WEBVTT - Jobs Data Key to Market Outlook Description: 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 --> 0:00:26.960 us live on YouTube. 0:00:27.040 --> 0:00:30.040 The world's changed, and it's gone in a Neil dotted direction. 0:00:30.360 --> 0:00:34.320 Neil Dutta joins from Renmec. Now that extended conversation. Neil, 0:00:34.320 --> 0:00:37.559 you've been talking about the slowdown? Did it begin at 0:00:37.560 --> 0:00:38.960 eight fifteen yesterday? 0:00:40.520 --> 0:00:42.080 Come on, Tom, I mean you have not been long 0:00:42.200 --> 0:00:45.560 enough to know that I wouldn't pin all my hopes 0:00:45.600 --> 0:00:47.640 on the ADPM Ployment report. 0:00:48.479 --> 0:00:52.720 Okay, but there was Moldy. What kind of claims number. 0:00:52.479 --> 0:00:57.440 Do I need to see to confirm your disrespected ADP report? 0:00:59.280 --> 0:01:02.520 Well, I think that break even level on claims is 0:01:02.600 --> 0:01:05.880 probably somewhere around two hundred and fifty to two hundred 0:01:05.880 --> 0:01:09.200 and sixty thousand, So we're getting awfully close. When I 0:01:09.240 --> 0:01:12.280 say break even, I basically mean the cutoff point between 0:01:12.400 --> 0:01:16.480 jobs growth and jobs flat. So we're getting awfully close 0:01:17.160 --> 0:01:21.280 to some pretty soggy employment reports. And remember, you know 0:01:21.319 --> 0:01:25.360 you can use the jolts data to kind of calculate 0:01:25.400 --> 0:01:28.640 what the break even level on jobless claims is. And 0:01:28.760 --> 0:01:31.319 you know, when I run the numbers, it gets me 0:01:31.440 --> 0:01:34.320 to around, you know, around two hundred and sixty thousand, 0:01:34.400 --> 0:01:37.080 So you know, initial jobless claims are running about two 0:01:37.120 --> 0:01:41.120 hundred and forty right now, and I would just say that, 0:01:41.560 --> 0:01:45.200 you know, look, I mean anecdotally, it's really hard to 0:01:45.680 --> 0:01:50.400 think that the labor markets are fine. Just look at 0:01:50.440 --> 0:01:55.800 the last week Microsoft, Disney, and Procter and Gamble announcing 0:01:56.160 --> 0:01:59.800 meaningful layoffs. I mean, if every company is restructuring at 0:01:59.800 --> 0:02:03.800 this same time, that becomes the macroeconomic issue. So I 0:02:03.840 --> 0:02:06.200 do think that not only are layoffs going up, but 0:02:06.240 --> 0:02:09.600 what's more important is that the job finding rate is 0:02:09.680 --> 0:02:13.840 really really weak, and so that means that the well 0:02:13.880 --> 0:02:16.639 of unemployment will continue to build, you know, at least 0:02:16.680 --> 0:02:17.920 over the foreseeable future. 0:02:18.320 --> 0:02:21.000 Amia, We've now all had about twenty four hours to 0:02:21.120 --> 0:02:24.400 digest at ISM data yesterday. I kind of feel like 0:02:25.240 --> 0:02:27.440 yesterday may prove to be an important day. We had 0:02:27.440 --> 0:02:32.959 the services INDEXICO into a contraction area. We had prices 0:02:33.080 --> 0:02:37.799 paid surge, we had new orders really really declined well 0:02:37.800 --> 0:02:41.560 below fifty. How do you put all that together yesterday. 0:02:44.320 --> 0:02:46.359 Well, I mean it's true that the ISM does get 0:02:46.400 --> 0:02:50.480 a lot of weight in the marketplace, but it's also 0:02:50.520 --> 0:02:56.440 important to remember that, you know, the there are multiple 0:02:56.440 --> 0:02:58.360 ways to kind of skin the cat if you were 0:02:58.400 --> 0:03:00.880 in business economics. Right, So we got a pretty soggy 0:03:00.880 --> 0:03:04.519 ISM services number, but we've got a very strong SMP 0:03:04.800 --> 0:03:09.840 Global Services PMI, right, And it's important to kind of 0:03:09.880 --> 0:03:14.120 look under the hood and see what's driving these indicators. 0:03:14.240 --> 0:03:14.440 Right. 0:03:14.560 --> 0:03:17.000 So you know, the ISM services, believe it or not, 0:03:17.760 --> 0:03:21.200 has a goods producing tint to it, right, So it 0:03:21.280 --> 0:03:27.800 includes things like mining, utilities, construction, agriculture that's in the 0:03:27.840 --> 0:03:31.240 ISM services number, right, those are companies that are surveyed 0:03:31.520 --> 0:03:34.760 by ISM. The SMP Global is more of a pure 0:03:34.840 --> 0:03:37.360 services indicator, I would argue, and it has a larger 0:03:38.120 --> 0:03:40.839 sample size. So it's not immediately clear to me that 0:03:40.920 --> 0:03:43.040 services are falling off of a cliff in the way 0:03:43.080 --> 0:03:46.440 that the ISM is is implying. And you kind of 0:03:46.480 --> 0:03:48.360 just have to take all of these things sort of 0:03:48.840 --> 0:03:52.880 on board and put it into your process and just 0:03:52.960 --> 0:03:57.760 adjust accordingly. You know, the ISM tends to be more volatile. 0:03:57.840 --> 0:04:00.839 I mean, it's dip below fifty. Previously you know back 0:04:00.840 --> 0:04:03.800 in late late twenty twenty two. So you know, I 0:04:03.880 --> 0:04:07.360 just tomorrow is going to be more definitive, right, I mean, 0:04:07.440 --> 0:04:10.360 whatever happened with the job's number that offsets everything else 0:04:10.400 --> 0:04:12.240 for the week, And sure you know that's sort of 0:04:12.360 --> 0:04:14.600 I'm thinking about it. I mean, it's it's interesting to 0:04:14.680 --> 0:04:17.200 see some of these data points kind of stacking up 0:04:17.240 --> 0:04:19.080 in a more negative direction. And I will tell your 0:04:19.120 --> 0:04:22.720 audience that surprises tend to line up in the same direction. Right, 0:04:22.760 --> 0:04:25.839 So if you get a week ADP a week ism, 0:04:25.920 --> 0:04:27.960 you know that that tends to build up, you know, 0:04:28.080 --> 0:04:32.280 sort of towards the job's number. But ultimately the job's 0:04:32.320 --> 0:04:33.400 number will settle the score. 0:04:33.480 --> 0:04:36.240 We continue with Neil Dota of Renmack, my Economists of 0:04:36.279 --> 0:04:39.359 the Year a few years ago. Brilliant optimism amid the 0:04:39.400 --> 0:04:41.000 COVID gloom. 0:04:41.080 --> 0:04:41.719 A little more. 0:04:41.600 --> 0:04:44.440 Cautious maybe here over the last at twelve months. We 0:04:44.520 --> 0:04:47.360 welcome all of you on your commute across America. Good morning, 0:04:47.680 --> 0:04:50.240 an Apple car play? Is that the way you roll. 0:04:50.279 --> 0:04:51.360 In your in your bamily? 0:04:51.560 --> 0:04:54.520 Sure you got the Apple car play? Going Android Auto 0:04:54.600 --> 0:04:58.359 out with some new software. Congratulations Google on improving Android 0:04:58.440 --> 0:05:02.960 Auto each and every day. YouTube subscribe to Bloomberg Podcast. 0:05:03.200 --> 0:05:06.159 It's the way Neil Dutta partakes in what we do 0:05:06.279 --> 0:05:10.080 here each and every day, claims in sixteen minutes, Paul. 0:05:10.560 --> 0:05:14.479 Neil, the consumer. How's the consumer doing out there? We 0:05:14.560 --> 0:05:19.120 understand there's kind of a bifurcated consumer. Just how do 0:05:19.160 --> 0:05:22.240 you kind of think about the US consumer going forward here? 0:05:23.240 --> 0:05:24.839 Well, Paul, as you know, I mean, I think the 0:05:24.880 --> 0:05:29.960 bifurcated consumer is like a constant trope on Wall Street, 0:05:30.080 --> 0:05:32.200 k shaped. I mean, the high ends doing well as 0:05:32.240 --> 0:05:34.320 if that's not always the case. I mean, it's sort 0:05:34.320 --> 0:05:37.920 of I think it's kind of senseless to keep talking 0:05:37.960 --> 0:05:40.960 about it that way. You know, Ultimately, the story about 0:05:41.000 --> 0:05:44.960 the consumer is one of declining real incomes or slowing 0:05:45.000 --> 0:05:51.880 real incomes and limited savings to cushion themselves from potential shocks. Right, 0:05:51.960 --> 0:05:56.520 So that's the main story. Last year you had about 0:05:56.720 --> 0:05:58.800 you know, maybe three percent growth, a little over three 0:05:58.839 --> 0:06:01.359 percent growth and real conser or spending, which is a 0:06:01.440 --> 0:06:04.920 very strong number. But that was despite real incomes then 0:06:04.960 --> 0:06:07.200 of transfers growing at about one and a half percent. 0:06:07.279 --> 0:06:09.560 So in other words, consumption grew twice as fast a 0:06:09.680 --> 0:06:14.120 real incomes excluding transfers. That means that people drew down 0:06:14.160 --> 0:06:18.440 their savings to jolt their consumption over the last twelve months. 0:06:18.520 --> 0:06:21.000 So even if you assume the savings rate is stable, 0:06:21.120 --> 0:06:24.360 given the ongoing weakness in the labor market, you should 0:06:24.360 --> 0:06:27.800 expect to see consumption slowing at a minimum towards the 0:06:27.880 --> 0:06:30.880 growth and incomes assuming a stable savings rate. So that's 0:06:30.920 --> 0:06:33.960 what we expect, and that means that consumer spending is 0:06:34.000 --> 0:06:37.560 probably growing, you know, maybe one and a half percent, 0:06:38.040 --> 0:06:43.080 probably worse. And you know that on a trend basis, 0:06:43.160 --> 0:06:46.480 and that is you know, consistent with below potential growth. 0:06:46.560 --> 0:06:49.040 So get to get away from the Atlanta GDP number, 0:06:49.160 --> 0:06:53.320 which is a present snampshot. You're migrate neal data from 0:06:53.360 --> 0:06:55.320 a three and a half four percent. 0:06:55.320 --> 0:06:59.680 OMG Atlanta GDP number down to something a lot more tepid. 0:06:59.720 --> 0:07:01.640 Is that right? Yeah? 0:07:01.680 --> 0:07:04.280 I mean I think the Atlanta Fed numbers overstating the 0:07:04.920 --> 0:07:06.880 health of the economy. I mean there's a lot of 0:07:06.960 --> 0:07:10.080 kind of you know, how much building is coming from 0:07:10.160 --> 0:07:13.000 the first quarter? I mean, how is this? I mean, remember, 0:07:13.000 --> 0:07:17.160 the Atlanta Fed is not a pure GDP bean count, right, 0:07:17.160 --> 0:07:21.600 because it includes survey data like ism services, not manufacturing 0:07:21.640 --> 0:07:24.960 for example. You know, That's why I say, I mean, 0:07:24.960 --> 0:07:27.680 if you focus on the labor markets, it gives you 0:07:27.720 --> 0:07:30.480 the sort of cleanest picture in terms of what underlying 0:07:30.520 --> 0:07:32.840 GDP is doing, if you just look at total hours worked. 0:07:33.800 --> 0:07:36.280 So I think when you look at it that way, 0:07:36.440 --> 0:07:40.080 I mean, you're really talking about an economy that's that's 0:07:40.120 --> 0:07:43.440 growing below potential, and that'll mean upward pressure on the 0:07:43.520 --> 0:07:44.760 unemployment rate over time. 0:07:44.920 --> 0:07:48.560 One final question, it's just as simple as this, did the. 0:07:48.480 --> 0:07:52.480 FEDS mandate shift yesterday at eight fifteen or at eight 0:07:52.600 --> 0:07:55.840 thirty this morning? Or with a vengeance, will it shift 0:07:55.840 --> 0:07:57.720 at eight thirty one tomorrow? 0:08:00.160 --> 0:08:03.240 Well, I definitely think that there is a you know, 0:08:03.280 --> 0:08:06.160 the FED has a modest dubbish bias. I mean if 0:08:06.160 --> 0:08:10.280 you look at their performance over the last number of years, 0:08:10.440 --> 0:08:13.400 and so, you know, my sense is that once the 0:08:13.480 --> 0:08:19.240 labor market begins to crack, they'll sort of stop worrying 0:08:19.280 --> 0:08:24.040 about inflation and start worrying about growth. And so, you know, 0:08:24.160 --> 0:08:27.320 given the way they're set up, he sort of needs 0:08:27.360 --> 0:08:30.000 to see that before they can kind of pivot. But 0:08:30.040 --> 0:08:33.400 that's ultimately what I believe is. So if you continue 0:08:33.400 --> 0:08:36.440 to see weaker sort of employment data, you know, the 0:08:36.480 --> 0:08:39.280 Fed will will sort of stop paying attention to what's 0:08:39.280 --> 0:08:42.960 going on with inflation and kind of, you know, capitulate 0:08:43.080 --> 0:08:43.520 in a way. 0:08:43.720 --> 0:08:46.600 Yeah, thank you, dear Doughter. Greatly appreciated from right back. 0:08:46.640 --> 0:08:53.320 Thank you. 0:08:53.320 --> 0:08:56.920 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:08:56.960 --> 0:09:00.160 weekday afternoons from seven to ten am Easter and on 0:09:00.240 --> 0:09:03.880 Applecarplay and Android Auto with the Bloomberg Business app, or 0:09:04.040 --> 0:09:05.960 watch us Live on YouTube. 0:09:05.760 --> 0:09:08.280 To have an informed conversation here we could do that 0:09:08.360 --> 0:09:12.440 with a panache. Vishtaperture joins us in, a chief fixed 0:09:12.440 --> 0:09:14.800 income strategist at Morgan Stanley. 0:09:15.160 --> 0:09:16.040 Totally unfair. 0:09:16.400 --> 0:09:18.679 I'm mean I asked the first, you know, the first 0:09:18.760 --> 0:09:26.600 question that matters is a disinflation lower yield vector. Is 0:09:26.640 --> 0:09:27.520 it in place? 0:09:27.679 --> 0:09:29.800 Still? Do you do we just have the. 0:09:29.760 --> 0:09:33.240 Basic idea of a structural move to a lower rate 0:09:33.320 --> 0:09:36.040 regime or have you shifted on that? 0:09:37.520 --> 0:09:41.800 So we think it's a complicated picture, Tom, and good morning, 0:09:41.880 --> 0:09:42.880 and thanks for having me on. 0:09:43.920 --> 0:09:46.240 I think it's a complicated picture. 0:09:46.559 --> 0:09:51.240 We have a view that the inflation in the immediate future, 0:09:51.360 --> 0:09:54.280 so the third quarter of this year, we will actually 0:09:54.360 --> 0:09:58.320 see inflation spiking as a consequence of once the effect 0:09:58.360 --> 0:10:01.280 of tariff's really begs to show up, we expect the 0:10:01.440 --> 0:10:04.080 code PC infation to get to you know, four and 0:10:04.080 --> 0:10:07.760 a half five percent by third quarter, and that prevents 0:10:07.800 --> 0:10:10.120 the ability of the FED to be able to cut 0:10:10.160 --> 0:10:14.200 this year. So unlike what the market is pricing today, 0:10:14.320 --> 0:10:16.720 market is pricing in litt lower two cuts in this year. 0:10:17.120 --> 0:10:20.080 We are expecting no cuts this year, and market is 0:10:20.120 --> 0:10:23.400 pricing roughly between two and three cuts next year. Would 0:10:23.400 --> 0:10:25.400 think there will be a lot more cuts next year. 0:10:25.679 --> 0:10:28.959 We're expecting seven rate cuts next year. So the picture 0:10:29.000 --> 0:10:33.160 is a bit more complicated. I think that the right 0:10:33.240 --> 0:10:37.480 so cutting all the way down to five. So we 0:10:37.559 --> 0:10:40.880 are our expectation of where the profit rate is lower, 0:10:41.760 --> 0:10:44.120 but the timing is quite a bit different than what 0:10:44.240 --> 0:10:45.160 the market is currently. 0:10:45.800 --> 0:10:48.200 No rate cuts this year, seven next year. These Morkings 0:10:48.200 --> 0:10:51.120 Stanley guys are always turn up trouble. They are anti 0:10:51.200 --> 0:10:53.560 corid census calls vishy. So what do we do in 0:10:53.600 --> 0:10:56.440 the backdrop there? I mean, I'm looking at the two 0:10:56.520 --> 0:10:59.320 year We're now well below four percent. I got my 0:11:00.080 --> 0:11:03.160 ten year we're down to four thirty two. How do 0:11:03.200 --> 0:11:05.600 you play the trade free market at this point? 0:11:06.720 --> 0:11:09.520 So what we are suggesting really is a steepeners are 0:11:09.559 --> 0:11:11.079 still our trade. 0:11:11.280 --> 0:11:13.080 We do expect steepening to occur. 0:11:14.160 --> 0:11:19.240 We think that the maybe the at the moment, tactically 0:11:19.320 --> 0:11:21.000 we would be neutral on duration. 0:11:21.240 --> 0:11:24.280 But we think we will around the As we go 0:11:24.320 --> 0:11:27.080 towards the end of the year, the market will begin 0:11:27.120 --> 0:11:29.440 to price in that the Fed will cut a lot 0:11:29.480 --> 0:11:32.080 more because the conditions for the Fed to cut, in 0:11:32.120 --> 0:11:36.200 our minds are inflation should not be going higher. Inflation 0:11:36.280 --> 0:11:40.280 should be should begin to show signs of slowing, which 0:11:40.280 --> 0:11:43.080 we expect to happen early part of next year. We 0:11:43.160 --> 0:11:47.240 also think that the race at the pace of huge 0:11:47.320 --> 0:11:49.319 opportion will slow substantially. 0:11:49.559 --> 0:11:52.600 Visitaria fortuur us, we will continue. We are two minutes 0:11:52.600 --> 0:11:56.840 away from suddenly an interesting claims number. The two sets, 0:11:56.880 --> 0:12:01.200 the actual claims number with the revisions and those continuing 0:12:01.280 --> 0:12:03.480 claims which made news last week. 0:12:03.600 --> 0:12:07.160 Paul visciually given kind of your interest rate outlook and 0:12:07.559 --> 0:12:09.839 some of the economic concertainty that that's out there, certainly 0:12:09.840 --> 0:12:12.320 as it relates to growth into inflation, we had some 0:12:12.800 --> 0:12:16.400 startling data yesterday. Credit risk talk to us how you 0:12:16.440 --> 0:12:18.600 talk to your clients about credit risk? 0:12:19.679 --> 0:12:19.880 Sure? 0:12:19.920 --> 0:12:24.240 Yeah, I would say reasonably constructive on credit in a way, 0:12:24.320 --> 0:12:25.800 you know, with the way I would look at it 0:12:25.840 --> 0:12:29.320 is that we are calling for a meaningful slowdown in growth, 0:12:29.480 --> 0:12:32.199 but we are not calling for a our base case 0:12:32.559 --> 0:12:35.080 that's not called for a recession in the United States. 0:12:35.320 --> 0:12:38.400 So we go from two and a half percent growth 0:12:38.520 --> 0:12:41.800 in twenty twenty four to one percent growth in twenty five. 0:12:42.960 --> 0:12:46.080 With twenty six and if you look at the credit fundamentals, 0:12:46.360 --> 0:12:50.320 the credit fundamentals enter this cycle at this point in 0:12:50.360 --> 0:12:54.640 a pretty healthy stage. So if you look at leverage metrics, 0:12:54.880 --> 0:12:59.200 you look at interest coverage metrics, look, they don't look elevated, 0:12:59.200 --> 0:13:02.360 they don't show hows of excessive credit risk taking. 0:13:02.800 --> 0:13:06.480 Also, the you know we are you know we are. 0:13:06.559 --> 0:13:10.120 If you look at the rate of upgrades downgrades, it's 0:13:10.360 --> 0:13:12.880 stured much more in favor of upgrades. 0:13:15.120 --> 0:13:16.800 So you put all these things together, you. 0:13:16.800 --> 0:13:19.920 Add some more fun you know, technical factors such as 0:13:19.960 --> 0:13:24.439 the emergence of the yield total yield based buyer, you 0:13:24.880 --> 0:13:28.319 have a reasonably constructive outlook for high quality credit. 0:13:28.559 --> 0:13:31.520 Officially, I look at the ten year inflation to justin yield. 0:13:31.520 --> 0:13:33.439 I know there's a number of ways to look at it, 0:13:33.960 --> 0:13:37.640 but the answer is that real yield is coming in. 0:13:38.320 --> 0:13:40.120 Is that constructive for the FED? 0:13:40.559 --> 0:13:43.160 Or is that the horse before the cart getting out 0:13:43.160 --> 0:13:45.079 in front of rake cuts? 0:13:45.800 --> 0:13:49.559 So I think it is this quite doesn't reflect the 0:13:49.600 --> 0:13:54.120 effect of higher tariffs showing up in the inflation numbers yet. 0:13:54.280 --> 0:13:56.280 So when we when we start seeing the numbers, which 0:13:56.280 --> 0:13:59.360 we expect starting, you know, as soon as in this quarter, 0:13:59.440 --> 0:14:02.560 the next month numbers should begin to reflect the effect 0:14:02.640 --> 0:14:05.440 of the tariffs, So tarifs will be a pass through. 0:14:05.760 --> 0:14:08.560 So we, as I said earlier, we expect to get 0:14:08.559 --> 0:14:11.880 the core PC numbers, the inflation levels that the FED 0:14:11.920 --> 0:14:14.600 cares about to get to four and a half five 0:14:14.600 --> 0:14:17.440 percent on an annualized basis, the temal number, you know, 0:14:17.480 --> 0:14:20.480 the month number numbers annualized basis to four and a 0:14:20.480 --> 0:14:24.560 half five percent, which will we expect to happen sometimes 0:14:24.560 --> 0:14:26.560 towards the end of third quarter, you know. 0:14:26.760 --> 0:14:31.080 And that's uh. I think some of these uh. 0:14:30.560 --> 0:14:32.960 You know that really prevent the you know, the sort 0:14:32.960 --> 0:14:38.480 of binds the right answer the fat for cutting this year, VIC. 0:14:38.760 --> 0:14:41.320 We we've got our friends down in Washington, DC trying 0:14:41.320 --> 0:14:43.720 to pass some tax legislation and I don't know whatever 0:14:43.800 --> 0:14:47.040 version you're looking at, it looks like they're penciling in 0:14:47.120 --> 0:14:50.000 a big increase into you know, the deficits and debt. 0:14:50.320 --> 0:14:52.440 Does your bond market does it care anymore? 0:14:54.280 --> 0:14:57.360 I think it maybe maybe maybe the bond market doesn't 0:14:57.400 --> 0:14:59.880 care about the projections for the ten year time for 0:15:00.160 --> 0:15:02.760 because I think the bond market does care what the 0:15:02.840 --> 0:15:05.160 near term is going to be. So we would have 0:15:05.200 --> 0:15:08.440 said that the one year twenty what happens in twenty 0:15:08.480 --> 0:15:12.880 twenty six, what would be the issuance requirements, what will 0:15:12.960 --> 0:15:16.000 be the composition of that that issuance bond market does 0:15:16.040 --> 0:15:16.640 care about that. 0:15:17.000 --> 0:15:19.640 But I think where we are thinking. 0:15:19.520 --> 0:15:23.360 Is that the the Frescolympetus coming out of this for 0:15:23.480 --> 0:15:28.280 the next next year, amount of deficit edition is not 0:15:28.480 --> 0:15:30.920 It's going to be a roughly three hundred billion, is 0:15:30.920 --> 0:15:33.120 what we are That's the number we are canceling in. 0:15:33.600 --> 0:15:35.880 I think that's that is something the market. 0:15:36.840 --> 0:15:39.400 Vishi, thank you so much, really appreciate it. With Morgan 0:15:39.480 --> 0:15:42.080 Stanley and as Paul mentioned, the idea of seven cuts 0:15:42.400 --> 0:15:45.680 in twenty twenty six, stop the show. There vis tier 0:15:45.760 --> 0:15:49.480 porture again fixed income with Morgan Stanley. 0:15:49.920 --> 0:15:53.800 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:15:53.880 --> 0:15:56.840 starting at seven am Eastern on Apple Corplay and Android 0:15:56.880 --> 0:15:59.880 Auto with the Bloomberg Business App. You can also listen 0:16:00.120 --> 0:16:03.280 live on Amazon Alexa from our flagship New York station, 0:16:03.840 --> 0:16:06.480 Just Say Alexa Play Bloomberg eleven thirty. 0:16:07.040 --> 0:16:10.320 Julia carnetto right Now, Micro policy perspectives. 0:16:10.680 --> 0:16:13.000 Julia, I thought we were going to walk through the interview. 0:16:13.280 --> 0:16:18.120 Not incredible amount of information off the dual mandate. 0:16:19.000 --> 0:16:20.760 If labor breaks. 0:16:20.720 --> 0:16:26.240 Weaker, but we get some form of tariff inflation. As 0:16:26.280 --> 0:16:30.840 a general statement, every study I've ever seen is they're 0:16:30.880 --> 0:16:36.080 going to side on the inflation decision. Are they really 0:16:36.120 --> 0:16:38.680 going to decide on the labor economy? I don't buy it. 0:16:40.280 --> 0:16:43.840 Well, it really depends, as Chair Powell has said, on 0:16:44.000 --> 0:16:48.120 the magnitude of the miss relative to their mandate. So 0:16:48.840 --> 0:16:51.640 right now we're starting from a point where we're at 0:16:51.680 --> 0:16:56.640 their full employment mandate by almost every metric, and we're 0:16:56.680 --> 0:16:59.120 still missing and as Powell said, we've been missing for 0:16:59.160 --> 0:17:02.600 four years their inflation mandate. So yes, in the near 0:17:02.760 --> 0:17:07.000 term they are going to lean on the inflation mandate, 0:17:07.080 --> 0:17:10.479 hold their fire on rate cuts, and wait and see 0:17:10.720 --> 0:17:14.719 as we navigate through this tariff shock, which you know 0:17:15.320 --> 0:17:18.960 very very likely will boost inflation at least in the 0:17:19.000 --> 0:17:20.800 near term. Even if it does turn out to be 0:17:20.840 --> 0:17:23.880 a one time change in prices, They're going to want 0:17:23.880 --> 0:17:27.720 to verify that trust. But verify means so that means 0:17:27.760 --> 0:17:30.440 that the labor market has to really get a lot 0:17:30.560 --> 0:17:35.959 weaker and look quite recessionary, okay, before they cut rates. 0:17:36.160 --> 0:17:39.840 Tomorrow's jobs report at eight thirty, is that going to 0:17:39.880 --> 0:17:43.680 deliver quote a lot weaker No. 0:17:43.640 --> 0:17:45.400 I don't expect so. I mean we have a one 0:17:45.440 --> 0:17:48.879 hundred and fifteen k on non farm payrolls. That's a slowdown, 0:17:49.000 --> 0:17:52.240 but sort of a gradual one. And tom the complicating 0:17:52.320 --> 0:17:56.199 factor in interpreting payrolls in the next six months is 0:17:56.280 --> 0:18:00.000 going to be that we are implementing very drastically reared 0:18:00.080 --> 0:18:06.080 strictive immigration policy, and that in economic NERD terms, lowers 0:18:06.160 --> 0:18:09.600 the potential growth rate of the labor market and GDP. 0:18:10.240 --> 0:18:13.119 We should expect to see less hiring because there is 0:18:13.240 --> 0:18:16.760 less labor supply. That is not a that's a sort 0:18:16.760 --> 0:18:19.840 of structural feature that it's not up to the Fed 0:18:19.880 --> 0:18:23.399 to offset with stimulus. So if we choose as a 0:18:23.480 --> 0:18:27.000 nation to have fewer immigrants, then we will have less GDP. 0:18:27.119 --> 0:18:30.439 Growth and less non farm payrolls. That so we're going 0:18:30.520 --> 0:18:32.840 to have to really look at the unemployment rate as 0:18:32.840 --> 0:18:36.280 the arbiter of Okay, we're seeing a slowdown in hiring, 0:18:37.080 --> 0:18:39.760 but are we seeing the unemployment rate rise? And I 0:18:39.800 --> 0:18:42.159 don't expect. I have the unemployment rate holding it for 0:18:42.320 --> 0:18:46.080 two which is still, you know, quite low by historical standards. 0:18:46.880 --> 0:18:49.560 Joeya looking back on yesterday's ISM data, I guess the 0:18:49.600 --> 0:18:53.080 headline was the services in next dipped below fifty, suggesting 0:18:53.119 --> 0:18:55.879 that maybe the service's economy against seventy percent of the 0:18:55.960 --> 0:18:58.520 US economy, might be contracting. But you also had some 0:18:58.600 --> 0:19:03.560 data showing I don't know, new orders plunging, prices paid 0:19:04.000 --> 0:19:06.520 kind of surging here. And then you look at today's 0:19:07.520 --> 0:19:09.800 initial job as claims that it came in higher than expected. 0:19:09.840 --> 0:19:12.640 Are we starting to finally see in the hard data 0:19:13.160 --> 0:19:15.240 some of the uncertainty that's been unleashed by some of 0:19:15.280 --> 0:19:16.400 this tariff discussion. 0:19:17.400 --> 0:19:20.480 Yes, I think the answer is a decisive yes to that. 0:19:20.960 --> 0:19:24.160 All of the April data came in soft. We saw 0:19:24.240 --> 0:19:27.359 decline in core retail sales, we saw decline in core 0:19:27.440 --> 0:19:30.760 capital goods orders, we saw decline in auto sales. 0:19:30.800 --> 0:19:31.760 In April and May. 0:19:32.880 --> 0:19:36.119 In the trade data that we got this morning, the 0:19:36.160 --> 0:19:41.040 detailed report, we are seeing confirmation that a lot of 0:19:41.080 --> 0:19:44.520 the demand we saw in Q one was pull forward 0:19:44.560 --> 0:19:46.880 ahead of tariffs, which means that we're in for a 0:19:46.960 --> 0:19:51.199 pothole in final demand in Q two. So yeah, I 0:19:51.200 --> 0:19:54.960 think we are seeing confirmation that number one, people did 0:19:55.000 --> 0:19:59.000 a lot of buying and spending ahead of tariffs. So 0:19:59.320 --> 0:20:01.320 for example, one thing we got in the trade report 0:20:01.359 --> 0:20:06.679 today was a drop in technology imports. That was something 0:20:06.720 --> 0:20:10.240 that had really boosted investment in Q one. That will 0:20:10.240 --> 0:20:13.600 be a decline in Q two. So there's a little 0:20:13.600 --> 0:20:16.960 bit too much. I think hopium built in that data 0:20:17.000 --> 0:20:19.520 centers can save the economy, and I don't. 0:20:19.320 --> 0:20:19.800 Think they can. 0:20:20.080 --> 0:20:23.200 Just so you understand, they don't have Hopium in college station. 0:20:23.359 --> 0:20:25.480 Now they have hope in Austin. 0:20:25.600 --> 0:20:29.200 Just so, Julia, this once again, I guess I'll ask 0:20:29.240 --> 0:20:32.359 it this way. Does this once again raise aspector that 0:20:32.359 --> 0:20:33.440 this FED will be too late? 0:20:35.480 --> 0:20:37.679 I mean, I think that the FED is constrained so 0:20:37.920 --> 0:20:42.720 too late. Uh, you know, when we are making policy 0:20:42.960 --> 0:20:49.480 choices to kind of make the monetary and fiscal trade 0:20:49.480 --> 0:20:53.680 offs worse, right, so we are choosing to expand the deficit. 0:20:53.720 --> 0:20:56.760 We are choosing to restrict immigration, we are choosing to 0:20:56.800 --> 0:21:00.240 instigate a trade war. All of this makes monitor Harry 0:21:00.280 --> 0:21:02.760 trade offs worse. That's not the Fed's fault. They didn't 0:21:02.760 --> 0:21:05.880 make these choices. So are they going to be late? Well, 0:21:05.960 --> 0:21:09.520 they have to make sure. They don't know right now. 0:21:09.560 --> 0:21:12.399 Will the labor market stay resilient. We should certainly have 0:21:12.520 --> 0:21:15.520 seen that in the last few years. Will we actually 0:21:15.520 --> 0:21:18.359 see the burst of inflation? They're going to just have 0:21:18.520 --> 0:21:21.840 to calibrate on the data. There's so many possible scenarios 0:21:21.880 --> 0:21:22.800 from here. 0:21:23.000 --> 0:21:24.879 Julia quick and you're just perfect for this. 0:21:25.359 --> 0:21:29.560 We see Canada terrible exports to America, and then there's 0:21:29.560 --> 0:21:31.960 a sentence by CIBC that they made it up with 0:21:32.000 --> 0:21:35.240 buoyant exports to UK and China. Do you buy the 0:21:35.400 --> 0:21:40.160 idea all of these troubled nations can find other venues 0:21:40.280 --> 0:21:42.720 for their exports if we shut the door. 0:21:44.320 --> 0:21:47.240 I mean they're going to have to find other venues. 0:21:48.240 --> 0:21:50.640 I don't think that that's going to be a perfect 0:21:50.760 --> 0:21:53.439 offset because the US has been the driver of the 0:21:53.440 --> 0:21:56.840 global economy for the last few years. So I think 0:21:56.840 --> 0:21:59.520 that this trade war is going to dent global growth. 0:22:00.480 --> 0:22:04.080 But I think most of our trading partners, including Canada 0:22:04.160 --> 0:22:06.960 and the UK and others, do see this as a 0:22:07.000 --> 0:22:09.720 structural break, like the US is not going to return 0:22:09.800 --> 0:22:12.800 to its ally status that it was, you know since 0:22:12.840 --> 0:22:15.640 World War Two. We are choosing to turn away from 0:22:15.720 --> 0:22:19.919 allies and choosing to be an unreliable trading partner, right 0:22:20.520 --> 0:22:22.880 and they will have to. I mean, you'd be foolish 0:22:22.960 --> 0:22:25.359 not to look to diversify your exports. 0:22:26.520 --> 0:22:29.200 Julia Carnatt, thank you so much, greatly appreciate it. 0:22:35.359 --> 0:22:39.280