17:30.720 --> 0:17:34.560 twenty and forty percent real wages, sorry, nominal wage gains 0:17:34.600 --> 0:17:39.520 if realized, then real yields actually are very very negative still, 0:17:39.600 --> 0:17:42.280 and then central bankers have to catch up. So there's 0:17:42.280 --> 0:17:44.119 a risk here going back to your point about a 0:17:44.160 --> 0:17:46.520 wage price firal that isn't going away anytime soon. 0:17:46.560 --> 0:17:48.280 What is the XA accessign real yield? 0:17:48.359 --> 0:17:50.080 So here we are two percent, and I've done some 0:17:50.160 --> 0:17:52.240 fancy man I get to two point two zero. 0:17:52.359 --> 0:17:53.679 Maybe I'm still here at two. 0:17:53.600 --> 0:17:57.760 Percent, whatever it is, there's a length of this new 0:17:57.840 --> 0:18:00.119 real yield where's attention point out in the next. 0:18:00.400 --> 0:18:03.760 So basically you have to identify where potential GDP growth 0:18:03.880 --> 0:18:06.200 is medium to longer term growth in the US. If 0:18:06.240 --> 0:18:09.439 that's a headline number, nonmal number, you know, three to 0:18:09.480 --> 0:18:12.280 four percent, then find your inflation target. Then if it's 0:18:12.280 --> 0:18:14.399 still two percent, right, then real yields you still need 0:18:14.440 --> 0:18:15.240 to get to two to three. 0:18:15.760 --> 0:18:17.840 To go on Nerdy on a Monday, our mind is 0:18:17.920 --> 0:18:21.280 gr we at a risk here where the interest rate 0:18:21.480 --> 0:18:25.560 becomes less than the small g is bland charted and stiglets, 0:18:25.600 --> 0:18:26.760 among others, worry about. 0:18:26.880 --> 0:18:28.920 I'm glad you brought up Blanche because I want to 0:18:28.920 --> 0:18:31.399 bring up another paper between him and chairburn nankey. So 0:18:31.480 --> 0:18:33.640 when when does this become uprom. 0:18:33.560 --> 0:18:36.240 Nerd fast over on the port side of the desk. 0:18:36.560 --> 0:18:37.440 Favorite part of the morning. 0:18:37.880 --> 0:18:41.119 In terms of wages versus price spiral, and with the 0:18:41.119 --> 0:18:43.360 ore prices going where they are right now, you get 0:18:43.400 --> 0:18:46.840 a price spiral according to that paper when labor markets 0:18:46.880 --> 0:18:51.320 are tight, so here are the unions making the gamble 0:18:51.480 --> 0:18:54.800 or the determination in manufacturing, labor markets are still very 0:18:54.840 --> 0:18:56.400 tightline and the US which raises. 0:18:56.200 --> 0:18:58.880 A question is this signal or noise? Because this is yes, 0:18:59.040 --> 0:19:02.200 it is down tight. Though on the margins you're seeing 0:19:02.280 --> 0:19:05.000 signs that you are getting some sort of labor market softening. 0:19:05.520 --> 0:19:08.159 Is this the last gas because John was asking of 0:19:08.240 --> 0:19:11.160 labor market power or is this something else? It does 0:19:11.200 --> 0:19:12.240 have a stickier nature. 0:19:12.720 --> 0:19:14.760 On a broader basis, this does feel like a last 0:19:14.800 --> 0:19:16.960 as if I do if I look at things globally. 0:19:17.000 --> 0:19:18.800 But on the other hand, you know, I'm FX guy. 0:19:18.800 --> 0:19:20.560 At the end of the day, relatives, it's all about 0:19:20.600 --> 0:19:23.040 the relative differentials. I think US labor market's all tight 0:19:23.119 --> 0:19:23.960 up compared to what we have. 0:19:23.920 --> 0:19:24.840 In Europe right now. 0:19:24.960 --> 0:19:27.160 So on that note alone, probably labor has more bargaining 0:19:27.200 --> 0:19:28.320 power in the US compared. 0:19:28.080 --> 0:19:28.440 To in Europe. 0:19:28.480 --> 0:19:29.720 Does that mean dollar weakness? 0:19:30.040 --> 0:19:31.600 I would say, you know, a short term your dollar 0:19:31.640 --> 0:19:33.840 strength here, that's still going to be in play because 0:19:34.040 --> 0:19:36.760 that puts the FED on more vigilant footing, you know, 0:19:36.840 --> 0:19:38.000 to borrow an ECB phrase. 0:19:38.560 --> 0:19:39.919 But you know, Net, I. 0:19:39.920 --> 0:19:41.560 Think they're pretty much sure that is in the price 0:19:41.640 --> 0:19:43.199 right now. So let's see where we're going to. 0:19:43.160 --> 0:19:45.760 Be very creche of you, Jeff, Let's talk about POW 0:19:45.880 --> 0:19:48.679 on Wednesday. On Wednesday, we get a set of projections. 0:19:48.920 --> 0:19:51.879 Most people assume that for twenty twenty three, when we 0:19:51.880 --> 0:19:54.199 look at revised growth figures, they're going up. When we 0:19:54.200 --> 0:19:56.800 look at revised inflation figures, they're going down. What does 0:19:56.840 --> 0:19:58.880 twenty twenty four look like for you and the team? 0:19:59.000 --> 0:20:00.919 I saw twenty twenty four. It's less about are they 0:20:01.000 --> 0:20:03.399 going to hike further? It's more about how long do 0:20:03.560 --> 0:20:06.639 US rates and state where they are? And that is 0:20:06.680 --> 0:20:08.639 you know what the boj will be looking at and 0:20:08.680 --> 0:20:11.400