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
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Two weeks away from
Speaker 2: a Federal Reserve raid decision two weeks tomorrow, Lindsey Piegser
Speaker 2: of Stiphail writing, the Fed should be on the verge
Speaker 2: of a pause in policy adjustment. While Fed officials are
Speaker 2: anxious to provide less firm policy after fourteen months at
Speaker 2: peak levels, the risk of unwinding policy too soon or
Speaker 2: too fast is a recognition of inflationary pressures and a
Speaker 2: reversal of the progress already made.
Speaker 3: Lindsay joins us now for more.
Speaker 4: Lindsey Gimonic, good morning, Thank you for having me.
Speaker 3: What did you make a governor Walla? Yes, well, I.
Speaker 4: Think this is really the general theme of what we're
Speaker 4: hearing from FED officials as of late. They're setting the
Speaker 4: bar noticeably higher for a potential pause, saying it's no
Speaker 4: longer about a strong or solid economy, but it's about
Speaker 4: the data outperforming expectations, or as we heard from Goulesby
Speaker 4: last week, it's about a potential economy overheating. So I
Speaker 4: do think that the FED is gearing up and excuse
Speaker 4: me to push through a third round rate cut in December.
Speaker 4: But as we turn the calendar page next year, if
Speaker 4: the data remains as strong as it is, if the
Speaker 4: economy continues to prove remarkably solid, as Chairman Pouell described it,
Speaker 4: I do think they're going to be backed into a
Speaker 4: corner and forced to take a potential policy pause.
Speaker 2: Near got to watch you what kind of data would
Speaker 2: change the conversation. I think Governor Walla compared fighting inflation
Speaker 2: to a UFC fight in the Ancticon yesterday. I'm not
Speaker 2: sure how helpful that is for people or not. What
Speaker 2: kind of number would it take?
Speaker 4: Well, remember, looking out to Friday's non farm paywall reports,
Speaker 4: the strength is going to be out sized, or at
Speaker 4: least we expect that but that's going to be offsetting
Speaker 4: the weakness that we saw the month prior. So even
Speaker 4: a number two D two hundred and twenty thousand, I
Speaker 4: don't think that's going to be enough to deter the
Speaker 4: FED from pushing through that December rate cut.
Speaker 3: MMA.
Speaker 5: I think it was.
Speaker 1: It was marginally yes, I think it was. Yeah, thank you,
Speaker 1: that's good. I just I'm still trying to wrap my
Speaker 1: head around the hard words that he had about getting
Speaker 1: inflaced in a headlock and driving it to the ground
Speaker 1: in the last round to the actual.
Speaker 3: Okay, we're still going to cut rates.
Speaker 1: I mean, it sort of raises this question, how much
Speaker 1: do you think that they are still underestimating the inflationary
Speaker 1: pressure in an economy where it's not about the labor
Speaker 1: market as much anymore as the inflation read that we
Speaker 1: get the following week.
Speaker 4: Well, that's exactly right. The concern of this emerging weakness
Speaker 4: in the labor market prompted that outsize fifty bases point
Speaker 4: cut in September. We didn't see that weakness come to fruition,
Speaker 4: and so then they followed through with another twenty five
Speaker 4: simply because I think they were worried about having egg
Speaker 4: on their face or admitting a policy error being too
Speaker 4: aggressive the month prior. But to your point, they don't
Speaker 4: have inflation in a choke hold. They need to keep
Speaker 4: their eye on the ball because the past several months
Speaker 4: inflation has really moved to the sideways with no further
Speaker 4: improvement to speak of. So at this point, yes, we
Speaker 4: have made discernible progress down from peak levels, but we
Speaker 4: still have that last mile to go, and now is
Speaker 4: not the time for the FED to give up on
Speaker 4: that goal.
Speaker 1: Jum was asking earlier about this discussion arou our neutral rate,
Speaker 1: saying that there is quite a ways to go before
Speaker 1: you actually get to truly a neutral rate. At the
Speaker 1: same time that some of us are struggling to see
Speaker 1: the restrictiveness in terms of rates other than a couple
Speaker 1: of pockets for a couple of segments of the population,
Speaker 1: do you see us as anywhere close to restrictive.
Speaker 4: So that's a good distinction that we need to be made,
Speaker 4: because right now policy still is very firm and changing conditions.
Speaker 4: Further improvement and disinflation does warrant less firm policy as
Speaker 4: we move towards neutral and the data normalize, but we
Speaker 4: need to do so at a very slow and tempered pace.
Speaker 4: So I don't think the question is do we justify
Speaker 4: further rate cuts. I do see further rate cuts on
Speaker 4: the horizon, but the pathway, the pace to that lower
Speaker 4: level of FED funds needs to be very controlled as
Speaker 4: to not overshoot or undermine the progress that we've already
Speaker 4: seen made on the inflation front.
Speaker 6: So how many cuts can you actually see next year
Speaker 6: when they have to recalibrate for potentially tariffs, tax cuts,
Speaker 6: and a whole host of new policies coming out of Washington.
Speaker 4: Well, assuming they do push through the December cut, that's
Speaker 4: the third round cut, I see three more cuts in
Speaker 4: twenty five on a quarterly basis, so one twenty five
Speaker 4: basis point cut per quarter, getting us to three and
Speaker 4: three quarters by the third quarter. And I think that's
Speaker 4: a reasonable neutral level. Now, of course, some policy issues
Speaker 4: may limit the downside potential if we do see tariffs
Speaker 4: or sizeable tax cuts lead to further inflationary pressures. But
Speaker 4: that's a big question mark. The inflationary pressures that we're
Speaker 4: assuming under those scenarios could very easily be offset if
Speaker 4: we saw sizable reductions in government spending or other areas,
Speaker 4: and so it still is questionable the net outcome from
Speaker 4: the incoming administration. But right now, ceteris parabis, I do
Speaker 4: expect three additional rate cuts next year, taking us to
Speaker 4: a neutral rate of about three seventy five if.
Speaker 6: We get the December cut. How hawkish do you think
Speaker 6: the tone might be from Powell, because he's looking into
Speaker 6: a lot of unknowns for next year.
Speaker 4: How much more hawkish you mean? At this point, he's
Speaker 4: talking about a remarkably solid economy, remarkably strong labor market,
Speaker 4: So he's really laid the groundwork for a pretty solid
Speaker 4: assessment of current conditions, again keeping that door wide open
Speaker 4: for a near term policy pause as soon as they
Speaker 4: deem it appropriate.
Speaker 3: And again if.
Speaker 4: December data comes in within expectations, I think the Fed
Speaker 4: continues to follow through with a third round cut, but
Speaker 4: they've already set the table for potential pause given the
Speaker 4: strength that we're seeing in the consumer, in business investment,
Speaker 4: even in housing, and that sticky nature of inflation.
Speaker 1: So John has been trying to draw a parallel between
Speaker 1: JJ and Ping and rowpower today, a single.
Speaker 3: Parallel, one similarity. Okay, carry on, would you want me
Speaker 3: to explain that similarity?
Speaker 2: No, it's Okay, if you just join it, I'm not insane,
Speaker 2: you might think I am. There is one similarity. They've
Speaker 2: got to wait to calibrate policy, to work out what
Speaker 2: the policy changes will be in the United States.
Speaker 3: That's the single similarity.
Speaker 1: Do they and that's my question, Lindsey, do they have
Speaker 1: to Does j Powell have to wait to understand what
Speaker 1: the policies are similar to Jijiinping, who has to wait
Speaker 1: to understand what.
Speaker 5: Policies are well calendar to wait.
Speaker 4: I think that's been part why they want to push
Speaker 4: through this policy, this third round reduction in December before
Speaker 4: we get some of the details of these policies that
Speaker 4: will be associated with the incoming administration. But again, when
Speaker 4: that calendar page turns to twenty twenty five, if we're
Speaker 4: still talking about the strength that the data, that's where
Speaker 4: the patience needs to come in. That's where we need
Speaker 4: to see the FED take a pause, move to the sidelines,
Speaker 4: and allow the data to continue to evolve to dictate
Speaker 4: the best course of policy.
Speaker 2: It's also not obvious to me how inflationary terrorists will
Speaker 2: actually be given the first round experience, how they be
Speaker 2: calibrated this time. West Fargo put out their outlook for
Speaker 2: twenty twenty five this morning has said the most concerning
Speaker 2: effective TARIFST is on growth and not necessarily inflation. Working
Speaker 2: that out is actually not that obvious for next year
Speaker 2: and beyond.
Speaker 1: There are a number of arguments that are legitimate saying
Speaker 1: that actually terrorists are disinflationary and that actually the more
Speaker 1: inflationary impulse is going to come from the immigration if
Speaker 1: there are a significant deportation. So it's a policy mix,
Speaker 1: it's a sequencing. It's just in terms of how they
Speaker 1: actually are carried out, all have a very big difference
Speaker 1: depending on how it goes.
Speaker 3: Lindy, it's good to see you, catch up. Good to
Speaker 3: have you in New York. Thank you, Lindsay PX. The
Speaker 3: ho staful just tend to retail.
Speaker 2: Let's squeeze this in adn't be explaining a cyber Monday
Speaker 2: splurge forecast and consumers spend thirteen zero point five billion
Speaker 2: dollars Oliver Chain of TD Coments saying, well, we see
Speaker 2: some selective opportunity for consumer holiday spending this year by
Speaker 2: and launch. The consumer remains choiceful and it is carefully
Speaker 2: balancing needs versus once. Olivi Chan joins US now for more. Oliver,
Speaker 2: Welcome to the program, sir. I want to start with luxury,
Speaker 2: as we often do with you. I want to ask
Speaker 2: you a simple question. If luxury goes on sale, is
Speaker 2: it even luxury?
Speaker 7: Well, that is a good, great question in terms of
Speaker 7: the balance of luxury and exclusivity. The best brands john
Speaker 7: don't go on sale, and those include Louis Vuitton and
Speaker 7: d Or so that brand does not go on sale.
Speaker 7: Other brands that have been struggling, including Gucci, we are
Speaker 7: seeing markdowns in the department store channel has been under pressure,
Speaker 7: so we're not recommending those stocks, which include Macy's and
Speaker 7: Nordstrom and others, and that's been something to watch.
Speaker 5: The consumer remains focused on value.
Speaker 7: As you know, Walmart has been a top idea and
Speaker 7: Walmart is really executing well with lots of great deals
Speaker 7: across food and consumables. Luxury is something to watch still,
Speaker 7: and as you mentioned earlier, the situation in China is
Speaker 7: more anemic growth as well, and that's something to consider,
Speaker 7: and consumer confidence has been volatile. On the one hand,
Speaker 7: we have very low unemployment as well as a trillion
Speaker 7: dollars of savings on the sidelines, but consumers are being
Speaker 7: choiceful and watching and not buying everything in sight, really
Speaker 7: looking for the best bargains, and the best luxury brands
Speaker 7: do remain full price.
Speaker 2: I appreciate your ability to jump between Gucci and Walmart.
Speaker 2: If we can just stay on Gucci, Oliver, and then
Speaker 2: we can move on. I want to sit on Gucci.
Speaker 2: I think this is important. I'm going to get in
Speaker 2: some hot water here, but here goes the kind of
Speaker 2: people that buy Gucci, the kind of people that want
Speaker 2: you to know they've bought Gucci, and I think that's
Speaker 2: really important. They want the beut with a big Gucci
Speaker 2: emblem on it, and I just wonder how incompatible South
Speaker 2: wealth and quiet luxury is with that particular brand.
Speaker 5: Well, we got to have both.
Speaker 7: What's really happening at Gucci now is a return to
Speaker 7: timelessness and also elevation with a new designer.
Speaker 5: We really like what he's doing.
Speaker 7: However, these turnarounds take time, and we think it'll take
Speaker 7: a year in terms of rebooting the brand and also
Speaker 7: harmonizing service levels across the globe. They're also adding a
Speaker 7: lot of creative john to this. They'll be bigger and
Speaker 7: better shows and storytelling.
Speaker 5: That's what really needs to happen at Gucci at the moment.
Speaker 7: Quiet luxury, thinking about timelessness, elevated materials, that's really working
Speaker 7: in a way that luxury consumer is looking for value
Speaker 7: and items that they can use throughout.
Speaker 5: But it's a little bit boring.
Speaker 7: And conversely, a quiet luxury can be an excuse for
Speaker 7: no innovation.
Speaker 5: What if that's true? So we really need to have both.
Speaker 7: We need to have the exuberance and we need to
Speaker 7: have the fashion, and we need to have the quiet luxury.
Speaker 7: So a little bit of logo in the future be
Speaker 7: quite positive for Gucci.
Speaker 5: Love it a little bit of logo.
Speaker 1: So from logo back to Walmart, I'll talk about that.
Speaker 1: I am curious about how you have seen this outperformance
Speaker 1: and an ongoing basis this holiday shopping season from the
Speaker 1: online systems, and basically this has been the trend for
Speaker 1: a long time. How does this challenge companies at a
Speaker 1: time when it is less profitable for them to sell
Speaker 1: online where they have big physical stores that aren't necessarily
Speaker 1: getting the same kind of foot traffic as they have
Speaker 1: in prior years.
Speaker 7: Retailers have to do everything everywhere, all at once. So
Speaker 7: the name of the game is channels such as curbside pickup,
Speaker 7: where you're doing more of the work in terms of
Speaker 7: the last mile.
Speaker 5: Also, as you think.
Speaker 7: About technology at large, the future of retail includes digital
Speaker 7: advertising as well as artificial intelligence, and then growing these
Speaker 7: marketplace models to have third party sellers, very similarly to Amazon.
Speaker 5: So you're retaining a lot.
Speaker 7: Of the productivity of the box and you're becoming less
Speaker 7: unprofitable and online, and that's happening at Walmart over time.
Speaker 7: It's a bigger challenge at Target, which is losing money online.
Speaker 7: The prospect for Walmart to become e commerce profitable that
Speaker 7: will happen within one to two years, in part because
Speaker 7: they have so much scale in their increasing delivery density. Also,
Speaker 7: consumers of all kinds are choosing to pay.
Speaker 5: For express shipping.
Speaker 7: That's happening as well, and Walmart's getting a higher household
Speaker 7: income consumer. So this really is difficult, but it all
Speaker 7: needs to work together. And digital advertising is a very
Speaker 7: high margin business seventy percent plus margins.
Speaker 1: I'll big of an advantage do the likes of Walmart
Speaker 1: and am as at another large retailers that have these
Speaker 1: sort of multi channel businesses have When it comes to
Speaker 1: the likes of tariffs, which pretty much universally we're expecting
Speaker 1: to hear about early next year to have them implemented.
Speaker 5: Across the sector.
Speaker 7: In terms of the analysis, the earnings per share hits
Speaker 7: will be mid to high single digits.
Speaker 5: In terms of.
Speaker 7: Themes and stocks to play, you know you own those
Speaker 7: with the most scale. Walmart also has a history of
Speaker 7: working quite aggressively with suppliers on managing prices, so we
Speaker 7: like the prospects of Walmart. The big question and the
Speaker 7: big opportunity and the big unintended consequence of terroriffs will
Speaker 7: be passing this cost on to consumers, which may yield inflation,
Speaker 7: So we'll see.
Speaker 5: We think as much as.
Speaker 7: Fifteen to ninety percent will need to be passed on
Speaker 7: to consumers, and it's something to watch.
Speaker 5: But you're gonna want to own those with scale and.
Speaker 7: Walmart and Costco definitely failed the bill here.
Speaker 6: Oliver, I'd love to talk about department stores. I know
Speaker 6: you're not too excited about Macy's. Are there any department.
Speaker 5: Stores you like?
Speaker 6: And do you think they're going to have to lean
Speaker 6: into more sales leading up to Christmas? I mean, open
Speaker 6: my email this morning and I got burdof Goodman saying
Speaker 6: extended one more day for the cyber sale. Does Cyber
Speaker 6: Monday even exist anymore? Is it just cyber Week?
Speaker 7: Well, it's definitely the cyber month and T minus forty
Speaker 7: in terms of the events have started earlier and they're
Speaker 7: more spread out and people aren't trampling each other anymore.
Speaker 5: It's not as exciting as it used to be, so
Speaker 5: that's happening.
Speaker 7: And also lots of markdowns on the markdowns definitely. As
Speaker 7: we think about department stores, we like Nord from Rack,
Speaker 7: but what does that mean. It means department stores are
Speaker 7: changing to be more off price and offer value there
Speaker 7: and Nord from Rac did a pretty good job. We're hopeful,
Speaker 7: but the big problem is getting younger customers in stores
Speaker 7: and store traffic. The other nature of competition is changing
Speaker 7: rapidly in apparel with Shean and TMU and ultra fast
Speaker 7: fashion in the tiktokification of retail. Thinking about social selling,
Speaker 7: that's something department stores are facing. The future is more
Speaker 7: exclusive products, so Macy's is upgrading their private brands. That
Speaker 7: should be a positive for getting younger consumers as well
Speaker 7: as older consumers back in store.
Speaker 2: Ali appreciate your time, sir, OUTIVI Chen there a TD Cowan,
Speaker 2: Steve England are of standard charted rights. And the following
Speaker 2: the question is what is core Trump and what is
Speaker 2: tactical Trump. Core Trump is not wanting to see US
Speaker 2: prestige and US interests put at risk. Tactical Trump is
Speaker 2: a threat of tariffs to see what concessions he can obtain.
Speaker 2: Steve joined us now for more save let's talk about
Speaker 2: those threats. Are they credible threats? And do you and
Speaker 2: to the people that you speak to every single day,
Speaker 2: believe that he'd follow through on them.
Speaker 8: I believe and I think they believe that will follow
Speaker 8: through on them if he doesn't get satisfaction, you know,
Speaker 8: in terms of changing policies and getting some visible concessions
Speaker 8: from from other countries. The question does does he actually
Speaker 8: want to slap on the tariffs on Canada, Mexico other
Speaker 8: allies or does he he just does he just want
Speaker 8: them to adjust their policies and kind of be more
Speaker 8: friendly towards buying US products. And that's probably the case,
Speaker 8: I think, you know, more than protectionism. He's probably doing
Speaker 8: what you could call a protection racket, which is going
Speaker 8: to them in advance of his being in power and saying, look, if.
Speaker 9: You want to avoid trouble, this is what you've got
Speaker 9: to do.
Speaker 8: And if you you know, if you cooperate, then you
Speaker 8: know things will be fine.
Speaker 9: And I think that that's his preferred direction.
Speaker 8: We'll have to see how, you know, how far they
Speaker 8: are willing to go, and exactly what he does once
Speaker 8: he gets into into office, and whether you know, he
Speaker 8: focuses on you know, countries that are large trading partners,
Speaker 8: or whether he focuses on China more directly because of
Speaker 8: the national security ISSUECCS.
Speaker 1: See how strong is too strong for the dollar given
Speaker 1: some of the policies that we've heard from President elect
Speaker 1: Donald Trump. And I say this as we already see
Speaker 1: some at sports from the US really fall off significantly,
Speaker 1: and at a time where this has been a president
Speaker 1: who has waffled a bit when it comes to whether
Speaker 1: he wants a strong or a week dollar.
Speaker 8: Yeah, and I think there's a reason to waffle because
Speaker 8: on the one hand, you you, dollar dominance is a
Speaker 8: tremendous privilege and a trevendous advantage and enhances the US's
Speaker 8: role both financially and politically in the world. You know,
Speaker 8: everyone talks about service of reaction to the tariff threat.
Speaker 8: But if I was a US exporter or even a
Speaker 8: US farmer and seeing the dollar, you know, run up
Speaker 8: to one o five, you know, it was one o
Speaker 8: nine against the the euro before you know Trump election
Speaker 8: at started going up. And if I was a manufacturer
Speaker 8: who is depending on exports, I'd say, where, you know,
Speaker 8: where's my tariff or where's my subsidy? Where's my protection?
Speaker 8: Because that segment is going to be damaged. So I
Speaker 8: think that there, you know, everybody, I think there's something
Speaker 8: to be said for a strong dollar, you know, and
Speaker 8: often it's a sign, a positive sign that capital is
Speaker 8: flowing into your country for good reasons. But I think
Speaker 8: that that remains to be seen. And just to finish
Speaker 8: this thought, I think the judgment on the Trump economic
Speaker 8: policy is not going to be done on the basis
Speaker 8: of tariffs.
Speaker 9: It's going to be done on the basis of.
Speaker 8: How successful they are in terms of cutting governments spending
Speaker 8: and doing the sort of structural and productivity enhancing reforms
Speaker 8: that the Scott Bessant and the dilg team are promising.
Speaker 8: Because if they're successful in that, the dollar will be strong.
Speaker 8: But it won't matter if they're unsuccessful, then that the
Speaker 8: dollar will be weak and it won't matter.
Speaker 6: Can we talk about the other side of the euro
Speaker 6: dollar tree when it comes to the euro. Now we're
Speaker 6: facing a French government on the brink of collapse. Germany
Speaker 6: will have fresh elections at the start of next year.
Speaker 6: Are you concerned about contagion to the rest of the Eurozone.
Speaker 9: Well, you know there's contagion, but the issue is real.
Speaker 8: It's not like it's you know, it wouldn't be there
Speaker 8: if Germany won't have these problems, if if France didn't
Speaker 8: or the other way around. The issue is that, you know,
Speaker 8: Europe has had bad luck. You know, they're one of
Speaker 8: their major trading partners, China. You know, domestic mand consumer demand,
Speaker 8: demand for luxury goods has really dropped, you know, you know,
Speaker 8: the tragedy of the war in the Ukraine has really
Speaker 8: you know, damaged their growth prospects. Structural policy has gone nowhere,
Speaker 8: and they're left with the ECB is the only game
Speaker 8: in town. And that's kind of what the market is
Speaker 8: looking at and sort of saying, either you're going to
Speaker 8: compromise on your fiscal goals, you know, with no hope
Speaker 8: in sight that the budgets will be balanced or you know,
Speaker 8: be put on a sustainable path, or you're going to
Speaker 8: have to depreciate the euro through monetary policy. And that's
Speaker 8: you know, so depending on which is emphasized, the pressure
Speaker 8: or either be seen in the rates market or on
Speaker 8: the Europe.
Speaker 2: Hi Steve got to hear from Miss Steve England and
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