WEBVTT - Economy Is Strong But Beware Of Auto Tariffs: BNY's Levine: 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg PENL Podcast. I'm Paul Sweeney. You, 0:00:05.360 --> 0:00:07.760 along with my co host Lisa Brahmawits. Each day we 0:00:07.880 --> 0:00:10.440 bring you the most noteworthy and useful interviews for you 0:00:10.520 --> 0:00:12.640 and your money. Whether at the grocery store or the 0:00:12.640 --> 0:00:15.960 trading floor. Find a Bloomberg PENL podcast on Apple podcast 0:00:16.120 --> 0:00:18.040 or wherever you listen to podcasts, as well as at 0:00:18.079 --> 0:00:22.600 Bloomberg dot com. Paul Sweeney here with Alex Steele sitting 0:00:22.720 --> 0:00:25.599 in for Lisa A. Bramwits Market Drivers Today is brought 0:00:25.600 --> 0:00:28.080 to you by Marks Panis l l P Marx Pannet 0:00:28.280 --> 0:00:31.360 Tax Advisers to help family businesses reach their financial goals. 0:00:31.680 --> 0:00:35.239 For over one years at Marks Panneth Success is Personal. 0:00:35.640 --> 0:00:39.960 Learn more at marks pannet dot com slash tax. Also today, 0:00:39.960 --> 0:00:43.680 Alex's International Women's Day. We're celebrating with an all female 0:00:44.040 --> 0:00:47.080 cast during the show. I know I am the outline, 0:00:47.159 --> 0:00:49.880 the random guy. Thank you for allowing me to be here, 0:00:50.320 --> 0:00:52.720 to ruin the whole set up here. But obviously a 0:00:52.720 --> 0:00:55.720 big day today, Job's Day, the twenty thousand job print 0:00:55.760 --> 0:00:57.760 really taking the market by surprise. Let's dig into that 0:00:57.800 --> 0:01:00.200 a little bit, along with some other macro issu you is. 0:01:00.240 --> 0:01:02.640 We're fortunate to have Alicia Levine with us. Alicia is 0:01:02.640 --> 0:01:06.440 a chief market strategist at b n y Melon Investment Management. 0:01:06.480 --> 0:01:09.680 She joins us here in a Bloomberg Interactive broker studio. Alicia, welcome, 0:01:09.720 --> 0:01:12.919 thanks for coming here. Hi, good morning. Wow. Uh twenty 0:01:12.959 --> 0:01:17.120 thousand dollar number job number not much impact in a 0:01:17.120 --> 0:01:19.360 bond market, but certainly equity markets seemed a little rattled. 0:01:19.400 --> 0:01:20.920 What do you make of it? I think it was 0:01:21.160 --> 0:01:24.279 a noisy month, and it's the month coming after coming 0:01:24.319 --> 0:01:27.639 after the shutdown. I don't really take too much stock 0:01:27.760 --> 0:01:30.400 in one month data, but the interesting thing about the 0:01:30.440 --> 0:01:32.679 job market is that you can actually get a rapid turn. 0:01:32.760 --> 0:01:34.520 So if you have to see a second month like this, 0:01:34.920 --> 0:01:37.240 then I'd start to worry. I'd like to point out 0:01:37.280 --> 0:01:40.280 one thing, which is the labor participation rate, which has 0:01:40.360 --> 0:01:43.720 risen half a percentage point over the last twelve months. 0:01:43.920 --> 0:01:47.080 This is phenomenal, and since it's International Women's Day, I 0:01:47.160 --> 0:01:49.480 just want to point out that it's driven by women 0:01:49.560 --> 0:01:52.400 in the US getting back into the labor force. We 0:01:52.440 --> 0:01:54.920 have higher wages, we have better jobs, we have such 0:01:54.960 --> 0:01:58.000 a wonderful job market out there. I think it's terrific 0:01:58.040 --> 0:01:59.880 that women are getting back into the labor force and 0:02:00.000 --> 0:02:02.640 we should celebrate that today. I'd like to see the 0:02:02.640 --> 0:02:05.520 wage though, on those jobs that they're getting into, which, well, 0:02:05.640 --> 0:02:08.560 that's an interesting thing. I'll tell you this about different story. 0:02:08.720 --> 0:02:12.040 So the wage number is actually pretty optimistic because you know, 0:02:12.080 --> 0:02:14.280 we saw it was up four tenths for the month, 0:02:14.760 --> 0:02:17.560 and then you're over the year three and three point 0:02:17.560 --> 0:02:20.200 four percent, which is the best it's been in many, 0:02:20.240 --> 0:02:23.560 many years. The interesting thing about where the wage gains 0:02:23.600 --> 0:02:27.240 are is really at the bottom quintile of the earning spectrum, 0:02:27.760 --> 0:02:31.000 and the bottom quintile of the earning spend spectrum. Spends 0:02:31.080 --> 0:02:33.880 its earnings. They don't say they spend because they have 0:02:34.240 --> 0:02:37.359 needs that needs to be met. So this is actually terrific, 0:02:37.520 --> 0:02:40.480 and I'm not i suspect that wages are going up 0:02:40.520 --> 0:02:43.000 everywhere and so women re entering the workforce should be 0:02:43.000 --> 0:02:46.120 beneficiaries of that. So is your sense that, okay, so 0:02:46.120 --> 0:02:48.520 we had generally a good jobs market, Let's take this 0:02:48.560 --> 0:02:50.200 is a little bit of a one off. Here is 0:02:50.200 --> 0:02:53.440 your sense that the economy is still generally looking at 0:02:53.440 --> 0:02:55.960 a two two and a half percent type of range, 0:02:56.000 --> 0:02:58.520 and your your recession risk is a little bit off 0:02:58.520 --> 0:03:01.200 the table. At this point, our scition risk is definitely 0:03:01.240 --> 0:03:04.040 off the table. The economy does look like it's generating 0:03:04.040 --> 0:03:06.080 two to two and a half percent. I'll say this 0:03:06.160 --> 0:03:08.760 about the first quarter. This looks like to be the 0:03:08.840 --> 0:03:11.760 kitchen sink first quarter. All the bad news is coming 0:03:11.760 --> 0:03:14.400 out in the first quarter, first quarter g d P print. 0:03:14.480 --> 0:03:16.640 So we have bad weather, we have the effects of 0:03:16.639 --> 0:03:20.160 the shutdown. We also have the effects of the equity 0:03:20.200 --> 0:03:22.600 sell off in the fourth quarter of last year, which 0:03:22.639 --> 0:03:25.760 I'm sure dampened animal spirits a little bit in the 0:03:25.800 --> 0:03:29.119 following quarter. So this is our kitchen sync quarter. It's 0:03:29.200 --> 0:03:31.760 coming in somewhere between one to one and a half percent, 0:03:32.080 --> 0:03:33.920 which means the rest of the year really has to 0:03:33.960 --> 0:03:35.480 make up for that to get to your two to 0:03:35.560 --> 0:03:37.600 two and a half percent growth rate. We think the 0:03:37.640 --> 0:03:40.440 economy is pretty strong. So the interesting thing to me 0:03:40.520 --> 0:03:43.680 is the market reaction today. So we saw hardly any 0:03:43.680 --> 0:03:45.840 move in the bond market, a teeny bit in the dollar, 0:03:45.920 --> 0:03:49.000 but the equity downturn feels sticky, and so that leads 0:03:49.000 --> 0:03:51.600 me to wonder if it's not about the jobs market 0:03:51.640 --> 0:03:53.360 at all, Like how much of the market action do 0:03:53.360 --> 0:03:55.640 you feel like, is the e c B like coming 0:03:55.640 --> 0:03:58.640 out guns a blazing yesterday and then the worries about 0:03:58.720 --> 0:04:02.280 China trade data over night versus a US. So I 0:04:02.320 --> 0:04:05.360 don't think the jobs data is what's rattling the market. 0:04:05.680 --> 0:04:08.480 And if you think about the total market since the 0:04:08.480 --> 0:04:12.080 beginning of two thousand and nineteen, the bond market was 0:04:12.120 --> 0:04:15.280 telling you a very different story than from what the 0:04:15.320 --> 0:04:17.760 equity market has been telling you. And it's interesting because 0:04:17.800 --> 0:04:19.599 as an equity person, I like to say, well, the 0:04:19.600 --> 0:04:23.119 bond markets always right, and the bond mark was telling 0:04:23.120 --> 0:04:27.120 you that there just is no lift in the inflation 0:04:27.839 --> 0:04:31.159 or a larger bump to growth globally. I think the 0:04:31.200 --> 0:04:33.880 reason that the markets sold up so much on Mario 0:04:33.960 --> 0:04:39.480 drags comments yesterday is that Draggy and the ECB has 0:04:39.560 --> 0:04:44.040 always seemed to be behind the data curve, so responding 0:04:44.040 --> 0:04:47.880 to terrible data and the fact that he seemed that 0:04:47.960 --> 0:04:51.120 he came in before the terrible data actually happened, there 0:04:51.160 --> 0:04:53.000 was some question about whether he knew more than he 0:04:53.040 --> 0:04:57.280 really really was saying. And perhaps it's worse than we think. 0:04:57.360 --> 0:04:59.880 And I'll give you one scenario where really could be 0:05:00.000 --> 0:05:02.559 worse than we think, and that is nobody is talking 0:05:02.560 --> 0:05:06.760 about those three oh one tariffs on German automobiles. However, 0:05:07.120 --> 0:05:09.560 it was quick smy, what is that tariff and how 0:05:09.560 --> 0:05:12.200 important is it? So the thing about the three ones, 0:05:12.320 --> 0:05:14.680 the two three two tariffs which were the steel tariffs, 0:05:14.680 --> 0:05:17.159 and the three oh one tariffs, which were the auto tariffs, 0:05:17.200 --> 0:05:20.520 are tariffs that are completely controlled by the administration, so 0:05:20.640 --> 0:05:23.080 Congress has no say in it, and this is an 0:05:23.120 --> 0:05:27.120 area where the administration can really drive policy. So they 0:05:27.240 --> 0:05:30.840 had a study about whether or not the tariffs, whether 0:05:30.880 --> 0:05:34.000 there have been fair trade practices, and whether there's some 0:05:34.200 --> 0:05:38.120 national security issue at stake should the administration put tariffs 0:05:38.160 --> 0:05:41.440 on European automobiles. So the report came out at the 0:05:41.520 --> 0:05:43.880 end of February, but it was held close to the vest. 0:05:44.600 --> 0:05:47.520 The law is it must be released within ninety days. 0:05:47.560 --> 0:05:50.520 That ninety days is mid to end of May. So 0:05:50.640 --> 0:05:54.240 I believe that the administration feels that it's implementation of 0:05:54.360 --> 0:05:59.320 tariffs has been very successful in renegotiating trade deals, and 0:05:59.360 --> 0:06:01.240 that's why I think we're going to see tariffs on 0:06:01.440 --> 0:06:05.200 German automobiles. Now that's going to kill the German economy 0:06:05.240 --> 0:06:08.360 and the European economy. So to that point, Bloomberg Economics 0:06:08.360 --> 0:06:11.719 at auto tariff on European cars puts thirty billion dollars 0:06:11.760 --> 0:06:14.440 of European GDP at risk. Wow, that's a number, that's 0:06:14.440 --> 0:06:16.599 a big number. Alicia Levin, thank you so much for 0:06:16.680 --> 0:06:18.880 joining us. Alicia is a chief market strategist for b 0:06:19.080 --> 0:06:21.680 n y Melon Investment Management. She joined us live here 0:06:21.720 --> 0:06:24.599 in the Bloomberg Interactive Broker studio. Coming up, we're gonna 0:06:24.640 --> 0:06:26.640 pivot and take a look at the energy markets. See 0:06:26.640 --> 0:06:30.320 what's happening in Venezuela, Saudi Aramco. Lots of to do 0:06:30.480 --> 0:06:33.960 on the energy space as well. It's not just about jobs. 0:06:34.279 --> 0:06:41.040 Energy is also critical here going forward. This is Bloomberg. Well, 0:06:41.040 --> 0:06:43.960 the equity markets aren't the only ones that have experienced 0:06:43.960 --> 0:06:47.159 extraordinary volatility over the last let's say three or four months. 0:06:47.400 --> 0:06:50.040 The global oil market also has been quite volatile. When 0:06:50.080 --> 0:06:52.359 you take a look at the Brent crude for example, 0:06:52.360 --> 0:06:54.880 it's the good news is it's up about from its 0:06:55.120 --> 0:06:57.839 December lows, but the bad news is it's still down 0:06:57.880 --> 0:07:01.480 about from its October high. So trying to get a 0:07:01.520 --> 0:07:04.240 sense of where the next move might be for global oil. 0:07:04.320 --> 0:07:07.400 Let's welcome our next guest, Dr ellen Wald. Dr Wald 0:07:07.480 --> 0:07:10.720 is the president of Transversal Consulting. She has also the 0:07:10.800 --> 0:07:14.720 non resident Senior Fellow at the Atlantic Council's Global Energy Centator, 0:07:14.960 --> 0:07:19.560 and she's also a contributor to Bloomberg Opinion. Dr Wald welcome, um. 0:07:19.600 --> 0:07:22.360 I wondered if, given the volatility we have seen in 0:07:22.400 --> 0:07:25.600 global oil over the last several months, what is your 0:07:25.640 --> 0:07:28.520 outlook for oil for the remainder of the year. You know, 0:07:28.840 --> 0:07:31.640 I think that right now we're kind of in a 0:07:31.640 --> 0:07:34.480 bit of a holding pattern, waiting to see what happens, 0:07:34.920 --> 0:07:38.600 particularly as we head into April and May, and then 0:07:38.640 --> 0:07:41.880 also into the summer driving season in the US. A 0:07:41.920 --> 0:07:44.440 lot right now in terms of where oil is gonna 0:07:44.480 --> 0:07:48.760 end up depends on political moves, particularly by the White House. 0:07:49.080 --> 0:07:52.400 The oil sanctions on Venezuela came as kind of a surprise, 0:07:52.560 --> 0:07:54.600 and now we're we need to see what's going to 0:07:54.680 --> 0:07:58.640 happen in May with the Iran sanctions. That could potentially 0:07:58.680 --> 0:08:03.400 remove another million barrels a day from the market. So 0:08:03.600 --> 0:08:06.480 if the President decides that they want to zero out 0:08:06.760 --> 0:08:10.840 iranney and oil exports, then that could have a significant 0:08:11.400 --> 0:08:14.960 um that could actually provide a significant lift on oil prices, 0:08:15.560 --> 0:08:18.880 But if they decide not to do that, then it's 0:08:19.040 --> 0:08:21.720 entirely possible that we could see oil prices trending lower. 0:08:22.040 --> 0:08:24.560 Then on the other side of the equation, we've got demand, 0:08:25.040 --> 0:08:28.160 and we've seen from opaque, from the E I A, 0:08:28.400 --> 0:08:32.040 from the i A, all of them have been cutting 0:08:32.080 --> 0:08:36.840 their forecasts for demand growth as we go forward into 0:08:37.440 --> 0:08:40.960 and into so right now though, we're really waiting to 0:08:41.000 --> 0:08:44.120 see whether that actually does pan out. And I think 0:08:44.120 --> 0:08:48.040 that the summer driving season and gasoline demand and jet 0:08:48.080 --> 0:08:51.840 fuel demand as well are going to be important indicators 0:08:51.880 --> 0:08:55.160 for where we're heading in the second half of and 0:08:55.240 --> 0:08:59.520 into So if you sort of weigh the Venezuela sanctions 0:08:59.520 --> 0:09:02.640 in IRANNIE sanctions and looking ahead to the waivers and stuff, literally, 0:09:02.640 --> 0:09:07.600 what's the oil price that President Trumps makes his decision at, Well, 0:09:07.960 --> 0:09:10.520 that's that's a really good question. He certainly seems to 0:09:10.559 --> 0:09:14.679 get kind of antsy when oil prices head upwards. UM 0:09:14.720 --> 0:09:16.959 I would say maybe in the in the sixteed dollar 0:09:17.360 --> 0:09:20.720 they all range for w T I and seventy dollar 0:09:20.760 --> 0:09:23.280 barrel range for Brent. But I do also think that 0:09:23.559 --> 0:09:27.360 his decision really depends more on gasoline prices and were 0:09:27.520 --> 0:09:30.800 we generally see higher gasoline prices in the summer. We 0:09:30.880 --> 0:09:33.959 produce a slightly more expensive blend of gasoline that we use, 0:09:34.480 --> 0:09:36.640 And I'm not sure the President is necessarily going to 0:09:36.760 --> 0:09:41.319 take those variations into account, but he definitely gets gets 0:09:41.320 --> 0:09:45.480 anxious when prices get, you know, above that that marker. 0:09:45.800 --> 0:09:48.520 And so I do think that. And it also depends 0:09:48.520 --> 0:09:51.760 on how long these Venezuela sanctions continue. For I think 0:09:51.760 --> 0:09:55.160 that the calculus probably was that they would be done 0:09:55.200 --> 0:09:59.800 by now. And this problem in Venezuela is really becoming 0:10:00.080 --> 0:10:02.720 or of a long term rather than a short term issue. 0:10:02.760 --> 0:10:05.600 And I wouldn't be surprised if we see even greater 0:10:05.720 --> 0:10:11.040 crackdowns on the financial institutions that India and China are 0:10:11.120 --> 0:10:14.880 using to facilitate purchases of Venezuelan oil, and that could 0:10:14.960 --> 0:10:17.720 also play a role and could possibly drive up oil 0:10:17.760 --> 0:10:22.520 prices higher as well. So, how what's it like doing 0:10:22.559 --> 0:10:25.240 business right now in Venezuela, Because when you ask the companies, 0:10:25.559 --> 0:10:28.040 the standard line is like, we will make sure to 0:10:28.080 --> 0:10:30.520 cooperate with any kind of sanctions that come through, and 0:10:30.520 --> 0:10:32.000 we're talking to the U. S. Government like that's what 0:10:32.040 --> 0:10:35.960 you're going to hear, right what's the reality. The reality 0:10:36.160 --> 0:10:38.560 is that things are a lot more complicated, and a 0:10:38.600 --> 0:10:41.480 lot of it does also depend on the personal relationships 0:10:41.800 --> 0:10:45.680 between you know, Venezuela, between the manual government and some 0:10:45.800 --> 0:10:48.319 of these companies up, particularly the Russian ones and the 0:10:48.440 --> 0:10:51.960 Chinese ones that have lent Venezuela a lot of money. 0:10:52.200 --> 0:10:55.640 Their concern here is that is not just buying oil, 0:10:55.679 --> 0:10:59.360 and China isn't just invested in a situation as a 0:10:59.440 --> 0:11:02.560 source of petroleum. They've also lent a great deal of 0:11:02.600 --> 0:11:05.640 money to Venezuela and they want, uh, they want to 0:11:05.679 --> 0:11:07.920 get that money back, and they want to get the 0:11:07.960 --> 0:11:09.880 interest payments on that. So they're going to be doing 0:11:09.880 --> 0:11:14.400 everything they can to make sure that that's facilitated. So 0:11:14.520 --> 0:11:16.640 Dr Wild, I know you're also the author of a 0:11:16.679 --> 0:11:19.560 book entitled Saudi Inc. Which kind of looks at the 0:11:19.559 --> 0:11:21.960 whole Saudi a Ramco issue and the family and so 0:11:22.040 --> 0:11:24.079 on and so forth. So I need to ask my 0:11:24.800 --> 0:11:28.559 Ramco I p O question, which question when is it 0:11:28.600 --> 0:11:30.319 going to happen? Is it going to happen? When is 0:11:30.360 --> 0:11:31.560 it going to happen? And kind of what are the 0:11:31.640 --> 0:11:35.160 drivers here? You know, that's a really great question, especially 0:11:35.160 --> 0:11:39.040 because we just saw the other day that a Saudi 0:11:39.120 --> 0:11:42.480 oil minister again made a statement saying the i p 0:11:42.600 --> 0:11:46.240 O is going to happen in another two years. And 0:11:46.440 --> 0:11:50.800 right now they're still facilitating or they're still going about 0:11:50.840 --> 0:11:55.280 their acquisition of the petrochemical giant Sabboc, which is really 0:11:55.320 --> 0:11:58.559 pushed off any kind of IPO move for for quite 0:11:58.600 --> 0:12:00.599 some time. And I do think that the ip O 0:12:00.720 --> 0:12:06.320 schedule definitely depends on this this acquisition right now. I 0:12:06.360 --> 0:12:09.160 think what's going into the calculus are can they get 0:12:09.160 --> 0:12:12.280 the valuation that they want and they may not be 0:12:12.320 --> 0:12:14.760 able to do that unless the company grows some more, 0:12:15.280 --> 0:12:18.800 and so I wouldn't be surprised if that two year 0:12:18.920 --> 0:12:24.160 timetable could become three or four years, depending on how 0:12:24.200 --> 0:12:29.080 how fast they can grow. Another calculus here is um 0:12:29.240 --> 0:12:33.199 what's going on between the Saudi government and the Saudi 0:12:33.200 --> 0:12:37.000 Oil Ministry and a Ramco, and the Saudi government is 0:12:37.040 --> 0:12:40.440 looking to basically kind of cash in on this i 0:12:40.559 --> 0:12:44.400 p O to fund their public investment fund there their 0:12:44.440 --> 0:12:47.800 sovereign wealth fund, and right now they don't have the 0:12:47.960 --> 0:12:51.720 amount of money that they're looking for by buying Sabboc 0:12:51.960 --> 0:12:55.400 from the p I S. However, the sovereign well fund 0:12:55.400 --> 0:12:58.200 will get more money, and so they may be more 0:12:58.280 --> 0:13:01.640 satisfied and willing to UM hold off on the I 0:13:01.760 --> 0:13:05.199 p O. I feel as the Saudia's always say conditions 0:13:05.200 --> 0:13:07.600 are optimal. Well, you know, talk about that for a second. 0:13:07.600 --> 0:13:11.640 Because ip week Saudi Ramco a CEO. He seemed pretty upset. 0:13:12.040 --> 0:13:14.720 He was definitely like, investors don't buy our industry. They're 0:13:14.720 --> 0:13:16.839 writing us off for dead, and that's not true. There's 0:13:16.880 --> 0:13:18.920 going to be a supply gap. To me, that sounds 0:13:18.960 --> 0:13:22.720 like a CEO that wasn't able to market in IPO. Yeah, 0:13:22.760 --> 0:13:25.839 they definitely ran into some issues marketing the I p 0:13:26.000 --> 0:13:28.240 O and marketing the company. But I do think a 0:13:28.240 --> 0:13:30.439 lot of that has to do with UM a lot 0:13:30.480 --> 0:13:34.439 of misunderstandings that are perpetuated about a Ramco and particularly 0:13:34.440 --> 0:13:39.000 about Saudi Arabia's oil and it's oil reserves, And so 0:13:39.040 --> 0:13:42.200 I can understand his frustration there. There's a lot of 0:13:42.200 --> 0:13:45.560 misinformation out there. Dr ellen Wall, thank you so much 0:13:45.760 --> 0:13:49.480 for joining us. Dr Wald as a President of Transversal Consulting, 0:13:49.520 --> 0:13:52.400 nonresident Senior Fellow at the Atlantic Council's Global Energy Center 0:13:52.520 --> 0:13:55.480 and also contributor to Bloomberg opinions. So what is your 0:13:55.480 --> 0:13:58.720 sense of this, IPO, Alex, does this happen in our lifetime? 0:13:59.080 --> 0:14:00.920 Maybe in our lifetime? I don't know. I'm gonna Sarah 0:14:00.960 --> 0:14:03.320 week next week, I'm talking to twelve Energy CEO, so 0:14:03.360 --> 0:14:05.160 I'll let you know. I'll get back to you on Wednesday. 0:14:05.200 --> 0:14:07.560 I'm just I'm just speaking for all the energy investment 0:14:07.559 --> 0:14:09.880 bankers out there who are waiting for what was going 0:14:09.960 --> 0:14:12.040 to be a monster pay day for them, and they 0:14:12.080 --> 0:14:14.560 still hope. So taking a look at West Texas Intermediate 0:14:14.559 --> 0:14:16.800 crewed right here, fifty five dollars down a little bit, 0:14:16.960 --> 0:14:20.119 got about two and a half percent today. This is Bloomberg. 0:14:23.920 --> 0:14:27.280 Just crossing the Bloomberg terminal right now is news that 0:14:27.760 --> 0:14:31.360 x Fox executive Bill Shine resigning from the White House 0:14:31.360 --> 0:14:35.040 out according to uh Sarah Huggaby Sanders. Uh so, that 0:14:35.120 --> 0:14:38.280 is a relatively short tenure for Mr Shin, as he 0:14:38.480 --> 0:14:42.160 came to the White House from the news corporation Century Fox. 0:14:42.200 --> 0:14:45.160 So just crossing the headlines right now. But thinking about 0:14:45.200 --> 0:14:48.240 the jobs data, clearly not well received by the equity markets. 0:14:48.280 --> 0:14:50.280 Continue to be a little bit weak there, but absolutely 0:14:50.520 --> 0:14:54.120 a complete yawner from the fixed income markets. I'm looking 0:14:54.160 --> 0:14:57.320 at the ten year Treasury literally unchanged on my Bloomberg 0:14:57.360 --> 0:14:59.680 screen yielding two point six four percent. So to help 0:14:59.760 --> 0:15:02.360 us kind to dig into, uh, the bond market, all 0:15:02.400 --> 0:15:05.080 things fixed income, we welcome back our friend Kathleen Gaffney. 0:15:05.120 --> 0:15:08.480 Cathlene is co director of Diversified Fixed Income and EAT 0:15:08.480 --> 0:15:11.480 and Vancy. Vance has over four billion dollars under management, 0:15:11.480 --> 0:15:13.640 about eighty billion dollars of which is in fixed income. 0:15:14.040 --> 0:15:15.960 Cathlene is based in Boston, but she joins us today 0:15:15.960 --> 0:15:18.120 in our Bloomberg eleven three oh studios in New York. 0:15:18.160 --> 0:15:20.320 I feel like you're here as often here as you 0:15:20.360 --> 0:15:22.960 are in in the Boston. I'm sure you've got lots 0:15:23.000 --> 0:15:26.240 of travels. So what did you make, Kathleen coming out 0:15:26.240 --> 0:15:28.600 of this job? Number obviously a kind of a strange number, 0:15:28.680 --> 0:15:31.840 But what's your takeaway? Yeah, it definitely was a strange 0:15:31.960 --> 0:15:34.960 number and not something that I would extrapolate. Although clearly 0:15:35.000 --> 0:15:40.760 the market, especially equities, are thinking more about lower growth. Uh, 0:15:40.800 --> 0:15:43.120 that's the pattern that we've heard in Europe as well. 0:15:43.480 --> 0:15:47.400 But it was interesting that wages are increasing and I've 0:15:47.440 --> 0:15:50.720 got my eyes on what's going on with inflation, and 0:15:51.080 --> 0:15:54.040 that's what I think bond investors need to be wary of. 0:15:54.520 --> 0:15:57.560 Was that was the inflation number? Okay, we're not We're 0:15:57.560 --> 0:15:59.680 not going too fast, are we. No, we're not going 0:15:59.760 --> 0:16:03.880 fast enough. But just just the increase in wages. Uh, 0:16:04.040 --> 0:16:06.520 we know that we've got a tight labor market, so 0:16:06.760 --> 0:16:09.440 that's going to be some sort of pressure. And there 0:16:09.560 --> 0:16:14.240 is stimulus out there with the Fed on pause. Uh, 0:16:14.400 --> 0:16:19.359 that's still accommodative policy. And China is also providing stimulus. 0:16:19.920 --> 0:16:23.880 So I wouldn't read too much into one one data point. 0:16:24.880 --> 0:16:28.120 Does the tenure at two point six and the tenure 0:16:28.160 --> 0:16:30.720 bunule at six basis points? Do those two numbers make 0:16:30.760 --> 0:16:35.080 sense to you? They make sense in a world where 0:16:35.120 --> 0:16:38.560 their inflation is going to remain low for a very 0:16:38.560 --> 0:16:41.840 long time. But we're hearing and it'll be interesting to 0:16:41.880 --> 0:16:44.320 hear what Powell has to say. But the Fed is 0:16:44.360 --> 0:16:49.200 starting to think about how anchored investors expectations are, and 0:16:49.200 --> 0:16:52.960 that it seems that it is very hard to get 0:16:53.040 --> 0:16:56.760 anyone to believe that there could be momentum higher, which 0:16:56.800 --> 0:17:01.160 means they are likely to start using the average inflation 0:17:01.320 --> 0:17:04.280 target and let it go a little bit higher. And 0:17:04.359 --> 0:17:08.680 wages moving up is one piece of that we just 0:17:08.760 --> 0:17:10.560 have moved up. And I was gonna say that they 0:17:10.560 --> 0:17:13.560 have moved up here, they've moved up in Europe as well, Paul, 0:17:13.640 --> 0:17:15.520 in fact, like if you're gonna look at green shoots 0:17:15.560 --> 0:17:18.000 like that's one of them, even, dare I say in Europe? 0:17:19.640 --> 0:17:22.639 So Kathleen, that's you know. On the European issue, we 0:17:22.680 --> 0:17:26.360 had some very dour commentary coming out of marriage draw 0:17:26.480 --> 0:17:28.600 yesterday in the ECB kind of what what is your 0:17:28.640 --> 0:17:30.960 takeaway from what you heard yesterday out of Europe? How 0:17:31.000 --> 0:17:36.840 concerned are you? I I'm somewhat concerned. UH, and and 0:17:36.920 --> 0:17:41.440 Europe is definitely UH really slow to react, and that 0:17:41.640 --> 0:17:47.560 and the ability to get more growth is hampering UH policy, 0:17:47.640 --> 0:17:51.639 and so they're in a really tough place. UM. But 0:17:51.880 --> 0:17:54.560 I do think that much of that is due to 0:17:54.600 --> 0:17:58.840 the uncertainty around the globe UH due to Brexit and 0:17:58.920 --> 0:18:04.920 also due ton tarns about China. Germany. UH exports a 0:18:04.920 --> 0:18:07.400 lot to China, and so I think they feel that. 0:18:08.520 --> 0:18:11.320 I do think that the uncertainty is going to be 0:18:11.359 --> 0:18:16.119 resolved with the U S. China relations, and I think 0:18:16.680 --> 0:18:20.320 with the China stimulus that's coming, I think that's positive, 0:18:20.359 --> 0:18:22.879 but it probably isn't something that we're going to see 0:18:23.000 --> 0:18:27.600 until later this year. So for now we're really stuck 0:18:27.760 --> 0:18:31.760 in the pause mode and limbo mode until we see 0:18:32.200 --> 0:18:35.760 more positive economic data. But the market keeps flipping from 0:18:35.800 --> 0:18:38.520 one side to the other without making a whole lot 0:18:38.560 --> 0:18:43.639 of progress. Um, focusing on inflation and letting it run 0:18:44.200 --> 0:18:47.879 will impact the dollar, and a lower dollar helps to 0:18:47.880 --> 0:18:51.240 get growth going. So here's what I just really struggle 0:18:51.320 --> 0:18:55.520 to understand is that growth isn't horrible, Like we're not 0:18:55.560 --> 0:18:57.720 going to recession right yet. I'm gonna point against six 0:18:57.720 --> 0:19:00.760 basis points for the German tenure BUNO. But then you 0:19:00.800 --> 0:19:02.480 go into the fact we might have a China trade 0:19:02.480 --> 0:19:04.760 deal for example, The dat is not terrible. The markets 0:19:04.800 --> 0:19:08.280 pricing in like rate cuts this year from the fed 0:19:08.760 --> 0:19:11.280 ecb rate hike is now out until like now the 0:19:11.400 --> 0:19:14.000 back half of in terms of the markets telling you 0:19:14.280 --> 0:19:17.280 so to me, anything is going to be better than 0:19:17.320 --> 0:19:19.399 what the markets are thinking. Yes, So aren't we going 0:19:19.480 --> 0:19:21.920 to have to have some kind of showdown here where 0:19:21.920 --> 0:19:23.480 the markets have to play catch up and then there's 0:19:23.520 --> 0:19:25.639 gonna be some volatility or some unwind like is that 0:19:25.680 --> 0:19:27.400 a thing we're going to have to focus on? Yes, 0:19:27.640 --> 0:19:29.960 but I just don't know when it's going to happen. 0:19:30.000 --> 0:19:32.160 It feels like it's not going to happen til later 0:19:32.240 --> 0:19:35.360 this year. But that is exactly what I would want 0:19:35.359 --> 0:19:39.040 to be prepared for. That's the biggest that's the biggest risk. 0:19:39.359 --> 0:19:42.360 And the FED really does want to get rates up, 0:19:42.400 --> 0:19:45.720 but they just don't have the ability to move. So 0:19:45.800 --> 0:19:48.760 a weaker dollar is a great way to solve that 0:19:48.840 --> 0:19:52.640 equation because they don't have to lower and they can 0:19:52.680 --> 0:19:56.240 take their time raising. Yeah, at we're looking at the dollar. 0:19:56.280 --> 0:19:58.240 I've been talking to folks on I just don't see 0:19:58.680 --> 0:20:01.280 what against which currency it will depreciate. I mean it's 0:20:01.280 --> 0:20:03.160 just you know, you look around the world. I mean 0:20:03.160 --> 0:20:05.800 it's just the dollar, you know. I just you don't 0:20:05.800 --> 0:20:07.320 see it. You have, you know, the weakness obviously in 0:20:07.320 --> 0:20:08.960 Europe that we heard about. Yes, we have China. We're 0:20:09.000 --> 0:20:12.240 not really sure where they are. UM. So it's interesting, 0:20:12.240 --> 0:20:15.119 but I think as a US economy, UM. We've had 0:20:15.119 --> 0:20:16.800 a couple of guests on today. One was kind of 0:20:16.840 --> 0:20:19.960 calling for a recession in one was saying, no any 0:20:20.000 --> 0:20:21.680 sense of kind of where you think that's going to 0:20:21.760 --> 0:20:24.920 play out. I do think that the fundamentals are are 0:20:25.080 --> 0:20:28.480 good enough that we're not close to a point where 0:20:28.280 --> 0:20:32.240 we're going to be at recession. UM. Leverage has been 0:20:32.280 --> 0:20:36.399 picking up, but it's still relatively modest. Uh So, I 0:20:36.440 --> 0:20:39.920 think a recession is much further out. It is more 0:20:39.960 --> 0:20:45.560 the volatility that as expectations UM start to get lifted, 0:20:45.920 --> 0:20:51.240 you'll you'll see the volatility in the credit markets because 0:20:51.280 --> 0:20:55.840 they've been pulled higher in price, lower in yield because 0:20:55.840 --> 0:21:00.000 of that appetite for yield. When we're stuck in uh 0:21:00.040 --> 0:21:05.720 to pause and and limbo. What is your strongest conviction 0:21:05.760 --> 0:21:09.960 trade right now? Uh e M currency. So to Paul's question, 0:21:10.040 --> 0:21:13.400 I think that's what the dollar will be weaker against 0:21:13.640 --> 0:21:17.359 is China. You are seeing the U want move up there. 0:21:17.720 --> 0:21:23.040 All signals are that they want stability and consumption. Interesting. Kathleen, 0:21:23.040 --> 0:21:25.199 thank you so much for joining us. There's always a 0:21:25.200 --> 0:21:27.359 lot to talk about, particularly after on a on a 0:21:27.440 --> 0:21:31.400 jobs Friday. Kathleen Gaffney Kathie's co director of diversified fixed 0:21:31.400 --> 0:21:33.720 income at Eaton Advance. Uh they managed over four un 0:21:33.800 --> 0:21:35.600 billion dollars and she joins us here in our Bloomberg 0:21:35.640 --> 0:21:37.920 eleven three OH studios. Thank you so much. Alex, thank 0:21:37.960 --> 0:21:40.720