1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,920 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,080 Speaker 2: Terminal and the Bloomberg Business app. We begin with our 10 00:00:37,080 --> 00:00:39,960 Speaker 2: top story, stop sending out a fourth day of gains, 11 00:00:40,159 --> 00:00:43,199 Speaker 2: Tracey McMillan of Wells Fargo writing this, we remain more 12 00:00:43,240 --> 00:00:46,480 Speaker 2: cautious at current levels in both fixed income and equities 13 00:00:46,560 --> 00:00:50,680 Speaker 2: until valuations improve and better opportunities present themselves. We expect 14 00:00:50,720 --> 00:00:54,200 Speaker 2: to see broader opportunities inequities over the next six to 15 00:00:54,280 --> 00:00:56,319 Speaker 2: twelve months. I'm please to say that joining us now 16 00:00:56,640 --> 00:00:59,040 Speaker 2: is Tracy. Tracy. Let's talk about this more course, on 17 00:00:59,080 --> 00:01:01,920 Speaker 2: both stocks and on fixed income as well. How does 18 00:01:01,920 --> 00:01:04,560 Speaker 2: a view a one asset class inform the other? Currently? 19 00:01:07,080 --> 00:01:10,479 Speaker 3: Good morning, John, So we are cautious on both equities 20 00:01:10,560 --> 00:01:14,399 Speaker 3: and on fixed income, and we're really waiting for better 21 00:01:14,480 --> 00:01:15,720 Speaker 3: opportunities to. 22 00:01:15,840 --> 00:01:19,119 Speaker 4: Add to both of those asset classes. Right now, what. 23 00:01:19,040 --> 00:01:21,440 Speaker 3: We see is that at the short end of the 24 00:01:21,920 --> 00:01:26,560 Speaker 3: fixed income curve, the yield is over five percent, and 25 00:01:26,600 --> 00:01:29,960 Speaker 3: so you have to compare that to the opportunity and equities, 26 00:01:30,400 --> 00:01:34,720 Speaker 3: and our large cap forecast for the end of twenty 27 00:01:34,760 --> 00:01:38,600 Speaker 3: twenty four is fifty two hundred at the midpoint. So 28 00:01:38,640 --> 00:01:42,000 Speaker 3: there's not a lot of upside potential that we see 29 00:01:42,040 --> 00:01:44,279 Speaker 3: in equities going out to the end. 30 00:01:44,160 --> 00:01:45,160 Speaker 1: Of twenty twenty four. 31 00:01:45,480 --> 00:01:48,160 Speaker 3: Now twenty twenty five we think could be a better year, 32 00:01:48,320 --> 00:01:53,200 Speaker 3: so we continue to favor large cap equities. But right 33 00:01:53,240 --> 00:01:57,720 Speaker 3: now the balance between the risk reward between fixed income 34 00:01:57,840 --> 00:02:02,440 Speaker 3: and equities does have a more cautious inequities going up 35 00:02:02,480 --> 00:02:05,320 Speaker 3: in quality going up and quality and fixed income and 36 00:02:05,360 --> 00:02:08,240 Speaker 3: staying towards the short end of that fixed income curve. 37 00:02:08,520 --> 00:02:10,480 Speaker 2: Could you clarify something for me, how do you think 38 00:02:10,520 --> 00:02:13,760 Speaker 2: bonds would behave in a drawdown in equitcies? Would they 39 00:02:13,760 --> 00:02:14,360 Speaker 2: still perform? 40 00:02:14,440 --> 00:02:15,760 Speaker 5: Well? 41 00:02:15,919 --> 00:02:18,560 Speaker 3: Yeah, so that's a really interesting question because over the 42 00:02:18,600 --> 00:02:21,880 Speaker 3: past couple of years, what we've seen is higher correlations 43 00:02:21,919 --> 00:02:25,640 Speaker 3: between both equities and fixed income, and that's because of 44 00:02:25,680 --> 00:02:30,040 Speaker 3: the driver of the downturn in both of those markets, 45 00:02:30,240 --> 00:02:34,400 Speaker 3: or conversely, the upturn in both of those markets, and 46 00:02:34,440 --> 00:02:38,760 Speaker 3: that's been the expectations for interest rates based on inflation. 47 00:02:39,160 --> 00:02:43,720 Speaker 3: And so as inflation expectations have changed, we've typically seen 48 00:02:44,760 --> 00:02:48,919 Speaker 3: bond yields rise, We've seen equities come down, so both 49 00:02:48,919 --> 00:02:51,839 Speaker 3: of those negative at the same time. And then conversely, 50 00:02:52,600 --> 00:02:58,000 Speaker 3: what we are telling investors is that going forward that 51 00:02:58,080 --> 00:03:02,160 Speaker 3: should start to normalize as an inflation that comes under 52 00:03:02,200 --> 00:03:07,160 Speaker 3: better control, and diversify, diversify into assets that do not 53 00:03:07,560 --> 00:03:12,399 Speaker 3: have that strong positive correlation right now, like commodities and alternatives. 54 00:03:12,880 --> 00:03:14,679 Speaker 5: I'm wondering you talk a lot about the consumer and 55 00:03:14,720 --> 00:03:17,359 Speaker 5: a weakening and the consumer. How much can we get 56 00:03:17,360 --> 00:03:19,000 Speaker 5: a rid of that from the recent earnings which have 57 00:03:19,080 --> 00:03:21,960 Speaker 5: been pretty strong on an earnings per share basis, But 58 00:03:22,000 --> 00:03:24,400 Speaker 5: you've seen revenue come in light at a number of places, 59 00:03:24,440 --> 00:03:27,640 Speaker 5: including an uber. They're talking about bookings coming in lighter 60 00:03:27,680 --> 00:03:29,040 Speaker 5: than expected, expecting. 61 00:03:28,720 --> 00:03:29,559 Speaker 4: That to continue. 62 00:03:29,760 --> 00:03:32,720 Speaker 5: They talk about Latin America bookings having to do with this. 63 00:03:32,760 --> 00:03:35,120 Speaker 5: They talk about early holidays. Do you think this is 64 00:03:35,160 --> 00:03:38,640 Speaker 5: evidence of just tighter competition of price pressure by the 65 00:03:38,680 --> 00:03:40,240 Speaker 5: consumer or all of the above. 66 00:03:41,440 --> 00:03:44,760 Speaker 3: It's probably all of the above, Lisa. What we're seeing 67 00:03:44,840 --> 00:03:48,400 Speaker 3: in terms of the consumer is that you mentioned this 68 00:03:48,440 --> 00:03:52,440 Speaker 3: a little bit earlier. Consumer confidence does appear to be waning, 69 00:03:52,960 --> 00:03:56,320 Speaker 3: and there is a bifurcation, as you also mentioned, in 70 00:03:56,360 --> 00:04:03,640 Speaker 3: the upper income quintile the bottom four income quintiles, which 71 00:04:04,680 --> 00:04:09,040 Speaker 3: which have exhausted all of their pandemic savings, so really 72 00:04:09,080 --> 00:04:12,880 Speaker 3: relying on just that upper end consumer now to carry 73 00:04:13,280 --> 00:04:16,520 Speaker 3: the market. We'll see retail sales next week and that 74 00:04:16,600 --> 00:04:19,800 Speaker 3: will give us a further indication of whether or not 75 00:04:19,920 --> 00:04:23,039 Speaker 3: consumers are continuing to spend. But some of the underlying 76 00:04:23,640 --> 00:04:27,400 Speaker 3: information that we're getting out of recent data and recent 77 00:04:27,440 --> 00:04:31,440 Speaker 3: reports is that consumers are pushing back on some of 78 00:04:31,480 --> 00:04:35,800 Speaker 3: the price increases and that companies are feeling less confident 79 00:04:36,000 --> 00:04:38,200 Speaker 3: about their ability to raise prices. 80 00:04:38,279 --> 00:04:39,719 Speaker 4: So all in all, that. 81 00:04:39,680 --> 00:04:43,760 Speaker 3: Could be good for inflation, but we do see the 82 00:04:43,800 --> 00:04:46,440 Speaker 3: consumers starting to pull back in aggregate. 83 00:04:46,640 --> 00:04:48,320 Speaker 5: I think a lot of people would agree with you, Tracy, 84 00:04:48,600 --> 00:04:51,440 Speaker 5: the issues just the speed and exactly where this is 85 00:04:51,480 --> 00:04:53,520 Speaker 5: going to go. In terms of the weakening. You have 86 00:04:53,560 --> 00:04:55,040 Speaker 5: some people come on and say we're going to see 87 00:04:55,040 --> 00:04:57,640 Speaker 5: a protracted weakening and we're going to get that true downturn. 88 00:04:57,680 --> 00:05:00,360 Speaker 5: Francis Donald than you live talking about that yesterday, and 89 00:05:00,400 --> 00:05:02,240 Speaker 5: then you have other people saying, actually, it's just the 90 00:05:02,240 --> 00:05:05,080 Speaker 5: appropriate softening to us small caps to rally. 91 00:05:05,279 --> 00:05:09,120 Speaker 4: Which camp do you fit into? So we do think 92 00:05:09,160 --> 00:05:11,880 Speaker 4: that we're going to see more of a soft patch. 93 00:05:12,200 --> 00:05:15,560 Speaker 3: We think that the data last week is supporting that 94 00:05:15,720 --> 00:05:19,560 Speaker 3: view that we'll probably see that soft patch growth slowdown, 95 00:05:20,080 --> 00:05:24,640 Speaker 3: labor market slow down starting to occur in the second 96 00:05:24,680 --> 00:05:27,240 Speaker 3: half of this year, so, you know, more of a 97 00:05:27,240 --> 00:05:28,039 Speaker 3: soft patch. 98 00:05:28,360 --> 00:05:31,720 Speaker 4: We think there's less risk of a recession. 99 00:05:31,200 --> 00:05:35,040 Speaker 3: Than there was in twenty twenty three, but that doesn't 100 00:05:35,120 --> 00:05:39,880 Speaker 3: necessarily give us the refresh, the reset that we would need, 101 00:05:40,440 --> 00:05:43,600 Speaker 3: the clearing of markets that we would need for small 102 00:05:43,680 --> 00:05:49,159 Speaker 3: caps to reassert themselves. Small caps for really for decades now, 103 00:05:49,279 --> 00:05:54,320 Speaker 3: have seen the ranks of non earners increasing, and that 104 00:05:54,360 --> 00:05:57,960 Speaker 3: gives us some longer term concern about small caps. But 105 00:05:58,040 --> 00:06:00,800 Speaker 3: there's certainly a place in the cycle to invest in them. 106 00:06:00,800 --> 00:06:04,400 Speaker 3: We just don't think that the time is quite right yet. 107 00:06:04,960 --> 00:06:07,320 Speaker 6: Tracy. All morning, we've been talking about the developments in 108 00:06:07,360 --> 00:06:09,200 Speaker 6: the Middle East, and in your note you talk about 109 00:06:09,200 --> 00:06:11,840 Speaker 6: how this could still be a risk to oil prices, 110 00:06:11,839 --> 00:06:14,800 Speaker 6: which we've seen pulled back quite significantly. What kind of 111 00:06:14,880 --> 00:06:16,480 Speaker 6: upside do you think we can see in the oil 112 00:06:16,520 --> 00:06:18,599 Speaker 6: market now? 113 00:06:18,640 --> 00:06:22,359 Speaker 3: We have a price target on oil between eighty and 114 00:06:22,480 --> 00:06:25,000 Speaker 3: ninety dollars a barrow through the end of this year. 115 00:06:25,640 --> 00:06:28,839 Speaker 3: But we could see towards the upper end of that 116 00:06:29,040 --> 00:06:33,600 Speaker 3: target range if we were to see oil trade restricted 117 00:06:33,800 --> 00:06:37,160 Speaker 3: more in the Middle East. We did get good inventory 118 00:06:37,240 --> 00:06:41,080 Speaker 3: numbers here in the US, and certainly US mint producers 119 00:06:41,160 --> 00:06:44,400 Speaker 3: could ramp up production, but that will that will probably 120 00:06:44,440 --> 00:06:47,040 Speaker 3: take a little bit of time, and in the interim 121 00:06:47,080 --> 00:06:53,599 Speaker 3: we could see some supply constraints that would push prices higher. 122 00:06:53,760 --> 00:06:56,360 Speaker 3: And don't forget about you know, Opak being able to 123 00:06:56,520 --> 00:07:00,400 Speaker 3: bring on more supply as well. So we don't see 124 00:07:00,600 --> 00:07:04,719 Speaker 3: oil price is necessarily skyrocketing, but we could see certainly 125 00:07:04,760 --> 00:07:06,560 Speaker 3: the upper end of that range, and we think that 126 00:07:06,560 --> 00:07:10,200 Speaker 3: would again put pressure on markets because it could imply 127 00:07:11,160 --> 00:07:12,800 Speaker 3: inflation if. 128 00:07:12,640 --> 00:07:15,440 Speaker 6: That were to be the case, a ninety dollars a barrel. 129 00:07:15,560 --> 00:07:18,360 Speaker 6: Where would you potentially want to shift in your portfolio? 130 00:07:19,400 --> 00:07:23,480 Speaker 3: Yeah, so we have already shifted towards commodities with an 131 00:07:23,480 --> 00:07:26,600 Speaker 3: overweight there again, you know that the non correlation. We 132 00:07:26,840 --> 00:07:31,000 Speaker 3: like that about commodities. We've certainly seen precious metals performing well, 133 00:07:31,080 --> 00:07:34,640 Speaker 3: gold in particular, and we think that oil does have 134 00:07:34,680 --> 00:07:38,440 Speaker 3: some upside from here. So you know, a commodities position, 135 00:07:38,560 --> 00:07:41,880 Speaker 3: we think is probably a smart thing to do at 136 00:07:41,880 --> 00:07:42,280 Speaker 3: this point. 137 00:07:42,520 --> 00:07:44,760 Speaker 2: Crude a little bit lower on a session this morning, Tricy. 138 00:07:44,760 --> 00:07:46,360 Speaker 2: He always wonderful to hear from you, a triceman than 139 00:07:46,400 --> 00:07:59,400 Speaker 2: in that of whilst FAGA. Minneapolis FED President Neil Kashigawari, 140 00:07:59,560 --> 00:08:02,000 Speaker 2: urging core, adding the FED will like to keep rates 141 00:08:02,040 --> 00:08:05,040 Speaker 2: on hold for a quote extended period. More Fed speak 142 00:08:05,080 --> 00:08:07,600 Speaker 2: on TAT with Jefferson, Collins, and Cook all speaking today 143 00:08:07,800 --> 00:08:10,600 Speaker 2: Janet Henry and the team at HSBC expecting the Fed's 144 00:08:10,640 --> 00:08:14,080 Speaker 2: first cut in September and expecting the ECB and BOW 145 00:08:14,600 --> 00:08:17,800 Speaker 2: to move in June. Janet joins us Now for more, Janet, 146 00:08:17,800 --> 00:08:20,679 Speaker 2: some people might say September has become the new June. 147 00:08:20,840 --> 00:08:23,520 Speaker 2: What is the risk that December becomes the new September 148 00:08:23,600 --> 00:08:24,280 Speaker 2: and pretty soon? 149 00:08:26,440 --> 00:08:29,280 Speaker 1: Yeah, there's always risks where markets that are concerned. As 150 00:08:29,280 --> 00:08:31,880 Speaker 1: you well know, it's not so long ago that markets 151 00:08:31,920 --> 00:08:34,640 Speaker 1: were pretty convinced that the first rate cup was going 152 00:08:34,679 --> 00:08:37,439 Speaker 1: to be in March, and then it briefly went right 153 00:08:37,480 --> 00:08:40,840 Speaker 1: to the end of the year, and you're September for 154 00:08:41,000 --> 00:08:43,480 Speaker 1: us is the new June. But you'll also know that 155 00:08:43,520 --> 00:08:47,640 Speaker 1: back in December we were saying June. So it really 156 00:08:47,679 --> 00:08:51,240 Speaker 1: will depend on the data. But as Powell keeps telling us, 157 00:08:51,480 --> 00:08:54,480 Speaker 1: it's the totality of the data. Yes, they need to 158 00:08:54,480 --> 00:08:57,559 Speaker 1: see further improvement on inflation, but they don't need to 159 00:08:57,600 --> 00:09:01,040 Speaker 1: wait until they get back to two percent. The urgency 160 00:09:01,120 --> 00:09:03,720 Speaker 1: with which they will feel the need for act will 161 00:09:03,760 --> 00:09:07,160 Speaker 1: depend on all of the data, including the labor market. 162 00:09:07,400 --> 00:09:08,880 Speaker 4: So it may be that, you know. 163 00:09:09,000 --> 00:09:12,240 Speaker 1: The progress on inflation is relatively modest, but if they 164 00:09:12,280 --> 00:09:14,600 Speaker 1: see more that scares them in the labor market data, 165 00:09:15,280 --> 00:09:17,840 Speaker 1: that could cause them to act. But if in December 166 00:09:17,920 --> 00:09:20,840 Speaker 1: we're still an unemployment less than four percent, still getting 167 00:09:20,840 --> 00:09:24,559 Speaker 1: payroll prints of two hundred thousand, and inflation core PCU 168 00:09:24,720 --> 00:09:26,960 Speaker 1: is still above two and a half percent, then what's 169 00:09:27,000 --> 00:09:27,520 Speaker 1: the urgency. 170 00:09:27,640 --> 00:09:29,480 Speaker 2: It's pretty impressive. It's not where we thought we would 171 00:09:29,480 --> 00:09:32,640 Speaker 2: be even three four months ago. Jenna, let's talk about 172 00:09:32,640 --> 00:09:34,520 Speaker 2: September and not the economic data. Can we just talk 173 00:09:34,520 --> 00:09:37,400 Speaker 2: about the politics briefly. You're not alone on September. Other 174 00:09:37,400 --> 00:09:39,520 Speaker 2: people have that monked on the calendar as well, including 175 00:09:39,520 --> 00:09:41,920 Speaker 2: a then Center over Morgan Stanley. I think the natural 176 00:09:41,960 --> 00:09:45,160 Speaker 2: question for us to ask is is the politics relevant 177 00:09:45,200 --> 00:09:48,600 Speaker 2: here going into the election in November. Is September still 178 00:09:48,600 --> 00:09:51,200 Speaker 2: adore an option that's open to this feder reserve. 179 00:09:52,600 --> 00:09:55,480 Speaker 1: I think every meeting is open to the feeder or 180 00:09:55,520 --> 00:09:59,320 Speaker 1: reserve because I think in anyone scenarios, including the most 181 00:09:59,400 --> 00:10:04,199 Speaker 1: likely scenari for any FOMC member, is that the next 182 00:10:04,240 --> 00:10:07,600 Speaker 1: move in rates, and any scenario is still on the table, 183 00:10:08,160 --> 00:10:09,400 Speaker 1: the next move in rates. 184 00:10:09,160 --> 00:10:10,160 Speaker 4: Will be a small one. 185 00:10:10,200 --> 00:10:13,760 Speaker 1: We're talking about a twenty five basis point move in rates. 186 00:10:13,920 --> 00:10:17,160 Speaker 1: Is what's going to happen now. While that is consequential 187 00:10:17,240 --> 00:10:20,160 Speaker 1: because hopefully it will be the beginning of a sequence 188 00:10:20,200 --> 00:10:23,320 Speaker 1: of rates. Even if it's not every quarter or every meeting, 189 00:10:23,760 --> 00:10:26,880 Speaker 1: maybe it is a bit more intermittent, they will take 190 00:10:26,920 --> 00:10:30,040 Speaker 1: the decision when it is appropriate based on the data. 191 00:10:30,200 --> 00:10:32,160 Speaker 1: I don't think it will be oh, we've got to 192 00:10:32,200 --> 00:10:35,199 Speaker 1: wait until after the election and we can't be too political. Yes, 193 00:10:35,360 --> 00:10:37,040 Speaker 1: a lot of them will be having that thought at 194 00:10:37,080 --> 00:10:40,120 Speaker 1: the back of their mind, but it will be about 195 00:10:40,120 --> 00:10:44,280 Speaker 1: what is most likely to settle inflation at least a 196 00:10:44,280 --> 00:10:47,800 Speaker 1: bit more confidently back on track towards the two percent level, 197 00:10:47,840 --> 00:10:51,280 Speaker 1: even if we never really get there without inflicting more 198 00:10:51,360 --> 00:10:54,240 Speaker 1: damage than is necessary in terms of what's happening in 199 00:10:54,240 --> 00:10:55,120 Speaker 1: the labor market. 200 00:10:55,320 --> 00:10:57,080 Speaker 6: But Janet, whether or not they come out and they 201 00:10:57,120 --> 00:10:59,400 Speaker 6: say we don't plan to be political, that's going to 202 00:10:59,400 --> 00:11:01,560 Speaker 6: be the optic. So what's the bar and the data 203 00:11:01,600 --> 00:11:04,560 Speaker 6: they need to see to almost feel comfortable about taking 204 00:11:04,600 --> 00:11:06,840 Speaker 6: that move, knowing that many are going to view it 205 00:11:06,880 --> 00:11:08,080 Speaker 6: through this political lens. 206 00:11:09,480 --> 00:11:11,440 Speaker 4: Well, you know, we get back to the data. 207 00:11:11,600 --> 00:11:14,359 Speaker 1: You've going to remember in the last set of projections 208 00:11:14,400 --> 00:11:17,400 Speaker 1: that we had back in March, what was in the 209 00:11:17,440 --> 00:11:21,400 Speaker 1: FED forecasts for core PCEE for the end of twenty 210 00:11:21,520 --> 00:11:24,679 Speaker 1: twenty four was two point six. You know, we're at 211 00:11:24,720 --> 00:11:27,080 Speaker 1: two point eight. We know this is a bunply ride 212 00:11:27,120 --> 00:11:30,400 Speaker 1: for inflation. But just as everyone got overly excited at 213 00:11:30,400 --> 00:11:33,040 Speaker 1: the end of last year on a few downside surprises 214 00:11:33,080 --> 00:11:37,199 Speaker 1: to the inflation releases, they've got really really hawkish early 215 00:11:37,240 --> 00:11:39,880 Speaker 1: part of the year, when inflation surprised for three months 216 00:11:39,960 --> 00:11:42,400 Speaker 1: via about point one, you know, on a monthly basis 217 00:11:42,720 --> 00:11:43,120 Speaker 1: for that. 218 00:11:43,120 --> 00:11:46,320 Speaker 4: Kind of period, So I think what they do need 219 00:11:46,360 --> 00:11:47,880 Speaker 4: to see now it seems. 220 00:11:47,600 --> 00:11:50,760 Speaker 1: To really pull the trigger is get a core PCEE 221 00:11:50,840 --> 00:11:54,080 Speaker 1: print that probably is more like two point five as 222 00:11:54,120 --> 00:11:57,840 Speaker 1: the headline figure. But they will also need further evidence 223 00:11:57,920 --> 00:12:03,480 Speaker 1: in the data slower growth, employment growth in particular, and 224 00:12:03,520 --> 00:12:04,480 Speaker 1: the wage numbers. 225 00:12:04,880 --> 00:12:06,720 Speaker 4: That's by no means the most important factor. 226 00:12:06,920 --> 00:12:09,360 Speaker 1: But the more point twos we get our monthly inflation 227 00:12:10,640 --> 00:12:13,240 Speaker 1: and the lower the payrolls release, that's probably what we 228 00:12:13,280 --> 00:12:15,400 Speaker 1: do need to see to get that September rate. 229 00:12:15,960 --> 00:12:18,920 Speaker 6: Say September comes and goes and they don't make that cut, 230 00:12:18,960 --> 00:12:21,360 Speaker 6: do you think they push it to December or there 231 00:12:21,440 --> 00:12:23,720 Speaker 6: is a chance that November could be a live meeting. 232 00:12:25,720 --> 00:12:30,640 Speaker 1: I think it would be usual to cut in an 233 00:12:30,679 --> 00:12:34,280 Speaker 1: election month. In fact, when we looked back at this, 234 00:12:34,360 --> 00:12:37,760 Speaker 1: and certainly when I spoke to other previous FOMC members, 235 00:12:38,120 --> 00:12:44,040 Speaker 1: they could only remember one meeting whereby the timing of 236 00:12:44,040 --> 00:12:46,240 Speaker 1: an election, and I think it was a midterm election 237 00:12:47,080 --> 00:12:49,280 Speaker 1: actually influenced the Fed's outcome. 238 00:12:49,360 --> 00:12:51,240 Speaker 4: And actually it was under green Span ahead of our 239 00:12:51,240 --> 00:12:52,160 Speaker 4: midterm elections. 240 00:12:52,480 --> 00:12:54,920 Speaker 1: But the next move straight after the election was a 241 00:12:54,960 --> 00:12:58,920 Speaker 1: seventy five basis point move, so it was really consequential 242 00:12:58,960 --> 00:13:01,240 Speaker 1: when you're delivering a rate a rate rise of that 243 00:13:01,400 --> 00:13:04,720 Speaker 1: kind of magnitude, So I think November will be unlikely 244 00:13:04,800 --> 00:13:06,720 Speaker 1: for me. It really is a case of we either 245 00:13:06,760 --> 00:13:09,480 Speaker 1: go in September or we will wait until December. 246 00:13:09,800 --> 00:13:11,480 Speaker 4: But I wouldn't rule anything out. 247 00:13:11,720 --> 00:13:14,040 Speaker 5: One of the most interesting aspects of your forecast is 248 00:13:14,040 --> 00:13:15,880 Speaker 5: that you now call for twenty five basis points of 249 00:13:15,960 --> 00:13:19,000 Speaker 5: rate clides this year. It was seventy five basis points previously, 250 00:13:19,400 --> 00:13:21,960 Speaker 5: but you keep your forecast for seventy five basis points 251 00:13:22,000 --> 00:13:24,400 Speaker 5: next year. Do you think that we're heading toward a 252 00:13:24,480 --> 00:13:25,760 Speaker 5: higher neutral rate. 253 00:13:25,720 --> 00:13:27,000 Speaker 4: Than you previously expected. 254 00:13:29,080 --> 00:13:32,319 Speaker 1: Well, I've long been contacting over the last few years 255 00:13:32,400 --> 00:13:35,959 Speaker 1: that we are moving towards a higher neutral rate. Obviously, 256 00:13:36,000 --> 00:13:39,520 Speaker 1: the movement on the dot plot and the longer term 257 00:13:39,600 --> 00:13:42,320 Speaker 1: dot from the FOMC has edged up from. 258 00:13:42,200 --> 00:13:43,800 Speaker 4: Two point five to two point six. 259 00:13:44,080 --> 00:13:47,400 Speaker 1: But I really get the impression from various FOMC members 260 00:13:47,440 --> 00:13:50,800 Speaker 1: that they actually think it's more like about about three percent. 261 00:13:51,800 --> 00:13:55,079 Speaker 4: But I guess what we've got in our projections. 262 00:13:54,760 --> 00:13:59,359 Speaker 1: Is the idea that policy will need to stay relatively restrictive. 263 00:13:59,880 --> 00:14:02,559 Speaker 1: I think this is what you might hear from from 264 00:14:02,600 --> 00:14:04,960 Speaker 1: more central banks. You could potentially hear something like that 265 00:14:04,960 --> 00:14:08,120 Speaker 1: from the Bank of England tomorrow. The idea that rates 266 00:14:08,120 --> 00:14:12,400 Speaker 1: can be cut a little bit and still be restrictive. 267 00:14:12,559 --> 00:14:14,280 Speaker 4: If we're still at four percent FED. 268 00:14:14,120 --> 00:14:16,600 Speaker 1: Funds, which we are on our forecast by the end 269 00:14:16,640 --> 00:14:20,880 Speaker 1: of twenty twenty five, arguably that is still restrictive to 270 00:14:21,080 --> 00:14:23,960 Speaker 1: ensure an ongoing disinflationary process. 271 00:14:24,240 --> 00:14:26,480 Speaker 4: We don't have core PCE at two percent by the 272 00:14:26,560 --> 00:14:27,320 Speaker 4: end of twenty. 273 00:14:27,120 --> 00:14:30,760 Speaker 2: Twenty five, Janet Wells said, appreciate the clarity as always, 274 00:14:30,840 --> 00:14:44,200 Speaker 2: Janet Henry the of HSBC breaking down the Federal Reserve. Mandy, 275 00:14:44,240 --> 00:14:47,640 Speaker 2: you call this the persistent kink in the vix futures curve. 276 00:14:47,720 --> 00:14:48,560 Speaker 2: Can you walk us through it. 277 00:14:48,760 --> 00:14:50,960 Speaker 7: Yeah, So we've been observing this since the beginning of 278 00:14:51,000 --> 00:14:53,400 Speaker 7: the year, where the October future of vix Future is 279 00:14:53,400 --> 00:14:55,880 Speaker 7: training at a premium to the September by about two 280 00:14:55,880 --> 00:14:59,520 Speaker 7: to three points. And that's unusual because a we're still 281 00:14:59,600 --> 00:15:02,120 Speaker 7: many minut a month away from the election. If you 282 00:15:02,160 --> 00:15:04,720 Speaker 7: look at this point in the twenty twenty cycle, there 283 00:15:04,760 --> 00:15:07,080 Speaker 7: was only about a one point difference between the September 284 00:15:07,120 --> 00:15:10,680 Speaker 7: and October contract back then, so a lot more volatility 285 00:15:10,720 --> 00:15:14,040 Speaker 7: being embedded this early on in the cycle. And the 286 00:15:14,080 --> 00:15:16,400 Speaker 7: second thing I mentioned before was, you know, the November 287 00:15:16,440 --> 00:15:18,840 Speaker 7: If you look at the November future, it actually doesn't 288 00:15:18,920 --> 00:15:22,920 Speaker 7: show expectations of persistent volatility. People are expecting it to 289 00:15:22,920 --> 00:15:25,360 Speaker 7: be quickly resolved, which I think is you know, interesting 290 00:15:25,400 --> 00:15:26,720 Speaker 7: given the candidates involved. 291 00:15:26,840 --> 00:15:28,880 Speaker 5: You know, just to broad down a little bit this 292 00:15:29,000 --> 00:15:31,680 Speaker 5: concept of volatility, a lot of people have been saying, oh, 293 00:15:31,680 --> 00:15:33,560 Speaker 5: the market is getting more volatile. We look at a 294 00:15:33,560 --> 00:15:35,440 Speaker 5: lot of the overall marred metrics, they're. 295 00:15:35,280 --> 00:15:37,760 Speaker 4: Not really getting all of that more volatile, right, But you. 296 00:15:37,760 --> 00:15:40,640 Speaker 5: Look at specific stocks and their whip sign. We're seeing 297 00:15:40,680 --> 00:15:41,560 Speaker 5: that just this morning. 298 00:15:41,920 --> 00:15:42,920 Speaker 4: How do you put that together? 299 00:15:43,720 --> 00:15:46,520 Speaker 7: Actually, we have a great metric to exactly illustrate that. 300 00:15:46,680 --> 00:15:49,640 Speaker 7: So this has been a key feature of the markets 301 00:15:49,640 --> 00:15:51,360 Speaker 7: of the past I would say eighteen month is that 302 00:15:51,560 --> 00:15:56,720 Speaker 7: while index volatility or macrovolatility has been muted, single stock 303 00:15:56,800 --> 00:15:59,200 Speaker 7: volatility has not. So if you look at the stock 304 00:15:59,320 --> 00:16:02,600 Speaker 7: of exactly your point, there's been some wild swing at 305 00:16:02,600 --> 00:16:04,640 Speaker 7: the stock and the sector level. So, in other words, 306 00:16:04,800 --> 00:16:07,960 Speaker 7: dispersion of stocks has been high in terms of performance, 307 00:16:08,280 --> 00:16:11,400 Speaker 7: while because of the low correlation, index returns have been muted. 308 00:16:11,480 --> 00:16:13,600 Speaker 7: So if you look at vics that's low. If you 309 00:16:13,600 --> 00:16:17,440 Speaker 7: look at our dispersion index DSPX, that's actually near historically 310 00:16:17,520 --> 00:16:20,720 Speaker 7: high levels. And that kind of exactly illustrates that dilemma. 311 00:16:20,400 --> 00:16:23,320 Speaker 6: Many given we know what happened after the twenty twenty election, 312 00:16:23,640 --> 00:16:27,400 Speaker 6: where is this conviction coming from from traders to say, actually, 313 00:16:27,440 --> 00:16:29,160 Speaker 6: there's little fear of a contested election. 314 00:16:29,600 --> 00:16:32,200 Speaker 7: So I think you're going to separate up because even 315 00:16:32,200 --> 00:16:35,560 Speaker 7: in twenty twenty, right, and we saw headlines about you know, 316 00:16:35,920 --> 00:16:39,040 Speaker 7: is there election fraud and obviously one Candida not conceding, 317 00:16:39,360 --> 00:16:41,840 Speaker 7: But even in twenty twenty, volatility came in very rapidly 318 00:16:41,840 --> 00:16:44,600 Speaker 7: in November. So I think in terms of realistic path 319 00:16:44,640 --> 00:16:47,200 Speaker 7: to a contested election, I think the hurdle is actually 320 00:16:47,280 --> 00:16:49,280 Speaker 7: quite high, and I think that's what investors are really 321 00:16:49,400 --> 00:16:51,880 Speaker 7: kind of focusing on. So like you makee noise, you 322 00:16:51,920 --> 00:16:54,160 Speaker 7: make it headlines, but at the end of the day, 323 00:16:54,200 --> 00:16:56,680 Speaker 7: there is a process in place, and investors at this 324 00:16:56,720 --> 00:16:59,560 Speaker 7: point still trust that process and that's why you're not 325 00:16:59,600 --> 00:17:02,800 Speaker 7: seeing that resistant king in the curve. 326 00:17:02,920 --> 00:17:04,440 Speaker 2: You've explored this a little bit as well, How does 327 00:17:04,440 --> 00:17:06,560 Speaker 2: this compare to previous elections, not just twenty twenty, but 328 00:17:06,640 --> 00:17:08,240 Speaker 2: going back even further, is this normal? 329 00:17:08,760 --> 00:17:10,640 Speaker 7: Is this so what it's been priced in? I would 330 00:17:10,640 --> 00:17:12,879 Speaker 7: say at this point in the cycle is higher than 331 00:17:12,920 --> 00:17:14,240 Speaker 7: what we see at this point in the cycle. But 332 00:17:14,240 --> 00:17:17,040 Speaker 7: if you look at how the vic actually performs in October, 333 00:17:17,200 --> 00:17:20,359 Speaker 7: it's actually underpricing relative to some of the more recent cycles. 334 00:17:20,440 --> 00:17:23,639 Speaker 7: So both twenty sixteen and twenty twenty we saw more 335 00:17:23,920 --> 00:17:27,000 Speaker 7: significant jumps in volatility in the month of October than 336 00:17:27,000 --> 00:17:30,000 Speaker 7: one is actually currently priced in. So I think twenty 337 00:17:30,000 --> 00:17:32,840 Speaker 7: sixteen twenty twenty average about ten point increase in the 338 00:17:32,920 --> 00:17:35,040 Speaker 7: VICX right now two to three. You know, I think 339 00:17:35,280 --> 00:17:37,720 Speaker 7: as we get closer to the election, we'll probably start 340 00:17:37,760 --> 00:17:39,119 Speaker 7: to see that actually increase. 341 00:17:39,200 --> 00:17:41,159 Speaker 2: How does this stack out with what you would advocate for? 342 00:17:41,280 --> 00:17:45,280 Speaker 2: So it's Steve Eisman right, basically tariff Sun China big deal. 343 00:17:45,480 --> 00:17:47,960 Speaker 2: He said this about the Inflation Reduction Act. You might 344 00:17:47,960 --> 00:17:50,199 Speaker 2: get changes that might be talk of repeating get we 345 00:17:50,320 --> 00:17:51,960 Speaker 2: might move on that for a single day, but at 346 00:17:52,000 --> 00:17:54,119 Speaker 2: the end of the day, nothing will happen. Would you 347 00:17:54,160 --> 00:17:56,320 Speaker 2: advocate for the same thing? Is that how you view things? 348 00:17:56,600 --> 00:17:58,720 Speaker 7: So in terms of fiscal policy, I think what is 349 00:17:59,080 --> 00:18:01,480 Speaker 7: important to focus on in the state of government, the 350 00:18:01,480 --> 00:18:04,600 Speaker 7: state of politics nowadays, Really to get fiscal policy through, 351 00:18:04,800 --> 00:18:07,680 Speaker 7: you really need to have a clean sweep, right, and 352 00:18:08,119 --> 00:18:09,800 Speaker 7: that's the kind of what people are focused on. And 353 00:18:09,840 --> 00:18:11,399 Speaker 7: I think part of the reason why this may be 354 00:18:11,560 --> 00:18:13,600 Speaker 7: a little bit less volatility and price and relative to 355 00:18:13,600 --> 00:18:16,920 Speaker 7: how actually performed last cycle, is that there's just more 356 00:18:16,920 --> 00:18:20,320 Speaker 7: of a less chance of potential clean sweep by either 357 00:18:20,359 --> 00:18:22,760 Speaker 7: the Democrats or the Republicans, and that's what you really 358 00:18:22,760 --> 00:18:25,600 Speaker 7: need in order to enact, you know, a significant fiscal 359 00:18:25,600 --> 00:18:26,480 Speaker 7: policy in the market. 360 00:18:26,520 --> 00:18:28,600 Speaker 6: So divide a government means there's going to be gridlocked, 361 00:18:28,640 --> 00:18:31,680 Speaker 6: but at some point they need to contend with the 362 00:18:31,960 --> 00:18:34,680 Speaker 6: Trump error tax cuts they will expire in twenty twenty five. 363 00:18:34,960 --> 00:18:36,960 Speaker 6: Do you expect some of them to be extended at 364 00:18:36,960 --> 00:18:37,920 Speaker 6: the very minimum? 365 00:18:38,200 --> 00:18:40,840 Speaker 7: So I don't have expectation in terms of the fiscal 366 00:18:40,880 --> 00:18:43,640 Speaker 7: policy side, but I will say, you know, that would 367 00:18:43,680 --> 00:18:46,639 Speaker 7: obviously have an impact in terms of you know, the 368 00:18:46,720 --> 00:18:48,640 Speaker 7: rates market, and that's where a lot of people. 369 00:18:48,440 --> 00:18:49,000 Speaker 4: Are focusing on. 370 00:18:49,040 --> 00:18:51,160 Speaker 7: But the big driver you know in the rates market 371 00:18:51,160 --> 00:18:53,280 Speaker 7: obviously is the Fed and monetary policy, and that is 372 00:18:53,280 --> 00:18:55,159 Speaker 7: still front and center for a lot of investors. So 373 00:18:55,400 --> 00:18:57,320 Speaker 7: we'll see as we get closer to the election, obviously 374 00:18:57,359 --> 00:18:59,960 Speaker 7: the outcome of the election, what happens to those you know, 375 00:19:00,080 --> 00:19:02,600 Speaker 7: Trump tax cuts. But so far it's still very much 376 00:19:02,640 --> 00:19:05,600 Speaker 7: focused on inflation and said in potential great cuts. 377 00:19:05,680 --> 00:19:07,920 Speaker 2: So let's put about one things just briefly, the spike 378 00:19:07,960 --> 00:19:10,879 Speaker 2: in volatility and April. You've explored this, was it a 379 00:19:10,960 --> 00:19:13,240 Speaker 2: one off? How do you guide sort of that conversation 380 00:19:13,280 --> 00:19:13,760 Speaker 2: at the moment. 381 00:19:13,920 --> 00:19:16,720 Speaker 7: Yeah, sure so. Insomuch as the April sell off was 382 00:19:16,760 --> 00:19:19,200 Speaker 7: driven by rates, I think it's important to recognize that 383 00:19:19,600 --> 00:19:22,199 Speaker 7: the balance of risus shifted and when we talk about rates, right, 384 00:19:22,200 --> 00:19:24,280 Speaker 7: we've been talking about rates higher for longer, for a 385 00:19:24,359 --> 00:19:26,840 Speaker 7: very long time, but now the focus is really on 386 00:19:27,040 --> 00:19:29,920 Speaker 7: the longer part of that, right, how much longer, which, 387 00:19:30,080 --> 00:19:32,160 Speaker 7: when you think about it, is actually volt dampening because 388 00:19:32,200 --> 00:19:36,119 Speaker 7: it's talking about rates remaining unchanged for longer versus before 389 00:19:36,200 --> 00:19:38,000 Speaker 7: when we were talking about rates for higher for longer, 390 00:19:38,119 --> 00:19:40,879 Speaker 7: the focus was very much on higher, how much higher, 391 00:19:41,000 --> 00:19:43,560 Speaker 7: how much higher inflation can go? The right tail when 392 00:19:43,600 --> 00:19:46,520 Speaker 7: it comes to the rates distribution was much more significant. 393 00:19:46,720 --> 00:19:48,479 Speaker 7: So to me, what stood down in April is that 394 00:19:48,520 --> 00:19:50,600 Speaker 7: even though we did get a sell off in the market, 395 00:19:50,840 --> 00:19:53,280 Speaker 7: volatility was actually really muted. In the rates market. If 396 00:19:53,320 --> 00:19:56,720 Speaker 7: you look at TLT imply volatility for example, it double 397 00:19:56,800 --> 00:19:59,200 Speaker 7: last October during the rates sell off, but this time 398 00:19:59,320 --> 00:20:03,439 Speaker 7: around it actually went up very very modestly and now 399 00:20:03,440 --> 00:20:05,600 Speaker 7: actually currently back down to a one year low. So 400 00:20:06,160 --> 00:20:09,480 Speaker 7: the more conteined reaction that we're seeing in the bond 401 00:20:09,560 --> 00:20:11,760 Speaker 7: market I think has spilled over to the equities. And 402 00:20:11,760 --> 00:20:14,840 Speaker 7: that's why you know vixus again back to thirteen handle. 403 00:20:14,680 --> 00:20:16,480 Speaker 2: Interesting Mandy, you what are the best of this and 404 00:20:16,480 --> 00:20:18,120 Speaker 2: we always enjoy catching up with your Thanks for being 405 00:20:18,160 --> 00:20:21,439 Speaker 2: with us. Thank you, Mandy zoo there of CVO. This 406 00:20:21,680 --> 00:20:26,199 Speaker 2: is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, 407 00:20:26,200 --> 00:20:29,160 Speaker 2: angio politics. 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