WEBVTT - Eco Data and Policy Shaping Markets 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.000 us live on YouTube. 0:00:27.200 --> 0:00:30.400 Joining us now from the sunny clines of his Aruba, 0:00:30.960 --> 0:00:34.440 his Dutch Caribbean Urie Timer, who grew up in the 0:00:34.520 --> 0:00:38.000 Caribbean and of course iconic at Fidelity Investments, Urine, I've 0:00:38.000 --> 0:00:41.320 got to get to your brilliant work on LinkedIn, folks. 0:00:41.360 --> 0:00:45.200 Just simply follow Urine Timer on LinkedIn. While the nifty 0:00:45.200 --> 0:00:50.520 to fifty remains far from evaluation extremes, here's where we are. 0:00:50.760 --> 0:00:53.760 How extreme are we right now? Uri and Timmer? 0:00:55.480 --> 0:00:57.920 So the nifty fifty good morning, by the way. So 0:00:58.040 --> 0:01:02.000 the top fifty companies which in you know, years, past, 0:01:02.080 --> 0:01:06.959 decades past, have had occasional unsustainable valuation moves. So the 0:01:07.040 --> 0:01:09.399 original nifty to fifty in the early seventies, and then 0:01:09.440 --> 0:01:11.800 of course what we used to call the Jenus twenty 0:01:11.880 --> 0:01:16.280 back in the late nineties, and at the peaks those 0:01:16.319 --> 0:01:19.600 stocks would trade at two x the pe of the 0:01:19.640 --> 0:01:23.280 bottom four fifty Today it is nowhere near there. It's 0:01:23.319 --> 0:01:27.319 about twenty five thirty percent. But if you take just 0:01:27.400 --> 0:01:30.800 the mag seven, of course, which are the booster children 0:01:30.920 --> 0:01:33.919 of the mega growers, they're trading at about a thirty 0:01:33.959 --> 0:01:37.880 eight pe, whereas the bottom four ninety three in the 0:01:37.920 --> 0:01:41.160 S ANDP are trading at about twenty two. So there 0:01:41.200 --> 0:01:45.240 we are getting closer to sort of historical extremes. But 0:01:45.360 --> 0:01:47.720 having said that, you look at the earning squiggles and 0:01:47.760 --> 0:01:50.160 I get them from Bloomberg. You look at those sort 0:01:50.200 --> 0:01:52.960 of next twelve month numbers, next twenty four months number. 0:01:53.840 --> 0:01:57.520 They are still not only rising but accelerating, so you 0:01:57.600 --> 0:02:01.560 get both sequential improved moquents from one calendar year to 0:02:01.600 --> 0:02:05.320 the next in the estimates, And those estimates themselves are 0:02:05.440 --> 0:02:09.800 rising rapidly, more rapidly than the market in general. So 0:02:10.480 --> 0:02:16.240 until they lose that fundamental support from rising earning estimates, 0:02:16.240 --> 0:02:21.280 which are known to be a proven driver for future returns, 0:02:22.160 --> 0:02:24.800 I think these valuations can still be sustained. 0:02:25.200 --> 0:02:30.400 And David to me, the delta announcement what four or 0:02:30.440 --> 0:02:33.760 five days ago was extraordinary. How they just blew it 0:02:33.760 --> 0:02:34.960 out and they just killed it. 0:02:35.720 --> 0:02:38.200 You're in I look at what I'm going to keep 0:02:38.200 --> 0:02:40.000 hammering on this this morning for the lack of breadth 0:02:40.160 --> 0:02:41.679 in the market, and I wonder if what's old is 0:02:42.280 --> 0:02:44.080 new again kind of looking back at two thousand and three, 0:02:44.080 --> 0:02:46.239 parts of tw twenty twenty three, parts of twenty twenty four, 0:02:47.200 --> 0:02:49.280 how much is that weighing on you, just sort of 0:02:49.400 --> 0:02:51.200 the increasing narrowness of this market. 0:02:52.240 --> 0:02:55.840 Yeah, it's a great observation. And I was really taken 0:02:55.880 --> 0:03:00.280 aback in December by how quickly the breath in the 0:03:00.320 --> 0:03:03.560 market sort of evaporated, right, So just to dial the 0:03:03.600 --> 0:03:07.000 clock back in twenty twenty, So twenty two October we 0:03:07.080 --> 0:03:12.080 had the cyclical bull market. Begin twenty twenty three was 0:03:12.360 --> 0:03:14.480 a very good year for the SMP, but if you 0:03:14.560 --> 0:03:17.400 were not in the MAC seven, you were not feeling 0:03:17.440 --> 0:03:21.160 the joy because there was no participation from anything else, 0:03:21.240 --> 0:03:22.840 even though the S and P went up, you know, 0:03:23.040 --> 0:03:26.440 over twenty percent. Then in then in late twenty three, 0:03:26.600 --> 0:03:30.040 when the Fed pivoted and the Treasury kind of did 0:03:30.080 --> 0:03:34.000 its debt management, you know, going away from long dated 0:03:34.040 --> 0:03:38.800 stuff to T bills, the market really broadened. And throughout 0:03:38.920 --> 0:03:41.480 most of twenty twenty four, you know, seventy five eighty 0:03:41.480 --> 0:03:44.320 percent of stocks were in up trends above their two 0:03:44.360 --> 0:03:46.520 in a day moving average, even though they could not 0:03:46.680 --> 0:03:49.240 quite compete with the Max seven, but you did have 0:03:49.280 --> 0:03:52.920 a broad market, a bullish broadening. Now we're back to 0:03:53.040 --> 0:03:55.520 like fifty to fifty five percent above their two inundred 0:03:55.560 --> 0:03:59.120 day and as of two days ago, only about a 0:03:59.200 --> 0:04:02.000 quarter of the stock were above their fifty day moving average, 0:04:02.080 --> 0:04:04.760 and so that's not good to see, and it kind 0:04:04.760 --> 0:04:07.400 of brings us back to the twenty twenty three environment. 0:04:07.800 --> 0:04:11.680 I hope it changes because the earnings growth is there 0:04:11.800 --> 0:04:15.000 and it is relatively broad based. You mentioned the Delta news. 0:04:15.320 --> 0:04:17.880 That's case in point, and it's not like the other 0:04:17.960 --> 0:04:20.120 stocks in the S and P are not doing anything. 0:04:20.480 --> 0:04:23.120 It's just that they can't really light a candle to 0:04:23.200 --> 0:04:26.839 the mag seven because they are so far out in front. 0:04:28.000 --> 0:04:30.160 A novice like me once some guidance from a pro 0:04:30.360 --> 0:04:33.640 like you. How much are you watching the ten year 0:04:34.000 --> 0:04:37.400 and amidst all of the anxiety and adjucta surrounding it 0:04:37.480 --> 0:04:39.719 moving toward five percent? How much does that matter? How 0:04:39.800 --> 0:04:42.120 much is that merely a psychological threshold or is it 0:04:42.160 --> 0:04:45.839 something that portends some kind of change in market sentiment 0:04:45.880 --> 0:04:46.920 and where things are going? 0:04:48.120 --> 0:04:50.960 It matters a great deal. So when you think about 0:04:51.000 --> 0:04:54.880 equity valuation right discounted cash flow model, you got earnings 0:04:54.880 --> 0:04:58.880 growth in the numerator, the cost of capital in the denominator, 0:04:59.320 --> 0:05:02.640 and the new luminator. The numerator is more powerful. 0:05:02.720 --> 0:05:02.880 Right. 0:05:02.880 --> 0:05:05.880 If you get good earnings growth, the market can withstand 0:05:06.120 --> 0:05:09.160 changes in interest rates. But you know a few years 0:05:09.160 --> 0:05:12.360 ago during COVID, when you look at the FED model, 0:05:12.360 --> 0:05:15.440 which compares the pe on bonds, right, the price that 0:05:15.520 --> 0:05:19.240 investors pay for future coupons, and you compare that to 0:05:19.320 --> 0:05:23.760 the pe on equities. In twenty twenty, bonds were ninety 0:05:23.800 --> 0:05:27.760 one percent more expensive than stocks. So it was very 0:05:27.800 --> 0:05:30.320 low hanging fruit for the stock market to do well 0:05:30.360 --> 0:05:33.680 because they had no competition from what we consider the 0:05:33.800 --> 0:05:39.400 risk free asset. Now, bonds are fifteen percent cheaper than stocks, 0:05:39.440 --> 0:05:43.920 even though bonds should be more expensive because they are 0:05:43.960 --> 0:05:47.200 considered the risk free asset, although some people might argue 0:05:47.200 --> 0:05:50.480 with that these days. And so as yields rise and 0:05:50.560 --> 0:05:53.559 bonds have become viable, right, so we're at four point 0:05:53.600 --> 0:05:56.599 seventy nine percent, tips are in the mid two so 0:05:56.680 --> 0:06:01.160 you're getting a real yield that is significantly positive, and 0:06:01.320 --> 0:06:05.719 you have now a positive bonds to stocks correlation. You're 0:06:05.720 --> 0:06:08.960 at a point now where stocks need to compete with 0:06:09.120 --> 0:06:13.400 bonds to be that viable, risky asset. And when bond 0:06:13.440 --> 0:06:16.120 yields go up let's say four and a half five, 0:06:16.240 --> 0:06:19.159 when they get into that zone, the stock market starts 0:06:19.160 --> 0:06:22.880 to wobble, which doesn't mean the end of the bullmarket 0:06:22.920 --> 0:06:25.720 for stocks, but you know, it interrupts the mojo, as 0:06:25.800 --> 0:06:28.520 I've been calling it. And we saw that in twenty 0:06:28.520 --> 0:06:31.200 twenty three, obviously twenty twenty two, and we're seeing it 0:06:31.240 --> 0:06:31.800 again today. 0:06:31.960 --> 0:06:34.839 Quickly, Urine, what is the length of this bull market? 0:06:34.920 --> 0:06:37.520 You've got a wonderful I'm going to be polite and 0:06:37.560 --> 0:06:40.800 called a spiral chart out on LinkedIn that shows a 0:06:40.920 --> 0:06:44.720 duration of a bull market on a baseball And he's 0:06:44.800 --> 0:06:48.440 Dutch Caribbean. What can I do on a baseball standpoint? 0:06:48.600 --> 0:06:51.279 I mean, I mean, Urine's up in Boston. He doesn't 0:06:51.279 --> 0:06:54.280 go to Fenway anymore. It's been so difficult. But are 0:06:54.279 --> 0:06:56.719 we in the third inning or the eighth inning? Urin? 0:06:58.120 --> 0:07:00.599 I think we're closer to the seventh or eighth inning. 0:07:00.680 --> 0:07:04.400 And when you think about the all bull markets over 0:07:04.440 --> 0:07:08.239 the past one hundred plus years, the median bullmarket lasts 0:07:08.279 --> 0:07:12.640 thirty months and produces a ninety percent gain. Our bullmarket 0:07:12.680 --> 0:07:15.280 is twenty seven months old and has produced about a 0:07:15.320 --> 0:07:20.160 seventy five percent price gain. But of course the median, 0:07:20.440 --> 0:07:23.400 you know, is the median, and there's wide, wide dispersion. 0:07:23.440 --> 0:07:26.000 I mean, the nineteen ninety five bull market lasted for 0:07:26.120 --> 0:07:29.280 much much longer than that, and certainly there are parallels 0:07:29.320 --> 0:07:31.920 to that, but the whole AI theme. But when you 0:07:32.040 --> 0:07:35.840 go back to periods in time where rates mattered, as 0:07:36.920 --> 0:07:40.440 we just discussed, the bull markets tend to be more 0:07:40.560 --> 0:07:44.480 sort of average, and I'm thinking like nineteen sixties, in 0:07:44.560 --> 0:07:48.000 nineteen eighties. So I think we're in later innings, and 0:07:48.360 --> 0:07:51.840 you know, the momentum of the valuation push I think 0:07:51.960 --> 0:07:54.280 is behind us. Now it's all up to earnings which 0:07:54.320 --> 0:07:57.920 are coming through. But now you get these cross currents 0:07:57.960 --> 0:08:01.320 of the FED being done and rising rates, and it 0:08:01.360 --> 0:08:04.200 will occasionally interrupt and slow down this bowl. 0:08:04.640 --> 0:08:08.720 Sim Martin sat Stacius. I hope I'm pronouncing that right. 0:08:08.800 --> 0:08:14.560 Saba curso bonaire. And you're in timmer this morning, folks, 0:08:14.600 --> 0:08:17.480 and for those on YouTube can see the joy is 0:08:17.520 --> 0:08:22.880 in arubaur in Timor. Is your Dutch Caribbean the same 0:08:22.920 --> 0:08:25.080 as your childhood. 0:08:25.760 --> 0:08:28.440 It is a lot busier than it was. But so 0:08:28.560 --> 0:08:30.720 I was born here in nineteen sixty two along with 0:08:30.760 --> 0:08:33.599 my two brothers. My parents lived here for three and 0:08:33.640 --> 0:08:35.840 a half decades. My father was sent here in nineteen 0:08:35.920 --> 0:08:39.680 fifty for the military service. My parents are ninety and 0:08:39.760 --> 0:08:43.440 ninety seven. They retired to Holland back in the nineteen eighties, 0:08:43.480 --> 0:08:45.959 but this is the one trip they still make and 0:08:46.040 --> 0:08:48.160 my parents are here, and that's why I'm here because 0:08:48.200 --> 0:08:50.880 I don't want to miss any minutes with them. So 0:08:50.960 --> 0:08:53.880 my parents and their three sons are under the same 0:08:53.960 --> 0:08:57.200 roof in my brother's house. And but the island is 0:08:57.360 --> 0:09:00.520 much much busier. There are more hotels, there's a lot 0:09:00.559 --> 0:09:03.760 of ARABNB. So when I go to the supermarket because 0:09:03.800 --> 0:09:06.640 I like to cook here every night, there are so 0:09:06.800 --> 0:09:10.440 many tourists who are airbnbing and therefore are cooking themselves. 0:09:10.480 --> 0:09:12.640 And that's, of course, it's great to see. It's not 0:09:12.679 --> 0:09:15.719 a criticism, but it's different from the sleepy days when 0:09:15.760 --> 0:09:16.440 I grew up here. 0:09:16.920 --> 0:09:19.560 Tom taking notes, you're gonna get that note taking notes 0:09:19.600 --> 0:09:21.640 for the president of Airbnbreckman day. 0:09:21.679 --> 0:09:24.000 You're in Timber get in line. Can we look at 0:09:24.000 --> 0:09:26.240 the Dutch Caribbean as a fifty second star? 0:09:27.559 --> 0:09:32.040 All in good time, Tom. 0:09:30.440 --> 0:09:33.120 You're in timer. Thank you so much from Aruba, and 0:09:33.280 --> 0:09:36.600 just good morning to your parents as they celebrate with 0:09:36.640 --> 0:09:40.920 you and your family in a Ruba. That's really cool. 0:09:46.840 --> 0:09:50.439 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:09:50.480 --> 0:09:53.640 weekday afternoons from seven to ten am Eastern Listen on 0:09:53.760 --> 0:09:57.120 Apple Karplay and Android Atto with the Bloomberg Business app, 0:09:57.320 --> 0:09:59.040 or watch us live on YouTube. 0:09:59.280 --> 0:10:03.040 The the report and CPI tomorrow. And we have someone 0:10:03.120 --> 0:10:07.000 right now absolutely definitive on this. Stephen Stanley is chief 0:10:07.000 --> 0:10:11.959 economist at Santander and has decades of extinguishment of having 0:10:12.000 --> 0:10:14.760 trophies on the mantle for getting it right. Is it 0:10:14.920 --> 0:10:19.000 tough to measure CPI now or do you feel like 0:10:19.040 --> 0:10:21.800 you got to handle on the guestimate for tomorrow? 0:10:22.040 --> 0:10:24.679 Yeah? I think that what's been tough lately has been 0:10:24.679 --> 0:10:27.959 the translation from CPI to the PCE deflator, which is 0:10:28.000 --> 0:10:31.080 obviously to what the FED wants, the FED pays attention to, 0:10:31.200 --> 0:10:35.040 because we've had consistent point three s on the core 0:10:35.120 --> 0:10:38.319 CPI and some months that translates to a high PCE 0:10:38.600 --> 0:10:41.079 number and some months to a low PCE number. So 0:10:41.200 --> 0:10:43.160 that's that's really been the difficulty lately. 0:10:43.280 --> 0:10:47.880 How does real estate rental homeownership plug into this madness? 0:10:48.600 --> 0:10:51.800 So, I mean, it's far and away the biggest piece 0:10:51.800 --> 0:10:53.960 of the core CPI. It's over forty percent of the 0:10:53.960 --> 0:10:54.560 core CPI. 0:10:54.679 --> 0:10:56.760 It should be, That's what I mean. I mean Lisa's 0:10:56.800 --> 0:11:00.480 rent and she's putting eighty percent of her paycheck monthly 0:11:00.520 --> 0:11:02.000 rent forty All. 0:11:02.080 --> 0:11:05.960 Right, yeah, yeah, it's less in the core PCEE, but 0:11:06.080 --> 0:11:09.000 it's clearly an important part of the puzzle right now. 0:11:09.160 --> 0:11:11.800 Fed uh Palell and others of the FED have been 0:11:11.840 --> 0:11:13.760 talking about how this was going to come down for 0:11:13.800 --> 0:11:17.199 a long time, and it really hasn't until last month 0:11:17.240 --> 0:11:19.360 we got a low reading and so we're waiting, I think, 0:11:19.400 --> 0:11:22.040 to see whether that was a fluke or the beginning 0:11:22.080 --> 0:11:23.480 of a better trend. 0:11:23.600 --> 0:11:25.280 As we look ahead to getting these data in just 0:11:25.280 --> 0:11:27.480 a few minutes and CPI tomorrow, what would be most 0:11:27.520 --> 0:11:29.160 worrisome for you to see as you look at it 0:11:29.160 --> 0:11:30.680 on a more granular level. 0:11:31.600 --> 0:11:34.880 Well, I think that you know, the really important piece 0:11:34.880 --> 0:11:36.960 of this right now in terms of core inflation has 0:11:37.000 --> 0:11:40.560 been on the services side, So you know, housing is 0:11:40.559 --> 0:11:43.520 the biggest chunk of that, but certainly medical care services, 0:11:43.720 --> 0:11:46.920 financial services, they're you know, a handful of these big 0:11:46.960 --> 0:11:50.439 services categories that really paying attention to and where you're 0:11:50.480 --> 0:11:52.280 going to have to see progress if we're going to 0:11:52.320 --> 0:11:53.800 get back to two percent inflation. 0:11:54.040 --> 0:11:56.640 It's the FED too narrowly looking at these data. 0:11:56.880 --> 0:11:57.120 Now. 0:11:57.640 --> 0:12:00.040 We hear a lot about being data driven versus a 0:12:00.280 --> 0:12:03.240 point driven. Are you worried that there is a tendency 0:12:03.240 --> 0:12:04.800 here to look at these one by one, not with 0:12:04.880 --> 0:12:06.960 any sort of average or longer term horizon. 0:12:07.040 --> 0:12:07.719 Absolutely. 0:12:07.960 --> 0:12:10.280 I mean my sense is that we've had kind of 0:12:11.000 --> 0:12:13.640 strings of good and then bad data. You know, we 0:12:13.679 --> 0:12:15.680 had high data at the beginning of twenty twenty four, 0:12:15.800 --> 0:12:17.400 then it came down a little bit, then back up, 0:12:17.480 --> 0:12:20.240 and it seems like every time you get that little shift, 0:12:20.679 --> 0:12:24.640 the FED is swinging violently from hawkish to dubvish and 0:12:24.679 --> 0:12:27.920 back again. So yeah, I'd like to see them a 0:12:27.960 --> 0:12:30.560 little provide a little bit more stability on that front. 0:12:30.600 --> 0:12:33.000 But what Global Wall Street wants to know from you, 0:12:33.400 --> 0:12:36.840 is a disinflationary vector still in place. 0:12:37.520 --> 0:12:39.480 I think it is. I think that we're going to 0:12:39.520 --> 0:12:42.720 see gradual improvement. It's going to be slow, but I 0:12:42.760 --> 0:12:45.280 think we are as as time passes. 0:12:45.440 --> 0:12:50.520 Theoretically an extended axis. It's going to be slow. Is 0:12:50.640 --> 0:12:56.760 beneficial to embed in anchor a lower inflation, right is physics? 0:12:56.800 --> 0:12:57.360 One oh one? 0:12:58.160 --> 0:13:00.760 Did you do physics in high school? 0:13:00.760 --> 0:13:05.160 In high school? I mean, but isn't the slow disinflationary 0:13:05.200 --> 0:13:08.840 tendency better? For John Williams Well. 0:13:08.679 --> 0:13:10.760 I mean, you know, ideally, I think the FED would 0:13:10.800 --> 0:13:13.560 like to be at two percent yesterday, right, And I 0:13:13.559 --> 0:13:18.360 think the stubbornness of inflation running above their target has 0:13:18.400 --> 0:13:21.880 been somewhat frustrating to them. But I do think on 0:13:21.920 --> 0:13:27.840 an underlying basis, we are seeing slow We're seeing slow deceleration. 0:13:28.040 --> 0:13:30.880 So I think we'll eventually if we, you know, stay 0:13:30.880 --> 0:13:33.120 the course, we'll eventually get to two percent. But it's 0:13:33.160 --> 0:13:35.559 not going to happen in the next month or two. 0:13:35.840 --> 0:13:40.760 The analysis here for surveillance worldwide is boom. Stephen Stanley 0:13:40.800 --> 0:13:42.839 with us as well. Stephen, you're not looking at the 0:13:42.920 --> 0:13:47.720 data but across the board a disinflationary tendency. What happens 0:13:47.720 --> 0:13:51.439 if we get that tomorrow with CPI wow, I think 0:13:51.480 --> 0:13:53.079 talking about whiplash. 0:13:52.640 --> 0:13:55.680 The FED would be very happy with that. I will say, 0:13:55.720 --> 0:13:59.040 there's the relationship between the PPI and CPI. How can 0:13:59.080 --> 0:14:02.760 we put it. It's ten us and I thought we'd 0:14:02.800 --> 0:14:06.760 get a lower PPI number today, but I have a 0:14:06.840 --> 0:14:09.760 high CPI number tomorrow. So I don't think this necessarily 0:14:10.000 --> 0:14:11.600 should give us a ton of comfort. 0:14:11.679 --> 0:14:13.960 Okay, so you're gonna wait to see what the tomorrow's 0:14:14.240 --> 0:14:17.920 for sure. The deity is the PPI for those younger, 0:14:18.280 --> 0:14:22.760 it's not the same structure or model. Is the PPI 0:14:22.920 --> 0:14:25.920 we were schooled one years ago, that's right? Yeah, how 0:14:26.040 --> 0:14:27.120 is it different now? 0:14:27.480 --> 0:14:31.680 So the BLS has begun, I don't know, it's been 0:14:31.720 --> 0:14:34.160 about ten years now, has begun to try to measure 0:14:35.000 --> 0:14:37.800 service prices at the producer level. So in the old days, 0:14:37.840 --> 0:14:42.040 the PPI was just only goods prices at the wholesale level. 0:14:43.040 --> 0:14:45.640 And you know, some of these things, it's it's kind 0:14:45.640 --> 0:14:48.440 of hard to get a read on because you know, honestly, 0:14:48.480 --> 0:14:52.480 there is no wholesale market for most surfaces, right, So 0:14:54.080 --> 0:14:57.200 I think the methodology is quite different. What's important about 0:14:57.200 --> 0:14:59.680 the PPI now though, is that for some of those 0:14:59.680 --> 0:15:04.640 services categories, the BEA uses the PPI data rather than 0:15:04.680 --> 0:15:09.400 the CPI data to calculate the pc deflator items? 0:15:09.880 --> 0:15:11.600 Are you kidding all this? I feel like I'm in 0:15:12.480 --> 0:15:16.360 secretary excess kind of God looking at the alphabet soup. 0:15:16.480 --> 0:15:17.840 David has saved me here. 0:15:18.440 --> 0:15:20.680 Stean, we were talking just a moment ago about the 0:15:20.800 --> 0:15:24.000 kind of vacillation we've seen between the FED being hawkish 0:15:24.080 --> 0:15:26.800 and dubvish as we do this kind of economic ornithology here, 0:15:26.960 --> 0:15:29.160 we're seeing a more dubbish Stephen Stanley as well here 0:15:29.440 --> 0:15:32.200 in the studio as of late. How are you navigating 0:15:32.320 --> 0:15:33.840 all of this? How are you putting this together? And 0:15:33.840 --> 0:15:36.440 how's it sort of shaping this? Yes, the inflation data today, 0:15:36.480 --> 0:15:38.520 but the labor market data we got last week. How's 0:15:38.520 --> 0:15:40.920 it changed your vantage here on what's going to happen 0:15:40.920 --> 0:15:41.440 going forward? 0:15:41.600 --> 0:15:44.440 Yeah, Well, as you mentioned, I mean I've actually been 0:15:44.560 --> 0:15:48.600 pretty dubbish lately, which is a r Yes, I'm usually 0:15:48.680 --> 0:15:51.680 the hawk in the room. So I think that the 0:15:51.760 --> 0:15:54.520 economy is likely to be slower in the near term. 0:15:54.640 --> 0:15:57.800 And I think the main the easy explanation for that 0:15:58.000 --> 0:16:00.600 is that businesses are uncertain. We've got a lot of 0:16:00.640 --> 0:16:03.880 policy questions to be resolved, and so I think a 0:16:03.920 --> 0:16:07.000 lot of businesses that probably even though they've we've seen 0:16:07.040 --> 0:16:09.680 business optimism pick up, I think businesses are sitting on 0:16:09.680 --> 0:16:12.360 the sidelines waiting to see so I think that for me, 0:16:12.440 --> 0:16:15.080 the first half of twenty twenty five should be the 0:16:15.160 --> 0:16:20.120 slowest period, and then as we get certainty on policy, 0:16:20.360 --> 0:16:23.960 I think things start to pick up again. The question 0:16:24.080 --> 0:16:26.000 really is, are we getting a slow down in the 0:16:26.080 --> 0:16:29.680 labor market? Last Friday's numbers would say no, you know, 0:16:29.720 --> 0:16:36.320 I would argue that we're still slowly seeing job growth moderate. 0:16:37.200 --> 0:16:39.040 I do think the unemployment rate will tick up a 0:16:39.040 --> 0:16:42.600 little bit in twenty twenty five, and that gives the 0:16:42.640 --> 0:16:45.840 Fed a little bit of a reason maybe to move 0:16:45.880 --> 0:16:47.840 closer to their view if we're neutralists. 0:16:47.880 --> 0:16:51.840 Steven Sanley, thank you so much with sentender this morning. 0:16:52.040 --> 0:16:55.920 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:16:55.960 --> 0:16:59.240 starting at seven am Eastern on Applecarplay and Android Otto 0:16:59.360 --> 0:17:02.360 with the bloom Business Up. You can also listen live 0:17:02.400 --> 0:17:06.000 on Amazon Alexa from our flagship New York station, Just 0:17:06.040 --> 0:17:08.560 say Alexa Play Bloomberg eleven thirty. 0:17:08.760 --> 0:17:12.200 Sarah House joins us now senior economist at Wills Fargo. 0:17:12.440 --> 0:17:15.720 Sarah rates higher, Does that just simply mean, we got 0:17:15.760 --> 0:17:19.760 a better animal spirit, a better inflation, a better nominal GDP, 0:17:20.280 --> 0:17:23.840 and that will fold over to a good earning season. 0:17:23.920 --> 0:17:27.680 Is that what you're here from Securities Research at Wells Fargo. 0:17:28.760 --> 0:17:30.199 Yeah, so, I think that's a big part of the 0:17:30.280 --> 0:17:32.399 lift and rates that we've seen as we've continued to 0:17:32.440 --> 0:17:35.600 see a really strong performance of the US economy, whether 0:17:35.640 --> 0:17:39.080 it's in some of the more growth related indicators like 0:17:39.359 --> 0:17:42.000 the consumer spending and we'll get a look at retail 0:17:42.040 --> 0:17:45.720 sales later this week, but also just as we've seen 0:17:45.720 --> 0:17:48.200 the labor market firm up as well, I think that's 0:17:48.240 --> 0:17:51.040 pointing to consumers still have money in their pockets that 0:17:51.080 --> 0:17:54.320 they're spending, which I think all should still be pretty 0:17:54.320 --> 0:17:58.280 beneficial for corporate earnings growth that continue to I think 0:17:58.320 --> 0:18:01.800 also have that positive the backupfact with the labor market, 0:18:01.880 --> 0:18:04.560 so support supporting headcamp. 0:18:05.320 --> 0:18:08.080 Sarah, give us the battlefield report here as we look 0:18:08.080 --> 0:18:10.359 at the Fed's fight against ty inflation and the data 0:18:10.359 --> 0:18:12.680 that we got this morning that miss on Producer price 0:18:12.720 --> 0:18:16.800 index looking ahead to CPI tomorrow, where is the FED 0:18:16.880 --> 0:18:19.879 in this fight? And I wonder about the longevity of 0:18:19.880 --> 0:18:22.000 this two percent target going forward? Here it strikes me 0:18:22.040 --> 0:18:23.399 that we were kind of in this vacuum of a 0:18:23.520 --> 0:18:26.119 sort when we didn't have all of the uncertainty surrounding 0:18:26.520 --> 0:18:30.159 tariff's policy or immigration policy or fiscal policy. Now that 0:18:30.200 --> 0:18:31.919 we introduce all of that, do you think we're going 0:18:32.000 --> 0:18:34.720 to see a FED, shall we say, place less emphasis 0:18:34.800 --> 0:18:35.639 on that going forward. 0:18:36.880 --> 0:18:37.080 Yeah. 0:18:37.119 --> 0:18:38.840 So I think this is the hardest part of the 0:18:38.880 --> 0:18:42.280 inflation fight. So early on, we had I think some 0:18:42.320 --> 0:18:45.680 pretty low hanging fruit when we think about unwinding supply chains, 0:18:45.720 --> 0:18:48.920 just the normalization and commodity prices after the Russian invasion 0:18:49.240 --> 0:18:52.280 of Ukraine. But this is the harder part where we're 0:18:52.280 --> 0:18:55.199 still seeing pretty good growth, as we talked about, but 0:18:55.359 --> 0:18:58.560 that doesn't leave a lot of incentive for firms to 0:18:58.960 --> 0:19:01.480 really pair back in terms at the rate of which 0:19:01.560 --> 0:19:05.080 they're increasing prices, and I think they've they've relearned that 0:19:05.160 --> 0:19:10.000 you can increase price without losing volume in any material way. 0:19:10.240 --> 0:19:12.119 And so I think that does make it a pretty 0:19:12.160 --> 0:19:16.080 difficult position for the FED, and ultimately this inflation fight 0:19:16.240 --> 0:19:17.040 is not over. 0:19:18.160 --> 0:19:21.240 Sarah House, I've got to ask here, we're deep after 0:19:21.359 --> 0:19:26.240 PPI forty minutes on, have you readjusted your view to 0:19:26.400 --> 0:19:32.040 CPI tomorrow after witnessing the disinflation of eight thirty this morning. 0:19:33.600 --> 0:19:35.840 Now having may changes to what we're looking for for 0:19:36.280 --> 0:19:38.800 CPI tomorrow. These are separate surveys. 0:19:39.000 --> 0:19:39.159 You know. 0:19:39.200 --> 0:19:40.919 There are a few parts of it that are are 0:19:40.960 --> 0:19:46.080 pretty highly correlated with CPI, like for example, consumer food prices, 0:19:46.400 --> 0:19:49.160 but for the most part, these are looking at inflation 0:19:49.359 --> 0:19:52.719 from different surveys and different perspectives, so those from what 0:19:52.760 --> 0:19:55.920 consumers are paying versus those of what producers are receiving. 0:19:56.520 --> 0:19:59.240 This is more important for the PC deflator. So we 0:19:59.240 --> 0:20:02.160 were kind of looking at what core PC and headline 0:20:02.160 --> 0:20:05.480 PC are tracking for December. Now that we got inputs 0:20:05.520 --> 0:20:08.639 like in terms of medical care, a lot of information 0:20:08.800 --> 0:20:12.399 on finance and insurance, as well as what happens in 0:20:12.680 --> 0:20:17.200 transportation costs. So tweaking that up maybe slightly, maybe modestly, 0:20:17.280 --> 0:20:20.000 just with the strength bus on in airfares, But it 0:20:20.040 --> 0:20:22.879 doesn't look like this is a wholesale change in terms 0:20:23.000 --> 0:20:25.600 of the inflation numbers for December when we look at 0:20:25.600 --> 0:20:27.600 them in totality, Sarah, we. 0:20:27.600 --> 0:20:29.600 Have speaking of looking at in totality, I'd love to 0:20:29.640 --> 0:20:31.280 kind of look at these data in complement with what 0:20:31.320 --> 0:20:34.359 we got last week that the jobs data, the FED 0:20:34.520 --> 0:20:37.800 doing its balanced dance, you doing that as well. How 0:20:37.800 --> 0:20:39.280 do you see the two of them in complement, and 0:20:39.280 --> 0:20:41.560 how did it kind of change your perspective, if at all, 0:20:42.080 --> 0:20:43.320 on what the Fed's going to do here in the 0:20:43.320 --> 0:20:43.840 months ahead. 0:20:45.119 --> 0:20:45.320 Yeah. 0:20:45.359 --> 0:20:47.479 So, what I think we've really seen, especially coming out 0:20:47.520 --> 0:20:50.439 of the December jobs report, is that the scare that 0:20:50.480 --> 0:20:52.840 we had this summer over the labor market, where we 0:20:52.880 --> 0:20:55.280 certainly saw it weakening, and I think there was a 0:20:55.280 --> 0:20:58.000 lot of concern that it was going to deteriorate in 0:20:58.040 --> 0:21:01.600 a nonlinear way. I think those canerns have been set aside, 0:21:01.760 --> 0:21:04.439 and so I think that's allowing the FED to shift 0:21:04.440 --> 0:21:08.080 its focus back more firmly on inflation, to finish this 0:21:08.200 --> 0:21:10.600 fight to get inflation all the way back down to 0:21:10.640 --> 0:21:14.200 two percent. And I think with fewer risks right now 0:21:14.280 --> 0:21:17.800 being posed to the labor market, that it does point 0:21:17.840 --> 0:21:21.480 to rates I think staying potentially where they are for 0:21:21.480 --> 0:21:23.760