WEBVTT - Bloomberg Surveillance TV: March 12, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.360 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:37.200 Bloomberg Terminal and the Bloomberg Business app at Beginning this hour, 0:00:37.400 --> 0:00:39.639 with stocksin chin KaiA looking to snap a two day 0:00:39.680 --> 0:00:42.800 losing streak, market's whipsword by tariff headlines are leading to 0:00:42.840 --> 0:00:46.440 several downgrades for US sancreities. From Goldman, from City and 0:00:46.479 --> 0:00:50.600 from HSBC. Join Gus now from HSBC, Max Ketner, Max, 0:00:50.640 --> 0:00:53.040 Welcome back to the program, Sir, The facts have changed. 0:00:53.120 --> 0:00:55.200 Talked to me about how the outlook might have changed 0:00:55.200 --> 0:00:55.640 as well. 0:00:56.920 --> 0:00:59.840 Yeah, Look, I think we're still tactically quite cautious on equities. 0:01:00.040 --> 0:01:02.800 We're all, particularly of course in the US. We've just 0:01:02.840 --> 0:01:04.400 put out a note this morning. I think this is 0:01:04.440 --> 0:01:06.920 the kind of time where you need to update your 0:01:06.959 --> 0:01:10.039 framework your indicators pretty much on an hourly basis, because 0:01:10.319 --> 0:01:13.320 like you guys were just discussing, of course, even yesterday, 0:01:13.400 --> 0:01:16.280 things were changing pretty much three times during the day. 0:01:16.720 --> 0:01:18.880 So when we look at our indicators at the moment, 0:01:18.959 --> 0:01:22.720 particularly from a systematic perspective, of course, yes, there has 0:01:22.800 --> 0:01:26.119 been quite a bit of systematic selling. But what we're 0:01:26.160 --> 0:01:29.280 not yet seeing is this sort of final puke. So 0:01:29.280 --> 0:01:33.319 when we look, for example, our momentum and slash CTA indicators, 0:01:33.600 --> 0:01:36.720 they are bearish. They flipped from maximum bullish to bearish, 0:01:36.760 --> 0:01:40.640 but they're only at sort of medium bearish levels until now. 0:01:40.760 --> 0:01:43.200 So we need, I think, for us to be comfortable 0:01:43.240 --> 0:01:45.200 to go back in and to buy the DIP, I 0:01:45.240 --> 0:01:47.200 think we need a bit more sort of a puke 0:01:47.319 --> 0:01:51.040 moment inequities to really say, right, this is the all clear. Now, 0:01:51.160 --> 0:01:54.360 positioning is clear enough, systematics have sold enough, and of 0:01:54.400 --> 0:01:58.040 course from a fundamental perspective, what's changed in the outlook. 0:01:58.120 --> 0:02:01.000 So the stuff that you were alluding to is, you know, 0:02:01.000 --> 0:02:03.160 we were all thinking there is some sort of put 0:02:03.200 --> 0:02:06.720 from the new US administration. With that absent it is 0:02:06.760 --> 0:02:08.799 down to the FED put. But of course with data 0:02:09.000 --> 0:02:11.960 let's say like yesterday, like the jolt data, all services 0:02:11.960 --> 0:02:15.320 of isms or payrolls still pretty pretty okay. You know, 0:02:15.360 --> 0:02:17.560 in a normal environment, that would be really bootish for 0:02:17.600 --> 0:02:21.080 equities and for risk assets overall. For the current environment, however, 0:02:21.360 --> 0:02:24.320 it just puts the FED put even further away. Remember 0:02:24.400 --> 0:02:27.239 what Powell was saying on Friday, We're in no hurry 0:02:27.280 --> 0:02:29.400 at all to do anything in rates. So what we 0:02:29.440 --> 0:02:31.520 would need is the FIT to give some kind of 0:02:31.600 --> 0:02:35.760 not to tightening financial conditions, that they're monitoring market developments 0:02:35.840 --> 0:02:38.160 something like that. But as they said on Friday, I 0:02:38.160 --> 0:02:40.000 think we're still quite a bit of way off. 0:02:40.000 --> 0:02:41.960 There max a lot to unpack there. Let's start with 0:02:41.960 --> 0:02:45.840 the technical term puke. What does the cathartic puke look like? 0:02:46.160 --> 0:02:48.000 We had a ten percent decline at one point in 0:02:48.080 --> 0:02:50.280 yesterday's session, so entered correction territory. 0:02:50.320 --> 0:02:52.359 Briefly, If it's not that, what is it? 0:02:53.760 --> 0:02:55.760 I think what we need to see is broader based. 0:02:56.080 --> 0:02:59.560 Even on Monday, right breadth actually wasn't that bad. It 0:02:59.600 --> 0:03:02.080 wasn't like it was all five hundred stocks going down. 0:03:02.240 --> 0:03:05.440 It was still pretty sort of focused and pretty concentrated 0:03:05.480 --> 0:03:08.160 on some certain sectors, and the high multiple sectors. I 0:03:08.160 --> 0:03:10.080 think what you would want to see is sort of 0:03:10.200 --> 0:03:13.320 the final broad based puke where it's not just you know, 0:03:13.440 --> 0:03:16.040 tech and the high multiple stuff that gets hammered, but 0:03:16.360 --> 0:03:19.239 really the broader market where perhaps even the equal weighted 0:03:19.360 --> 0:03:23.200 SMP underperforms the cap weighted SMP. What you would want 0:03:23.240 --> 0:03:26.360 to see is that spilling over into credit spreads as well, 0:03:26.440 --> 0:03:30.160 right where we haven't really seen a disorderly widening as well, 0:03:30.240 --> 0:03:32.959 and maybe even spilling over into other equity markets where 0:03:32.960 --> 0:03:35.240 then people say, you know what, so far we've been 0:03:35.280 --> 0:03:38.120 hinding out in European equities. We've been you know, thinking 0:03:38.120 --> 0:03:41.080 that this is a completely different story. But now we're 0:03:41.160 --> 0:03:44.480 really playing US for recession fears, and that should spill 0:03:44.520 --> 0:03:47.440 over in to global equity markets once we've got that. 0:03:47.560 --> 0:03:50.760 I think that is then sort of the final puke. 0:03:50.800 --> 0:03:53.480 And another queue to watch perhaps is the momentum factor. 0:03:53.520 --> 0:03:56.560 When we look, of course in US momentum, that momentum 0:03:56.560 --> 0:03:59.840 factor has been absolutely slaughter the last three four weeks. 0:04:00.240 --> 0:04:02.200 Any kind of bottoming there, any kind of a sign 0:04:02.240 --> 0:04:04.520 of a reversal there, I think is another sign where 0:04:04.560 --> 0:04:05.520 we can start buying. 0:04:05.280 --> 0:04:07.200 The dep I think this conversation needs a bit of 0:04:07.200 --> 0:04:10.280 antacid and Max. I am curious about whether we're talking 0:04:10.320 --> 0:04:14.160 about sort of the market equivalent of the economic debate 0:04:14.200 --> 0:04:17.240 here of whether we're pricing in stagflation or pricing in 0:04:17.920 --> 0:04:20.559 something more like a recession, and that is something Julia 0:04:20.839 --> 0:04:23.919 Emmanuel was talking about, what are we pricing in currently? 0:04:23.960 --> 0:04:26.960 What would you take more seriously right now at a 0:04:27.000 --> 0:04:29.200 time where there are a lot of anxieties, but there 0:04:29.240 --> 0:04:31.760 still are people who are hopeful that we could emerge 0:04:31.760 --> 0:04:32.000 from this. 0:04:33.480 --> 0:04:36.800 I think stagflation fears were about a month ago, right 0:04:36.880 --> 0:04:41.000 That was basically when we had January CPI particularly underlying 0:04:41.040 --> 0:04:43.799 inflation much much higher than a lot of people, including 0:04:43.839 --> 0:04:47.119 myself expected, where you know, super core inflation was really 0:04:47.120 --> 0:04:49.560 coming in quite a bit hotter, and that really was 0:04:49.560 --> 0:04:50.159 a month ago. 0:04:50.240 --> 0:04:53.320 When we look at the last three weeks, the amount. 0:04:53.000 --> 0:04:56.320 Of selling that we've seen in cyclicals versus defensives, particularly 0:04:56.360 --> 0:04:59.719 in the US, the amount of decoupling between US cyclical 0:04:59.760 --> 0:05:04.000 def against European cyclical defensives, or really rest of worlds 0:05:04.000 --> 0:05:08.000 cyclical against defensive performance clearly tells us what the market 0:05:08.040 --> 0:05:10.840 is playing now in particularly the last week and a 0:05:10.839 --> 0:05:14.200 half is increasingly recession fears, so we are I think 0:05:14.240 --> 0:05:16.360 we are getting closer to the point where you want 0:05:16.360 --> 0:05:19.480 to start buying that correction. We're not just quite there 0:05:19.600 --> 0:05:22.080 yet because I think, again, it would be different if 0:05:22.080 --> 0:05:25.080 it was just the high multiple stuff, but we're starting 0:05:25.120 --> 0:05:27.960 to see that spill over into other parts of the market. 0:05:28.000 --> 0:05:28.800 It's just not. 0:05:28.800 --> 0:05:31.520 Quite there yet where we can really sound the all 0:05:31.640 --> 0:05:34.760 clear on the systematic positioning unwind being completely over. 0:05:35.000 --> 0:05:37.960 This is a complicated story. It's not just about recession 0:05:38.320 --> 0:05:40.680 and recession fears in the US. It's also about relative 0:05:40.760 --> 0:05:43.560 valuation and the fact that suddenly there is an alternative 0:05:43.640 --> 0:05:45.960 and the idea that Europe looks brighter, especially with the 0:05:46.000 --> 0:05:49.000 likelihood of some sort of fiscal package being passed. How 0:05:49.080 --> 0:05:50.680 much do you lean into that and how much do 0:05:50.720 --> 0:05:52.039 you say what a lot of people have sat on 0:05:52.040 --> 0:05:53.800 this show over the past couple of days, which is 0:05:54.040 --> 0:05:58.040 that's looking pretty expensive, looking pretty bad, that's already over. 0:05:59.760 --> 0:06:02.120 I mean, for one, what is amazing is think if 0:06:02.200 --> 0:06:04.240 two months ago, if at the beginning of January, just 0:06:04.279 --> 0:06:07.440 before inaugration, if we had said I think German small 0:06:07.480 --> 0:06:10.560 in mid camps or European small and midcaps are the 0:06:11.080 --> 0:06:14.640 quote relative save Haven in global equity land. I think 0:06:14.680 --> 0:06:16.479 you guys would have thrown me out of this room 0:06:16.520 --> 0:06:18.559 now and would have sent maybe don't come back again. 0:06:18.880 --> 0:06:21.239 So it is quite funny how things have changed only 0:06:21.320 --> 0:06:24.120 within a couple of weeks. I do agree with you 0:06:24.240 --> 0:06:26.599 it is perhaps the Dacks is not the right place 0:06:26.640 --> 0:06:28.880 maybe anymore. I think it's perhaps in Europe really the 0:06:28.920 --> 0:06:32.560 small in midcamps that should benefit the most from perhaps 0:06:32.560 --> 0:06:36.080 you know that the fiscal package in Germany getting over 0:06:36.120 --> 0:06:39.240 the line. Also perhaps any potential kind of positive news 0:06:39.279 --> 0:06:43.080 around Russia, Ukraine. All of that is really particularly beneficial 0:06:43.080 --> 0:06:45.599 for the smaller in midcaps, but also for other parts 0:06:45.640 --> 0:06:47.120 of the market. We look at China, I think the 0:06:47.240 --> 0:06:50.200 China Internet that ags tech trade, that still has some 0:06:50.320 --> 0:06:52.960 room to left. So it's not like we have to 0:06:53.080 --> 0:06:56.400 throw in the towel on equities entirely, right. It is 0:06:56.520 --> 0:06:59.920 so far mainly a US story. And I think in Europe, yeah, 0:07:00.080 --> 0:07:02.279 find the higher euro, the stronger euro, I think is 0:07:02.320 --> 0:07:05.120 starting to get felt in the larger caps, particularly in 0:07:05.160 --> 0:07:07.840 the German equities, given that they you know, basically get 0:07:07.880 --> 0:07:10.680 generate only or less than twenty percent of their revenues 0:07:10.960 --> 0:07:14.160 outside of or inside of Germany and about eighty percent 0:07:14.240 --> 0:07:17.280 outside of Germany. So the stronger euro will start awagh 0:07:17.320 --> 0:07:20.280 on the performers there, But the smaller and midcaps, I 0:07:20.280 --> 0:07:22.080 think really the ones that you want to look at. 0:07:22.240 --> 0:07:24.600 Also the banks, right, we can look at European banks. 0:07:24.640 --> 0:07:27.680 Still really good European insurance, So there's a lot of 0:07:27.680 --> 0:07:30.520 stuff even within Europe also from a sector perspective under 0:07:30.520 --> 0:07:32.040 the hood that is worth looking at. 0:07:32.200 --> 0:07:34.720 Max an incredible twenty four hours for Europe, potentially one 0:07:34.720 --> 0:07:37.880 step closer to peace on the continent. At the same time, 0:07:37.920 --> 0:07:40.880 you wake up and you see these retaliatory countermeasures to 0:07:41.080 --> 0:07:44.320 US tariffs, what narrative do you think will prevail? 0:07:45.960 --> 0:07:48.880 Look, I think the narrative clearly for the US is 0:07:48.880 --> 0:07:51.560 is that that put from or that we thought was 0:07:51.600 --> 0:07:55.000 there from the US administration, either the strike price is 0:07:55.200 --> 0:07:58.400 much further away, or maybe that put doesn't even exist 0:07:58.480 --> 0:08:00.560 because they want to force in the fit. So I 0:08:00.600 --> 0:08:03.720 think that narrative, particularly for you as risk assets, and 0:08:03.760 --> 0:08:06.520 frankly at some point also for globally for risk assets 0:08:06.560 --> 0:08:09.400 more broadly, will really prevail on the next couple of weeks, 0:08:09.400 --> 0:08:13.080 because ultimately, for a sustained you know, for a sustained 0:08:13.120 --> 0:08:16.120 reversal higher. We will need to see some kind of 0:08:16.160 --> 0:08:18.560 not from the FED to say, Okay, you know what, 0:08:18.680 --> 0:08:22.400 we are monitoring financial conditions, we are monitoring market developments. 0:08:22.680 --> 0:08:25.520 And let's remember that was actually already enough in the 0:08:25.560 --> 0:08:29.200 December twenty eighteen January twenty nineteen episode. You know, they 0:08:29.200 --> 0:08:32.000 were starting to cut rates only in July twenty nineteen, 0:08:32.160 --> 0:08:35.160 but in January already had that bullish reversal because all 0:08:35.160 --> 0:08:37.560 the FED had to do is to say, well, financial 0:08:37.600 --> 0:08:41.319 conditions are quote notably tighter than they were in September. 0:08:41.320 --> 0:08:42.160 That's all they had to do. 0:08:42.200 --> 0:08:45.520 They only had to say notably tighter, and already markets 0:08:45.520 --> 0:08:47.240 were saying that's the FED put that's it. 0:08:47.280 --> 0:08:47.800 So we're not. 0:08:47.760 --> 0:08:50.040 Talking QE, we're not talking emergency rate cuts. 0:08:50.160 --> 0:08:51.439 What I'm talking about. 0:08:51.360 --> 0:08:53.560 Is literally just like a verbal not from the FED 0:08:53.640 --> 0:08:55.720 that we need and that already I think from a 0:08:55.760 --> 0:08:59.240 fundamental perspective, would then change that narrative that we've just 0:08:59.280 --> 0:08:59.960 been talking about. 0:09:00.080 --> 0:09:02.360 A Max appreciate it. Thanks for the update. Max Canada 0:09:02.400 --> 0:09:14.360 there of HSBC. On the equity market, Let's talk about 0:09:14.360 --> 0:09:16.320 some of the stock moves we've seen in the past 0:09:16.360 --> 0:09:18.840 twenty four hours we can in consumer demand, leading to 0:09:18.840 --> 0:09:21.679 a sell off in airline stocks downta, spooking investors after 0:09:21.760 --> 0:09:25.000 kind of its profit forecast in half. Chila Colu of 0:09:25.080 --> 0:09:27.839 Jeffreyes joins US now for more chili. Good morning in rain, 0:09:27.920 --> 0:09:30.560 big changes. What did you see what you were tracking 0:09:30.679 --> 0:09:33.000 in the last month or so, what's happened with these airlines. 0:09:33.760 --> 0:09:36.160 We have a data series that tracks airline traffic on 0:09:36.240 --> 0:09:40.200 apps and folks pre booking, so that data fell off 0:09:40.240 --> 0:09:43.520 about ten percent over the last three months, so trailing 0:09:43.520 --> 0:09:45.520 three months, but the three weeks really fell off. It 0:09:45.600 --> 0:09:48.240 hit the lowest cost carriers the most. So back to 0:09:48.440 --> 0:09:50.559 Ann Marie's point, it's in the heartland and where we're 0:09:50.559 --> 0:09:54.760 seeing the demand fall off. But Delta signaled a fifty 0:09:54.800 --> 0:09:57.600 percent revenue cut. They guided Q one seven to nine percent, 0:09:57.920 --> 0:09:59.480 then they cut it to up three to four. So 0:09:59.600 --> 0:10:03.479 still positive. As Ed Bastian said, we're not in recession territory. 0:10:03.720 --> 0:10:05.880 But January and February, which is the last time we 0:10:05.880 --> 0:10:08.920 heard from them about three weeks ago, was positive growth, 0:10:09.200 --> 0:10:11.679 and so that means the last three weeks really decelerated. 0:10:11.720 --> 0:10:13.720 So Q two is going to be very important because 0:10:13.760 --> 0:10:15.640 it's about forty percent of airline earnings. 0:10:15.800 --> 0:10:18.760 As we strip out some of the motivating reasons for 0:10:18.840 --> 0:10:21.920 why we saw such a deceleration in demand, can you 0:10:22.080 --> 0:10:26.600 track the fall off in airline ticket purchases to some 0:10:26.679 --> 0:10:28.280 of the safety issues that were raised? 0:10:28.920 --> 0:10:31.760 That was cited by both American and Delta yesterday, But 0:10:31.800 --> 0:10:33.559 it was across the board, and that's what I think 0:10:33.720 --> 0:10:36.200 startled so many folks. It was Delta close in bookings, 0:10:36.240 --> 0:10:39.520 so people book airfares closer to when they're actually going 0:10:39.559 --> 0:10:41.959 to travel. It was also corporate demands off, and we've 0:10:42.000 --> 0:10:44.880 seen that in bizjet utilization data as well for February. 0:10:45.360 --> 0:10:49.120 And then third it was a demand across government, which 0:10:49.240 --> 0:10:51.719 United has about four percent of asms and American has 0:10:51.720 --> 0:10:53.160 one point five, So it was. 0:10:53.160 --> 0:10:54.000 Across the board. 0:10:54.000 --> 0:10:58.960 It was Trump's policy's doge really impacting government employees, corporates 0:10:59.000 --> 0:11:02.559 slowing down, and then you know just leisure demand slowing 0:11:02.559 --> 0:11:03.000 as well. 0:11:03.080 --> 0:11:06.920 We heard from Delta that they plan to cut capacity 0:11:07.160 --> 0:11:10.520 to meet slower demand heading into the summer. What does 0:11:10.559 --> 0:11:13.679 that indicate to you about just how temporary this is, 0:11:13.920 --> 0:11:17.079 or if potentially some of the airlines are preparing for 0:11:17.160 --> 0:11:19.000 this fall off to continue for a longer period of 0:11:19.000 --> 0:11:22.160 time and hoping to increase prices to compensate for it. 0:11:22.360 --> 0:11:25.080 I think domestically in the US market, capacity is already 0:11:25.160 --> 0:11:26.959 very tight. That was the story of the first half 0:11:27.000 --> 0:11:30.280 of last year. Capacity grew six to seven percent, and 0:11:30.320 --> 0:11:32.640 then we exited the year about flat and the data 0:11:32.920 --> 0:11:36.240 TSA volumes are flat year over year, but so is capacity. 0:11:36.440 --> 0:11:40.400 So capacity is already fairly tight. So that's a soft 0:11:40.440 --> 0:11:43.400 comment from Delta to make. To cut capacity, we have 0:11:43.440 --> 0:11:45.280 to see demand come in, and I think the next 0:11:45.559 --> 0:11:47.400 four to six weeks is going to be very critical 0:11:47.440 --> 0:11:49.160 to see how the US consumer is going to react. 0:11:49.160 --> 0:11:50.720 Where does the demand come in. I think we were 0:11:50.720 --> 0:11:53.360 all struck around this table yesterday when a headline dump 0:11:53.440 --> 0:11:57.400 that dropped that United said fifty percent drop in government travel. 0:11:57.679 --> 0:11:59.000 Who fills that void? 0:11:59.320 --> 0:12:01.480 It's hard, I mean, it's a small percentage of asms. 0:12:01.520 --> 0:12:04.440 But then Delta also cited corporate demand across the board. 0:12:04.440 --> 0:12:07.640 Airspace and defense was of course the sector cited as 0:12:07.679 --> 0:12:10.280 well as leisures, so it wasn't only one thing, and 0:12:10.320 --> 0:12:14.240 I think that's what is more concerning about the reads. 0:12:14.240 --> 0:12:17.600 But again it's early and so that could change if 0:12:17.600 --> 0:12:19.439 the SMP goes up for the next four weeks, I'm 0:12:19.440 --> 0:12:21.560 sure people will start booking travel again. So it's all 0:12:21.559 --> 0:12:22.640 based on market sentiment. 0:12:22.760 --> 0:12:25.480 What's more challenging domestic travel right now or international? 0:12:25.920 --> 0:12:28.920 Domestic is more challenging. Domestic has always been because you 0:12:28.920 --> 0:12:32.600 have low cost carriers and so they priced down. You 0:12:32.640 --> 0:12:36.400 see tickets from Spirit other low cost carriers for very cheap. 0:12:36.760 --> 0:12:39.560 International is still very positive, and the good news is 0:12:39.840 --> 0:12:42.040 eight three fifties and seven eight sevens are very slow 0:12:42.080 --> 0:12:44.760 on the deliveries, so we're not seeing a lot of 0:12:44.760 --> 0:12:47.520 capacity come into the market. In BacT, that market's very constrained. 0:12:47.640 --> 0:12:50.080 You suggested it's sequity market dependent. I might suggest it's 0:12:50.120 --> 0:12:52.400 dose dependent. If I'm a federal worker this year, I'm 0:12:52.400 --> 0:12:54.840 not traveling. If I've booked a vacation, I'm canceling it. 0:12:55.240 --> 0:12:56.760 If you've got to raise a family at the moment 0:12:56.760 --> 0:12:59.240 and you're dependent on the federal government fearr annual salary, 0:12:59.400 --> 0:13:01.440 I'd be very very nervous abound the rest of the year. 0:13:01.720 --> 0:13:03.760 How is that showing up in the numbers already? 0:13:04.280 --> 0:13:06.079 It's a small percentage of the market, but I think 0:13:06.160 --> 0:13:09.839 DOJE in general, the headlines covering defense stocks is it's 0:13:09.960 --> 0:13:12.800 what's scariest, some of the headlines they put out are 0:13:12.800 --> 0:13:15.240 not actually the reality of what they're cutting. So again 0:13:15.240 --> 0:13:18.000 it's going back to the uncertainty of a big headline, 0:13:18.040 --> 0:13:20.200 and the reality suppose is that what are. 0:13:20.080 --> 0:13:24.160 They actually countsinc When it comes to defense, it's. 0:13:24.040 --> 0:13:27.600 Interesting to me because I thought they would go after larger, 0:13:27.720 --> 0:13:32.120 more bureaucratic issues, but instead they're going after it services contractors, 0:13:32.559 --> 0:13:35.400 which the six public ones we cover comprise about three 0:13:35.440 --> 0:13:37.959 of the largest defense programs, So I thought they would 0:13:38.000 --> 0:13:40.800 eliminate more waste, but they seem to be cutting very 0:13:40.880 --> 0:13:44.079 quickly and very abruptly, so without any precision, which I 0:13:44.120 --> 0:13:45.839 think creates problems as well. 0:13:46.080 --> 0:13:47.839 How much of the story is this? And I ask 0:13:47.960 --> 0:13:51.200 this because yesterday I saw some comments out there like 0:13:51.360 --> 0:13:54.600 if government spending was the main pillar of support for 0:13:54.640 --> 0:13:57.600 the US consumer, then we had a pretty weak consumer 0:13:57.760 --> 0:13:59.760 aside from some of the stimulus that was really in 0:14:00.080 --> 0:14:03.400 to donch the government. Can you talk about what we've 0:14:03.440 --> 0:14:06.200 seen in terms of consumer spending habits leading up to 0:14:06.240 --> 0:14:09.080 this and then in the aftermath, and just how connected 0:14:09.080 --> 0:14:11.920 to the federal spending it is versus the overall tote. 0:14:11.920 --> 0:14:13.880 I know it's hard to parse out, but it kind 0:14:13.920 --> 0:14:15.600 of gives a sense of where we're coming from. 0:14:15.720 --> 0:14:17.840 I think is the government employees. If you're a government 0:14:17.880 --> 0:14:19.920 and employee, you're probably not traveling. But again, that's such 0:14:19.920 --> 0:14:22.360 a small percentage of the market, and some of the 0:14:22.360 --> 0:14:26.000 agencies were cutting from they've already had trouble recruiting and 0:14:26.080 --> 0:14:29.400 we've just gone back to pre pandemic levels six years later. 0:14:29.720 --> 0:14:32.840 So I think it's very problematic just cutting abruptly. And 0:14:33.280 --> 0:14:36.080 I do think the airline cuts go back to consumer 0:14:36.160 --> 0:14:40.160 sentiment on the overall market. As we've all seen our 0:14:40.200 --> 0:14:41.120 stock prices have. 0:14:41.440 --> 0:14:42.200 What's your favorite name? 0:14:42.240 --> 0:14:44.720 This morning, I'm going to go I'm going to actually 0:14:44.720 --> 0:14:47.160 pitch Boeing. I really like Boeing. I think outside the 0:14:47.240 --> 0:14:50.760 Arrapad lines, the Macro, we haven't delivered a single plane 0:14:50.760 --> 0:14:53.960 in six years. The skyline is over sold, and I 0:14:54.000 --> 0:14:57.360 think investors have capitulated on just demand. They think we're 0:14:57.360 --> 0:14:59.840 going to see demand destruction because the market's often for 0:14:59.840 --> 0:15:02.000 the the last three weeks. But I think everybody's still 0:15:02.040 --> 0:15:03.600 waiting for their plan and it's not going to get 0:15:03.600 --> 0:15:04.040 out of line. 0:15:04.080 --> 0:15:06.040 So should I appreciate it? It's good to get off 0:15:06.080 --> 0:15:08.080 to Spade with you. Thank you, Sulda Cary. There of 0:15:08.160 --> 0:15:20.880 Jeffreeson joining us now is David Kelly of JP Morkan 0:15:20.920 --> 0:15:24.440 Asset Management. David, that's some good news going into next week. 0:15:24.480 --> 0:15:26.880 How much comfort will this bring the Federal Reserve? 0:15:28.880 --> 0:15:29.560 Only a little. 0:15:29.680 --> 0:15:31.280 I mean, if you look at the number of stage 0:15:31.320 --> 0:15:35.040 just scanning them, we saw a four percent decline airline affairs, 0:15:35.520 --> 0:15:37.080 which is probably you know, that affects some of the 0:15:37.160 --> 0:15:39.120 things that the airlines are saying to us about some 0:15:39.160 --> 0:15:41.920 weakening and demand. But I really think that the Federal 0:15:41.960 --> 0:15:45.120 Reserve is in a very difficult position here. Until we 0:15:45.160 --> 0:15:48.240 have some clarity on tariffs, they don't know how much 0:15:48.280 --> 0:15:50.120 of an inflation kick we're going to get from tariffs 0:15:50.160 --> 0:15:53.520 this year, and until we've got some clarity on the budget, 0:15:53.520 --> 0:15:55.320 they don't know how much physical stimulus is going to 0:15:55.320 --> 0:15:57.640 be kicked in next year. So I still think they'll 0:15:57.680 --> 0:16:03.200 probably wait and see next week. This economy is beginning 0:16:03.200 --> 0:16:05.720 to look like it needs or will you justifies a 0:16:05.800 --> 0:16:08.360 rate cut, and I do think we'll probably end up 0:16:08.400 --> 0:16:09.680 with more than one rate cut this year. I think 0:16:09.720 --> 0:16:11.840 we may end up with a sequence of rate cuts. 0:16:11.880 --> 0:16:13.680 But I think it's just too early for the Federal 0:16:13.680 --> 0:16:16.800 Reserve to make a decision given the uncertainty about policy. 0:16:16.960 --> 0:16:19.160 What's fascinating to me is a reaction of markets, David, 0:16:19.200 --> 0:16:21.160 the idea that you're seeing a bigger reaction right now 0:16:21.200 --> 0:16:24.120 and equities in your bonds. This idea that maybe the 0:16:24.160 --> 0:16:27.320 Fed put could come back into play and support valuations 0:16:27.360 --> 0:16:29.680 even amid policy uncertainty. 0:16:30.200 --> 0:16:30.840 Do you buy that? 0:16:31.040 --> 0:16:34.320 Is that something that you think is a correct thesis? 0:16:35.040 --> 0:16:36.960 Well, I think that there's some other things on the 0:16:36.960 --> 0:16:39.520 bond market's mind here. I mean one of them is 0:16:39.840 --> 0:16:41.480 that if you look at the numbers that the CBO 0:16:41.560 --> 0:16:44.040 put out yesterday on the budget depthsit so far this year, 0:16:44.280 --> 0:16:46.280 it looks like we're going to crack two trillion dollars 0:16:46.280 --> 0:16:48.840 this year, and we've got a massive budget deficit. And 0:16:48.880 --> 0:16:51.960 the weaker the economy gets, the more likely it is 0:16:51.960 --> 0:16:54.240 that we're going to see even more fiscal stimulus kick 0:16:54.280 --> 0:16:57.560 in next year. So we've got a deteriorating situation, a 0:16:57.600 --> 0:17:00.840 fiscal situation here, and sow economic growth and tariffs will 0:17:00.840 --> 0:17:04.800 only make it worse. So that may be supporting real 0:17:04.880 --> 0:17:08.480 yels here, even if inflation backs off a bit on 0:17:09.480 --> 0:17:12.000 weaken economic growth next year, So I think there's more 0:17:12.040 --> 0:17:16.000 than just inflation and the FED on the bond market's mind. 0:17:16.080 --> 0:17:18.160 Which is also part of the reason why the FED 0:17:18.240 --> 0:17:20.840 might have a hard time just embracing this data and 0:17:20.880 --> 0:17:23.919 then signaling next week that they plan to cut rates 0:17:24.080 --> 0:17:26.920 sooner than maybe they expected. David, what do they need 0:17:26.960 --> 0:17:29.800 to see to have confidence in the forward trajectory given 0:17:29.800 --> 0:17:32.159 that this is backward moving and we have policy that 0:17:32.280 --> 0:17:34.439 is pushing companies to act in real time. 0:17:35.520 --> 0:17:38.440 Yeah, I think the most important thing would be a 0:17:38.480 --> 0:17:41.800 sort of a final story on tariffs for this year 0:17:41.840 --> 0:17:44.400 and for the next few years. We know obviously, as 0:17:44.440 --> 0:17:47.719 an economist, I believe that zero tariffs are the correct policy. 0:17:47.960 --> 0:17:52.439 I think that's a fairly traditional conservative perspective. But some 0:17:52.560 --> 0:17:55.840 clarity on that is vital for them to figure out, 0:17:56.080 --> 0:17:58.879 you know, how is how's the economy going to evolve? 0:17:58.880 --> 0:18:00.800 I mean, what the FED has said very clearly two 0:18:00.880 --> 0:18:03.320 days after the election, j Palell said, we're not going 0:18:03.359 --> 0:18:05.000 to assume, We're not going to guess, and we're not 0:18:05.040 --> 0:18:07.800 going to speculate. But they'd have to assume guests and 0:18:07.800 --> 0:18:10.800 speculate if they move policy right now, and that's what 0:18:10.840 --> 0:18:14.000 they're trying to avoid so that the administration and Congress 0:18:14.040 --> 0:18:17.240 really need to figure out what the policy playing field 0:18:17.280 --> 0:18:18.840 is going to be over the next few years, then 0:18:18.880 --> 0:18:21.119 the Pederal Reserve can try to make some decisions. 0:18:21.280 --> 0:18:23.959 David Kelly if JP Morgan Accent Management, David, thank you. 0:18:24.040 --> 0:18:27.119 The Federal Reserve meeting a week away, David really painted 0:18:27.119 --> 0:18:29.440 a picture of what a tricky position this Federal Reserve 0:18:29.520 --> 0:18:31.159 is going to be in a week from today. It 0:18:31.200 --> 0:18:33.399 could have been trickier without a data point like the 0:18:33.400 --> 0:18:34.320 one we just got. 0:18:34.440 --> 0:18:36.520 At least they don't have runaway inflation of the idea, 0:18:36.560 --> 0:18:39.560 they're coming into a potential inflationary shock. I'll be at 0:18:39.600 --> 0:18:43.400 a one time price adjustment. There is some sense of disinflation. 0:18:43.840 --> 0:18:45.720 That said, the fact that if you do have a 0:18:45.720 --> 0:18:49.199 weakening economy that that could lead to more fiscal stimulus 0:18:49.400 --> 0:18:52.960 makes it very complicated for bond investors, let alone just 0:18:53.000 --> 0:18:53.359 the FED. 0:18:53.480 --> 0:18:55.240 If you are just joining us, welcome to the program. 0:18:55.320 --> 0:18:59.240 Moments ago, a small downside surprise on CPI headline month 0:18:59.280 --> 0:19:02.760 over month zero point two percent the estimate zero point three. 0:19:03.119 --> 0:19:05.840 Stripping out food and energy zero point two percent, the 0:19:05.960 --> 0:19:08.920