Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. This is a treat.
Speaker 1: Jennifer Lee, Senior economist and Managing director BEMO Capital Markets
Speaker 1: joins is via the phone, and Daniel D. Martino, Boots,
Speaker 1: CEO and chief Strategists at Quick Intelligence Joints, is here
Speaker 1: in on our Bloomberg Interactive Broker Studio, and Jennifer, I'm
Speaker 1: gonna start with you. We had Christine Legard today, FED
Speaker 1: Chairman j Pal yesterday. Let's talk central banks. What's going
Speaker 1: on at there with their central bankers globally? You tell me,
Speaker 1: we'll both be the You know, I think I think
Speaker 1: everyone it was funny with just Jimmy in on the
Speaker 1: FED for a second. You know, I thought there was
Speaker 1: a little bit of something for everyone in that press conference,
Speaker 1: but I was leading towards the view that he was
Speaker 1: more hawkish than I think. What the market was initially thinking, um,
Speaker 1: the big of England. I have no idea it was.
Speaker 1: It was um. It was a bit mixed, but it
Speaker 1: sounds like they're towards the end of the red hikes
Speaker 1: and the c D was all in the hawki ish,
Speaker 1: so I was calling it was interesting how the entire
Speaker 1: governing Council seems to be on board this, this s
Speaker 1: S hawk Is ship. It has led by Christie Legard
Speaker 1: to Captain Legard um and I think you have to
Speaker 1: call her. There's an unwritten rule you don't call anybody
Speaker 1: else Mr or missus anything, but in her case it
Speaker 1: has to be Madam. Okay, I don't like, but yeah,
Speaker 1: I can see another ray high coming up after March.
Speaker 1: But you guy, it's all good. Be data dependent. I
Speaker 1: don't know about you know, the ECB and the b
Speaker 1: o E. But in terms of the FED. You know,
Speaker 1: my wife always says, I don't care what you say.
Speaker 1: Your actions speak much louder than your words, and they
Speaker 1: only easily good for nothing. Twenty five basis points not
Speaker 1: to mention the fact that um, they see disinflation. He
Speaker 1: admitted he waffled on the question Powell about whether or
Speaker 1: not anyone talked about a pause last time. He just said, no,
Speaker 1: point blank, end their data dependent. So what is the
Speaker 1: point of telling me what you plan to do maybe
Speaker 1: if the data goes your way, and then saying your
Speaker 1: data dependent, Danielle. So look, I think it's all very nuanced.
Speaker 1: We forget that the way the CPI is constructed is
Speaker 1: changing before our very eyes. Used car prizes which are
Speaker 1: coming down hard, that weight's going to be reduced. New
Speaker 1: York rents which spiked after the entire rest of the country.
Speaker 1: That's eleven percent of shelter in the in in inflation
Speaker 1: that's going to feed through with a lag. There are
Speaker 1: many cases to be made for inflation being higher in
Speaker 1: the second half of the year than what the market
Speaker 1: is currently anticipating. What I think was the most devish
Speaker 1: what I think turn markets around yesterday. The hardest was
Speaker 1: when he was specifically asked about the Jolts data, which
Speaker 1: was obviously stronger than what was That was that was
Speaker 1: why markets freaked out going into the FED yesterday, was
Speaker 1: Jolts was so strong north of eleven million openings again
Speaker 1: one point nine two per every for um for every
Speaker 1: opening um. Anyways, he did site that, but then he
Speaker 1: faded it. He's like, you know, when he faded, jolts
Speaker 1: markets turntail and went straight to the moon. Did I mean,
Speaker 1: did I misunderstand, did I maybe miss here? Or did
Speaker 1: he say financial conditions were tightening? He said? And then
Speaker 1: I have to ask in what universe does exactly, because
Speaker 1: because financial conditions have given back everything all the way
Speaker 1: until February two, it's as if the Fed has not
Speaker 1: hiked up one basis point forget twenty five or unusually
Speaker 1: large seventy five times four plus fifty plus twenty five.
Speaker 1: But but he did say that he anticipated that in time,
Speaker 1: ultimately financial conditions would reflect his restrictive stance of monetary policy. Again,
Speaker 1: yesterday was just wishy washy. Yeah, Jennifer, I want to
Speaker 1: get your opinion here. I mean, the markets have been saying, well,
Speaker 1: the FED officials and central bankers around the world have
Speaker 1: been saying, they've been talking tough, We're gonna keep rates higher,
Speaker 1: We're not going to turn tail. But the markets are
Speaker 1: saying not so fast. I mean, the market of pricing
Speaker 1: in rate decreases it the end of the year. How
Speaker 1: do you think about that dichotomy? Uh, you know, in
Speaker 1: many ways this is all, you know, the communications, and
Speaker 1: it sounds like it's being muddled again. UM, just given it,
Speaker 1: you know, just everyone here on this of his call
Speaker 1: to UM. But you know, we have been always of
Speaker 1: the view that you know, the rate cuts would not
Speaker 1: be uh seen this year. UM. But I guess the
Speaker 1: scary part is that you know that you know, as
Speaker 1: they I was saying, we were talking about the old
Speaker 1: data of the employment data. You know, he was saying
Speaker 1: that it's still you know that the job market is
Speaker 1: way too strong, and uh, it almost frightens me to think,
Speaker 1: you know, what are they willing to do to to
Speaker 1: cause the labor market to almost buckle? It seems, in
Speaker 1: order to bring inflation back down to two percent, and
Speaker 1: it sounds like they're going to keep it, you know, higher,
Speaker 1: for longer. Alright, I have a listener who's written in Okay,
Speaker 1: he sent me a chart of different countries inflation data.
Speaker 1: I just showed it to Danielle because I don't really
Speaker 1: know what to do with it. But UM, he's saying
Speaker 1: and asking a question, what happens to Marcus if we
Speaker 1: become like in the nineteen se and d's we pause
Speaker 1: and then have to hike again and this I thought
Speaker 1: was a concern, but I guess their data dependence, so
Speaker 1: they're willing to change the way they're going every single meeting. No,
Speaker 1: uh no, no, no, no, I'm going to push back
Speaker 1: on this because he was asked that question specifically yesterday
Speaker 1: and he said, I don't mind if we overtighten, because
Speaker 1: we cannot pull the genie back into the bottle if
Speaker 1: inflation gets re released. He's like, if we tighten too much,
Speaker 1: we've got tools to bring it back down. But he said,
Speaker 1: I will not stop until I'm convinced that we don't
Speaker 1: have to go back in. So he again, there was
Speaker 1: so much that he said yesterday that was flat out ignored,
Speaker 1: and he was very articulate and emphatic in saying, I
Speaker 1: don't care if we go too far. Well, Jennifer, the
Speaker 1: market still clearly doesn't believe that the FED is going
Speaker 1: to raise rates past you know, five percent um at
Speaker 1: least that's not the pricing on w I RP GO
Speaker 1: shows me that the market doesn't buy that, and the
Speaker 1: market still is pricing in cuts this year in fact too.
Speaker 1: So what does that mean to you at demo UM,
Speaker 1: that that that that that this FED doesn't have credibility
Speaker 1: or that the market thinks Pale is going to change
Speaker 1: his course. Why, Jennifer, I don't know if they're going
Speaker 1: to change their quarters. The market is thinking that. It
Speaker 1: sounds like they're almost ignoring everything he's saying. But you know,
Speaker 1: again for the way, what dinner I was just saying,
Speaker 1: I mean, he did see yesterday about history cautioning against
Speaker 1: prematurely loosening policy, and and he said that before. Was
Speaker 1: it Jackson hole when you know when he first made
Speaker 1: that comment, and he's still standing by that. And I
Speaker 1: think it's it's it's better too, as they have said before,
Speaker 1: to tighten too much than and then they're not tightened enough.
Speaker 1: And again they have you know, they have the tools
Speaker 1: to back down on that. Even um regard this morning,
Speaker 1: she was saying, do not students that are in faulved
Speaker 1: to bring in flash back down to target. And I
Speaker 1: think that's what again the same thing she's trying to
Speaker 1: make sure that they're indibility is intact um and it
Speaker 1: just just continue to talk. But of course, you know,
Speaker 1: the markets look seems like it's looking at the other way.
Speaker 1: All right, we are breaking this down. We have a
Speaker 1: FED round table here Jennifer Lee Sing your economists and
Speaker 1: managing director at Demo Capital Markets, and Daniel D. Martino Booth,
Speaker 1: CEO of quill uh Intelligence. Uh, Danielle, I'm looking at
Speaker 1: my ECO screen. I got a lot of ECO data
Speaker 1: this morning, and I see a lot of some negative numbers. Here.
Speaker 1: I mean factory orders X transportation minus one. The consensus
Speaker 1: was positive zero point two percent, durable goods X transportation
Speaker 1: negative zero point two percent? Consensus was negative point one?
Speaker 1: Am I seeing a recession in my economy? Here? What
Speaker 1: am I seeing with these negative numbers? You look, the
Speaker 1: National Beer of Economic Research follows um real disposable income ex.
Speaker 1: Government transfers. That's that's in the tank in dustphere Industrial
Speaker 1: production yuck. What we just got out feeds g d P.
Speaker 1: The data that you specifically sided the disappointed to the downside,
Speaker 1: especially on the on the shipments that feeds into g EP.
Speaker 1: Ben hers On is my favorite. Uh. He was at
Speaker 1: mcgar Advisors and I S Market bought them out then
Speaker 1: s in P level. Anyways, he basically created the GDP
Speaker 1: model and right now he's at negative one point five
Speaker 1: pc after the day we just got out this morning.
Speaker 1: He's going to be taking that Q one number down
Speaker 1: below negative one. The answer, yes, we are in recession. Okay, Jennifer,
Speaker 1: what do you think, Um, we still have you know,
Speaker 1: we've always been penciled and we've always had that uh
Speaker 1: two negative quarters by definition penciled into our into this year. Um.
Speaker 1: But you know, we continue to see you know, some
Speaker 1: sort of a bounce back or a little bit of
Speaker 1: recovery in the second half, but you know, averaging out
Speaker 1: to you know, still about almost like a lot years.
Speaker 1: So I think this year is almost going to be
Speaker 1: a write off still. Um. Of course, what happens next
Speaker 1: year is another story. But um, right now, I mean
Speaker 1: it's like, here's another thing. I mean, we were talking
Speaker 1: about the data this morning, and we know how extremely
Speaker 1: volatile the factor order's data are. But you know, we
Speaker 1: at least we got that bounced back yesterday and auto sales.
Speaker 1: I mean, of course it was a big drop in December,
Speaker 1: so it's almost like a wash for the two tho
Speaker 1: for the two months. So I wouldn't completely discount um, um,
Speaker 1: you know, for example, the US consumer just yet. But
Speaker 1: obviously all these rate hypes are finally finally trying starting
Speaker 1: to make make their mark on the economy Daniel. Let's
Speaker 1: talk about the labor market here again. We had an
Speaker 1: initial jobles claims print dight three thousand that was lower
Speaker 1: than expected. Another print below two hundred thousand, which you
Speaker 1: kind of tell me is is kind of important jobless
Speaker 1: non farm payrolls. Tomorrow we get that data. That consensus
Speaker 1: is a hundred ninety thousand added. Boy, this is a
Speaker 1: strong labor market. Is there anything that breaks this labor market?
Speaker 1: It sure looks like it's a strong labor market on
Speaker 1: the surface, doesn't it. Yes, because this morning Challenger Gray
Speaker 1: and Christmas came out and said laoffs in January for
Speaker 1: the month of January that was the weakest January since
Speaker 1: two thousand and nine. They said that hiring announcements were
Speaker 1: cut in by between December and January. And by the way,
Speaker 1: the Department of Labor, the Beuer of Labor Statistics, they've
Speaker 1: already pretty clear that they're having trouble with seasonal adjustments
Speaker 1: post pandemic. I've been tracking closely Google trends file for
Speaker 1: unemployment people searching for file for unemployment. It's tracking right
Speaker 1: alongside not seasonally adjusted continuing claims, which popped up again
Speaker 1: to one point nine million this week. They're up off
Speaker 1: their lows, not seasonally adjusted. Continuing under the surfaces. Under
Speaker 1: the surface, it's much weaker than it appears on the headline.
Speaker 1: But if we're talking about the Fed, J. Powell doesn't
Speaker 1: appear to care. He's going to follow the headlines that
Speaker 1: suit him. I can tell you all the Sweeney offspring
Speaker 1: are employed. That's good gradulations. Well they should be, right
Speaker 1: if there are two jobs out there for every single person.
Speaker 1: I mean, there's eleven million job openings. I thought. Again,
Speaker 1: the Boweing interview that guy Johnson did the other day
Speaker 1: was amazing, and the CEO Bowing said, look every time,
Speaker 1: basically said, I'm paraphrising every time Microsoft or Amazon lays
Speaker 1: off a smart engineer, we're gonna go scoop him up.
Speaker 1: So you do see some pink slips out there on
Speaker 1: the West coast, But that doesn't mean those people aren't
Speaker 1: getting jobs right away. Again, Yeah, I don't know. Bowe
Speaker 1: never should have left Seattle. By the way, that's my
Speaker 1: number one call, um, Jennifer. When when you take a
Speaker 1: look at this economy here, what's your real call here
Speaker 1: for twenty three four? I mean, is this recession if
Speaker 1: so is it a shallow one? How what what level
Speaker 1: does the economy in North America bounce back if, in
Speaker 1: fact we do go into a recession. How do you
Speaker 1: guys think about that? A female? Well, right now, everything's
Speaker 1: obviously fluid um as Again, as I said, you know,
Speaker 1: we're looking for a flat ish um um year for
Speaker 1: three decline the first half, better second half, and then
Speaker 1: you know, some sort of a recovery as as rate
Speaker 1: cuts start to take hold or start to kick in
Speaker 1: probably uh. You know again, this is all goes back
Speaker 1: to how it's how intentional the the set is going
Speaker 1: to be in keeping rates up at these restrictive levels
Speaker 1: um for how long as well? And what I guess
Speaker 1: what is a little bit is puzzling to I think
Speaker 1: everyone is going to be like again the job market
Speaker 1: and the fact that we still have for ten million
Speaker 1: job openings out there. You know, at some point those
Speaker 1: ones are gonna be wants to be cut first. Um.
Speaker 1: It's almost like a lot of fat before you get
Speaker 1: to the bone. Um. But we still expect, you know,
Speaker 1: unemployment to start rising the longer that the rates still
Speaker 1: you know, the fed stas um um um height with
Speaker 1: their with your conditions you know, and keep rates higher
Speaker 1: for longer. So if I could just jump in here
Speaker 1: on jolts, I think one of the reasons that the
Speaker 1: FED chair faded it yesterday's because joint research between the St.
Speaker 1: Louis FED and the Dallas FED showed that about of
Speaker 1: all job openings for the purpose of coaching your closest
Speaker 1: competitors worker. That's what I was wondering about. Why is
Speaker 1: the JOLTS number so strong when a DP isn't, Because
Speaker 1: because you're you're trying to get your competitors worker and
Speaker 1: not have to pay to train them. Just like going said,
Speaker 1: all right, good stuff, good stuff FED round table, like
Speaker 1: only Bloomberg Radio can do. Jennifer Lee, Senior commiss and
Speaker 1: Managing Director with BMO Capital Markets, joining us on the
Speaker 1: phone at Daniel D. Martino, Booth, CEO and Chief straps
Speaker 1: it just at Quill Intelligence, joining us live here in
Speaker 1: a Bloomberg Interactive Broker studio, breaking down the FED speak
Speaker 1: we've heard over the last twenty four hours. ECO data
Speaker 1: lots going on a lot across winds for investors. I
Speaker 1: want to bring in right now Hugh Roberts at quant
Speaker 1: Insight to talk to us about what we saw yesterday, um,
Speaker 1: with the FED and what we're seeing today with the
Speaker 1: b o E and the e c B. Basically, all
Speaker 1: this big central bank action is moving markets pretty substantially. So, Hugh, uh,
Speaker 1: you were with us on television yesterday, and I'm glad
Speaker 1: you could join us on radio today we get a
Speaker 1: little bit more time. UM, let me first get your
Speaker 1: reaction to what we saw yesterday. Was it more devish
Speaker 1: than you would have expected? Um? Well, I think the
Speaker 1: biggest takeaway is that Chair Powell and the broader Fed
Speaker 1: clearly think about financial conditions, um, in a different way
Speaker 1: to most of the mainstream market. Was that just a
Speaker 1: slip up or two? I mean, so Powell was asked
Speaker 1: about financial conditions loosening and their looser by Bloomberg's measure,
Speaker 1: by Goldman Sachs measure, by Wall Street measures than they
Speaker 1: have your own, uh, your own measures, and they have
Speaker 1: been in like a year, right, So was it just
Speaker 1: a mistake that he made? Yeah? I mean I've seen
Speaker 1: some conspiracy theories. I have to confess I've missed that
Speaker 1: he actually suffered from about the COVID, And I saw
Speaker 1: one conspiracy theory saying, you know, was it just a
Speaker 1: subpar performance because he's still suffering a little bit on
Speaker 1: the health front. I don't know about that. I mean,
Speaker 1: I think taking a step back, there's always a danger
Speaker 1: that we all start to over analyze and overthink certain things.
Speaker 1: You know, we have had the most interesting bit of
Speaker 1: pushback in the last twenty four hours that I've seen
Speaker 1: is to fed unofficial press boatsman operating in a divorce.
Speaker 1: Street journal has today pointed us in the direction of
Speaker 1: a brain Ard speech from two weeks ago and which
Speaker 1: opens with a comment about overall financial conditions. And two
Speaker 1: things come out from that speech. One is just the
Speaker 1: timeframe that they're looking almost a year on year. They're
Speaker 1: looking at a much longer history compared to the likes
Speaker 1: of ourselves, who say, well, look at the unwinding of
Speaker 1: the financial conditions we've seen in the last six months
Speaker 1: or so. And then secondly, if you look at the
Speaker 1: specific references in that speech, there is no eputy market
Speaker 1: com opponent and so no wealth effect component. It's sites
Speaker 1: will yield in particular, that's probably the most overweighted um variable.
Speaker 1: But hang on you so um so. Brainerd also said
Speaker 1: financial conditions are tightening, and this is interesting because I
Speaker 1: was talking with you about this yesterday. If you take
Speaker 1: out the stock market effects, aren't financial conditions still pretty loose? Yeah,
Speaker 1: So that's that would be the time scale point that
Speaker 1: we're looking at on our measure, and like your measure,
Speaker 1: I think the unwind of the easing has come in
Speaker 1: the last six months or so and the brain our
Speaker 1: speech and I think maybe there, whether it was a
Speaker 1: slip of the tongue or just whatever it was from
Speaker 1: Powell yesterday, was actually a much longer horizon. They were
Speaker 1: saying over the duration of their tightening cycle from where
Speaker 1: we were a year ago, conditions are still tighter. So
Speaker 1: it's to a degree, it's where you stop the clock,
Speaker 1: if you see what I mean, Hugh. So there is
Speaker 1: a disconnected obviously, between what we're hearing from the central bankers,
Speaker 1: including Madame Leguard today, in terms of you know, talking
Speaker 1: the talk and a tough fight. We're gonna keep rates
Speaker 1: higher for for longer, and the market is just not
Speaker 1: buying it. How unusual is that dichotomy in the marketplace.
Speaker 1: It's one of the more aggressive examples, I agreed, hopefully,
Speaker 1: I mean to see such a coordinated response. And there
Speaker 1: were the events we had this week between the third
Speaker 1: yesterday d CD in the Bank of England, and in
Speaker 1: each instance for the bond market to react the way
Speaker 1: there is the repricing we've seen at the front end.
Speaker 1: I'm struggling off the top of my head to think
Speaker 1: of many examples where the market has so aggressively and
Speaker 1: so uniformly flown in the opposite action to the manta
Speaker 1: from central banks. I agree where we're in fairly unpaceded
Speaker 1: tempories and it does make you think that that we're
Speaker 1: coming to a rather severe pitch point at some stage.
Speaker 1: Either the markets pricing has to be vindicated um or
Speaker 1: we're just going to make this worse. And I guess
Speaker 1: that's part of the reasons, I guess to justify our actions.
Speaker 1: In terms of us all trying to analyze the FED
Speaker 1: going into last night's meeting, I think one of the
Speaker 1: motivations everyone had in the back of their mind was that,
Speaker 1: you know, is the whole kind of stitching time type
Speaker 1: approach that you need to get in front of this. Otherwise,
Speaker 1: if you allow this kind of almost a rational exuberance,
Speaker 1: you could classify it as to get too far carried
Speaker 1: away that when the day of reckoning comes and if
Speaker 1: the FED and the ECB version of events is proved right,
Speaker 1: then the repricing then become that much more severe. And
Speaker 1: the problem with that, it's not just from a financial
Speaker 1: market perspective, but the transmission through to the real economy.
Speaker 1: Does it then start to really really make what could
Speaker 1: have been a soft landing, that could they such defeat
Speaker 1: from the jaws of victory the soft landing, but the
Speaker 1: repricing makes it a heart on me. So that's because
Speaker 1: the market is pricing in a couple of cuts this year,
Speaker 1: and you're saying that the FED just holds high, you know,
Speaker 1: after another rate rise or two at five and a
Speaker 1: quarter percent, and doesn't cut by the end of this year,
Speaker 1: even if the data shows they should. That's snatching defeat
Speaker 1: from the jaws of victory. Yeah. That that and also,
Speaker 1: as I say, just the fact that if you have
Speaker 1: a too big a disconnect between what the central bank
Speaker 1: is trying to do and what financial markets are pricing,
Speaker 1: then at some point something has to give. That elastic
Speaker 1: can only go so far, I would argue, And then
Speaker 1: there comes a point where if the FED version of
Speaker 1: events proves true and the higher for longer scenario wins out.
Speaker 1: The implication for that is quite an aggressive sell off
Speaker 1: and risky assets, and that hurts the real economy through
Speaker 1: the wealth effect for equities, corporate America's ability to finance itself,
Speaker 1: through why the credit spreads stronger. Dollar took sense. So
Speaker 1: h when you look at the market over the past
Speaker 1: two days, I mean yesterday a strong move, today, very
Speaker 1: strong move. We got the SMP up one point four percent,
Speaker 1: the NASDAK up, but two point nine just really significant moves.
Speaker 1: Does that seem like an overreaction to you from this
Speaker 1: market or just more of the same. This is a
Speaker 1: market that's really much more optimistic or bullish than maybe
Speaker 1: central bankers are. Yeah, I mean we were inclined, um.
Speaker 1: I think up until the last twenty four hours, were
Speaker 1: inclined to think that there was a bit of positioning
Speaker 1: and sentiment dynamics at work. And I think sentiment and
Speaker 1: equity market has been poor, but positioning probably wasn't as
Speaker 1: bearish as everyone thought. I think there was an element
Speaker 1: of a straight rotation. Winners have become twenty twenties lag
Speaker 1: ards and vice versa, um and on our modeling, although
Speaker 1: that proven like NASDAK or XLK or anything vaguely tech related,
Speaker 1: was modestly rich, it wasn't crazy extended. It's now starting
Speaker 1: to look a little bit more stretched, and there's lots
Speaker 1: sun to look like the move is moving further away
Speaker 1: from macro fundamentals. So um, I think up until now
Speaker 1: we would have said it's been a relatively orderly moved,
Speaker 1: but this is beginning to raise eyebrows. All right, Hugh
Speaker 1: Key question your officers are based at right there in
Speaker 1: Liverpool Street, right in the city of London. How is
Speaker 1: the city of London today? Today's Thursday crowded? How's the
Speaker 1: two are people back in your office? What's gone on
Speaker 1: in the city. Yeah, it feels like I mean buying
Speaker 1: large things about to normal. I mean that the kind
Speaker 1: of PrePost COVID dynamics I think has largely worked through.
Speaker 1: There's a lot of hybrid working models. But on the
Speaker 1: whole foot traffic is normal obviously, where the UK is
Speaker 1: a slant slight outliers of all the industrial actions which
Speaker 1: has just made things much worse. So you know, on
Speaker 1: any given day there's a tube or a trained strike,
Speaker 1: or if trape teachers are striking, then some people have
Speaker 1: to stay the home and do you know kind of
Speaker 1: our home schooling and childcare, so we haven't had an
Speaker 1: uninterrupted period of normal what the normal might be. To
Speaker 1: give you a goods on the fight, alright, good stuff,
Speaker 1: Hugh Roberts. The offices are Liverpool Street, really close to
Speaker 1: Bloomberg's London headquarters at Queen Victoria Street, just as films
Speaker 1: throw there in the City of London by bank yep,
Speaker 1: right by bank, but they're there. Asses are right on
Speaker 1: the Liverpool Street station, which is an awesome train station,
Speaker 1: great tube stop. Kind of get pretty much everywhere from there.
Speaker 1: Some good stuff. Hugh Roberts. He's head of analytics at
Speaker 1: quant Insights, based in the UK, giving us some thoughts
Speaker 1: on these markets. Let's do something insane right now. We'll
Speaker 1: rip up the script. I've never had a five person
Speaker 1: round table. Let's bring Carl Rickadonna without Jess Matten. You're
Speaker 1: gonna stay here. Bloomberg Equities reporters Katie Greifeld, Cross Asset,
Speaker 1: Maven and Carl Rickadonna joins us right now from BNP.
Speaker 1: Perry Boy he's chief US economist. UM, anyone feel free
Speaker 1: to jump in. But Carl, let's throw this to you.
Speaker 1: What do you make of Jerome Powell, the Chair of
Speaker 1: the FED, who arguably has um easy access to the
Speaker 1: Bloomberg Terminal to everybody else's f con um index. Yesterday
Speaker 1: he said financial conditions are tighter. What on earth was
Speaker 1: he talking about? Well, Matt, I was as perplexed as
Speaker 1: everyone else sitting around the table. Good morning to you all.
Speaker 1: But I also then quickly said, well, if if they're
Speaker 1: not looking at f CON on the Bloomberg Terminal, which
Speaker 1: I think is a great index, which I've worked with
Speaker 1: a lot in the past, they're probably looking at one
Speaker 1: of their own indices. And so I pulled up that
Speaker 1: Chicago Fed index and sure enough, it's a little bit
Speaker 1: less of a dramatic story than what f CON is showing.
Speaker 1: But if we look at that Bloomberg index, it's telling
Speaker 1: us financial conditions are easier now than they were at
Speaker 1: the start of the FEDS tightening campaign last year. So,
Speaker 1: regardless of whatever Powell said during the press conference, UH,
Speaker 1: Bloomberg financial conditions, which has a high correlation with GDP.
Speaker 1: It's been cited in FED research papers because of its
Speaker 1: prowess as a predictive tool for a GDP growth economic activity. UH,
Speaker 1: it is easy and it's telling you. Unless they fixed
Speaker 1: the narrative and financial markets to get the message, we
Speaker 1: could be looking at a re acceleration in the economy,
Speaker 1: which in turn would undermine all of their efforts to
Speaker 1: get the inflation genie back in the bottle. And we
Speaker 1: could be looking at, you know, a very difficult inflation
Speaker 1: landscape going forward, which is not what the Fed wants
Speaker 1: to be confronted. So, Carl, this is Katie Greyfeld. It
Speaker 1: is thrilling to talk to you. I will say, my
Speaker 1: heart rate is sixty right now, pretty high for me.
Speaker 1: I'm really happy to hear that you also went to
Speaker 1: the Chicago Fed measure. Uh, and it does. I mean
Speaker 1: the absolute levels are a little bit different from the
Speaker 1: Bloomberg measure. By the Chicago Feds absolute level, they are
Speaker 1: tighter than they were at the start of the hiking cycle,
Speaker 1: but still they've been lostening. I want to talk about
Speaker 1: why it matters. I mean, you mentioned that this could
Speaker 1: under mind the FEDS you know, inflation fighting campaign, but
Speaker 1: walk us through how that actually works. Because I feel
Speaker 1: like we talk about financial conditions all the time without
Speaker 1: actually defining them. Yes, so financial conditions, whether it's a
Speaker 1: Bloomberg metric or the Chicago Fans metric. The Bloomberg metric
Speaker 1: very efficient because it has just a narrow um a
Speaker 1: small number of inputs. I think it's probably about ten inputs.
Speaker 1: Chicago FED has something like one dred inputs. But they
Speaker 1: both tell the same story. So even though the Chicago
Speaker 1: Fed index has been a little less dramatic in the
Speaker 1: signal at sending UH, these things matter because either index
Speaker 1: correlates well with GDP growth, and we know the Fed
Speaker 1: has to slow the economy down from that twelve and
Speaker 1: a half percent growth rate that we were registering in
Speaker 1: the middle of one and it has to hold the
Speaker 1: economy at a below trend growth rate. Now, some folks
Speaker 1: like myself will say that means they have to cause
Speaker 1: a recession to create some dislocation in the labor market.
Speaker 1: Other folks, including Jerome Powell and a lot of SET
Speaker 1: officials including that I think Governor Waller as well, are saying, no, no, no,
Speaker 1: we we don't need to cause recession. We can just
Speaker 1: push growth below its trend rate and hold it there
Speaker 1: for an extended period of time. That will create slack
Speaker 1: in the economy, ease labor pressures, and easy inflation. Pressures
Speaker 1: as well. Um, that's something that they've actually never done
Speaker 1: in the past. So that's why we're a bit skeptical
Speaker 1: that it won't ultimately tilt us into recession. If you
Speaker 1: push the economy to a slow enough growth rate, it
Speaker 1: becomes very sensitive to exogen the shocks and and resilience
Speaker 1: won't be the story. Fragility will be the story, and
Speaker 1: then you get a recession anyways. But nonetheless, if you're
Speaker 1: not keeping the brake pedal on, and financial conditions tell
Speaker 1: us how well the FET is keeping their put on
Speaker 1: the brake pedal, then you're not going through that low
Speaker 1: growth regime that accomplishes your inflation goals. I think that's
Speaker 1: a real risk. That's where the tension is in the markets,
Speaker 1: which are still saying the FED will stop sooner and
Speaker 1: start easing sooner than what the Fed is saying. So
Speaker 1: just to put a full circle around it, I think
Speaker 1: we've seen this drama play out before. It was last summer.
Speaker 1: In July, the Fed teas the idea that they may
Speaker 1: need that there would be some point where they would
Speaker 1: be willing to downshift the pace of tightening. The markets
Speaker 1: went haywire, went too far with that narrative. And then
Speaker 1: we go from the July A poem C meeting to
Speaker 1: the Jackson Hole Fed Policy Conference in late August uh,
Speaker 1: and Jerome pal comes in, rips up the script uh
Speaker 1: and delivers a very hawkish direct message saying, Okay, markets
Speaker 1: are not listening, let's all get on the same page here. Uh.
Speaker 1: And he largely accomplished that goal. But then what kind
Speaker 1: of right right back to square one where they need
Speaker 1: to have a reprise, if you will, or a rerun
Speaker 1: of that Jackson Hole messaging campaign. Carl, this is jas.
Speaker 1: It's good to talk to you again. Something that I'm
Speaker 1: looking ahead too. We will get another update on cp
Speaker 1: I on Valentine's Day, and so this will be for
Speaker 1: the month of January. And I am aware that the
Speaker 1: CPI there is going to be a rewaiting, and this
Speaker 1: does happen at times. But I have talked to certain
Speaker 1: economists who have argued that potentially this could push down
Speaker 1: cp I faster just given what's happening. If you're looking
Speaker 1: at the rewaiting, potentially there could be larger weights and
Speaker 1: autos maybe notably rents potentially could fall. But then I've
Speaker 1: had other economists argue that you might actually see more
Speaker 1: of a boost in the first quarter towards core c
Speaker 1: p I, and so it's kind of been split when
Speaker 1: I've talked to economists, and so I was curious if
Speaker 1: that's something that you have been focusing on just yet
Speaker 1: and what your expectations are, if there is could be
Speaker 1: any sort of changes there as far as what that
Speaker 1: could mean when we are still looking very closely at
Speaker 1: those inflation numbers. Yes, So to kind of summarize the
Speaker 1: landscape for the listeners, UH, they rewait the components in
Speaker 1: the CPI so that the waiting factors we give to
Speaker 1: the various components, UH, to the extent that in recent
Speaker 1: years has been more spending on goods, which was the
Speaker 1: story during the pandemic. We couldn't go to restaurants, we
Speaker 1: couldn't go on vacation, we bought lots of things on
Speaker 1: online and whatnot. We see it in the income and
Speaker 1: spending numbers, and it will be reflected in the CPI
Speaker 1: numbers as well as those weighting factors change. So if
Speaker 1: goods inflation is running cooler and we're giving them a
Speaker 1: higher weighting factor, that could reset the c p I
Speaker 1: UH marginally or incrementally lower. It doesn't change the narrative though,
Speaker 1: So this is a little bit of dithering over the details. Uh,
Speaker 1: it won't happen in the CORE PC deflator or the
Speaker 1: FEDS PC deflator, the metric they like to track. Um.
Speaker 1: So so it's a it's a nuanced story, but it
Speaker 1: doesn't change the inflation landscape. Is the cp I now
Speaker 1: different from what we had in the seventies? And by
Speaker 1: the way, Matt Miller here, Uh, I have a beard.
Speaker 1: Um do you do you think the comparisons to the
Speaker 1: seventies are fair because a lot of people are asked today,
Speaker 1: what if you know this devish fed has to turn
Speaker 1: hawk comes back. I remember elements of the seventies, Paul.
Speaker 1: And there was there was some great television programming in great,
Speaker 1: great hunt, great music back then, Paul. Uh. But to
Speaker 1: Matt's point, so that the CPI does evolve over time.
Speaker 1: So of course the waiting factors are different than where
Speaker 1: we were in the seventies. So how much we spend
Speaker 1: on rent and housing versus goods or food or energy,
Speaker 1: that has evolved over time. Also, there have been methodological
Speaker 1: changes to the CPI, so the way they count housing
Speaker 1: costs and rents and shelter has changed a lot. So
Speaker 1: it's not your father's, or we'll say it's not Paul
Speaker 1: Sweeney's c P i UM. But nonetheless it gives you
Speaker 1: a sense of the direction of price pressure in the economy.
Speaker 1: The other key difference I'll draw to the nineteen seventies,
Speaker 1: so we can say, sure, inflations running as hot as
Speaker 1: it was in the early nineteen eighties, it's a very
Speaker 1: different landscape. So the inflation that Paul Vulker had to
Speaker 1: confront in the early nineteen eighties was really fifteen years
Speaker 1: in the making, right, It started in Lyndon Johnson's Great Society,
Speaker 1: and the spending on the Vietnam War, two oil crises
Speaker 1: that changed to foreign exchange policy globally, a lot of
Speaker 1: shocks that had eroded the psychology. Uh, the problem that
Speaker 1: Jerome Palace confronting was really fifteen months in the making,
Speaker 1: So much more surgical solution, all right, Carl great stuff
Speaker 1: as always called ricka Donna chief US economists from BNP,
Speaker 1: Parry ba phoning it in. I will note, but Jess
Speaker 1: metten he was here in the office yesterday, was he? Yeah? Okay,
Speaker 1: so we'll give him some credit there, Jess Met and
Speaker 1: Katie Gray felt there from Bloomberg News there in our
Speaker 1: Bloomberg Interactive Broker studio, they get the gold stars today.
Speaker 1: All right, kids, we all know the adage don't fight
Speaker 1: the Fed, but the market seems to be fighting the
Speaker 1: Fed to fetch talking tough of the markets just not
Speaker 1: buying it. Let's break down what's going on out there
Speaker 1: in the market. We get the equity markets ripping again today,
Speaker 1: You've got yields coming down pretty substantially. Let's check in
Speaker 1: with Ben Emmets. He's a senior portfolio management had a
Speaker 1: fixed income at New Edge Wealth. He joins us here
Speaker 1: in our Bloomberg in our actor broker studios. So, Ben,
Speaker 1: we had the FED yesterday, the Bank of England, uh,
Speaker 1: the ECB today, a lot of people talking tough as
Speaker 1: it relates to holding the line on rates, but the
Speaker 1: markets saying not so much. What do you make of it? Yeah,
Speaker 1: the tougher they sound and the more hawkish they sound,
Speaker 1: again not a reason for markets to rally. And I
Speaker 1: think it was really triggered by that where disinflation that
Speaker 1: Powell said yesterday. So the market is discounting and even
Speaker 1: faster disinflation for cpis was listening. That means CPI goes
Speaker 1: down even quicker faster than but the feeders forecasting, and
Speaker 1: it's the Fed because he used to talk tough. Then
Speaker 1: the market says, okay, you're not only going to reach
Speaker 1: two percent for sure, you're going to reach it much faster.
Speaker 1: And it triggers this major valley because at the end,
Speaker 1: if you if you do get faster to percent inflation one,
Speaker 1: you don't have to hike anymore too. At some point,
Speaker 1: the Fed also may have to consider the couprights and
Speaker 1: playing into the market expectations. So I think especially their
Speaker 1: data dependent ben I mean, why uh, why try even
Speaker 1: to talk tough in terms of your forward guidance. If
Speaker 1: you say in the same breath that your data dependent,
Speaker 1: you know, it's like I'm never gonna cut rates. I
Speaker 1: will cut rates of the data tells me too. Yeah,
Speaker 1: I totally agree. In fact, you know probably even yes.
Speaker 1: They said like so yeah, if the markets are right,
Speaker 1: then yeah, we should factor it into our policy. Why
Speaker 1: would you then say that you're going to high grade
Speaker 1: So what's interesting math is that you know you could
Speaker 1: maybe next weeks he speakers come out if they started
Speaker 1: more and more leaning towards that idea. Yeah, and the
Speaker 1: market maybe right, that sounds more dovish, right, that market
Speaker 1: is getting a different sense. Okay, But as inflation story
Speaker 1: is not over at you getting them at some point
Speaker 1: two dovish speakers out there. That's the other side of that.
Speaker 1: At this moment, it's about too hawkish and there for
Speaker 1: the market valley. So um, how far can this continue?
Speaker 1: It does look much like a source source squeeze to me.
Speaker 1: You know, the nastac popping really higher this way, that's
Speaker 1: where the biggest short positions are. So that's I think
Speaker 1: part of the reason why we have markets higher. Well,
Speaker 1: we had fed. I mean, I'm sorry ECB president of
Speaker 1: Madame Legard this morning. I don't know, she sounded pretty
Speaker 1: hawkish to me. Fifty basis points and there's more to come.
Speaker 1: But you know, I'm looking at the German tenure. You know,
Speaker 1: it's it's down to two point zero seven percent of
Speaker 1: twenty one basis points today. So again that rhetor did
Speaker 1: not work. No, especially when she said we intend to
Speaker 1: hike intend Like you guys really touched that language and
Speaker 1: you intend to do something that means that you may
Speaker 1: or may not. And you know, I think that the
Speaker 1: German bude market, the entire periphery by the way, really
Speaker 1: collapsing in yields. So they probaced out the access of
Speaker 1: hikes that were maybe through in the back back part
Speaker 1: of the three. And not forget that the ECB put
Speaker 1: in place a program to ensure that spreads stay relatively
Speaker 1: stable while they were hiking rates. So that too, I
Speaker 1: think is supporting market now. But that's their job keeping
Speaker 1: spread stable. He's learned. He learned from not saying we're
Speaker 1: not in the business to collapse preads yet you are.
Speaker 1: What what do you think about? You know the four
Speaker 1: twenty or four five that we saw on the tenure um,
Speaker 1: was that the peak and rates? Yeah, you could say
Speaker 1: that now, yeah, because it's it's not going to be
Speaker 1: so easy to go back to that level unless this
Speaker 1: China reopening, which we've talked about previously. That was October
Speaker 1: also right around the time we saw low inequities, low
Speaker 1: in equities, and right around the time that the first
Speaker 1: news out of China came came out that they were
Speaker 1: looking at zero COVID in a in a potentially different way.
Speaker 1: So that was probably the moment of at least the bottom.
Speaker 1: China plays big into um, you know, the markets moves here.
Speaker 1: I mean, is China is the reopening? Are people optimistic
Speaker 1: about that because for a while we couldn't tell which
Speaker 1: they were reopening, but they were getting you millions of
Speaker 1: COVID cases every day, um. And also it's a different
Speaker 1: China than it was before they went into lockdown. Yeah.
Speaker 1: I do think it plays a big role because the
Speaker 1: impact has already seen through one money coming into China
Speaker 1: assets which by the way, for example, our e t
Speaker 1: F here listed on exchange and people buying them here
Speaker 1: because the money has been put to work. That obviously
Speaker 1: spills over into Banaszak, into other markets. But it's really
Speaker 1: you know, you could tell from the p MY data
Speaker 1: this week just alone out of the lunar year. Immediately,
Speaker 1: the PM data recovered above fifty as one simple example,
Speaker 1: So this is reopening is real. They lost about two
Speaker 1: percent of output during the COVID lockdown, so they want
Speaker 1: to get back to five. That's a big change. Lots
Speaker 1: of different estimates had to impact global GDP, but that
Speaker 1: could be up to a percent globally, and that's that's
Speaker 1: I think significant. The changes the outcomes on the recession
Speaker 1: that people were fearing. My view owner this that China
Speaker 1: reopening actually means the recession this year may not really happen,
Speaker 1: and it's that significant, and the commodity prices is very significant. Yeah,
Speaker 1: that's very significant. And the Solar Guards interestingly did address
Speaker 1: China today and like Powell, he did not really and
Speaker 1: she did say you have to really take a close
Speaker 1: look at this and monitor because they understand just like
Speaker 1: anyone really has a I know they have a pronounced
Speaker 1: trade relationship with China. Think that's some of these big
Speaker 1: German industrial companies and you know, sending turbines over there,
Speaker 1: that's a big deal for them. The belt in roads
Speaker 1: and they went straight up through Italy right exactly, so
Speaker 1: into the heart of Europe. So the collapse in these
Speaker 1: boondhields and and the Italian heels today, I've really about
Speaker 1: the ECB and maybe not hiking anymore after March. But
Speaker 1: if you think about the impact that China could have
Speaker 1: on those economies and thereby inflation, it's still really high
Speaker 1: in both of these economies. That's where the Guard was
Speaker 1: was hinting at, and the market is not listening to
Speaker 1: that now. But that's something that will come back. I
Speaker 1: think at some points now nuance is not my strength. Um,
Speaker 1: you know, but to me, uh so this is optimistic. Right,
Speaker 1: China reopens, Um, maybe we don't get a recession in Europe. Um,
Speaker 1: these central banks are sounding devish because inflation is coming
Speaker 1: down pretty rapidly. Um, why isn't Why aren't we off
Speaker 1: to the races When it comes to commodities. You know,
Speaker 1: oil is still trading eighty dollars a barrel. Um, if
Speaker 1: if all that good news was it priced in? Is
Speaker 1: this the good news eighty two dollars a barrel? Or
Speaker 1: do we still have to look forward to a hundred
Speaker 1: dollars for brand? So that that those are expectations out
Speaker 1: there that I think if we're gonna go back to
Speaker 1: huntred dollars a barrel, and that there has been I
Speaker 1: think in the oil price liquidation that took plicity end
Speaker 1: of lash year, big positioning arch styles. And in addition
Speaker 1: to that, there was I think expectations in that market
Speaker 1: that as the OPAC doesn't really change output as much,
Speaker 1: caught it more, say, then the recession fears do hit
Speaker 1: that that part of the commodity market a bit harder
Speaker 1: because China's pent up de ment is really through the
Speaker 1: metals market and that part of the commodity markets we
Speaker 1: outperformed energy and out of parts. In addition that wheat,
Speaker 1: for example, that has been also depressed because the Ukraine
Speaker 1: situation is slowly resolving the supply shortage even though the
Speaker 1: ongoing war. So I think it's the metal sector that's
Speaker 1: where it's called quick priced in and where it showed
Speaker 1: up first. The next stage will be that energy does
Speaker 1: pick up. And you know, but some estimates we will
Speaker 1: have again really low gasoline stock this summer as we
Speaker 1: get into driving season. And my this is on this
Speaker 1: is is that the China effect is really the tourism issue.
Speaker 1: So recently the Japan's CPI numbers showed a big jump
Speaker 1: because of recreation. There's the first impact from China tourism
Speaker 1: that's coming on shortward hair. It's happening in Assolia too,
Speaker 1: will happen here. My say, not more out of things
Speaker 1: on this. We can just take a walk through a
Speaker 1: time score. That's that's my thing. When I walked the
Speaker 1: Penn station. Now I'll give you a man on the
Speaker 1: on the ground view of what's happening and that Europeans
Speaker 1: are back big time. I have, but I haven't seen
Speaker 1: Chinese per se exactly. So that's that's just coming. We
Speaker 1: can imagine that the payroll I'm gonna get tomorrow, it
Speaker 1: may may go down a bit of the next few
Speaker 1: months because of all the layoffs but the shortages, but
Speaker 1: it really is in the leisure sector, and the leisure
Speaker 1: sector has been the huge contributor to payroll growth. So
Speaker 1: if this wave of tourism is coming, I mean, the
Speaker 1: payroll numbers could actually start rising again at least driven
Speaker 1: by leisure bench just real quick, thirty seconds and I
Speaker 1: got the ten year treasury three thirty five here, just
Speaker 1: amazing off six basis points today. What are you telling
Speaker 1: your clients about the fixed income markets? Yeah, continue to
Speaker 1: have an emphasis on that batty yields are on the
Speaker 1: short end of the Yel curve, then on the long
Speaker 1: end of the Yel curve. Really because the price sensitivity
Speaker 1: of those securities is still really high. It's called duration.
Speaker 1: And so no question So therefore sorry, that was that
Speaker 1: was our producer, Rich Truman in your ears. He was
Speaker 1: telling us, no more questions for you. He's a micro manager,
Speaker 1: he's like a helicopter mom because we need it. Basically, Yeah,
Speaker 1: that's not that's not unfair. So at the finish it,
Speaker 1: you know, short maturity securities remain interesting. I mean, if
Speaker 1: the FETE stoles out with this radition, does look at
Speaker 1: this the case, then there's where you you pick up
Speaker 1: continues to be that ultimate. Those hiels will decline um
Speaker 1: as the FETE does move to a neutral stance. Alright,
Speaker 1: good stuff as always. Ben em And senior portfolio manager
Speaker 1: and he's head of the fixed income over there at
Speaker 1: New Edge Wealth. Joining us here in our Bloomberg Interactive
Speaker 1: Broker Studio. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller V three, pt on Ball
Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
Speaker 1: you can always catch us worldwide at Bloomberg Radio