WEBVTT - CPI, Euro Equities, The Fed, and Real Estate (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.640 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:20.880 --> 0:00:23.400 All right, let's break down this inflation print this morning 0:00:23.400 --> 0:00:26.079 a little bit deeper, and along chief youos economists with 0:00:26.079 --> 0:00:31.159 Bloomberg Economics. Anna, you got this one right again? What 0:00:31.240 --> 0:00:33.720 did you take away from today's print? 0:00:34.000 --> 0:00:34.080 You? 0:00:34.200 --> 0:00:35.760 Anaalog, So we want to get your opinion. And then 0:00:35.800 --> 0:00:38.120 number two, what do you think your feeder reserve will 0:00:38.159 --> 0:00:39.040 take away from this print? 0:00:40.040 --> 0:00:40.280 Yeah? 0:00:40.400 --> 0:00:44.199 My takeaway is that this is one of the best 0:00:44.320 --> 0:00:49.879 CPI report, probably in this high inflation two years with 0:00:49.920 --> 0:00:53.320 that we had had. If you look at all the detail, 0:00:53.400 --> 0:00:59.080 the details are pretty encouraging. There's some broader disinflation across 0:00:59.120 --> 0:01:01.960 more goods. There are more goods who are undergoing deflation. 0:01:02.320 --> 0:01:05.560 They're less goods that are growing at more than four 0:01:05.600 --> 0:01:11.080 percent inflation. Shelter inflation is coming down, and that's not 0:01:11.240 --> 0:01:14.360 just rent, but it's also hotels. You know that all 0:01:14.440 --> 0:01:18.840 that Airbnb collapse weil, and I think that's that's translating 0:01:18.920 --> 0:01:25.200 to domestic hotel fares coming down, and energy prices are 0:01:25.240 --> 0:01:28.959 also subdued. So I think it truly is one of 0:01:28.959 --> 0:01:32.200 those reports where you look at the you know, seams, 0:01:32.240 --> 0:01:35.400 and everything looks good in terms of how the FED 0:01:35.600 --> 0:01:38.759 look looks at it. So I always compare the FED 0:01:38.800 --> 0:01:41.759 to like a big cruise ship and when they try 0:01:41.800 --> 0:01:46.640 to turn, they can't turn sharply. And so so today 0:01:46.720 --> 0:01:51.280 we have this pretty pivotal CPI report, right sharp slow down, 0:01:51.640 --> 0:01:54.720 but the FED is not about to make a sharp turn. 0:01:55.200 --> 0:01:58.919 I think they're still on track to hike in July. 0:01:59.480 --> 0:02:02.800 I mean they still have time until the next The 0:02:02.840 --> 0:02:07.000 meeting after July is September, and between July and September 0:02:07.000 --> 0:02:09.919 there's still the Jackson Hole. There's still plenty of data. 0:02:10.240 --> 0:02:13.160 So even though that they indicate it in the dot 0:02:13.200 --> 0:02:17.280 plot in May that in June that they're going to 0:02:17.320 --> 0:02:19.760 do another hike after July, I don't think they're going 0:02:19.800 --> 0:02:23.240 to do it because by by September the evidence is 0:02:23.280 --> 0:02:25.840 going to accumulate that I think we're going to see 0:02:25.880 --> 0:02:29.080 more of this type of CPI reports. We see today 0:02:29.240 --> 0:02:32.720 where the core CPI is growing at a monthly pace. 0:02:32.800 --> 0:02:36.880 That's about where the Fed's inflation target of two percent is. 0:02:37.200 --> 0:02:39.000 So if you had to put a percentage on it, 0:02:39.080 --> 0:02:42.440 and what would you say for the likelihood of another 0:02:42.520 --> 0:02:44.639 hike in September? If we look at the werp function 0:02:44.760 --> 0:02:47.680 markets pricing in about a sixteen percent chance of a 0:02:47.720 --> 0:02:50.000 September hike, what's your calculation on that? 0:02:51.040 --> 0:02:55.200 Yeah, I think I think that's about where. I think 0:02:55.840 --> 0:02:58.840 the bond market got it pretty fair this time around. 0:03:01.280 --> 0:03:05.600 So and if we're economists like yourself, are we taking 0:03:05.600 --> 0:03:07.639 the recession talk off the table? 0:03:09.400 --> 0:03:10.960 No? You know, not for me? 0:03:12.000 --> 0:03:16.480 WHOA no, no, no, So I you know a lot 0:03:16.480 --> 0:03:19.520 of it. And this links to today's report, right. Why 0:03:19.639 --> 0:03:23.400 is this today's cpr I report so beautiful? And I 0:03:23.400 --> 0:03:24.440 think part of it is. 0:03:24.400 --> 0:03:28.760 That the lacks of monetary policy from the five hundred 0:03:28.800 --> 0:03:32.400 bits of rate hikes are starting to bite. And the 0:03:32.840 --> 0:03:35.560 stuff that takes the longest time to show up in 0:03:35.600 --> 0:03:39.840 the economy is unemployment rate rising. So typical economic models 0:03:39.840 --> 0:03:43.560 would show that unemployment rate would only peak eighteen months 0:03:43.640 --> 0:03:48.200 to twenty four months after a monetary policy shock. So 0:03:48.360 --> 0:03:53.880 that means that unemployment rate should be rising and towards 0:03:53.960 --> 0:03:56.640 the second half of this year, too early next year. 0:03:57.000 --> 0:03:59.040 And on top of that, when I look at the 0:03:59.080 --> 0:04:03.080 consumer household balance sheet, it's just it's going to be 0:04:03.160 --> 0:04:07.000 very nasty in the second half, especially when student loan 0:04:07.040 --> 0:04:13.040 payments resumed in October. So I think, just looking at 0:04:13.080 --> 0:04:16.920 how the bills of a typical household, I calculated that 0:04:17.560 --> 0:04:19.919 a person needs to earn at least twenty one dollars 0:04:20.000 --> 0:04:24.360 per hour to be able to stay afloat on all 0:04:24.400 --> 0:04:26.880 the payments. It's supposed that he has a car payment, 0:04:26.960 --> 0:04:31.159 he has student loans, mortgage credit cards. So I think 0:04:31.279 --> 0:04:35.279 a lot of people would be feeling the stress of 0:04:35.320 --> 0:04:38.599 their finances starting in the second half of this year. 0:04:38.760 --> 0:04:40.880 Well, continuing on some of the bad news that you 0:04:40.960 --> 0:04:44.320 bring up, Anna, I wonder to what extent we're seeing 0:04:44.440 --> 0:04:47.520 softness today just because the conditions were so bad a 0:04:47.640 --> 0:04:50.479 year ago that's when we got that nine percent number. 0:04:50.680 --> 0:04:53.840 Is this number that we got today about a genuine 0:04:53.920 --> 0:04:56.880 cooling that we're seeing currently, or is it more about 0:04:57.360 --> 0:04:59.600 less bad news than what we were seeing a year ago. 0:05:00.600 --> 0:05:05.120 Both, So, the headline inflation at headline CPI beans three 0:05:05.200 --> 0:05:08.120 percent is mostly due to the base effects that you 0:05:08.160 --> 0:05:12.880 point out, but also the core CPI growing at zero 0:05:12.960 --> 0:05:15.479 point two percent on a monthly pace that's free of 0:05:15.560 --> 0:05:20.960 any base effects. That's genuine disinflation. And if you annualize 0:05:20.960 --> 0:05:23.960 that zero point two percent, you get a low two 0:05:24.000 --> 0:05:28.080 percent annual pace of inflation. And then I do expect 0:05:28.200 --> 0:05:30.600 that the CPI print in the next couple of months, 0:05:30.720 --> 0:05:34.360 the core CPI print to continue to be around zero 0:05:34.480 --> 0:05:38.200 point two or even zero point three and most which 0:05:38.240 --> 0:05:41.040 means that yeah, that annualized you about between two two 0:05:41.080 --> 0:05:42.920 three percent inflation. 0:05:43.600 --> 0:05:46.599 All right, So I guess then the question will be 0:05:46.680 --> 0:05:48.680 for a lot of people as it relates to the Fed, 0:05:50.120 --> 0:05:52.880 how long do they stay at this higher level of 0:05:53.279 --> 0:05:56.960 rates before they really consider the opportunity to maybe move 0:05:57.040 --> 0:05:58.599 rates down. 0:05:58.760 --> 0:06:02.679 Right, So, you know, it depends on wage growth, and 0:06:03.040 --> 0:06:06.039 Powell seems to be putting a lot of attention on 0:06:06.800 --> 0:06:12.440 UH wage growth. The the inflation metric that the Fed 0:06:12.480 --> 0:06:16.320 pays a lot of attention to is core PCE services 0:06:16.360 --> 0:06:20.000 excluding housing, and half of that is supposed to be 0:06:20.160 --> 0:06:23.920 related to labor intensive industry, which in turn is the 0:06:24.200 --> 0:06:28.880 inflation there is driven by wages. So UH that is 0:06:29.480 --> 0:06:32.839 that I think we're also seeing some progress. We're seeing 0:06:33.360 --> 0:06:36.840 in the jobs market jobs report last Friday, we saw 0:06:36.920 --> 0:06:40.680 that that that that effect private hiring was below two 0:06:40.800 --> 0:06:44.240 hundred k and and so I think I think even 0:06:44.279 --> 0:06:50.800 on that front, it's it's pretty uh, there's progress. 0:06:50.360 --> 0:06:51.239 There, right, Yeah. 0:06:51.360 --> 0:06:54.200 Well, and Paul brings up the great point about labor, which, 0:06:54.200 --> 0:06:57.000 of course, as you've taught us very well, Anna, the 0:06:57.000 --> 0:06:59.960 FED is really looking at when determining their next moves. 0:07:00.400 --> 0:07:04.880 For my friends and folks listening in who are wondering 0:07:04.920 --> 0:07:07.440 whether cooler inflation data is going to make it harder 0:07:07.440 --> 0:07:10.240 for them to argue for a raise this year, talk 0:07:10.280 --> 0:07:13.120 to me about how you can help them pitch their 0:07:13.160 --> 0:07:15.360 bosses for a raise even though we are seeing some 0:07:15.520 --> 0:07:17.400 cooling when it comes to the inflation picture. 0:07:18.640 --> 0:07:21.920 Well, first of all, I think the best reason for 0:07:22.040 --> 0:07:26.600 arguing for pay raise is that the real wage cumulative 0:07:27.400 --> 0:07:30.680 real wage over the last two years has decreased. Many 0:07:30.680 --> 0:07:33.800 people pointed out that real wage growth this year is 0:07:34.000 --> 0:07:38.720 positive again because nominal wage is higher than inflation. But 0:07:38.960 --> 0:07:41.200 on the whole of you added up over the last 0:07:41.200 --> 0:07:45.840 two years, people are still worse off. Like that breakfast 0:07:45.880 --> 0:07:50.160 sandwich in the airport is still costing more relative to 0:07:50.240 --> 0:07:52.840 how much you can make, you know, in terms of level. 0:07:52.960 --> 0:07:56.720 So even if inflation were to be zero percent tomorrow, 0:07:57.120 --> 0:08:00.840 people will still feel worse off just because the level 0:08:00.880 --> 0:08:05.600 of prices is permanently higher than relative to their income. 0:08:05.880 --> 0:08:08.120 All right, and I thank you so much for joining us. 0:08:08.280 --> 0:08:12.000 I always appreciate getting your analysis and insight had along 0:08:12.080 --> 0:08:14.760 chief US economists for Bloomberg Economics and her team have 0:08:14.840 --> 0:08:17.800 been really spot on kind of the inflation call, the 0:08:17.840 --> 0:08:20.760 GDP call, and the most importantly, kind of where the 0:08:20.800 --> 0:08:22.560 FED is going. She was, you know, about a year 0:08:22.560 --> 0:08:25.760 ago she was saying this, you know, I mean, I 0:08:25.800 --> 0:08:26.040 take it. 0:08:26.080 --> 0:08:26.760 More than a year ago. 0:08:26.840 --> 0:08:28.040 She was saying that FED is going to take this 0:08:28.160 --> 0:08:31.920 rate to north of five percent, and that was not 0:08:32.080 --> 0:08:34.199 the consensus call at all. And she's absolutely right. 0:08:35.880 --> 0:08:39.319 You're listening to the team Ken's are Live program Bloomberg 0:08:39.360 --> 0:08:42.720 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:08:42.800 --> 0:08:45.960 the iHeartRadio app and the Bloomberg Business app, or listen 0:08:46.000 --> 0:08:48.160 on demand wherever you get your podcasts. 0:08:49.920 --> 0:08:52.400 The futsy this year up about about eight percent this 0:08:52.640 --> 0:08:56.280 I'm sorry, the footsy is flat. The stocks index, the 0:08:56.280 --> 0:08:59.160 European indext stock six hundreds up about eight percent, so 0:08:59.520 --> 0:09:02.600 lagging they outperformed last year. But let's get an overview 0:09:02.600 --> 0:09:04.800 what's happening in the European markets. We can do that 0:09:05.360 --> 0:09:07.520 because we got that kind of person here. Tim Craig 0:09:07.559 --> 0:09:11.640 had director research for Bloomberg Intelligence. He's a senior European strategist. 0:09:11.800 --> 0:09:13.760 He's based in London. We got him here in New 0:09:13.840 --> 0:09:15.640 York this week. A couple of you guys are here 0:09:15.640 --> 0:09:18.280 in New York this week. I mean, everybody's traveling, all right, 0:09:18.360 --> 0:09:20.760 So Tim, thanks for coming in here today. Give us 0:09:20.800 --> 0:09:23.960 an overview of kind of year to date, how are 0:09:24.000 --> 0:09:26.160 the markets in Europe and kind of what's the outlook. 0:09:26.640 --> 0:09:30.040 So there's been a tuggle war going on in Europe 0:09:30.240 --> 0:09:34.880 between earnings and valuation depending on the mood of the 0:09:34.960 --> 0:09:37.960 market as it relates to what's going on with inflation 0:09:38.040 --> 0:09:41.800 and interest rates. So it is not dissimilar here from 0:09:41.800 --> 0:09:44.600 the standpoint of some of the drivers. With one big 0:09:44.640 --> 0:09:49.840 exception we can get to tech. But in Europe, essentially 0:09:49.880 --> 0:09:53.559 we've had, as you said, a pretty decent market, and 0:09:53.600 --> 0:09:56.959 you talked about the eurostocks being up eight percent or 0:09:57.000 --> 0:09:59.120 I should say the stock six hundred. That's the broader 0:09:59.120 --> 0:10:02.600 market that include D's a big chunk of the UK, which, 0:10:02.800 --> 0:10:05.520 as you said, was flat. If you take out that, 0:10:05.880 --> 0:10:08.480 you look at say the eurostocks fifty, whichould be sort 0:10:08.520 --> 0:10:13.280 of the Dow Jones equivalent, that's now up fourteen percent. 0:10:13.400 --> 0:10:17.800 I mean, it's been a decent year. The key has 0:10:17.880 --> 0:10:22.760 been positive earnings revisions that started as we got out 0:10:22.840 --> 0:10:27.439 or we got into one Q earnings off setting and 0:10:27.920 --> 0:10:34.600 overwhelming valuation contraction that's occurred with the idea that interest 0:10:34.679 --> 0:10:37.360 rates are going to be elevated for longer because inflation 0:10:37.559 --> 0:10:42.760 is still very sticky in Europe, in particular services and wages. 0:10:43.080 --> 0:10:45.160 So I just threw a lot of stuff at you, 0:10:45.720 --> 0:10:50.440 but markets are behaving. Key now as we look into 0:10:50.800 --> 0:10:54.360 second quarter earnings that are getting ready to hit the tape, 0:10:54.920 --> 0:10:59.880 is can margins really maintain where they are, which are 0:11:00.200 --> 0:11:05.400 record levels. They've been very sticky in Europe, unlike here 0:11:05.800 --> 0:11:09.800 where they had rolled over. So it's a very very 0:11:09.800 --> 0:11:12.120 interesting dynamics as we go into mid year earnings. 0:11:12.400 --> 0:11:16.360 So things are good, but it's still relatively cheap when 0:11:16.360 --> 0:11:18.679 it comes to an American investor to get in on 0:11:18.720 --> 0:11:21.160 the UK. Right, So is it an argument of the 0:11:21.280 --> 0:11:23.120 UK is so cheap that you have to own. 0:11:22.920 --> 0:11:23.640 It at this point. 0:11:25.240 --> 0:11:27.280 Quick answer on that is absolutely no. 0:11:27.679 --> 0:11:29.439 Ye tell me why, Tell me why? 0:11:29.840 --> 0:11:32.600 And you could you could look at that more broadly 0:11:32.640 --> 0:11:36.360 within Europe. I mean, our work in terms of global 0:11:37.640 --> 0:11:44.040 equity strategy within Bloomberg Intelligence leans towards emerging markets, then Europe, 0:11:44.400 --> 0:11:49.680 then US. So you know, we do like Europe in concept. 0:11:49.760 --> 0:11:53.839 And within Europe itself, the market overall is trading it 0:11:53.880 --> 0:11:58.560 about thirteen times forward earnings. You know clearly that's very 0:11:58.720 --> 0:12:02.920 low relative to the US, where you're at eighteen and 0:12:02.960 --> 0:12:07.880 a half nineteen times takeout tech if you look at 0:12:07.880 --> 0:12:12.440 the equal weighted S and P several multiple points lower, 0:12:13.080 --> 0:12:17.360 so it's not such a start contrast. And Europe just 0:12:17.400 --> 0:12:21.000 doesn't have technology. You know, we don't have the Internet element. 0:12:21.320 --> 0:12:23.880 We do have some semiconductors, but we don't have the 0:12:23.920 --> 0:12:26.360 rest of it, and that's a big difference. So you 0:12:26.400 --> 0:12:29.120 can't just say it's cheap you should buy it. It's 0:12:29.240 --> 0:12:33.000 cheap because of composition and the UK specifically not to 0:12:33.080 --> 0:12:38.760 overegg this, but big on some big consumer staples, but 0:12:38.800 --> 0:12:41.840 a chunk of that's tobacco. Tobacco trades at a lower multiple. 0:12:42.080 --> 0:12:44.440 It's big on financials, but a chunk of that is 0:12:45.360 --> 0:12:48.560 commercial banks, which trade on lower multiples. And it's big 0:12:48.600 --> 0:12:52.439 on energy and materials. And given that we're still close 0:12:52.520 --> 0:12:57.079 to cyclical peak commodity earnings, they're trading in a low multiples. 0:12:57.160 --> 0:13:00.480 So it's not cheap in a comparable basis because of 0:13:00.520 --> 0:13:02.240 composition China. 0:13:02.679 --> 0:13:04.360 It feels like to me when I think about some 0:13:04.360 --> 0:13:06.760 of these European companies as semens just for example, but 0:13:06.800 --> 0:13:09.920 some of the big manufacturing companies in Europe, they depend 0:13:10.000 --> 0:13:13.240 more or they do more business with China. What does 0:13:13.280 --> 0:13:17.120 the China reopening mean? What does the China I don't know, 0:13:17.120 --> 0:13:19.240 a little bit of a cold war building between China 0:13:19.320 --> 0:13:19.760 and the West. 0:13:19.800 --> 0:13:20.160 What is that? 0:13:20.440 --> 0:13:23.199 What are the companies in Europe saying about China as 0:13:23.240 --> 0:13:25.280 a I guess as a supply chain issue and as 0:13:25.320 --> 0:13:26.560 obviously an end market. 0:13:26.720 --> 0:13:33.200 And I think China is a more relevant opportunity for 0:13:33.360 --> 0:13:36.360 the average European company than it is for the average 0:13:36.559 --> 0:13:40.760 US company. The US market itself has a lot more 0:13:40.760 --> 0:13:43.560 of a domestic focus than the European market, which has 0:13:43.920 --> 0:13:47.000 both US and Asia. You know, if you look out 0:13:47.040 --> 0:13:51.280 on a revenue exposure basis, you know, Europe is more 0:13:51.320 --> 0:13:57.400 globalized and from that perspective, part of the hope early 0:13:57.520 --> 0:14:02.560 this year January was a good month specifically for the 0:14:02.600 --> 0:14:06.960 European markets, as was December was the China reopening trade right, 0:14:07.320 --> 0:14:10.400 and you know the issue with that has been as 0:14:10.440 --> 0:14:12.680 of late, I'm sure you're aware, you know, the more 0:14:12.720 --> 0:14:16.199 recent statistics have faltered and it seems like that's sputtering. 0:14:17.880 --> 0:14:20.640 That's not great for the second half outlook, all else 0:14:20.680 --> 0:14:27.800 being equal, for the European markets, our China's strategist is 0:14:27.840 --> 0:14:33.600 still relatively sanguine that more stimulus is coming, more policy 0:14:33.720 --> 0:14:37.360 measures will come, and there are opportunities and as said said, 0:14:37.440 --> 0:14:39.800 you know, the emerging markets are an area all else 0:14:39.840 --> 0:14:43.960 being equal, that we do find intriguing. But China is 0:14:43.960 --> 0:14:44.480 a big deal. 0:14:45.120 --> 0:14:47.400 Yeah, well, of course, and hopefully this earning season we're 0:14:47.400 --> 0:14:49.000 going to get a little bit more of an indication 0:14:49.120 --> 0:14:52.240 as to how the strength of the Chinese consumer is 0:14:52.280 --> 0:14:55.800 going to potentially impact some of these profit margins. Having 0:14:55.840 --> 0:14:58.320 said that, we are hitting seeing that the dollar is 0:14:58.400 --> 0:15:01.520 hitting near fifteen month, Now, how does that play into 0:15:01.520 --> 0:15:02.040 your county? 0:15:02.320 --> 0:15:05.960 This is another one of those elements for the second 0:15:05.960 --> 0:15:09.720 half outlook in Europe. And by the way, if I 0:15:09.760 --> 0:15:12.200 were to use a word technical as it is, it 0:15:12.200 --> 0:15:14.840 would be sloppy. You know, that's kind of what we 0:15:15.160 --> 0:15:16.120 going to steal that from you. 0:15:16.120 --> 0:15:18.040 When I'm trying to sound really smart there. 0:15:18.400 --> 0:15:23.600 Exactly, currency is a big deal. If you look at 0:15:23.720 --> 0:15:27.440 the third quarter specifically, by the time we get into 0:15:28.240 --> 0:15:32.320 that as a reporting period in a few months, whether 0:15:32.400 --> 0:15:37.280 you're British, whether you're Euro based, or whether you're Swiss 0:15:37.320 --> 0:15:41.600 Frank based, currency is going to be somewhere between a 0:15:41.680 --> 0:15:44.640 ten and fourteen percent headwind for you on a year 0:15:44.680 --> 0:15:49.080 over year basis. It's a huge hit. And you know, 0:15:49.240 --> 0:15:53.560 some companies will hedge that away. Some companies are producing 0:15:54.040 --> 0:15:58.040 in the local market, and so there's you know, different accounting, 0:15:58.480 --> 0:16:02.360 you know, sort of opportunity needs to minimize the impact. 0:16:02.840 --> 0:16:06.560 But just overtly, if I'm a Swedish company and I 0:16:06.640 --> 0:16:09.840 generate one hundred percent, you know, the Swedish industrials are 0:16:09.840 --> 0:16:14.280 a big deal. I generate all of my sales abroad, 0:16:14.960 --> 0:16:18.200 it's you know, it's it'll be an interesting element from 0:16:18.200 --> 0:16:20.640 the standpoint of currency impact. 0:16:20.280 --> 0:16:23.000 But maybe a tailwind for some of the consumer stables 0:16:23.040 --> 0:16:24.120 that you mentioned. 0:16:23.880 --> 0:16:28.840 Well, but again, if I'm if I'm Unilever, if I'm Diagio, 0:16:30.440 --> 0:16:33.480 I'm based in what is a strong currency, right, And 0:16:34.000 --> 0:16:36.640 so you know it may be you know, it's more 0:16:36.880 --> 0:16:41.840 a combination of what's going on from the local economic 0:16:41.960 --> 0:16:45.960 the local consumer spending perspective for those consumer based companies. 0:16:47.000 --> 0:16:50.720 But the issue with the defensives in ways they've got 0:16:50.800 --> 0:16:56.080 more currency exposure for a euro of revenue because they 0:16:56.080 --> 0:16:59.000 don't have a cyclical element to offset. You know, it 0:16:59.200 --> 0:17:03.960 makes it more dependent on the currency being a swing factor. 0:17:04.040 --> 0:17:06.960 So if you look at a correlation analysis of who 0:17:07.040 --> 0:17:13.320 has the most negative correlation with currency, it's healthcare and 0:17:13.359 --> 0:17:14.080 its staples. 0:17:14.320 --> 0:17:18.960 Real quick, twenty seconds. A pint in bell sized favorite, 0:17:19.080 --> 0:17:21.200 well sized park. It's a suburb of London. What's not 0:17:21.240 --> 0:17:22.159 going to run me today? 0:17:24.119 --> 0:17:24.920 Seven pounds? 0:17:24.960 --> 0:17:25.280 Really? 0:17:25.640 --> 0:17:28.160 Yeah, but that's inflation. But that's a big beer. 0:17:28.960 --> 0:17:29.960 Is a big relation. 0:17:30.280 --> 0:17:34.119 That said, dude, I had breakfast this morning. Yea, yeah, 0:17:34.119 --> 0:17:37.040 you're talking ridiculous. My wife is over here. Had a 0:17:37.080 --> 0:17:40.439 pizza yesterday for lunch. Twenty six pounds for a pizza 0:17:40.480 --> 0:17:43.920 that was the size of a plate, I mean dollars. 0:17:44.760 --> 0:17:45.879 All right, Tim, Thanks so much for that. 0:17:45.920 --> 0:17:49.600 Tim Craig had Director Research, Senior European strategist, Bloomberg Intelligence. 0:17:49.880 --> 0:17:52.960 You're listening to the tape Cat's are live program Bloomberg 0:17:53.000 --> 0:17:56.639 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:17:56.680 --> 0:17:58.760 tune in app, Bloomberg dot Com. 0:17:58.480 --> 0:17:59.880 And the Bloomberg Business App. 0:17:59.880 --> 0:18:02.760 You can also listen live on Amazon Alexa from our 0:18:02.760 --> 0:18:07.840 flagship New York station, Just say Alexa playing Bloomberg eleven thirty. 0:18:08.800 --> 0:18:11.600 Looking at the fields space here, big move into two 0:18:11.640 --> 0:18:14.560 year treasury down fourteen basis points four point seventy three percent. 0:18:15.160 --> 0:18:17.359 That kind of gets your attention here and looking at 0:18:17.400 --> 0:18:21.480 the Bloomberg Index browser, I go on the terminal the 0:18:22.200 --> 0:18:27.120 Bloomberg aggregate total return unheedged return here for the bond 0:18:27.200 --> 0:18:29.680 market up one point three percent a year to date. 0:18:29.680 --> 0:18:32.280 It's that's a lot better than last year. Let's do 0:18:32.359 --> 0:18:35.560 some more work on the investment grade business out there 0:18:35.600 --> 0:18:37.800 in a fixed income space. Natalie Trevortik joins us, head 0:18:37.800 --> 0:18:41.040 of investment grade credit Strategy. It paid in rego. Natalie, 0:18:41.080 --> 0:18:43.160 thanks so much for joining us here. What's your takeaway 0:18:43.160 --> 0:18:45.639 from this inflation print that we saw this morning. 0:18:46.560 --> 0:18:48.679 Well, it was a very good print, but being a 0:18:48.680 --> 0:18:50.520 bond person, I always have to look for the bear 0:18:50.600 --> 0:18:53.960 scenario and like, maybe it's too good. Why can't we 0:18:54.080 --> 0:18:56.520 just get that point three percent month over month encore 0:18:56.640 --> 0:18:58.760 that we were hoping for, Because now you see the 0:18:58.800 --> 0:19:01.520 stock markets up again. We got really good news in 0:19:01.560 --> 0:19:05.200 terms of airfares and hotels moderating. But maybe it makes 0:19:05.240 --> 0:19:08.720 corporate America think that, hey, we can go about raising 0:19:08.800 --> 0:19:11.560 prices again. And because the economy is doing so well, 0:19:11.600 --> 0:19:14.360 we still have that strong wage growth and the employment 0:19:14.400 --> 0:19:17.119 picture is still very strong. So it seems like the 0:19:17.160 --> 0:19:19.600 economy is firing on all cylinders. Are we in the 0:19:19.600 --> 0:19:22.600 Schooldilock scenario and avoid the recession altogether? 0:19:23.359 --> 0:19:26.199 Okay, so you think that the CPI print from today 0:19:26.480 --> 0:19:31.760 could lead to price increases, because why not. The economy's 0:19:31.800 --> 0:19:34.040 cooling a little bit, so let's just try it out. 0:19:35.400 --> 0:19:38.080 Yeah, Like, maybe not right away, but it also shows 0:19:38.080 --> 0:19:41.080 that there's still strong underlying growth in the economy, from 0:19:41.119 --> 0:19:44.120 the employment picture, the spending that we're seeing in services. 0:19:44.160 --> 0:19:46.359 It was great to see that moderation and goods and 0:19:46.400 --> 0:19:49.120 that's definitely come down, but there's parts of the economy 0:19:49.119 --> 0:19:52.040 which are still running a little bit hot. So maybe 0:19:52.040 --> 0:19:54.840 companies don't have to do the layoffs they were possibly 0:19:54.880 --> 0:19:57.119 thinking they had to do earlier in the year, and 0:19:57.200 --> 0:20:00.720 it is a very nice scenario. Doesn't mean the Fed's 0:20:00.720 --> 0:20:03.120 probably going to have to cut anytime soon, even if 0:20:03.160 --> 0:20:05.840 the second right hike for this year is maybe more 0:20:05.880 --> 0:20:07.119 in doubt at this time. 0:20:07.720 --> 0:20:10.040 So Natalie, of you and the good folks have paid 0:20:10.080 --> 0:20:13.440 in regal, have you taken the recession risk off the table? 0:20:13.480 --> 0:20:13.640 Here? 0:20:14.640 --> 0:20:16.880 Not off the table, but we've definitely pushed it out 0:20:16.920 --> 0:20:19.119 further down the road, So it's not a time to 0:20:19.119 --> 0:20:21.920 be cautious. Yield, even though they've come off the peaks 0:20:22.240 --> 0:20:24.800 from last week, they're still pretty high. So as you 0:20:24.800 --> 0:20:27.200 were saying, you know, the ad return one point three 0:20:27.240 --> 0:20:29.800 percent year to date, ID corps are above two percent, 0:20:29.840 --> 0:20:33.160 but Hi, you bonder have returned five percent year to date, 0:20:33.400 --> 0:20:35.680 so we still think it's a nice cupon clipping year 0:20:35.680 --> 0:20:38.440 for credit and so you can still expect some good 0:20:38.440 --> 0:20:40.439 returns in the second half of the year, and we 0:20:40.480 --> 0:20:43.160 don't want to be too defensive and lose out on those. 0:20:44.000 --> 0:20:47.400 And what about corporate spreads in particular looking a little 0:20:47.400 --> 0:20:50.000 bit tighter in the month of June. What do you 0:20:50.400 --> 0:20:52.800 anticipate that looking like in the second half of the year. 0:20:53.560 --> 0:20:56.600 Yeah, they really rallied after the debt ceiling resolution, and 0:20:56.640 --> 0:21:00.439 they're continuing to do pretty well in July through the 0:21:00.520 --> 0:21:03.080 types of where they started the year at the beginning 0:21:03.080 --> 0:21:06.160 of the year, despite the banking crisis. So we think 0:21:06.200 --> 0:21:08.000 there may be a little bit on the hot side 0:21:08.080 --> 0:21:09.760 right now, but we don't really see a case for 0:21:09.840 --> 0:21:12.440 them to blow out if the recession is pushed out 0:21:12.480 --> 0:21:15.800 to say late twenty twenty four or twenty twenty five. 0:21:15.920 --> 0:21:19.000 So we think you have to definitely pick your spots now. 0:21:19.200 --> 0:21:21.040 We saw a little bit of a beta rally in 0:21:21.119 --> 0:21:23.280 June and maybe that went too far, But there's a 0:21:23.280 --> 0:21:25.080 lot of good names out there which we think can 0:21:25.119 --> 0:21:28.960 perform well. But we wouldn't expect too much further spread 0:21:28.960 --> 0:21:31.439 tightening from here, So the bulk of your return is 0:21:31.440 --> 0:21:34.040 going to come from that carry and coupon clipping. 0:21:34.880 --> 0:21:38.440 Natalie hels the credit quality out there in the mark 0:21:38.480 --> 0:21:41.520 as you look across your portfolio, we've heard people say, boy, 0:21:41.520 --> 0:21:43.600 it's pretty darn good. We don't really have any big 0:21:43.680 --> 0:21:44.879 issues here at the moment. 0:21:45.880 --> 0:21:48.600 We really don't, because companies that are on the cusps 0:21:48.600 --> 0:21:50.919 maybe of low triple B going to high yield have 0:21:51.000 --> 0:21:54.639 already taken steps to either reduce cap X or cut dividends, 0:21:54.800 --> 0:21:57.679 so they're really focused on maintaining their ID ratings. And 0:21:57.720 --> 0:22:00.439 if anything, we're seeing more upgrades, particularly out of the 0:22:00.640 --> 0:22:05.240 energy space. So if anything, we're expecting more rising stars 0:22:05.280 --> 0:22:07.120 than fallen angels in the coming year. 0:22:08.000 --> 0:22:09.560 And when you look at the second half of the 0:22:09.640 --> 0:22:13.000 year two, I'm curious if you think that we're maybe 0:22:13.080 --> 0:22:17.480 underpricing the idea that the market will always give us 0:22:17.520 --> 0:22:20.840 the most painful possible scenario. Do you think that there's 0:22:20.880 --> 0:22:23.840 a potential outcome here of you know, big tech dropping 0:22:23.960 --> 0:22:28.160