WEBVTT - Bloomberg Surveillance TV: December 16, 2024 0:00:00.080 --> 0:00:06.760 Boo, Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 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 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.440 Terminal and the Bloomberg Business App. Steve Shefvarroond of Federated 0:00:37.440 --> 0:00:40.680 hermes looking for the rally in the equity market to continue. 0:00:40.800 --> 0:00:44.160 Terry Haynes of Pangea Policy on mysterious drone sightings along 0:00:44.440 --> 0:00:47.320 the East Coast, and three Kunch of Governant of Aberdeen 0:00:47.360 --> 0:00:50.159 on Germany's political future. We begin this hour kicking off 0:00:50.159 --> 0:00:52.200 the final full trading week of the year, looking ahead 0:00:52.200 --> 0:00:55.440 to a Federate decision on Wednesday. Steve Shefvrod of Federated 0:00:55.520 --> 0:00:58.920 remains optimistic on stocks. The combination of accelerating earnings growth 0:00:59.200 --> 0:01:02.120 and rake cuts It is rare and generally positive for 0:01:02.200 --> 0:01:04.679 equity some places side that state joins US now stave Goomona, 0:01:04.720 --> 0:01:06.920 good morning, It's good to see you. The equity market 0:01:07.000 --> 0:01:08.960 rip is on the masstack. It's some big tech. It's 0:01:09.000 --> 0:01:10.840 not on the S and P five hundred iter cerentainly 0:01:10.920 --> 0:01:13.160 not on the small caps. We've talked a lot about 0:01:13.200 --> 0:01:15.080 negative breadth. I've been listening to the team over the 0:01:15.120 --> 0:01:17.280 last week. This was not the back coming out of 0:01:17.280 --> 0:01:18.839 the election. So what's gone wrong? 0:01:19.080 --> 0:01:21.160 No, I look, I think growth is surprised to the 0:01:21.240 --> 0:01:24.279 upside since the election. You know, outside of last week's 0:01:24.319 --> 0:01:26.920 kind of sell off. The bond market did settle after 0:01:26.920 --> 0:01:28.440 the election, right, you had that run kind of a 0:01:28.480 --> 0:01:30.479 four fifty on the ten year and then that kind 0:01:30.480 --> 0:01:33.000 of settled back in. But what we think, and we 0:01:33.080 --> 0:01:35.760 made a move last week in our asset allocation to 0:01:35.800 --> 0:01:38.880 reflect this, is it's just harder and harder to justify 0:01:39.000 --> 0:01:42.400 owning non US developed markets. And I think you've seen 0:01:42.440 --> 0:01:46.520 capital leave places like Europe where now you have political instability, 0:01:46.600 --> 0:01:49.080 not only in France, not only in the UK, but 0:01:49.120 --> 0:01:53.240 now you also have Germany. They sit kind of at 0:01:53.280 --> 0:01:57.600 the forefront potentially of tariff risk. Growth has been soft 0:01:57.680 --> 0:01:59.440 and so I think you're seeing capital flood in the 0:01:59.520 --> 0:02:01.880 United States and it's helping growth. 0:02:02.680 --> 0:02:04.840 And I think you really saw that last week. 0:02:04.920 --> 0:02:06.840 So the risk I gets to next year recording to 0:02:06.880 --> 0:02:08.919 a Parliament Tolston Slock and we's all lots about this 0:02:09.000 --> 0:02:11.520 Thory VI hour a Polom and Tolston Slock sets of 0:02:11.520 --> 0:02:12.679 repeat of twenty twenty two. 0:02:13.040 --> 0:02:14.240 We all remember twenty twenty two. 0:02:14.280 --> 0:02:17.359 It's band for buf stalks and banfoot bums, which you 0:02:17.400 --> 0:02:18.280 push back against that. 0:02:18.600 --> 0:02:20.840 I do you know, I think I think it's gonna 0:02:20.840 --> 0:02:22.760 be an interesting week, and I think you know Powell, 0:02:22.760 --> 0:02:26.080 who always likes to surprise us, he may have another 0:02:26.120 --> 0:02:28.239 surprise in store for twenty four and that is I 0:02:28.280 --> 0:02:32.360 think the market's gotten a little bit too concerned and 0:02:32.440 --> 0:02:33.919 hawkish about inflation. 0:02:34.040 --> 0:02:34.160 Right. 0:02:34.200 --> 0:02:35.400 Inflation has been sticky. 0:02:35.440 --> 0:02:37.600 It has been a little bit re accelerant in the 0:02:37.680 --> 0:02:39.399 last few months, but if you look, it hasn't really 0:02:39.400 --> 0:02:40.040 broken out. 0:02:39.919 --> 0:02:41.480 Of any kind of long term range. 0:02:41.639 --> 0:02:45.000 It still appears to be grinding down. And I think 0:02:45.040 --> 0:02:47.120 you may see a pal that's a little bit more 0:02:47.200 --> 0:02:50.640 dubbish than what the market's expecting this week. 0:02:51.080 --> 0:02:53.400 Because he does that to us, hold on, he does 0:02:53.400 --> 0:02:53.800 that to us. 0:02:54.200 --> 0:02:54.960 He does this to us. 0:02:54.960 --> 0:02:56.359 You say, he always surprises us. 0:02:56.360 --> 0:02:57.440 He doesn't surprise us. 0:02:57.440 --> 0:02:59.960 He outdoves every expectation from the mark. 0:03:00.680 --> 0:03:02.280 You think that's going to be the repeat, Well, if 0:03:02.280 --> 0:03:04.360 you look at it, Look, the market has priced in 0:03:04.400 --> 0:03:08.160 a terminal rate here that's somewhere now between three seventy 0:03:08.200 --> 0:03:10.560 five and four. We still think it's between three and 0:03:10.600 --> 0:03:12.639 three fifty just going to take you into twenty six 0:03:12.680 --> 0:03:16.639 to get there. On the dot plots, right, you generally 0:03:16.680 --> 0:03:21.280 don't see the fed erase two cuts in one dot plot, right. 0:03:21.480 --> 0:03:24.240 Maybe they pull one in, maybe they push one out, 0:03:25.360 --> 0:03:25.760 And so. 0:03:25.680 --> 0:03:27.079 You've got a street that you know. 0:03:27.040 --> 0:03:29.080 You've got to fed with five cuts between now in 0:03:29.080 --> 0:03:31.280 the middle of twenty eight or I'm sorry, twenty six. 0:03:31.880 --> 0:03:33.720 In their dot plots, you've got a street that only 0:03:33.720 --> 0:03:36.600 has three more cuts. Again, I think what you may 0:03:36.720 --> 0:03:40.840 see him do is deliver the cut in December and 0:03:40.880 --> 0:03:43.520 then talk about how their rhetoric is really about a 0:03:43.560 --> 0:03:46.960 reduction in pace, not in a reduction direction. So we're 0:03:46.960 --> 0:03:49.800 going to go to once a quarter next year, but 0:03:49.840 --> 0:03:51.880 you shouldn't expect that we're anywhere near the end of 0:03:52.040 --> 0:03:52.800 a rate cut cycle. 0:03:52.880 --> 0:03:55.280 The backdrop to this is that you push back completely 0:03:55.320 --> 0:03:57.480 against Torsten Slock's point of view, as John was out 0:03:57.640 --> 0:04:01.160 laying out that basically we're going to have a very 0:04:01.160 --> 0:04:05.160 inflationary and potentially styflationary policy where you get growth flowing 0:04:05.240 --> 0:04:06.840 on the heels of some of these terrifts, but you 0:04:06.880 --> 0:04:09.760 don't necessarily have inflation coming in. You actually think it's 0:04:09.800 --> 0:04:12.160 the opposite, that a lot of Trump's policies are going 0:04:12.200 --> 0:04:15.160 to be more pro growth and less inflationary than feared. 0:04:15.600 --> 0:04:15.920 Why. 0:04:16.520 --> 0:04:17.400 Well, a couple of reasons. 0:04:18.160 --> 0:04:22.080 One, I think when you're talking about a tariff, for example, 0:04:22.160 --> 0:04:24.920 it can't be both a tax and inflationary. It's got 0:04:24.920 --> 0:04:26.599 to be one or the other, right, because if it 0:04:26.680 --> 0:04:29.160 really is a tax, then there's an offsetting demand piece 0:04:29.240 --> 0:04:32.160 to it. You also have to take into account that 0:04:31.839 --> 0:04:35.680 that tariff increase is likely going to come in the context. 0:04:35.160 --> 0:04:36.280 Of major tax cuts. 0:04:36.880 --> 0:04:40.240 You have deregulation, you have some shedding of government jobs. 0:04:40.240 --> 0:04:45.159 Both of those can be either certainly pro growth but 0:04:45.200 --> 0:04:47.919 also disinflationary because they take some costs out of the system. 0:04:48.279 --> 0:04:49.560 And so I think when you put that. 0:04:49.480 --> 0:04:53.279 Package together, what's happening right now in the market is 0:04:53.279 --> 0:04:57.080 we are underestimating the growth that's going to come from 0:04:57.080 --> 0:05:00.720 the policies and overestimating the inflation. I think the Fed 0:05:00.760 --> 0:05:04.120 would be wise to be patient here see what actually 0:05:04.120 --> 0:05:07.720 gets through the sausage making process of Washington. There's a 0:05:07.760 --> 0:05:10.960 lot of steps to go between a concept an actual policy, 0:05:10.960 --> 0:05:12.960 and I think if the FED were to react in 0:05:13.040 --> 0:05:16.120 anticipation of that, they may end up being more hawkish 0:05:16.120 --> 0:05:17.520 than they need to be in an environment where the 0:05:17.560 --> 0:05:18.719 labor markets are softening. 0:05:18.720 --> 0:05:20.800 So so you don't agree with Bill Dudley, They shouldn't 0:05:20.839 --> 0:05:22.560 assume and they should say we're going to wait for 0:05:22.560 --> 0:05:23.760 the policies to take hold. 0:05:25.080 --> 0:05:27.400 I don't see what policy you're going to respond to now. 0:05:27.400 --> 0:05:30.440 If you want to respond to inflation readings being a 0:05:30.480 --> 0:05:34.440 little bit hotter over the last couple of months and 0:05:34.480 --> 0:05:37.800 then decelerating too, or a slower pace of cuts, I 0:05:37.839 --> 0:05:41.760 think that's appropriate. But again we've talked about the chess 0:05:41.800 --> 0:05:42.560 versus the checkers. 0:05:42.560 --> 0:05:43.520 If you look at each one. 0:05:43.440 --> 0:05:45.600 Of the policy proposals that are out there, you can 0:05:45.640 --> 0:05:47.000 look at it and say, well, this is good, or 0:05:47.000 --> 0:05:49.680 that's bad, or that's inflationary, that's pro growth. When you 0:05:49.720 --> 0:05:51.520 look at it together, we think what you're going to 0:05:51.640 --> 0:05:54.480 end up with is something that is more pro growth, 0:05:54.880 --> 0:05:58.880 somewhat pro productivity, and that's going to dampen some of 0:05:58.920 --> 0:05:59.960 the inflation impulses. 0:06:00.120 --> 0:06:02.680 To Torsten Slock's note and this idea of rising inflation 0:06:02.760 --> 0:06:04.880 twenty twenty five, he says, the risk is a repeat 0:06:04.920 --> 0:06:07.960 of twenty twenty two with a sixty forty portfolio underpormed, 0:06:08.760 --> 0:06:12.280 underperformed significantly. Can you not use sixty forty next year? 0:06:12.320 --> 0:06:14.120 Then, well, you got to remember who you're asking. 0:06:14.160 --> 0:06:16.240 I run multi asset, which has a lot of those 0:06:16.240 --> 0:06:20.200 portfolios in it, so I categorically disagree with that sentiment. 0:06:20.320 --> 0:06:22.320 But no, Look, I think what you're going to see 0:06:22.400 --> 0:06:23.839 is that the bond. 0:06:23.600 --> 0:06:25.960 Market and parts of the equity market I think have 0:06:26.600 --> 0:06:29.960 now represent opportunities. Right A bond market that's sitting at 0:06:29.960 --> 0:06:32.520 four point thirty four forty on the ten year with 0:06:32.640 --> 0:06:36.000 expectations of only three cuts next year, I think there's 0:06:36.040 --> 0:06:38.360 an upside case there. I think you see the same 0:06:38.360 --> 0:06:40.480 thing in pockets of the equity market. Some of the 0:06:40.560 --> 0:06:42.880 hysteria around some of the healthcare names, some of the 0:06:42.960 --> 0:06:46.000 hysteria around some of the staples names. We look at 0:06:46.000 --> 0:06:49.160 that and say, we're not canceling drug development in the 0:06:49.279 --> 0:06:52.440 United States. We are not going to make you know 0:06:52.560 --> 0:06:56.200 snack foods illegal, and so if you have value opportunities 0:06:56.200 --> 0:06:58.640 there as an investor, those are good contrarian plays and 0:06:58.680 --> 0:06:59.919 we're willing to take the other side. 0:07:00.040 --> 0:07:01.360 That snack face should be a leake open. 0:07:02.600 --> 0:07:04.480 Besides the part I knew you were going to think, 0:07:04.560 --> 0:07:06.960 give me, forgive me, or just use beat root instead 0:07:06.960 --> 0:07:07.840 of BHT. 0:07:07.720 --> 0:07:10.000 Might be you can maybe simple changes. I sure, I'm 0:07:10.000 --> 0:07:10.240 with you. 0:07:10.280 --> 0:07:11.880 Should we talk about it about market might be a 0:07:12.120 --> 0:07:14.320 less about that Over the long end of the curve 0:07:14.440 --> 0:07:17.240 tens and thirties moves of twenty five basis points. What 0:07:17.280 --> 0:07:19.200 do you think is driving that? Is that the data, 0:07:19.680 --> 0:07:21.720 is that the expected policy change, or it is the 0:07:21.720 --> 0:07:24.520 fence easing bus contributing to this move at the long 0:07:24.640 --> 0:07:25.480 end as well. 0:07:25.720 --> 0:07:27.920 I think you're seeing one thing I'd say is I 0:07:27.920 --> 0:07:31.920 think you're seeing a resurrection of the term premium. Right 0:07:32.080 --> 0:07:34.280 when you have a thirty six trillion dollar debt, you're 0:07:34.360 --> 0:07:39.720 running deficits at the level that we're running them. 0:07:38.160 --> 0:07:39.640 And you're not concerned about growth. 0:07:39.800 --> 0:07:42.080 Right, the market's not looking out and saying I've got 0:07:42.120 --> 0:07:44.080 an emerging recession on our hands. 0:07:44.440 --> 0:07:46.200 What you're seeing is that the short end is. 0:07:46.120 --> 0:07:48.480 Coming down along with FED cuts, and we think that 0:07:48.560 --> 0:07:51.160 the term premium is re establishing itself at some level. Now, 0:07:51.200 --> 0:07:53.440 that doesn't explain last week's move, but it does explain 0:07:53.480 --> 0:07:54.320 this idea. 0:07:54.080 --> 0:07:56.640 That or our big view, if. 0:07:56.480 --> 0:07:58.320 You want to think about it in terms of the market, 0:07:58.400 --> 0:07:59.680 really comes from the yield curve. 0:08:00.040 --> 0:08:01.520 Expect short rates to come down. 0:08:01.880 --> 0:08:04.200 We expect long rates to stay right about where they are, 0:08:04.560 --> 0:08:07.080 and what that means is that shorter duration fixed income 0:08:07.200 --> 0:08:09.280 one to three year fixed we think is in the 0:08:09.320 --> 0:08:13.400 sweet spot of total return. Equities have duration, right, small 0:08:13.440 --> 0:08:16.320 caps have you know, thirty to fifty percent of their 0:08:16.360 --> 0:08:19.520 their lending is variable rate bank debt on shorter term rates. 0:08:19.920 --> 0:08:23.200 You buy value names or dividend payers based on shorter 0:08:23.280 --> 0:08:26.280 term expectations that are discounted with shorter rates, and that's 0:08:26.320 --> 0:08:29.040 one of the reasons why you know last week. Notwithstanding, 0:08:29.360 --> 0:08:31.600 we expect this market's going to broaden out and those 0:08:31.640 --> 0:08:34.360 shorter duration equities are going to see relief as long 0:08:34.400 --> 0:08:36.959 rates stay high short rates come down. We think that 0:08:36.960 --> 0:08:40.920 that ye'll curve steepening is probably the big market story of. 0:08:40.840 --> 0:08:43.959 Twenty five bull market this morning, bit STIPO yields Allowa 0:08:44.000 --> 0:08:46.000 by two basis points some of ten year Lisa down 0:08:46.000 --> 0:08:48.679 about a basis point on a thirty year consensus got 0:08:48.760 --> 0:08:51.360 into Wednesday. Is pretty clear the market's looking for cut 0:08:51.520 --> 0:08:54.120 this Wednesday, looking for a skip in January. Moke and 0:08:54.160 --> 0:08:57.240 Stanley confident about today, conscious about tomorrow. Bank for America 0:08:57.320 --> 0:08:59.600 LISA cut today post tomorrow. 0:08:59.320 --> 0:09:01.360 Which is a reason why people are looking at the data, 0:09:01.559 --> 0:09:03.720 because they're saying they're data dependant just like the FED, 0:09:04.000 --> 0:09:06.560 and the data has been confusing. The headline figure coming 0:09:06.559 --> 0:09:08.800 in hotter than expected, but everyone pointing to the fact 0:09:08.800 --> 0:09:12.680 that rent and owner's equivalent rent has come in quite considerably. 0:09:13.080 --> 0:09:15.600 This idea of what happened last week, though, to me, 0:09:15.800 --> 0:09:19.240 was interesting because essentially any upside surprise and you get 0:09:19.240 --> 0:09:21.079 the biggest increase in yields to the ten you're going 0:09:21.080 --> 0:09:22.160 back to October twenty twenty. 0:09:22.200 --> 0:09:22.920 Can we agree on this? 0:09:22.920 --> 0:09:25.560 The food wrapped in plastic shouldn't be edible after twelve months? 0:09:26.040 --> 0:09:28.400 Should we agree on that that maybe it's not food, 0:09:28.400 --> 0:09:30.920 that that should be the definition of food, that it 0:09:30.920 --> 0:09:33.440 should probably have an issue with bread. 0:09:33.800 --> 0:09:36.240 But you can sit out on your counter for two months. 0:09:36.280 --> 0:09:37.760 I don't think you should be allowed to call it bread 0:09:37.760 --> 0:09:39.640 of it still? Do you think you shoultill not got 0:09:39.640 --> 0:09:41.280 mold on it after a month? 0:09:41.800 --> 0:09:42.520 That's a cracker. 0:09:43.240 --> 0:09:47.559 Yes, you should call it all right, come on you bread. 0:09:47.600 --> 0:09:49.880 If the Europeans are listening, they're thinking, probably that's a 0:09:49.880 --> 0:09:52.360 good idea. Steve's going to see it, Steve chevroon de federated. 0:09:52.440 --> 0:10:03.679 They love the regulations and rules over in Europe. 0:10:04.880 --> 0:10:06.640 Looking head to the federal serve. As always, it's what 0:10:06.679 --> 0:10:07.160 we do here. 0:10:07.320 --> 0:10:10.240 Traders are waiting for the final decision of the year 0:10:10.280 --> 0:10:13.120 that comes on Wednesday. Lydia Basort of Ey writing, given 0:10:13.160 --> 0:10:17.360 calling labor market conditions, strong productivity growth, and moderating inflation trends, 0:10:17.360 --> 0:10:19.679 we continue to expect a rake cut of twenty five 0:10:19.720 --> 0:10:22.360 basis points at the December meeting, Lydia joins US now 0:10:22.480 --> 0:10:24.800 for more. Lydia, welcome to the program. It's a three 0:10:24.840 --> 0:10:27.160 part act. As you know, it's not just the decision, 0:10:27.240 --> 0:10:29.400 it's also the news conference. But we also get the 0:10:29.440 --> 0:10:32.360 economic projections in the SEP and I wonder when you 0:10:32.360 --> 0:10:35.479 look across CPI, when you look across growth and unemployment, 0:10:35.520 --> 0:10:38.200 the changes that you and the team are expecting this Wednesday, 0:10:38.240 --> 0:10:39.319 what would those changes. 0:10:39.080 --> 0:10:40.960 Be good morning. 0:10:41.600 --> 0:10:44.439 So when we look at the summario economic projection, we 0:10:44.480 --> 0:10:47.840 are expecting to see you know, the dot plot showing 0:10:47.960 --> 0:10:51.840 three recuts next year instead of four and another two 0:10:51.880 --> 0:10:55.120 ree cuts in twenty twenty six. We're also expecting to 0:10:55.160 --> 0:10:58.880 see an upgrade to GDP growth. We had two percent 0:10:59.520 --> 0:11:02.040 in the under projection. We're likely to see now two 0:11:02.080 --> 0:11:05.160 point four percent by year end for GDP. For the 0:11:05.200 --> 0:11:08.120 unemployment rate, we're likely to see it nutched down to 0:11:08.240 --> 0:11:12.480 four point two percent. And then you know, also inflation 0:11:12.640 --> 0:11:16.520 moving higher given the latest numbers and the inflation stickiness 0:11:16.520 --> 0:11:18.680 that we've seen in the recent months, so we're likely 0:11:18.720 --> 0:11:21.680 to see two point eight percent for core PC from 0:11:21.720 --> 0:11:25.080 two point six percent. So really a reflection of this 0:11:25.280 --> 0:11:29.240 environment where inflation has been a little stickier and growth 0:11:29.240 --> 0:11:31.040 has been holding up fairly well. 0:11:31.200 --> 0:11:34.000 Literally the last point is the important point. It's reactionary. 0:11:34.000 --> 0:11:36.079 We're marketing to market. How much of this is going 0:11:36.120 --> 0:11:40.000 to be anticipatory, anticipating the changes from Washington day s. 0:11:41.720 --> 0:11:44.360 Yeah, I think we have we have a dot lot 0:11:44.400 --> 0:11:47.360 that's going to be useful in terms of, you know, 0:11:47.400 --> 0:11:50.480 providing a path and a view of where the interest 0:11:50.520 --> 0:11:54.240 rate trajectory is heading. But we also have, as we know, 0:11:54.360 --> 0:11:58.080 a FED that's extremely data dependent. So part of this 0:11:58.720 --> 0:12:01.360 is likely to reflect the essentially what we've seen in 0:12:01.400 --> 0:12:04.080 the data, the data that has been coming in essentially. 0:12:04.720 --> 0:12:07.680 Meanwhile, we're talking about some of the ways said Wall 0:12:07.720 --> 0:12:10.520 Street is gearing up for next year regardless of what 0:12:10.559 --> 0:12:12.520 the policies are. We were talking about M and A, 0:12:12.640 --> 0:12:14.960 And I'm just wondering, as an economist, given that we 0:12:15.040 --> 0:12:19.040 are expecting a surge in mergers and acquisitions, do we 0:12:19.120 --> 0:12:22.520 understand the economic impact of that, whether it comes to 0:12:23.040 --> 0:12:26.920 either efficiencies of scale, whether it goes to increase productivity, 0:12:26.920 --> 0:12:28.520 whether it means increase layoffs. 0:12:28.760 --> 0:12:29.840 Do we have a sense of that? 0:12:31.760 --> 0:12:33.960 Yes, So, I mean, when we look at the the 0:12:34.000 --> 0:12:37.440 economic outlook next year and and you know what we're 0:12:37.480 --> 0:12:41.160 seeing in terms of business sentiment, we are expecting to 0:12:41.200 --> 0:12:44.520 see you know, an upside from a more a more 0:12:44.559 --> 0:12:49.000 business friendly environment and a turning business sentiment. And we 0:12:49.040 --> 0:12:51.240 do think that that's going to have you know, a 0:12:51.320 --> 0:12:56.120 positive impulse on growth and modest a positive impulse on growth. Now, 0:12:56.120 --> 0:12:59.080 when we look at the broader economic outlook, that's going 0:12:59.120 --> 0:12:59.760 to be offten. 0:13:00.760 --> 0:13:02.360 Some of the other policies that are going to be 0:13:02.360 --> 0:13:03.000 put in place. 0:13:03.160 --> 0:13:05.720 When we think about immigration, when we think about trade 0:13:05.760 --> 0:13:09.400 policy and the potential for tariffs, we're likely to get 0:13:09.400 --> 0:13:11.960 a drive from these policies, and that's going to create 0:13:12.000 --> 0:13:15.120 an offset. So when we think about the outlook in 0:13:15.160 --> 0:13:18.680 twenty twenty five twenty twenty six, we do think that, 0:13:18.760 --> 0:13:20.760 you know, when you look at all these moving parts, 0:13:21.040 --> 0:13:24.200 we're likely to see GDP growth slightly lower. So we 0:13:24.280 --> 0:13:27.120 have a modest drive from all of these policies, but 0:13:27.120 --> 0:13:29.000 there are a lot of moving parts, and some of 0:13:29.040 --> 0:13:31.640 these impacts are going to be offset in each other. 0:13:31.880 --> 0:13:34.320 What are you looking for, Lydia on Wednesday when we 0:13:34.400 --> 0:13:36.280 hear from the said, given that they're probably not going 0:13:36.280 --> 0:13:38.280 to give a whole lot of guidance as to their 0:13:38.280 --> 0:13:42.320 predictions for twenty twenty five, what guidance can they give us? 0:13:43.679 --> 0:13:43.920 Yeah? 0:13:44.000 --> 0:13:46.760 So, I mean when we think about the policy assumptions, 0:13:47.160 --> 0:13:49.280 I think Powell is going to be sticking to this 0:13:50.080 --> 0:13:52.840 idea that we don't guess, we don't speculate, and we 0:13:52.880 --> 0:13:56.160 don't assume. So this ability idea that they're not going 0:13:56.200 --> 0:14:00.319 to be putting any policy assumptions into their forecast. I 0:14:00.360 --> 0:14:02.320 think when you think about fat share Powell and how 0:14:02.320 --> 0:14:04.680 he's going to be setting the stage for a pose, 0:14:04.760 --> 0:14:07.880 which is, you know, our base case in January. I 0:14:07.920 --> 0:14:10.760 think he's going to be relying on this idea that 0:14:10.800 --> 0:14:14.800 the economy is in a good place. Inflation also has 0:14:14.840 --> 0:14:18.319 been a little bit stickier, and the fact that the 0:14:18.400 --> 0:14:21.440 Fed is essentially going to be moving in this dark 0:14:21.520 --> 0:14:24.720 room full of objects, so this idea that they need 0:14:24.760 --> 0:14:27.360 to be moving a little more slowly. I think that's 0:14:27.400 --> 0:14:29.960 the message we're going to be getting from Powell. And 0:14:30.440 --> 0:14:33.120 that's because also he won't be able to, you know, 0:14:33.200 --> 0:14:37.280 highlight the inflation risk from all these potential policy shifts 0:14:37.280 --> 0:14:39.800 that we're going to get from the incoming administration. 0:14:40.240 --> 0:14:42.600 We'll putting these two stories together. How much could secure 0:14:42.640 --> 0:14:46.800 inflation not just be annoying and annoyance for J. Powell, 0:14:46.840 --> 0:14:49.600 but also be difficult for M and A and deal 0:14:49.680 --> 0:14:51.520 making in twenty twenty five and twenty twenty six. 0:14:52.920 --> 0:14:55.080 Yeah, I mean this is you know, this is a 0:14:55.200 --> 0:15:00.200 key risk in terms of the inflation aside from you know, 0:15:00.280 --> 0:15:04.320 higher tariff and from stricter immigration. When we think about 0:15:04.600 --> 0:15:09.600 the inflationary impulse, and we've done some scenario analysis around 0:15:09.640 --> 0:15:12.360 some of the proposals and the latest one, which is, 0:15:12.840 --> 0:15:15.080 you know, the twenty five percent tariff on on Canada 0:15:15.120 --> 0:15:17.600 and Mexico and the ten person tariff on on China. 0:15:18.240 --> 0:15:21.040 And we're looking at an inflationary impulse in twenty twenty 0:15:21.080 --> 0:15:24.600 five of zero point four percentage point on inflation. 0:15:24.840 --> 0:15:27.600 So that's going to be a key risk. 0:15:27.680 --> 0:15:32.160 And we've also baked in a trajectory for inflation that's 0:15:32.200 --> 0:15:34.960 going to be modestly higher. And now, as you know, 0:15:35.000 --> 0:15:39.160 there is a lot of uncertainty surrounding all these policy shifts, 0:15:39.480 --> 0:15:41.680 and that's also the reason why the Fed doesn't want 0:15:41.680 --> 0:15:46.360 to make too many policy assumptions, you know, around tariff 0:15:46.440 --> 0:15:50.040 but also around immigration as well. Is t really a 0:15:50.080 --> 0:15:53.720 wild card for the economy in the next two years. 0:15:53.840 --> 0:15:55.120 You've done a lot of work on the m and 0:15:55.160 --> 0:15:57.120 a activity we could see and you say it's expected 0:15:57.160 --> 0:16:00.560 to rise ten percent just next year alone. Who's going 0:16:00.600 --> 0:16:01.480 to be the biggest winner. 0:16:02.960 --> 0:16:06.120 Yeah, So we're expecting to see a rebounding activity and 0:16:06.200 --> 0:16:10.640 it's really on the back of this you know, continued 0:16:10.760 --> 0:16:12.320 positive economic environment. 0:16:12.400 --> 0:16:14.640 We have less uncertainty as well. 0:16:14.960 --> 0:16:18.120 If you think about where you know, interest rate is heading, 0:16:18.120 --> 0:16:21.880 where the FED is heading where inflation is heading as well. 0:16:22.200 --> 0:16:24.600 There is a bit more visibility and you know, in 0:16:24.640 --> 0:16:27.960 this post election environment as well as we talked about 0:16:28.120 --> 0:16:31.760 you know this more you know, business friendly environment, there 0:16:31.880 --> 0:16:34.920 is you know, some potential positive impossible so have interest 0:16:34.960 --> 0:16:39.720 rates gradually move lower, so you know the outlook. We're 0:16:39.760 --> 0:16:43.240 you know, positive on the outlook in terms of seeing 0:16:43.240 --> 0:16:46.480 that that rebounding inactivity in twenty twenty five. 0:16:46.840 --> 0:16:49.240 Alivia affree shake your time as always live so that 0:16:49.440 --> 0:17:01.480 e y looking ahead to the federal serve as always 0:17:01.480 --> 0:17:03.680 it's what we do here. Traders are waiting for the 0:17:03.720 --> 0:17:06.760 final decision of the year that comes on Wednesday. Lydia 0:17:06.760 --> 0:17:09.800 bus sort of ey writing. Given calling a labor market conditions, 0:17:09.840 --> 0:17:13.119 strong productivity growth and moderating inflation trends, we continue to 0:17:13.160 --> 0:17:15.680 expect a rate cut of twenty five basis points at 0:17:15.680 --> 0:17:18.200 the December meeting. Lydia joins US now for more. Lydia, 0:17:18.280 --> 0:17:20.600 welcome to the program. It's a three part act. As 0:17:20.600 --> 0:17:22.840 you know, it's not just the decision, it's also the 0:17:22.880 --> 0:17:25.600 news conference, but we also get the economic projections in 0:17:25.640 --> 0:17:28.480 the SEP and I wonder when you look across CPI, 0:17:28.800 --> 0:17:31.280 when you look across growth and unemployment. The changes that 0:17:31.280 --> 0:17:33.640 you and the team are expecting this Wednesday, what would 0:17:33.640 --> 0:17:34.240 those changes be? 0:17:35.520 --> 0:17:36.080 Good morning. 0:17:36.720 --> 0:17:39.560 So when we look at the Summario economic projection, we 0:17:39.600 --> 0:17:43.879 are expecting to see the dot plot showing three recuts 0:17:43.960 --> 0:17:47.640 next year instead of four and another two ree cuts 0:17:47.920 --> 0:17:50.239 in twenty twenty six. Who We are also expecting to 0:17:50.280 --> 0:17:53.959 see an upgrade to GDP growth. We had two percent 0:17:54.640 --> 0:17:57.119 in the September projection. We're likely to see now two 0:17:57.160 --> 0:18:00.280 point four percent by year end for GDP. For the 0:18:00.320 --> 0:18:03.200 unemployment rate, we're likely to see it nutched down to 0:18:03.359 --> 0:18:07.600 four point two percent. And then you know, also inflation 0:18:07.760 --> 0:18:11.639 moving higher given the latest numbers and the inflation stickiness 0:18:11.640 --> 0:18:13.800 that we've seen in the recent months, so we're likely 0:18:13.800 --> 0:18:16.760 to see two point eight percent for core PC from 0:18:16.840 --> 0:18:20.199 two point six percent. So really a reflection of this 0:18:20.400 --> 0:18:24.359 environment where inflation has been a little stickier and growth 0:18:24.359 --> 0:18:26.600 has been holding up fairly well likly. 0:18:26.640 --> 0:18:29.280 The last point is the important point. It's reactionary. We're 0:18:29.320 --> 0:18:31.320 marketing to market. How much of this is going to 0:18:31.320 --> 0:18:35.359 be anticipatory, anticipating the changes from Washington day say. 0:18:36.840 --> 0:18:39.440 Yeah, I think we have we have a dot lot 0:18:39.520 --> 0:18:42.479 that's going to be useful in terms of, you know, 0:18:42.520 --> 0:18:45.600 providing a path and a view of where the interest 0:18:45.640 --> 0:18:49.359 rate trajectory is heading. But we also have, as we know, 0:18:49.480 --> 0:18:53.199