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Speaker 1: This is Bloomberg surveillance. If you look at global equities,

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Speaker 1: US market, for example, is near highs despite all the

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Speaker 1: risks out there. I think if Britain mortally we would

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Speaker 1: see significant spill over, and one of the big ones

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Speaker 1: is going to be in the financial sector. We don't

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Speaker 1: think the markets are rational under any circumstance. Markets can't

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Speaker 1: be rational. We are human beings. We are irrational responding

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Speaker 1: to irrational and rational news. Bloomberg Surveillance. You're linked to

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Speaker 1: the world of economics, climates and investment on Bloomberg Radio.

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Speaker 1: Irrational or rational, it is a most interesting and indeed

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Speaker 1: historic day for global markets. Michael McKee and Tom Kee

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Speaker 1: Bloomberg Surveillance, thrilled you're with US German ten year the benchmark,

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Speaker 1: the European benchmark finds a negative yield right now, almost

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Speaker 1: back to zero to three digitus negative point zero zero six.

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Speaker 1: I'm gonna call it an improving tape. In the last

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Speaker 1: our will do complete day of checks across UH equities, bonds,

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Speaker 1: currencies come out of these over the next two hours,

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Speaker 1: two hours, I say, of Bloomberg Surveillance. This morning, Bloomberg Surveillance,

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Speaker 1: as always brought you by kone Resnec look Ahead, gain Insight,

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Speaker 1: a match and more. Get forward thinking advice. You can

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Speaker 1: help turn business possibilities into business opportunities. Find out more

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Speaker 1: at cone Resnik dot com. C O h n R

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Speaker 1: e z n I c K cone Resneck dot com.

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Speaker 1: Mike to get us going in this hour. The simplistic

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Speaker 1: statement this is about Brexit. I just don't buy. There's

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Speaker 1: more going on than this important vote in the United

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Speaker 1: Kingdom in a few days. Well, you put everything together.

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Speaker 1: I mean, you had the bad US payrolls report or

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Speaker 1: the bay rolls work interpreted as bad by the markets,

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Speaker 1: You've got Brexit. What you've got is a lot of

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Speaker 1: uncertainty because a FED was gonna raise rates. Now they're not.

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Speaker 1: But are they in July? I mean nobody knows. Nobody

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Speaker 1: knows what any of these central banks meeting this week

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Speaker 1: are going to do. And uh, it is is very

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Speaker 1: hard for investors to do anything except, as George Gankovas

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Speaker 1: told us this morning, UH dive into bonds and just

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Speaker 1: about it is we get to hide without making adult

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Speaker 1: analysis of market economics. She can't. Michelle Gerard joins us

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Speaker 1: now from RBS looking at the game of trying to

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Speaker 1: guess within this uncertainty. Can you do an Excel spreadsheet

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Speaker 1: this morning of the American economy or have you just

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Speaker 1: given up? Well, you know, we can always do the

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Speaker 1: Excel spreadsheet. The problem is, just as you mentioned there,

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Speaker 1: there's a lot of uncertainty and a couple of big

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Speaker 1: binary events out there that would sort of make you

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Speaker 1: have to clear the spreadsheet start over again. And and

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Speaker 1: that's what is that's what's so difficult for economist and

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Speaker 1: for the markets to be grappling with it that you

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Speaker 1: could have a game changer that would fundamentally shift everything.

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Speaker 1: You have a killer chart. We protect the copyright of

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Speaker 1: our guests. I'm not going to send you out the

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Speaker 1: Michelle Gerard adjusted dot plot chart. And the answer is

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Speaker 1: it comes in help our listeners. Which year of the

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Speaker 1: dots is going to have the biggest change in guestament

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Speaker 1: in the coming weeks? You know it's you know, we

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Speaker 1: as you can see from those charts looking at where

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Speaker 1: we think the dots will fall sixteen, seventeen and eighteen,

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Speaker 1: the median dots or the medium levels moved down most

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Speaker 1: significantly in seventeen and eighteen. But I actually think the

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Speaker 1: most important for the markets, because let's face it, by

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Speaker 1: seven year and eighteen will have had four revisions to

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Speaker 1: those numbers as it is. But but the sixteen dots,

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Speaker 1: which I think is a really close call whether or

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Speaker 1: not you know that median, Well, I shouldn't say that

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Speaker 1: it's not going to be a close call necessarily because

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Speaker 1: there were so many participants at the two hike um

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Speaker 1: you know, in in terms of two thousand and sixteen

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Speaker 1: expected hits last time, that it would take a lot

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Speaker 1: of down. But of course, every one of those dots

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Speaker 1: that moves down to me is a sign that they

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Speaker 1: are inclined not to move this summer, which is probably

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Speaker 1: the biggest question or not Mike, I would point out

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Speaker 1: that m Gerard has lost the cultural la coda dot.

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Speaker 1: It disappeared off her estimated dot. But Michelle, can we

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Speaker 1: the markets will whether they should or not put a

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Speaker 1: lot of weight on the dot chart. And I'm wondering

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Speaker 1: when you release a forecast that, as you say, it

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Speaker 1: could be wiped out a week later by events, how

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Speaker 1: much credibility can you even give it? How much credibility

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Speaker 1: do you even think that people making the forecast give it. Well,

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Speaker 1: I think you're right, But I think what it does

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Speaker 1: is it shows us a little bit. It gives us

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Speaker 1: a glimpse into their mindset, maybe what their predisposition is.

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Speaker 1: You know, if if most people, let's do the dots

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Speaker 1: were unchanged for sixteen, and most people still felt two

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Speaker 1: hikes were appropriate, then once we got by the UK vote,

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Speaker 1: and if the vote was to stay in, the markets

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Speaker 1: would think okay, well, you know, maybe the set is

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Speaker 1: inclined to move this summer once we get by that

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Speaker 1: and if conditions can you know, the June employment report

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Speaker 1: shows the rebound, et cetera. On the other hand, if

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Speaker 1: you see expectations shifting down that the set is thinking

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Speaker 1: maybe more likely only one hike is appropriate this year,

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Speaker 1: then even if we get by the UK vote, and

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Speaker 1: even if the June jobs report is better you know them,

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Speaker 1: expectation will be that the hurdle for moving this summer

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Speaker 1: and possibly over the course of this year is higher

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Speaker 1: than what people have thought. You know, that we're more

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Speaker 1: likely to get less from the FED rather than more. So,

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Speaker 1: just I think gives us a backdrop to sort of

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Speaker 1: see or what the Freds predisposition is in terms of

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Speaker 1: under a best case scenario where you don't have this

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Speaker 1: you know, the UK lead or you um, you don't

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Speaker 1: have the economist level, how closer or how likely that

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Speaker 1: is to be moving rights higher? Well, don't we think

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Speaker 1: that their predisposition to rates? You know? This is the question?

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Speaker 1: I you know, I think for many in the FMC

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Speaker 1: that is the case. I personally am not convinced that

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Speaker 1: Janet Yellen is is is sure about the need to

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Speaker 1: be raising or the the intelligence of raising rates at

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Speaker 1: this time. There are even beyond bragsit a lot of

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Speaker 1: them sorties. I mean, I was rattled by that June

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Speaker 1: jobs report. I I tend that the report we've got

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Speaker 1: lest week from May I tend to be pretty optimistic.

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Speaker 1: I've been consistently at beat about the economy. I felt

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Speaker 1: it wasn't just a one off Luke. I I'm worried

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Speaker 1: that there's a deceleration um sort of going on in

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Speaker 1: part because of business caution in the face of uncertainty.

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Speaker 1: And I suspect Janet Yelling is somewhat concerned as well,

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Speaker 1: and I think she may want more information beyond just

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Speaker 1: one better jobs report to convince her that the U

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Speaker 1: S is un solid enough ground to make another high appropriate.

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Speaker 1: And of course the concerns about China, I mean global

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Speaker 1: events besides Brexit too, I think are unsettling for the

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Speaker 1: said chair. But um, how can I put this politely?

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Speaker 1: Tom Um Michelle an economists on a certain age. In

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Speaker 1: other words, you've you've been around for a while, as

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Speaker 1: if Tom and I. This kind of volatility in job

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Speaker 1: creation numbers used to be the norm. I mean, it's

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Speaker 1: been unusual that we had two hundred thousand for three

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Speaker 1: or four years, month after month. Uh, you know, it

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Speaker 1: was not unusual at all to see zero jobs and

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Speaker 1: then three right now, you're right, and if it was

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Speaker 1: just one strong or sorry, one week jobs number in

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Speaker 1: a sea of other strong data. But you know, with

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Speaker 1: the revisions that we saw the prior month, there's a

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Speaker 1: clear downtrend unemployment growth that's kind of been unfolding actually

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Speaker 1: since the end of last year. And it's coupled with

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Speaker 1: disappointing results on business and best Man and and you

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Speaker 1: know we've had two down quarters. We may be down

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Speaker 1: a third on business investment. To me, there's perhaps, especially

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Speaker 1: when you look at the slowdown in profit growth, some

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Speaker 1: concern about businesses propensity to want to be expanding in

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Speaker 1: this current environment, that there may be something more fundamental

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Speaker 1: going on, and whether or not that's the case. The

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Speaker 1: set I think wants to be cautious and really understand

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Speaker 1: if this was just volatility in the numbers or this

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Speaker 1: was the start of something more than may be showing itself.

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Speaker 1: Do you when you see the market action that you

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Speaker 1: observe as an economist, does it signal secular stagnation? To this,

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Speaker 1: I say, there's folks with dougcast with a really smart

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Speaker 1: no doubt today highlighting that debate. Am I witnessing secular stagnation?

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Speaker 1: Michelle Well, I think we use that term a lot.

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Speaker 1: What what I think we're looking at as a situation

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Speaker 1: where for reasons not necessarily um based on fundamentals. First

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Speaker 1: of all, rates in the you know you mentioned the market,

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Speaker 1: I mean rates are much lower than we're fundamentals would

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Speaker 1: necessarily justify themselves. And I am not so sure that

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Speaker 1: it's secular stagnation that we should blame. I mean, there's

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Speaker 1: a there's a part of some structural changes that I

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Speaker 1: do think it explains why growth isn't as robust as

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Speaker 1: you would expect given how much accommodation has been thrown

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Speaker 1: at it. But I think there's also a lot of

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Speaker 1: of other reasons why. I mean, I actually believe low

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Speaker 1: interest rates are working against our economy now to some extent.

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Speaker 1: And the other thing I would point out is, while

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Speaker 1: it feels not so great to be growing two or

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Speaker 1: two and a half percent seven years into an expansion,

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Speaker 1: when your potential growth rate is below too, is not

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Speaker 1: really such a disappointing performance, even though it doesn't feel

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Speaker 1: like it should. You know, it feels very good. We're

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Speaker 1: gonna be bold. We're gonna come back and actually, Mike

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Speaker 1: talk about economic data. Can we do that? Remember what

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Speaker 1: that was like? Yeah, we can do that for the

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Speaker 1: next a couple of hours till the FED starts their meeting. Yeah,

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Speaker 1: well there would be that. I mean, we've got retail sales,

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Speaker 1: among other things, retail sales of it, Yes, retail sales

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Speaker 1: coming up here in nineteen minutes. And we were thrilled

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Speaker 1: at Michel Gerard with us to give us perspective on

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Speaker 1: the futures were negative seven, negative eight. They improved. Now

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Speaker 1: they've unimproved negative six. Down future is negative yields, improved

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Speaker 1: higher yields. And then they unimproved the German tenure negative

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Speaker 1: point zero zero four. That's better than it was at

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Speaker 1: five am. The end one oh five ninety nine weeker

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Speaker 1: yen over the last hour as well. West Texas Brent

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Speaker 1: fifty three Gold Flat. I'm check in with Michael Barr

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Speaker 1: and get the latest world and national headlines. Mike Tom,

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Speaker 1: thank you very much. The Senate as schedule devote today

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Speaker 1: on a six billion dollar defense policy bill. Debate over

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Speaker 1: potential amendments to the legislation came to a halt late

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Speaker 1: last week due to procedural disputes. The White House has

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Speaker 1: expressed numerous objections and threatened to presidential veto. Street protests

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Speaker 1: are planned across France as rail workers and taxi drivers

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Speaker 1: are going on strike. The Eiffel Tower is closed today

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Speaker 1: as part of a protest against the reform aimed at

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Speaker 1: loosening the country's labor rules. The US has joined the

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Speaker 1: Egypt air crash investigation. American air safety experts are helping

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Speaker 1: and trying to find the all important black boxes from

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Speaker 1: last month's crash of the airplane that plunged into the seat.

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Speaker 1: The plane was heading from Paris to Cairo when the crashed,

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Speaker 1: killing all sixty six people on board Global News twenty

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Speaker 1: four hours a day, powered by our twenty four hundred journalists.

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Speaker 1: Michael Barr, Tom Michael, thanks so much. I mentioned gold

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Speaker 1: Flat twelve eighties, sixty ouns. Let's look at the equity markets.

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Speaker 1: Futures negative six of down closing seventeen thousand seven, the

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Speaker 1: VIX twenty one Wow twenty one point nine four. The

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Speaker 1: news update brought to you by National Realty Returns on

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Speaker 1: cash and rented real estate Find them n r I

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Speaker 1: a dot net Global business news twenty four hours a

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Speaker 1: day at Bloomberg dot com, the Radio plus mobile app

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Speaker 1: and on your radio. This is a Bloomberg Business Flash,

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Speaker 1: and good morning. I'm John Tucker. Let's say head over

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Speaker 1: to the Bloomberg First word breaking news task for today's

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Speaker 1: morning call. And here's Bill Malooney. Good morning, John. US

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Speaker 1: futures remain lower amid continued breaks. It fears four poles

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Speaker 1: put the Leaf campaign ahead of Remain and the Sun

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Speaker 1: backed in EU exit doubt. You're currently lowered by forty

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Speaker 1: four point says to the futures down six and a

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Speaker 1: half and as a futures declined by fifteen US ten

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Speaker 1: yield hits one point five nine percent and Europe trades lower.

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Speaker 1: France drops one point seven percent, and Germany's tenure Bonnial

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Speaker 1: declines below zero for the first time. On the US

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Speaker 1: economic Fronda eight thirty, import price indecks and retail sales

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Speaker 1: and at ten o'clock business inventories. After de Bellas Knight,

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Speaker 1: Bido cut revenue forecast for the second quarter, shares it

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Speaker 1: down five and a half percent pre market, and in others.

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Speaker 1: N XP is selling its products unit for two point

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Speaker 1: seven five billion. Found me some of your wall sheet

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Speaker 1: upgrades and downgrades. Vontage raised by versus neutralized City Group.

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Speaker 1: Alaska Air cuts outperformed from Strong by at Raymond James

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Speaker 1: at Stephil Alison Transmission cuts to hold, Navis Star cuts

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Speaker 1: to sell, and Hyatt cut to market perform over at

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Speaker 1: Wells Fargo Live on the First Breaking News Desk on

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Speaker 1: Bill Maloney, John, all right, thanks to Bill and to

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Speaker 1: hear a live breaking news over your Bloomberg type squawk

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Speaker 1: go on your terminal and that he is a Bloomberg

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Speaker 1: business flash. Michael and Tom, Good morning everyone. Bloomberg surveillance

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Speaker 1: Mike McKie and I dazzled by what we see in

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Speaker 1: this screen. I'm gonna call it a jumble right now.

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Speaker 1: The tenure clause back to one point five nine percent

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Speaker 1: as well. Bloomberg Surveillance this morning, one day before the

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Speaker 1: FED meeting, brought you by Investco. Don't settle for average

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Speaker 1: com Slash high Conviction Tomorrow one pm. Michael McKee, Tom Keane,

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Speaker 1: who else is with us? Michael, don't forget Scarlet Fool,

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Speaker 1: Scarlet Foo? How could I forget? She's working on Rangers,

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Speaker 1: you know, training camp tickets. She started looking ahead to

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Speaker 1: next year New York Rangers. Hockey Rangers going to be uh,

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Speaker 1: a very interesting meeting because they're not gonna do anything.

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Speaker 1: And it's not even what they say, but how they

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Speaker 1: say it that really matters. In the meantime, Retail sales,

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Speaker 1: Chelle Gerard with us RBS, is I get mixed opinions

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Speaker 1: of Michelle's a consumer flat on our back, which is

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Speaker 1: what I see when I look at the department store sales?

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Speaker 1: Or is the consumer doing very good because they're buying

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Speaker 1: what they're buying through Amazon which is it. I think

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Speaker 1: the consumer is somewhere in the middle. I mean, I

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Speaker 1: think the consumer is not flat on its back. I

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Speaker 1: think we've seen a couple of disappointing quarters. But it's

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Speaker 1: interesting that we now think disappointing quarters or when growth

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Speaker 1: is two percent excuse me, um, but but the truth

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Speaker 1: is is that the consumer is not spending as much

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Speaker 1: as it could be spending, and that is probably where

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Speaker 1: there's some disappointment. I mean, income growth is so strong

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Speaker 1: we could be I mean, in nominal terms, it's growing,

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Speaker 1: you know, almost five percent. It's been growing between four

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Speaker 1: and five percent in both rellenominal terms. I mean that

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Speaker 1: normally what set the stage for much much stronger um

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Speaker 1: spending growth than what we've been getting. So that's why

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Speaker 1: I'm saying it's a little bit in the middle, and

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Speaker 1: that the consumer I think is performing better than the departments.

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Speaker 1: Our sales numbers UM would suggest, better than perhaps it

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Speaker 1: gets credit for. But but it is sort of underperforming.

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Speaker 1: We do see consumers continuing to save a good mark

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Speaker 1: a good deal in the wake of the crisis. In particular,

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Speaker 1: we've we've definitely seen a higher level of precautionary savings

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Speaker 1: than we than we've seen historically. It's interesting. We are

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Speaker 1: seeing we saw you get the the the average hourly,

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Speaker 1: the average hours work excuse me, and uh aggregate hours

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Speaker 1: basically back to free crisis levels, which should, even with

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Speaker 1: relatively flat earnings by itself, raise uh consumer spending. But

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Speaker 1: but it's not doing that. Is you know, our consumers

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Speaker 1: afraid to spend money? Well, you know, and that's exactly

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Speaker 1: what I was thinking to is that, you know, while

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Speaker 1: average hourly earnings like how much every worker earns per hour,

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Speaker 1: it doesn't isn't going up. We're not seeing the wage

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Speaker 1: pressures because more people are working and they're working more hours.

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Speaker 1: The aggregate pool of of income that consumers have to

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Speaker 1: spend has been growing, is they said, better than four

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Speaker 1: And so the fact that we're not seeing consumer spending

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Speaker 1: kind of matching that page. Instead, they're they're saving a

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Speaker 1: you know, a good deal of their is their income.

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Speaker 1: And and yeah, I do, I do believe in the

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Speaker 1: wake of the financial crisis, consumers are more cautious. They

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Speaker 1: don't ever want to find themselves back in that kind

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Speaker 1: of a precarious position. And and and I mean the

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Speaker 1: flip side, I guess they're the silver lining to that

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Speaker 1: increased um caution is the fact that when we get

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Speaker 1: into periods of high uncertainty, you don't have to see

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Speaker 1: the consumer retrench. So we went through after the turn

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Speaker 1: of the year, all of the volatility and the equity

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Speaker 1: markets being down, and yet consumer confidence pretty much held it,

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Speaker 1: you know, continue to move sideways near historical um or

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Speaker 1: historical but cyclical highs even now the second quarter. While

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Speaker 1: businesses maybe getting more cautious moving to the sidelines, consumer

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Speaker 1: spending is real accelerating. And I think that that that's

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Speaker 1: the flip side of it, is that they're not spending

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Speaker 1: all they could be. But the good news is is

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Speaker 1: because they have been acting cautiously, they don't feel the

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Speaker 1: need to go back into a hole at the first

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Speaker 1: sign of some jitters in the in the financial markets.

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Speaker 1: What's your speaking of numbers out this week, what's your

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Speaker 1: feeling about inflation? That's gonna be a key question on

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Speaker 1: the table for the Fed and we get the CPI

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Speaker 1: unfortunately for them the day after their meeting. Yeah, we's

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Speaker 1: inflation is moving ever so gradually higher, and that's my

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Speaker 1: our forecast. You know, the CPI on this week and

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Speaker 1: will end up on a year or your basis picking

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Speaker 1: up I think from two one to two two, so

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Speaker 1: that measure is actually above the fed's two target. Of course,

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Speaker 1: the core PC deflator is below that in holding around

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Speaker 1: one six. We think it's going to move up to

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Speaker 1: one seven, but it's ever so gradual um move up.

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Speaker 1: But the problem is is that, you know, one of

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Speaker 1: the more recent development to the to the down inside

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Speaker 1: of course that the set is watching is what's happening

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Speaker 1: not with reported inflation, but with inflation expectations. And Janet

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Speaker 1: Yellott and her June Beach highlighted that. And you know,

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Speaker 1: we had last week with the consumer sentiment numbers out

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Speaker 1: of Michigan a record low in five to ten, inflation

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Speaker 1: expectations drop into two three. I think that's got them

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Speaker 1: somewhat concerned. You know, that trend I think is almost

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Speaker 1: as important as watching what the reported numbers are doing.

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Speaker 1: Couldn't agree more. I think that's really wonderful wisdom. They're

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Speaker 1: folks that within the lines of the press conference tomorrow,

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Speaker 1: this word expectations is the way the chair uses that

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Speaker 1: will be really something to lean forward and listening on

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Speaker 1: the nuances. They're wonderful. Michelle Gerard, thank you so much.

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Speaker 1: With RBS in particular retail sales. Here in five minutes,

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Speaker 1: you know, we say we'll go beneath the headline data

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Speaker 1: on jobs. There's a lot of data on retail sales.

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Speaker 1: Michael McKee will assist you with that. You'll go beneath

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Speaker 1: the headline data Fittiedelle Judais and the other series we

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Speaker 1: look at consumption in the mayor next retail sales, Bloomberg

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Speaker 1: surveillance coming up the With all due respect, highlight brought

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