Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Joining us now is
Speaker 2: Dani Peterson at the conference board. Daniel, welcome back to
Speaker 2: the program. Got lots to talk to you about that
Speaker 2: consumer confidence number from earlier than this week. I just
Speaker 2: want to pick up on the data that came out
Speaker 2: just months ago this morning. How are you thinking about it?
Speaker 2: How does it inform your view of where the Fed
Speaker 2: goes next?
Speaker 3: Well, I think the jury still out.
Speaker 1: We still have a lot more data where you could see,
Speaker 1: especially next week's ecloyment data.
Speaker 3: But I mean the good news is.
Speaker 1: Then please and is continuing to slow and so the
Speaker 1: Fed can be less concerned about that if inflation flows
Speaker 1: faster than the past that they outlined in the September SDPs.
Speaker 1: Then certainly they can go fifty, but again they need
Speaker 1: to I think they need to see the labor market,
Speaker 1: and I think the labor market's doing fine. When we
Speaker 1: look at the number of payrolls, you don't need to
Speaker 1: have two three hundred thousand payroll editions a month when
Speaker 1: you're pretty much at full employment and the unemployment grade
Speaker 1: is very low. Wage inflation is still elevated, so there's
Speaker 1: still a lot of good news about the labor market.
Speaker 1: And also when we look at growth, you know, if
Speaker 1: consumers continue to spend, then that's.
Speaker 3: Going to mean very strong GDP growth. So I think
Speaker 3: the Fed is still going.
Speaker 1: To be data dependent, and you know, all the data
Speaker 1: from now until November are going to decide whether the
Speaker 1: Fed goes.
Speaker 3: Fifty or twenty five.
Speaker 2: Well, Dena, how low is the bar to go fifty?
Speaker 2: We've got payrolls next Friday. They estimate in our surveys
Speaker 2: about one thirty. You said yourself, we don't need two hundred.
Speaker 2: Something between one hundred and one fifty is still okay
Speaker 2: for the economy. And where we're at right now, how
Speaker 2: low is the bar to go fifty.
Speaker 1: Well, I think if you start seeing negative payroll reads
Speaker 1: or further creep in the unemployment rate. You know, the
Speaker 1: FEDS looking at the unemployment rate to kind of top
Speaker 1: out at four point four percent. The natural rate is
Speaker 1: four and a half, so that's full employment. But I
Speaker 1: think if you start seeing the unemployment rate keep above that,
Speaker 1: then the set is going.
Speaker 3: To lean on.
Speaker 1: Okay, now from the downside, risks that we feared or
Speaker 1: starting to materialize, So we need to cut rates faster
Speaker 1: to undergir the labor market.
Speaker 4: Were surprised by Dana and by how weak some of
Speaker 4: the labor sentiment was by the consumers.
Speaker 3: That you ended up surveying.
Speaker 4: Were you surprised that people felt like jobs really were
Speaker 4: getting much harder to get?
Speaker 1: Well, not really, because if you think about it, the
Speaker 1: peak of the job hard to get jobs needed to
Speaker 1: get differential was back in twenty twenty two, when we.
Speaker 3: Know it was very easy to find a job.
Speaker 1: You had all these job openings because companies are still
Speaker 1: trying to replen at their ranks after the pandemic. Now,
Speaker 1: companies that pretty much have all the workers that they need.
Speaker 3: When we talk to the CEOs of.
Speaker 1: Large companies, About forty percent of them are saying, you know,
Speaker 1: we're not making any changes to our workforce, and the
Speaker 1: other forty percent are saying, we're going to continue to hire,
Speaker 1: and only about twenty percent are saying, ah, well, maybe
Speaker 1: you'll let some people go.
Speaker 3: So it's still a story of hiring and hoarding.
Speaker 1: And so if that's the case, then you're not going
Speaker 1: to see big payroll gains month after month because we're
Speaker 1: at full employment.
Speaker 4: We also saw a decline and consumer sentiment just more broadly,
Speaker 4: and previously it had been really inflation expectations that were
Speaker 4: driving that. When people felt like the cost of the
Speaker 4: goods they were buying or going up at a dramatic pace,
Speaker 4: they felt pretty bad about that, pretty negative. Do you
Speaker 4: think that this had more to do with the jobs
Speaker 4: picture maybe softening from a very strong level, or do
Speaker 4: you think this has more to do with things like
Speaker 4: the election and other sentiment factors that come into some
Speaker 4: of these economics points.
Speaker 3: Sure, well, the measures.
Speaker 1: That go into our headline are business conditions, the labor market,
Speaker 1: and income. We don't the election or inflation. Those measures
Speaker 1: don't fold up into the headline. And so when we
Speaker 1: look at the headline. It really has been moving back
Speaker 1: and forth. Certainly, the last reading is at the bottom
Speaker 1: of the range that we've seen in the last two years.
Speaker 1: But certainly we do ask consumers what do you think
Speaker 1: about inflation? What do you think about you know, things
Speaker 1: that are impacting the economy. It's still the case that
Speaker 1: prices and inflation, those two words are still cropping up. Prices,
Speaker 1: you know, the level of you know, how much things
Speaker 1: cost is elevated, but they're a little less concerned about.
Speaker 3: The rate of change and inflation.
Speaker 1: We did notice that the words interest rates and election
Speaker 1: did pop up.
Speaker 3: In some of the right and measures.
Speaker 1: Even still when we looked at the election certainly over
Speaker 1: the last years in terms of.
Speaker 3: Those right and it's still pretty low.
Speaker 1: I think consumers are not really going to get too
Speaker 1: focused on at as being a major issue for the
Speaker 1: economy until we get to October.
Speaker 5: But to Lisa's point, I understand you have a surgical
Speaker 5: way of how you go about this survey, but you
Speaker 5: talk to CEOs, you see what's going on in a
Speaker 5: campaign trail. Right now, if you're a CEO and you
Speaker 5: come out and say, potentially you might be moving workers
Speaker 5: to a different country because you need to save money
Speaker 5: or you need to find certain labor, you are going
Speaker 5: to be basically in the bullseye of one of these
Speaker 5: candidates is they are concerned, potentially in the labor market,
Speaker 5: that companies are just waiting for more clarity after November fifth.
Speaker 1: Yes, companies are waiting for more clarity. But the thing
Speaker 1: is they are investing in include technology and human capital,
Speaker 1: and it's really not the case and not hearing that
Speaker 1: companies are looking to offshore people. They're trying to find
Speaker 1: people right here in the US. And certainly the companies
Speaker 1: that are benefiting from industrial policies around pips and infrastructure
Speaker 1: and factories are doing quite well. They're giving us the
Speaker 1: good story.
Speaker 3: Now it's the.
Speaker 1: Companies that are more consumer facing where they see, you know,
Speaker 1: risks of consumers really pulling back. They're much more worried,
Speaker 1: especially since consumers are still buying a lot of services.
Speaker 3: But we're noticing that as goods.
Speaker 1: Price fall, consumers are running out there and they're buying cars.
Speaker 1: So we're not getting that sense that companies are either
Speaker 1: looking to layoff labor or.
Speaker 3: Even move them abroad. It's a very different story.
Speaker 2: Then, Unpleased that you joined the program today, because I'm
Speaker 2: sure you've got a lot of phone calls this week.
Speaker 2: Danny Peterson at the conference book John Guess Now is
Speaker 2: Christina Hoope of Investgo. Christina is going to see you.
Speaker 2: Welcome to the program.
Speaker 6: It's great to see you too.
Speaker 2: Is this the real deal a game changer in China
Speaker 2: this week?
Speaker 3: I think it could very well be.
Speaker 6: I mean, certainly the initial reaction suggests that it could be.
Speaker 6: That it's certainly more than was expected, and seems like
Speaker 6: there's a real commitment to follow up with more as
Speaker 6: a needed.
Speaker 2: Talk to me about what changes for you, because a
Speaker 2: lot of people are waking up thinking I've been over
Speaker 2: a whit US runners sis to the rest of the
Speaker 2: world for a long long time. Does that need to change?
Speaker 6: I do think it needs to change somewhat. But I
Speaker 6: would say where the bigger overweight is is still cash,
Speaker 6: and so there's an opportunity to deploy and get one's
Speaker 6: portfolio more into balance, but not necessarily take away from
Speaker 6: US equities, but just build up exposures to other areas
Speaker 6: like European equities, like Chinese equities instead. And I think
Speaker 6: there's a real argument to move more into China because
Speaker 6: valuations are very attractive. We've just been waiting for that catalyst.
Speaker 6: It seems to have rived.
Speaker 4: I love this people, person after person who comes in
Speaker 4: the show get out of cash. Why are you in cash?
Speaker 4: There's so many other things.
Speaker 3: To invest in.
Speaker 4: Lock in these yields. Go to China, go to equities
Speaker 4: in the US, go to Europe. And what did we
Speaker 4: see over the past week the biggest weekly flow into
Speaker 4: cash funds into money market funds going back to March
Speaker 4: of twenty twenty three. How do you understand that?
Speaker 7: Well?
Speaker 6: I think there's certainly a lot of nervousness out there.
Speaker 6: There is an excitement about rake cuts and the opportunities
Speaker 6: that they bring, but there's also this trepidation that what
Speaker 6: if that fifty basis point cut was a crisis cut,
Speaker 6: what if the economy is on worse footing than we think,
Speaker 6: and let's face it, what if other areas of the
Speaker 6: world are on worse footing than we think. So I
Speaker 6: think there's certainly a bit of a split personality for
Speaker 6: markets right now, where there are those that are hedging
Speaker 6: their bets look at the kind of money that's going
Speaker 6: into gold as well. But at the same time, there's
Speaker 6: an excitement about equities, and I think that is rightly placed,
Speaker 6: because I do believe my base case scenario is the
Speaker 6: US does see a soft landing, and that we see
Speaker 6: a pretty brief soft landing with an economic reacceleration to follow.
Speaker 4: There's a real question here about whether that soft landing
Speaker 4: can come with a rally and everything. The sort of
Speaker 4: soft landing nirvana that supports bonds as much as it
Speaker 4: does stocks as much as it does is broadening out
Speaker 4: trade well.
Speaker 6: I think of it as almost the opposite of twenty
Speaker 6: twenty two, where virtually everything sank, and so you can
Speaker 6: have a year where you have an everything rally. You
Speaker 6: can have an everything bagel. Why can't you have an
Speaker 6: everything rally?
Speaker 5: I love that everything bagel on and everything rally well potentially,
Speaker 5: and your notes put it, the markets are still swimming
Speaker 5: in a sea of uncertainty. Out of all those uncertainties,
Speaker 5: what ranks number one for you whether or.
Speaker 6: Not the US has a soft landing. Let's face it,
Speaker 6: we're certainly getting data that tells us that the economy
Speaker 6: is in fairly good shape. But there is that fear that,
Speaker 6: because of the long and variable legs of monetary policy,
Speaker 6: that aggressive tightening cycle, that restrictive monetary policy environment catches.
Speaker 3: Up with us.
Speaker 6: And so that's why I think we follow consumer sentiments
Speaker 6: so closely, and that's why we had in reaction to
Speaker 6: the Conference Board consumer numbers the other day. But I
Speaker 6: would argue, when you actually delve into the information, once
Speaker 6: you saw where's consumers got much more negative on economy,
Speaker 6: but they still want to spend, they still want to
Speaker 6: go out to eat, they still want to go to
Speaker 6: the movies. So I think of it more as an
Speaker 6: e or economy where consumers are worried, but they're not
Speaker 6: necessarily acting on their worries.
Speaker 2: It's America, we can't share with the Conference Board a
Speaker 2: little bit later. Isn't that America? But still spending? Anxious
Speaker 2: but still spending.
Speaker 4: Well, you know, to me, this is the sort of
Speaker 4: big million dollar question everyone's been saying, you're running out
Speaker 4: of savings. Americans just go and they're reckless, ruthless, they
Speaker 4: spend anyway, they're going to borrow to spend. But actually
Speaker 4: the savings rate it was potentially highed that we previously
Speaker 4: reported in new data, So maybe people actually haven't been imprudent.
Speaker 4: Maybe Americans were smartly spending on things that matter to
Speaker 4: them and trips, and you know.
Speaker 5: They still have credit cards. So even if you're worried
Speaker 5: about losing your job, you might as well yolo, go
Speaker 5: out to dinner, go to the movies, go on a vacation,
Speaker 5: have some fun.
Speaker 2: And Donald Trump's going to camp the interest rate on
Speaker 2: the credit cards, right, potentially? What did you make of that?
Speaker 2: Can I just pick up on that? I think it's
Speaker 2: really important. We talked a lot about price controls coming
Speaker 2: out of the Harris campaign. We haven't told enough about
Speaker 2: this camping interest rates on credit cards? Can you mution
Speaker 2: what would hapen? And if we did that, we'd basically
Speaker 2: only have credit allowed for people who had high fight
Speaker 2: host scores, and I mean really really high credit scores,
Speaker 2: there'd be a lot of people locked out of credit markets.
Speaker 5: Two things, One again, is Donald Trump or Bernie Sanders
Speaker 5: brow like literally a Bernie brow because this is what
Speaker 5: the progressives have been talking about, but at a fifteen
Speaker 5: percent cap AOC and Bernie Sanders. But what was interesting
Speaker 5: so we heard from mister Moultpass was a serious immediate
Speaker 5: step back. I'm not one of those people. He doesn't
Speaker 5: really think that that should be happening.
Speaker 4: All I can say is, think about all the money
Speaker 4: in private markets. It would come up with creative ways
Speaker 4: to give credit in other or more punitive rates later
Speaker 4: in some other views. So I mean, it's not that
Speaker 4: they'd be locked out, it's just, you.
Speaker 3: Know, you really want to borrow.
Speaker 4: Come on over here, I've.
Speaker 3: Got a price for you.
Speaker 2: Don't underestimate innovation in financial markets in America. Christina is
Speaker 2: going to see it. Thanks for being here, Christina Hoop
Speaker 2: there of Investco. Marvin Low of State Street stain bullish
Speaker 2: ris in this. The FED is alive and well. The
Speaker 2: Fed's willingness to start with a fifty basis point RATECUN
Speaker 2: while remaining data dependent, essentially hands the market the option
Speaker 2: to push the Fed towards fifty on any sign of
Speaker 2: economic weakness. Smuth and Low joined us now for more,
Speaker 2: Marv and I've said this a few times out of
Speaker 2: the last week. Does it get much better than this?
Speaker 8: You know what, it's a pretty good time right now
Speaker 8: with the stories coming out of China. Certainly the global
Speaker 8: cutting cycle and discussions.
Speaker 7: That it might accelerate is just good for risk assets.
Speaker 7: And you know, let's not look that gift towards in
Speaker 7: the Mount Marvin.
Speaker 2: The mans are up, luxuries up, Chinese tech is up
Speaker 2: by almost twenty percent so far this week. We've seen
Speaker 2: this movie before you get Hitts the stimulus out of China,
Speaker 2: We rip for a little bit and then we roll over.
Speaker 2: Is it different this time?
Speaker 7: You know, it's pretty significant.
Speaker 8: Certainly, it does seem as if the central government is
Speaker 8: looking to stabilize at least the economy through the financial markets.
Speaker 8: It's a real question to us whether or not, you know,
Speaker 8: similar to whether or not Wall Street can make it
Speaker 8: way into Main Street, whether or not these actions can
Speaker 8: once again drive a more active consumer that has really
Speaker 8: had problems feeling comfortable with the economic situation there. So
Speaker 8: that's to be seen, but from a market's perspective, it
Speaker 8: certainly is supportive.
Speaker 4: There's a broader theme here, and this, I think is
Speaker 4: what really got people's attention this week, which is maybe
Speaker 4: the market underestimated just how much the FED cutting cycle
Speaker 4: would open the floodgates to the rest of the world
Speaker 4: also taking easing steps. How much is that what we're
Speaker 4: seeing and basically paving the way to a global easing
Speaker 4: cycle that really fuels more growth than people previously expected.
Speaker 8: You know what, I've always been of the thought that
Speaker 8: while everyone expected the FED to cut, it really took
Speaker 8: a view of how the cycle was going to evolve
Speaker 8: in their minds, in the fomc's minds, to get investors
Speaker 8: comfortable with how that might domino.
Speaker 7: Through the rest of the world. So, yeah, there is
Speaker 7: a bit of that.
Speaker 8: Even though everything has been you know, fairly well priced,
Speaker 8: a looser monetary policy coming out of the US just
Speaker 8: makes it a lot easier for the rest of the
Speaker 8: world to ultimately follow along.
Speaker 4: Is it now just a potential policy error waiting for
Speaker 4: the ECB not to hike, not to cut rates in
Speaker 4: tandem with the FED more aggressively, just simply because they
Speaker 4: have inflation below two percent, they have growth rolling over,
Speaker 4: They've got a whole host of potential challenges. There is
Speaker 4: no argument for them to keep rates where they are.
Speaker 4: Am I missing something?
Speaker 7: Yeah? I agree with you completely.
Speaker 8: What is going to be interesting, I think as we
Speaker 8: go into next year, our potential changes in our star
Speaker 8: kind of if you will, this neutral rate where in
Speaker 8: Europe it looks like there are star could potentially be
Speaker 8: lower than what it was before the pandemic.
Speaker 7: Where in the us.
Speaker 8: We're still debating whether or not kind of this two
Speaker 8: and seven eighth neutral rate, which is, you know, almost
Speaker 8: fifty basis points above where it was before.
Speaker 7: The pandemic started, makes sense, you know, does it need
Speaker 7: to be even higher than that?
Speaker 8: And that's kind of the Monte policy diversion, a dispersion
Speaker 8: that we had been expecting really for the last year
Speaker 8: year and a half, which is now finally playing out.
Speaker 5: Marvin leaving the ECB to one side. How promising is
Speaker 5: it for Europe basically only dependent on how well China
Speaker 5: goes with these new stimulus measures.
Speaker 8: I mean, I mean, for sure we have to look
Speaker 8: underneath the covers there and wonder what that economy looks like.
Speaker 8: It's again part of that r Star discussion I'm talking about.
Speaker 8: It's Germany's really real inability to kind of get out
Speaker 8: of its dulgrums. I do think it is a sick
Speaker 8: type of economy that takes a lot more than just
Speaker 8: this one sugar dose.
Speaker 7: It'll help, for sure, but there's still a lot of
Speaker 7: underlying concerns.
Speaker 5: How difficult does understand the German economy when you see
Speaker 5: the headlines coming out of say the auto industry, but
Speaker 5: then you look at where the decks has been trading.
Speaker 8: Yeah, I mean, I mean, for sure, again it's the
Speaker 8: separate between Wall Street and Main Street to a certain degree.
Speaker 8: You know, Germany has really benefited from a pre pandemic
Speaker 8: world which was much different from a geopolitical perspective, which is,
Speaker 8: you know, certainly impacting Europe a bit more than it
Speaker 8: might be the US economy. And we really need to
Speaker 8: think through that as a potential headwind as we go
Speaker 8: into an environment where geopolitics potentially becomes a much higher
Speaker 8: headline concern than it really had been in the you know,
Speaker 8: mid twenty tens, if you will.
Speaker 4: Okay, putting aside potential geologic political shocks, you are potentially
Speaker 4: much more bullish than you were, say a week ago.
Speaker 4: Is that an accurate characterization?
Speaker 8: No, no, no, I mean I really did feel that
Speaker 8: the cutting cycle was something that was underappreciated. You know,
Speaker 8: I do think that the tailwind globally is pretty significant.
Speaker 8: So you know, I've been I've liked stocks for the
Speaker 8: better part of the summer.
Speaker 4: Okay, so you've been bullish for a while, and that's
Speaker 4: what a lot of people have been saying. They're getting
Speaker 4: more bullish as the cutting cycle goes on. Maybe you've
Speaker 4: always been this bullish. People are saying, get out of cash.
Speaker 4: It is the time to start going into other assets,
Speaker 4: into stocks, into longer term bonds. Yesterday we got data
Speaker 4: from ICI showing the biggest weekly inflow into money market funds.
Speaker 4: Jerome Schinder yesterday of PIMCO is telling us this is
Speaker 4: not really going to be the best place to be.
Speaker 4: It is actually accelerating the flows into these asset classes.
Speaker 4: Six point four trillion dollars now in money market funds.
Speaker 4: How do you explain the fact that people are still
Speaker 4: rushing to cash at a time where you're hearing the
Speaker 4: increasing cries to get out.
Speaker 7: Yeah, you know what. We were having that exact same
Speaker 7: discussion on the desk yesterday.
Speaker 8: There are a lot of things that don't necessarily package
Speaker 8: well in terms of the flows and liquidity. I do
Speaker 8: think it speaks to the amount of liquidity that remains
Speaker 8: in the system, which ultimately supportive until we really start
Speaker 8: to worry about liquidity, if you will. At the same
Speaker 8: time that that's happening, we've got this Treasury conference that's
Speaker 8: going on at the New York Fed where they're talking
Speaker 8: about thinking what the liquidity situation will look like as
Speaker 8: QT kind of goes on. So for the moment, it
Speaker 8: is a tailwind. There is a lot of liquidity in
Speaker 8: the system. I think it speaks to the growth that
Speaker 8: we have in the US and that potentially either supports
Speaker 8: retail and or supports the market.
Speaker 7: But QT will continue to operate in the background given.
Speaker 8: That there's so much liquidity out there, and we do
Speaker 8: need to think through into the second half of twenty
Speaker 8: twenty five, which feels like a lifetime away, when maybe
Speaker 8: all of these talmans we have really start to die.
Speaker 2: Down twenty twenty five, I think we've got to talk
Speaker 2: about the policy anxiety around the election. Mavin. Do you
Speaker 2: think we can avoid that kind of gambler in the
Speaker 2: equity market as we anticipate what may or may not
Speaker 2: happen November fifth.
Speaker 7: I mean, you know what, there's so.
Speaker 8: Much that's going to happen in early November, you know,
Speaker 8: certainly the elections, hoping that we actually have an answer,
Speaker 8: if you will, after the elections.
Speaker 7: The FED is that week.
Speaker 8: Also, you know, the risks that I would look at
Speaker 8: in terms of top priority to to you know, getting
Speaker 8: a little bit lesser. Number one is whether or not
Speaker 8: we can call it, you know, who the president is comfortably.
Speaker 8: If we can't, that is an absolute risk premium that
Speaker 8: the market needs to absorb. In terms of policy itself,
Speaker 8: there's going to be an intric reaction where Democrats are
Speaker 8: viewed less uh, you know, less cooperative to the markets,
Speaker 8: if you will, But policy itself that gets.
Speaker 7: Put in place, you know.
Speaker 8: I think we need to figure out who Congress is
Speaker 8: and what they can actually get done, if anything. Really
Speaker 8: the deficit discussion remains top and center.
Speaker 7: However, as we go through this, which really.
Speaker 8: Formulates how you want to look at longer treasure yields
Speaker 8: as we kind of go into the end of the.
Speaker 2: Year, be on the bond market though month and I
Speaker 2: think this raises really important questions about the character of
Speaker 2: the current rally. We've seen China absolutely rip this week.
Speaker 2: How vulnerable would it be this rally to a Trump
Speaker 2: presidency come November?
Speaker 7: Oh, you know, for for sure.
Speaker 8: Again, I do think that a lot of what we're
Speaker 8: seeing in China is market supportive but not necessarily economically supportive.
Speaker 7: We've had head fakes before.
Speaker 8: It takes the real economy in China getting firm footing
Speaker 8: to really justify the kind of rally that we've been seeing.
Speaker 2: Marvin enjoyed this. Thank you, Sarah. As always, Marvin lode
Speaker 2: at State Street. This is the Bloomberg Surveillance Podcast, bringing
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