WEBVTT - Fed Watchers Will Look For Clues On Hikes, Wages, Trade War

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<v Speaker 1>Welcome to the Bloomberg P and L Podcast. I'm pim

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<v Speaker 1>Fox along with my co host Lisa Bramowitz. Each day

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<v Speaker 1>we bring you the most important, noteworthy, and useful interviews

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<v Speaker 1>for you and your money, whether you're at the grocery

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<v Speaker 1>store or the trading floor. Find the Bloomberg P M

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<v Speaker 1>L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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<v Speaker 1>Right now, let's bring in Dave Wilson, Bloomberg Fox Editor,

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<v Speaker 1>columnist and blogger at M Life. Go on the Bloomberg.

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<v Speaker 1>I really want to start with bank earnings. We've got

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<v Speaker 1>Goldman Sachs as results. Uh. Interestingly, the reaction has been

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<v Speaker 1>decidedly mixed, even though they beat by quite a bit

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<v Speaker 1>on the top line revenues. Yeah, some concern with what's

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<v Speaker 1>going on with their equity trading business. That was a

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<v Speaker 1>weak spot in terms of revenue. Of course, you got

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<v Speaker 1>a management transition. It's understatement of the year management transition. Yeah, Boss, Well,

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<v Speaker 1>it's a process, okay, I mean it's not going to

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<v Speaker 1>happen right away. We know that Lloyd blank Find will

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<v Speaker 1>remain CEO and chairman until October one. We'll give up

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<v Speaker 1>the CEO job to President David Solomon. Then by Rand

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<v Speaker 1>will step down as chairman. Solomon will take that job.

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<v Speaker 1>So yeah, it's a transition that it's in something that's

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<v Speaker 1>been talked about for a few months. So it's not

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<v Speaker 1>surprised that, you know, it's like anything else. It's you know,

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<v Speaker 1>it's change coming to Goldman and you know people tend

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<v Speaker 1>not to like change very much, and that would explain

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<v Speaker 1>at least in part the stocks slide in early trading.

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<v Speaker 1>Also a big big mover today Netflix They were portty

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<v Speaker 1>disappointing earnings after the bell yesterday and they are just

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<v Speaker 1>getting hammered and bringing the nasdack down. UH shares? What it?

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<v Speaker 1>What's the latest with the shares? They were down, well,

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<v Speaker 1>they're down a bit more than ten percent. But what's interesting, though,

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<v Speaker 1>is if you go back and look at the history

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<v Speaker 1>of Netflix's move was after earnings reports, this is not

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<v Speaker 1>a surprise at all because you know, on average the

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<v Speaker 1>stock up or downcent going all the way back to

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<v Speaker 1>two thousand seven h the day after earnings, and you know,

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<v Speaker 1>today we were down at the low's fourteen percent and change,

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<v Speaker 1>and Netflix is actually making some of that back and

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<v Speaker 1>now the stock's only up eighty seven percent. For the year,

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<v Speaker 1>which really tells you, you know, what's happening here as

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<v Speaker 1>much as anything is a bit of a buy. The

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<v Speaker 1>rumors sell the news, even when the news isn't something.

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<v Speaker 1>I'm just gonna get you what's going on in the

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<v Speaker 1>bond market, which is basically nothing. Uh the ten year

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<v Speaker 1>at two point eight five percent, though the uh, well,

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<v Speaker 1>the two year at the two point six percent. I

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<v Speaker 1>want to bring in Carl Rickadonna, our chief US economist

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<v Speaker 1>for Bloomberg Economics, and Matt Posler are Bloomberg News reporter

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<v Speaker 1>who covers the Federal Reserve, And of course we are

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<v Speaker 1>awaiting Jerome Powell, Chair of the Federal Reserve, and his

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<v Speaker 1>testimony before a Congress. Um, Matt, what do you expect

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<v Speaker 1>him to say when we've got the prepared marks? But

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<v Speaker 1>I mean, is it really going to say anything that's

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<v Speaker 1>gonna be market moving? Well, that's a good question, you know,

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<v Speaker 1>I think, Um, maybe if they start getting into some

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<v Speaker 1>more detailed questions about the Fed's plans for interest rates

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<v Speaker 1>this year and next year, you know, there's a big

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<v Speaker 1>question about Um, the Fed kind of sees there's this

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<v Speaker 1>neutral interest rate that they think once they get to

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<v Speaker 1>that neutral rate, then um, you know, they will no

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<v Speaker 1>longer be stimulating the economy. And so the big question

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<v Speaker 1>for next year is once they get to that neutral rate,

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<v Speaker 1>which will probably happen next year they think it's around two,

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<v Speaker 1>then do they keep going and actually starting to outright

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<v Speaker 1>restrict economic growth because they're worried about unemployment being too low,

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<v Speaker 1>um and maybe inflation you know, going higher. So we

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<v Speaker 1>don't really see any indication that j. Powell and these

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<v Speaker 1>prepared remarks really feels like that's you know, going to

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<v Speaker 1>be necessary because it's going to be asked about the

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<v Speaker 1>trade war. Yeah, so that's uh, that's also something that

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<v Speaker 1>you know, could could definitely have implications. He kind of,

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<v Speaker 1>you know, very briefly touches on it in these prepared remarks,

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<v Speaker 1>but doesn't really say anything you know, about what it

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<v Speaker 1>means in particular. So that could be interesting line of

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<v Speaker 1>questions as well. Carl, come on in here. We're going

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<v Speaker 1>to be a lot of questions also about the labor market,

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<v Speaker 1>which is sort of confusing. We have this very low

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<v Speaker 1>unemployment rate and really muted wage gains. How could he

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<v Speaker 1>be surprising on this? I mean, do you think that

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<v Speaker 1>he's going to say anything of note here well, in

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<v Speaker 1>the prepared remarks, he says moderate wages, say the job

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<v Speaker 1>market is not causing high inflation. So I think he's

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<v Speaker 1>going to echo this theme that maybe there still is

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<v Speaker 1>more slack in the labor market than what the three

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<v Speaker 1>point eight or four point zero percent unemployment rate, that

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<v Speaker 1>what otherwise have you believe? And I suspect he'll play

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<v Speaker 1>the role of economic cheerleader in terms of indicating that

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<v Speaker 1>death through the fence policy and maybe also tipping his

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<v Speaker 1>hat to tax reforms. We're actually seeing labor force participation

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<v Speaker 1>potentially at least leveling out, if not the edging higher

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<v Speaker 1>as a strong economy, as coaxing workers back in office

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<v Speaker 1>sideline in plain English, the participation rate. One thing that

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<v Speaker 1>people talk about is why has the unemployment rate for

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<v Speaker 1>working age men in particular remained higher than it was

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<v Speaker 1>right before the last downturn, and particularly the prime working

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<v Speaker 1>age men in the US. And people are wondering, you know,

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<v Speaker 1>is this because of the opioid epidemic? Is this because

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<v Speaker 1>of the high incarceration rates? Is because because of discrimination

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<v Speaker 1>childcare costs? Um do you expect him to to sort

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<v Speaker 1>of weigh in on that at all? I mean, does

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<v Speaker 1>that matter from economic perspective, certainly from a social perspective

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<v Speaker 1>it does. I think those are all factors, but I

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<v Speaker 1>think even more importantly as the dynamics of what has

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<v Speaker 1>been driving the economy. Uh. And so what you certainly

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<v Speaker 1>see uneven distribution of employment by sectors. UH. For example,

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<v Speaker 1>the construction sector tends to hire a lot more males

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<v Speaker 1>and females. And certainly construction activity has been a aggered

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<v Speaker 1>in this cycle as the housing sector really struggled to

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<v Speaker 1>recover up from the bust. And so, you know, everything

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<v Speaker 1>you mentioned is correct, But I think also just the

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<v Speaker 1>composition of growth is a very relevant He'll probably be

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<v Speaker 1>asked about this. I don't think that there will be

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<v Speaker 1>upmarket moving responses. Uh. You know, as he'll he'll cite

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<v Speaker 1>many of the factors that I've mentioned. Just now, Matt,

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<v Speaker 1>what if you could just comment on some of the

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<v Speaker 1>other FEDER officials, For example, Neil cash Cary recently talking

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<v Speaker 1>about the yield curve. Do you think that the chairman

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<v Speaker 1>power will get questions referencing Neil cash Cary. Yeah, you know,

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<v Speaker 1>I can't imagine the yeld curve is to top of

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<v Speaker 1>mine for a lot of these senators. But on the

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<v Speaker 1>other hand, it is you know, a three hour hearing, right, So,

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<v Speaker 1>I mean that is something that could come up, um

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<v Speaker 1>at some point. Certainly it's the talk of the town

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<v Speaker 1>on Wall Street. Everybody's looking at this yield curve flattening

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<v Speaker 1>almost flat. Um. Obviously historically, uh, that has sort of

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<v Speaker 1>been followed by recessions, and so low of people are

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<v Speaker 1>worried about that. I mean. The interesting thing about FED

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<v Speaker 1>officials talking about that so much is, you know, to

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<v Speaker 1>some extent, they do control not only the short term

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<v Speaker 1>interest rate, but where that long term interest rate settles

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<v Speaker 1>as well, because if you think it's sort of the

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<v Speaker 1>average of you know, expected short term interest rates over

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<v Speaker 1>the next ten years, then they can kind of affect that.

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<v Speaker 1>And so if you look at their long run neutral

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<v Speaker 1>rate that we were just talking about earlier, that's right

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<v Speaker 1>between two seventy five and three percent, that's exactly where

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<v Speaker 1>the ten year yield is as well. So UM, I

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<v Speaker 1>think the FED, you know, FED officials kind of need

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<v Speaker 1>to think about the yield curve and and the extent

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<v Speaker 1>to that to which that is just reflecting what they're

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<v Speaker 1>telling people they are going to do with interest rates

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<v Speaker 1>and whether that should really be so concerning to them.

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<v Speaker 1>Um that markets seem to be getting the message. All right,

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<v Speaker 1>Dave come back in here with respect to equity markets,

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<v Speaker 1>do you expect them to have any reaction to anything

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<v Speaker 1>that fed Powell could say? For example, if he says, look, uh,

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<v Speaker 1>we don't necessarily think that the yield curve of a

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<v Speaker 1>setting the same signals that has in the past. We're

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<v Speaker 1>gonna keep raising rates at a study uh and slow pace,

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<v Speaker 1>but we're going to stay on our trajectory. What does

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<v Speaker 1>that do to ataquities? Well, I mean, there is certainly

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<v Speaker 1>the potential for a movement, although let's face it, Uh,

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<v Speaker 1>you know, the chair power would be perfectly happy if

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<v Speaker 1>nothing moved. In response to what he was saying that

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<v Speaker 1>he's simply reinforced where people are going in in terms

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<v Speaker 1>to in terms of interest rate policy. Here, I mean,

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<v Speaker 1>just to give you some idea, we so sort of

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<v Speaker 1>a brief flip up to the highs of the day,

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<v Speaker 1>and he has some P five hundred after those initial

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<v Speaker 1>headlines came out. Uh, and now you're you're seeing stocks

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<v Speaker 1>and bounce around. Uh. Still not quite higher, though they've

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<v Speaker 1>made up a lot of their early losses. So you know,

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<v Speaker 1>if that's the outcome, then I suspect the policy makers

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<v Speaker 1>would be perfectly happy with that. Matt, just a little

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<v Speaker 1>bit about inflation. Uh, milk, eggs, bread, You've been following

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<v Speaker 1>the basics, Yeah, absolutely, so you know that's uh, that's

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<v Speaker 1>really good news. Right. So the prices of milk, eggs

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<v Speaker 1>and bread, as you mentioned, seemed to be coming down

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<v Speaker 1>a lot, and so that was a really big criticism

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<v Speaker 1>of the Fed in the early years of this expansion,

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<v Speaker 1>when we did have a little bit of inflation, it

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<v Speaker 1>was a lot of that um, you know, uh inflation

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<v Speaker 1>that was driven by dollar weakness. It was really hitting

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<v Speaker 1>you know, low end consumers right where it hurt the most,

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<v Speaker 1>and the grocery basket. And so while the Fed was saying, oh,

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<v Speaker 1>you know, we have to keep policy easy, Um, we're

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<v Speaker 1>not worried about inflation, everybody's looking at their grocery bill

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<v Speaker 1>and saying, well, you know, how can you kind of

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<v Speaker 1>be taking this position and build Dudley famously got in

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<v Speaker 1>trouble when he said, well, you know, look at iPads, right,

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<v Speaker 1>the price of those has come down a lot. And

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<v Speaker 1>he said that in twenty eleven and someone at the

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<v Speaker 1>town hall said, well, you can't eat an iPad, so

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<v Speaker 1>that certainly is not the case anymore. It's an interesting

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<v Speaker 1>kind of Yeah, I mean, Carl coming on the US

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<v Speaker 1>economy if you can. Industrial production report out today for

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<v Speaker 1>the month of June. Estimates were for a gain of

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<v Speaker 1>a half a percent, actually up six it actually top

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<v Speaker 1>Actually manufacturing was stronger. But we have to really pass

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<v Speaker 1>through the details here because there was a fire at

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<v Speaker 1>a part supplier in the auto sector, and so we

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<v Speaker 1>saw a swoon in May and then a sharp rebound

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<v Speaker 1>in June. The moral of the story is the Q

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<v Speaker 1>two factory output data looks good. Uh. The Q two

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<v Speaker 1>consumer spending data look great. Uh. And we're looking at

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<v Speaker 1>a quarter that will probably a register g d P

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<v Speaker 1>gain of if not in the high threes, maybe even

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<v Speaker 1>in the low four percent territory. But we shouldn't get

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<v Speaker 1>too excited about one single quarter because we will see

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<v Speaker 1>a moderation in the second half of the year. Uh.

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<v Speaker 1>There's this usual whipsaw between a week Q one and

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<v Speaker 1>we have to break in here. A Jerome Palifa draw

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<v Speaker 1>Reserve chair is now starting his testimony before the House.

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<v Speaker 1>Let's listen in Thanks for listening to the Bloomberg P

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<v Speaker 1>and L podcast. You can subscribe and listen to interviews

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<v Speaker 1>at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.

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<v Speaker 1>I'm him Fox. I'm on Twitter at pim Fox. I'm

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<v Speaker 1>on Twitter at Lisa Abramowits one before the podcast. You

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<v Speaker 1>can always catch us worldwide on Blueberg Radio