1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,000 Speaker 2: Terminal and the Bloomberg Business app. Joining us now to 10 00:00:37,000 --> 00:00:39,599 Speaker 2: extend some of this conversation, not the last bit, but 11 00:00:39,640 --> 00:00:42,519 Speaker 2: the bit about foreign exchange in politics, George joins us now, 12 00:00:42,640 --> 00:00:45,280 Speaker 2: George Sarahvellos of Deutsche Bank. George, Welcome to the program, Sir. 13 00:00:45,680 --> 00:00:50,080 Speaker 2: This em type dynamic which keeps gripping developed markets over 14 00:00:50,120 --> 00:00:53,040 Speaker 2: the past I'd say twelve months, maybe even longer, George, 15 00:00:53,159 --> 00:00:58,360 Speaker 2: How are you explaining that to clients at the moment, Well. 16 00:00:58,080 --> 00:01:01,960 Speaker 3: Our views has more to go, it's here to stay. 17 00:01:02,120 --> 00:01:05,560 Speaker 4: And I think the critical driver of all of this 18 00:01:05,800 --> 00:01:09,680 Speaker 4: is that fiscal deficits everywhere are going up. 19 00:01:09,800 --> 00:01:11,440 Speaker 3: And of course this was the case for the US 20 00:01:11,480 --> 00:01:12,679 Speaker 3: over the last two three years. 21 00:01:12,800 --> 00:01:14,600 Speaker 4: But the really big shift since the start of the 22 00:01:14,680 --> 00:01:17,119 Speaker 4: year is if you look at all the countries outside 23 00:01:17,160 --> 00:01:20,120 Speaker 4: of the US, with the UK being one exception, but 24 00:01:20,240 --> 00:01:26,440 Speaker 4: everyone's increasing fiscal spending again, Canada, Germany, China's front loading, 25 00:01:26,560 --> 00:01:29,240 Speaker 4: We're seeing discussions in Japan, and I think it's this 26 00:01:29,319 --> 00:01:33,760 Speaker 4: global increase in deficits combined sticky inflation that is creating 27 00:01:33,800 --> 00:01:36,319 Speaker 4: these tensions as far as the discussion goes, well. 28 00:01:36,240 --> 00:01:39,160 Speaker 2: George, let's talk about the tension specifically in the United Kingdom. 29 00:01:39,600 --> 00:01:42,640 Speaker 2: Just yesterday, the pound and British assets get an absolutely 30 00:01:42,640 --> 00:01:45,960 Speaker 2: whip sword, presumably over the future of Chancellor Reaes, but 31 00:01:46,000 --> 00:01:47,960 Speaker 2: I wonder if it's something bigger than that. Is it 32 00:01:48,000 --> 00:01:50,920 Speaker 2: about her future or the inability of this government to 33 00:01:50,960 --> 00:01:52,000 Speaker 2: consolidate spending. 34 00:01:54,040 --> 00:01:56,240 Speaker 4: I think there's two problems on the UK. There's the 35 00:01:56,240 --> 00:02:00,560 Speaker 4: communication problem and the macro problem. The communication one is 36 00:02:00,600 --> 00:02:04,560 Speaker 4: that effectively these fiscal rules that are extremely clumsy. 37 00:02:05,280 --> 00:02:07,720 Speaker 3: You see, they're dependent on projections. 38 00:02:07,120 --> 00:02:10,480 Speaker 4: Which the OBI has five years out, productivity which none believes. 39 00:02:10,480 --> 00:02:13,160 Speaker 4: And every time you see some shift in guilt yields, 40 00:02:13,160 --> 00:02:15,840 Speaker 4: the market starts talking about gaps. And I think that 41 00:02:15,960 --> 00:02:19,480 Speaker 4: just creates a broader problem of instability, and we see that. 42 00:02:20,000 --> 00:02:22,359 Speaker 4: And then there's the broader macro problem, which I would 43 00:02:22,480 --> 00:02:25,760 Speaker 4: argue applies just as much to the UK as it 44 00:02:25,800 --> 00:02:28,480 Speaker 4: does to the US, which is both of these countries 45 00:02:28,560 --> 00:02:31,520 Speaker 4: are running big twin deficits, and that is why you're 46 00:02:31,520 --> 00:02:35,560 Speaker 4: seeing increase vulnerability to negative news. We experienced it in 47 00:02:35,600 --> 00:02:38,960 Speaker 4: April in the US with a whole Liberation Day back 48 00:02:39,000 --> 00:02:41,560 Speaker 4: and forth, and now we're seeing a small micro version 49 00:02:41,600 --> 00:02:43,839 Speaker 4: of that in the UK. But I would say both 50 00:02:43,840 --> 00:02:48,840 Speaker 4: the UK and the US have those two common denominators, 51 00:02:49,360 --> 00:02:52,720 Speaker 4: external deficit and internal deficit, and that's going to be 52 00:02:52,800 --> 00:02:53,600 Speaker 4: causing problems. 53 00:02:53,800 --> 00:02:56,040 Speaker 5: There's a big difference though, between the two, and we're 54 00:02:56,080 --> 00:02:58,960 Speaker 5: watching it in real time as the United Kingdom tries 55 00:02:59,000 --> 00:03:02,000 Speaker 5: to figure out how to mess their deficit spending and 56 00:03:02,040 --> 00:03:04,920 Speaker 5: how they plan to cut or not from some of 57 00:03:04,919 --> 00:03:08,040 Speaker 5: those expenditures. In the United States, Congress just keeps on 58 00:03:08,080 --> 00:03:10,679 Speaker 5: spending and they're about to pass a bill that increases 59 00:03:10,680 --> 00:03:13,400 Speaker 5: the deficit over the next ten years by some three 60 00:03:13,440 --> 00:03:16,280 Speaker 5: and a half four trillion dollars. Why is the US 61 00:03:16,400 --> 00:03:19,640 Speaker 5: such a different market when it comes to dynamics and 62 00:03:19,680 --> 00:03:21,800 Speaker 5: how much the bond market is waking up to this. 63 00:03:23,680 --> 00:03:26,360 Speaker 4: So you're absolutely right, the US has had a greater 64 00:03:26,480 --> 00:03:27,920 Speaker 4: degree of resilience, so to speak. 65 00:03:27,960 --> 00:03:30,440 Speaker 3: But I would argue since the start of the year, 66 00:03:30,480 --> 00:03:31,520 Speaker 3: you're actually seeing. 67 00:03:31,280 --> 00:03:36,000 Speaker 4: Convergence, whereby the US is becoming more sensitive to these things. Now, 68 00:03:36,040 --> 00:03:39,360 Speaker 4: of course, over the last few months the market has 69 00:03:39,360 --> 00:03:42,560 Speaker 4: calmed down, but let's not forget what happened in April. 70 00:03:42,800 --> 00:03:45,120 Speaker 4: And I would say a key driver why the market 71 00:03:45,160 --> 00:03:47,920 Speaker 4: has calmed down is because we've had some downside surprises 72 00:03:47,920 --> 00:03:50,760 Speaker 4: to inflation, and of course the bond market is most 73 00:03:50,760 --> 00:03:53,760 Speaker 4: sensitive to those inflation surprises. So let's see what happens 74 00:03:53,800 --> 00:03:55,880 Speaker 4: over the next six months. But between the UK and 75 00:03:55,920 --> 00:03:59,400 Speaker 4: the US, I'm a lot more concerned about the US 76 00:03:59,560 --> 00:04:01,920 Speaker 4: because if if I look at the shocks hitting the 77 00:04:01,960 --> 00:04:05,120 Speaker 4: system at the moment in the US, not only do 78 00:04:05,160 --> 00:04:08,080 Speaker 4: you have the tariff discussion, which everyone is so focused on, 79 00:04:08,440 --> 00:04:11,200 Speaker 4: but the bigger underlying shock in my view, is the 80 00:04:11,240 --> 00:04:14,880 Speaker 4: labor market, where you're seeing a very sharp reduction in immigration, 81 00:04:15,520 --> 00:04:17,960 Speaker 4: which is equivalent to a sharp slow down in growth 82 00:04:17,960 --> 00:04:21,200 Speaker 4: and potentially upside surprises to inflation. And that is the 83 00:04:21,279 --> 00:04:24,680 Speaker 4: worst mix if you're thinking about debt sustainability and the 84 00:04:24,720 --> 00:04:28,039 Speaker 4: funding of those twin deficits. So the immigration story to 85 00:04:28,120 --> 00:04:31,760 Speaker 4: me is much bigger than the tariff story as far 86 00:04:31,760 --> 00:04:32,560 Speaker 4: as the US goes. 87 00:04:32,640 --> 00:04:35,320 Speaker 5: So, George, if we could just sort of solidify this parallel, 88 00:04:35,320 --> 00:04:37,479 Speaker 5: if you see the United States as being a more 89 00:04:37,520 --> 00:04:40,960 Speaker 5: significant story and frankly a worse story from the United Kingdom, 90 00:04:41,000 --> 00:04:43,320 Speaker 5: which is experienced a lot experiencing a lot more real 91 00:04:43,360 --> 00:04:46,520 Speaker 5: time volatility in their markets, what do you think will 92 00:04:46,560 --> 00:04:49,719 Speaker 5: be a the breaking point and be the consequence for 93 00:04:49,760 --> 00:04:52,920 Speaker 5: both the dollar and long term yields that have been 94 00:04:53,200 --> 00:04:55,120 Speaker 5: relatively calm amid this process. 95 00:04:56,880 --> 00:04:59,719 Speaker 4: So there's two ways this can get resolved, as you say, 96 00:05:00,120 --> 00:05:01,800 Speaker 4: neither be a calm way or it can be a 97 00:05:01,839 --> 00:05:05,039 Speaker 4: disorderly way. The calm way is what we've seen over 98 00:05:05,080 --> 00:05:08,200 Speaker 4: the last few weeks, where the dollar weakens as the 99 00:05:08,240 --> 00:05:11,479 Speaker 4: dollar weekends, effectively assets cheapen up, you can draw in 100 00:05:11,560 --> 00:05:15,760 Speaker 4: those marginal buyers. We also authored the piece talking about 101 00:05:15,800 --> 00:05:19,480 Speaker 4: a Pennsylvania plan, which effectively I think is being realized. 102 00:05:19,680 --> 00:05:23,599 Speaker 4: The US Treasury shortens the issuance of duration, the domestic banks, 103 00:05:23,600 --> 00:05:27,760 Speaker 4: the pension funds absorbed, the debts of foreigners can disengage. 104 00:05:27,120 --> 00:05:30,240 Speaker 3: From the bond market. I think that's the orderly plan. 105 00:05:30,720 --> 00:05:34,440 Speaker 4: The disorderly one is if the negative supply shock I 106 00:05:34,480 --> 00:05:38,600 Speaker 4: was discussing becomes more acute, you get much bigger inflation surprises, 107 00:05:38,920 --> 00:05:41,919 Speaker 4: and at the same time FED independence gets challenged, and 108 00:05:41,960 --> 00:05:44,200 Speaker 4: we're seeing that in the background. Well, argue, we're not 109 00:05:44,279 --> 00:05:46,880 Speaker 4: in the background in the foreground with some of the statements. 110 00:05:47,200 --> 00:05:50,680 Speaker 4: The reason the market is calm is because inflation is calm. 111 00:05:50,800 --> 00:05:52,440 Speaker 3: But if that growth, inflation. 112 00:05:52,160 --> 00:05:56,279 Speaker 4: Makes worse since that fiscal dominance question, I think will 113 00:05:56,279 --> 00:05:58,600 Speaker 4: come back to the fourth very very quickly, and that's 114 00:05:58,600 --> 00:06:01,040 Speaker 4: where you get at the tipping point disorderly dynamics. 115 00:06:01,120 --> 00:06:03,320 Speaker 2: Yeah, George, I'm pleased you corrected yourself because it's certainly 116 00:06:03,360 --> 00:06:05,760 Speaker 2: not having at a bankground. The President's not being subtle 117 00:06:05,760 --> 00:06:07,880 Speaker 2: about it at all. George, Thank you, sir. Judge Sara 118 00:06:07,960 --> 00:06:20,160 Speaker 2: Velos there of Deutsche Bank, Michael Collins apaging fixed income 119 00:06:20,240 --> 00:06:22,479 Speaker 2: righting the Fed's hands are tied for now, but we 120 00:06:22,560 --> 00:06:25,000 Speaker 2: still think of Fed fund's rate cut or two a 121 00:06:25,240 --> 00:06:27,920 Speaker 2: likely by year. Rent Michael joins us now for more. 122 00:06:27,960 --> 00:06:30,040 Speaker 2: My welcome to the program, sir. Let's talk about these 123 00:06:30,080 --> 00:06:32,280 Speaker 2: rate cuts. Are they cutting interest rates? To the Federal 124 00:06:32,279 --> 00:06:34,960 Speaker 2: Reserve later this year, in your mind, because inflation is 125 00:06:35,000 --> 00:06:37,680 Speaker 2: coming down, or because this labor market is going to 126 00:06:37,720 --> 00:06:38,320 Speaker 2: start cracking. 127 00:06:39,880 --> 00:06:42,520 Speaker 1: Both Actually, you know, I mean we've been in the camp, Jonathan, 128 00:06:42,560 --> 00:06:45,360 Speaker 1: as you know that the Fed has really stuck, right, 129 00:06:45,360 --> 00:06:47,480 Speaker 1: They're going to keep the rate where it is until 130 00:06:47,520 --> 00:06:50,760 Speaker 1: things change, either in terms of a labor market weekning 131 00:06:51,480 --> 00:06:55,240 Speaker 1: or this tariff induced inflation not being as bad as 132 00:06:55,320 --> 00:06:58,120 Speaker 1: feared and maybe being just a one off and seeing 133 00:06:58,160 --> 00:07:01,080 Speaker 1: inflation really stay kind of in the low twoths here. 134 00:07:01,120 --> 00:07:04,320 Speaker 1: And I think in both cases, the data are moving 135 00:07:04,360 --> 00:07:08,120 Speaker 1: in the right direction, right. They are really supporting the 136 00:07:08,240 --> 00:07:12,080 Speaker 1: case for a rate cut or two by the end 137 00:07:12,120 --> 00:07:14,640 Speaker 1: of this year, which, as you've been talking about, is. 138 00:07:14,560 --> 00:07:15,360 Speaker 6: Fully priced in. 139 00:07:15,760 --> 00:07:18,000 Speaker 5: Mike, do you care about this report that we get 140 00:07:18,360 --> 00:07:19,920 Speaker 5: in a forty minutes time? 141 00:07:20,960 --> 00:07:23,240 Speaker 1: You know, I really think the people were talking about 142 00:07:23,280 --> 00:07:24,080 Speaker 1: what is the run rate? 143 00:07:24,120 --> 00:07:28,280 Speaker 6: What is the steady state level of job gains each month? 144 00:07:28,400 --> 00:07:30,480 Speaker 1: And you know, maybe it was you know, we were 145 00:07:30,560 --> 00:07:33,320 Speaker 1: running at four hundred and two hundred and one hundred. 146 00:07:33,720 --> 00:07:37,600 Speaker 1: It feels like because of the just the natural slowing 147 00:07:37,680 --> 00:07:41,080 Speaker 1: in the job market sickles l but also the immigration 148 00:07:41,240 --> 00:07:45,200 Speaker 1: net immigration effect it feels like that natural steady state 149 00:07:45,240 --> 00:07:49,040 Speaker 1: of job growth LISA is below one hundred. Now, who knows, 150 00:07:49,080 --> 00:07:52,160 Speaker 1: maybe it's zero, maybe it's fifty thousand. So I think 151 00:07:52,200 --> 00:07:56,880 Speaker 1: you're naturally going to see a lower prints on these 152 00:07:56,960 --> 00:08:01,119 Speaker 1: monthly job gains and don't know if it should spook 153 00:08:01,160 --> 00:08:04,080 Speaker 1: to market. The lynchpin is that unemployment rate. Right, you 154 00:08:04,080 --> 00:08:09,600 Speaker 1: could still have a fully employed labor market with slowing 155 00:08:09,880 --> 00:08:12,960 Speaker 1: job gains, and I think that's really the conundrum the 156 00:08:12,960 --> 00:08:15,360 Speaker 1: feedis going to face. They're going to see these slowing 157 00:08:15,440 --> 00:08:20,840 Speaker 1: jobs numbers and see the labor markets still look fairly tight. 158 00:08:21,240 --> 00:08:23,040 Speaker 1: The big number today we're looking at really is the 159 00:08:23,080 --> 00:08:25,600 Speaker 1: wage gains. And obviously the wage gains have been slowing 160 00:08:25,840 --> 00:08:29,680 Speaker 1: steadily for a couple of years now, and I think 161 00:08:29,720 --> 00:08:32,360 Speaker 1: we'll continue to see that as companies, you know, they're 162 00:08:32,400 --> 00:08:35,680 Speaker 1: not necessarily firing people, they're just pulling back on hiring 163 00:08:35,800 --> 00:08:38,960 Speaker 1: right now, but wage gains are definitely slowing. 164 00:08:39,320 --> 00:08:43,400 Speaker 5: If you don't see inflation as being a persistent feature 165 00:08:43,440 --> 00:08:46,080 Speaker 5: of this US economy, and if you do see tariffs 166 00:08:46,520 --> 00:08:51,160 Speaker 5: as not as inflationary as people previously believed, why isn't 167 00:08:51,160 --> 00:08:53,720 Speaker 5: the thirty year, Why isn't the ten year yield a 168 00:08:53,760 --> 00:08:55,360 Speaker 5: lot lower in the United States. 169 00:08:56,559 --> 00:08:59,480 Speaker 1: Yeah, I think they're just pricing in you know, five 170 00:08:59,559 --> 00:09:02,040 Speaker 1: rate cut right for the next year or year and 171 00:09:02,080 --> 00:09:05,479 Speaker 1: a half is what's priced in. That seems very reasonable 172 00:09:05,520 --> 00:09:05,920 Speaker 1: to us. 173 00:09:06,000 --> 00:09:06,160 Speaker 6: Right. 174 00:09:06,200 --> 00:09:08,960 Speaker 1: If that happens, then you have a kind of a 175 00:09:09,080 --> 00:09:12,280 Speaker 1: normal upward sloping term structure. 176 00:09:12,400 --> 00:09:12,559 Speaker 6: Right. 177 00:09:12,640 --> 00:09:16,440 Speaker 1: So that's that's what's fully priced in, and that seems natural. 178 00:09:17,000 --> 00:09:20,440 Speaker 1: What is not priced in, Lisa, is the is the 179 00:09:20,440 --> 00:09:21,600 Speaker 1: downside tail risk. 180 00:09:21,720 --> 00:09:21,840 Speaker 4: Right. 181 00:09:22,360 --> 00:09:25,079 Speaker 6: What is not priced in in the credit markets, in. 182 00:09:25,080 --> 00:09:29,240 Speaker 1: The equity markets, in the vol markets, and arguably to 183 00:09:29,320 --> 00:09:32,360 Speaker 1: your point, in the in long term rates is a 184 00:09:32,480 --> 00:09:37,000 Speaker 1: nastier downside surprise where you know, Trump does get his 185 00:09:37,080 --> 00:09:39,559 Speaker 1: way and the funds rate doesn't go down one hundred 186 00:09:39,640 --> 00:09:42,880 Speaker 1: bases points, it goes goes down two or three hundred, right, 187 00:09:42,880 --> 00:09:44,720 Speaker 1: And that is that is a very different world. 188 00:09:45,240 --> 00:09:46,840 Speaker 6: That is not what we're expecting. 189 00:09:47,360 --> 00:09:50,400 Speaker 1: But again, the markets are signing a really low probability 190 00:09:50,440 --> 00:09:51,800 Speaker 1: to that, and probably too. 191 00:09:51,720 --> 00:09:53,280 Speaker 2: Low, am I just to pick up on that. Let's 192 00:09:53,280 --> 00:09:56,440 Speaker 2: just focus on risk assets. Let's talk about equities and say, hi, 193 00:09:56,559 --> 00:09:59,320 Speaker 2: your bonds high, your credit of course you're very familiar 194 00:09:59,400 --> 00:10:02,000 Speaker 2: with you know, now credit spreads right now two eighty 195 00:10:02,400 --> 00:10:05,080 Speaker 2: on high yield spreads and grinding even tighter. And what's 196 00:10:05,080 --> 00:10:07,880 Speaker 2: interesting about that if you take the economic surprise Index 197 00:10:08,080 --> 00:10:09,839 Speaker 2: something else, you know, Well, but for our audience who 198 00:10:09,880 --> 00:10:12,080 Speaker 2: might not be familiar, just where is the data coming 199 00:10:12,160 --> 00:10:15,720 Speaker 2: in relative to expectations? That's been rolling over since November? 200 00:10:15,800 --> 00:10:17,959 Speaker 2: It's had a smallest bounce, but ultimately the trend over 201 00:10:17,960 --> 00:10:20,800 Speaker 2: the last six months not great. So the surprice indexs 202 00:10:20,840 --> 00:10:23,720 Speaker 2: has been rolling over, the equity market's been going higher, 203 00:10:23,840 --> 00:10:26,120 Speaker 2: and credit spreads have been grinding tighter. How do you 204 00:10:26,160 --> 00:10:29,200 Speaker 2: explain that Either we're whistling past the graveyard or the 205 00:10:29,280 --> 00:10:31,880 Speaker 2: data is just becoming less and less relevant. Which one 206 00:10:31,920 --> 00:10:32,160 Speaker 2: is it? 207 00:10:33,240 --> 00:10:33,440 Speaker 6: Yeah? 208 00:10:33,880 --> 00:10:36,640 Speaker 1: I think it's the whistling past the graveyard for sure. 209 00:10:36,679 --> 00:10:38,760 Speaker 1: I know Lisa, it's good to see her fired up 210 00:10:38,760 --> 00:10:42,000 Speaker 1: this morning about this. And you know, the financial conditions 211 00:10:42,080 --> 00:10:44,199 Speaker 1: is something that you know, not a lot of people 212 00:10:44,240 --> 00:10:45,360 Speaker 1: are talking about, right. 213 00:10:45,440 --> 00:10:45,640 Speaker 6: Yeah. 214 00:10:45,720 --> 00:10:49,400 Speaker 1: Could the Fed cut one hundred basis points now? Possibly, 215 00:10:49,480 --> 00:10:52,840 Speaker 1: maybe that's the right level to be at, frankly, but 216 00:10:53,520 --> 00:10:55,520 Speaker 1: you know what would happen to financial conditions? 217 00:10:55,559 --> 00:10:55,679 Speaker 6: Right? 218 00:10:55,679 --> 00:10:59,120 Speaker 1: Would the stock market go up another ten or twenty percent? 219 00:10:59,120 --> 00:11:03,200 Speaker 1: Would credit spread continue to grind in and that brings 220 00:11:03,200 --> 00:11:06,400 Speaker 1: in a whole host of other risks to the upside 221 00:11:06,400 --> 00:11:09,120 Speaker 1: of the economy and the upside of inflation. 222 00:11:09,280 --> 00:11:10,280 Speaker 6: Right, This economy has. 223 00:11:10,240 --> 00:11:13,680 Speaker 1: Been driven by the upper end of the wealth and 224 00:11:13,720 --> 00:11:17,880 Speaker 1: income spectrum, which has been driven by this paper wealth effect. 225 00:11:18,160 --> 00:11:19,960 Speaker 6: Right. I don't think you want to add fuel to 226 00:11:20,000 --> 00:11:20,520 Speaker 6: that fire. 227 00:11:20,559 --> 00:11:23,320 Speaker 1: And I really believe that's one of the reasons the 228 00:11:23,360 --> 00:11:27,000 Speaker 1: FED is really hesitant to cut here because they don't 229 00:11:27,040 --> 00:11:29,800 Speaker 1: want to add add fuel to that fire. 230 00:11:30,000 --> 00:11:32,280 Speaker 5: If you think people are whistling past the graveyard bike, 231 00:11:32,400 --> 00:11:33,959 Speaker 5: what's your highest conviction call right now? 232 00:11:35,840 --> 00:11:38,480 Speaker 1: The conviction is that you know, growth is going to 233 00:11:38,480 --> 00:11:43,440 Speaker 1: moderate a little bit, and recession risk really does look low, right. 234 00:11:43,520 --> 00:11:46,320 Speaker 1: I Mean, the big theme we've been focused on, Lisa 235 00:11:46,320 --> 00:11:49,840 Speaker 1: throughout this whole cycle is you know, where are the 236 00:11:49,920 --> 00:11:52,880 Speaker 1: tipping points in the private sector? You know, yeah, a 237 00:11:52,880 --> 00:11:57,240 Speaker 1: public sector is a mess. The fiscal situation globally is 238 00:11:57,280 --> 00:12:00,880 Speaker 1: a mess. But you know, typically these receptsestions happened, these 239 00:12:00,880 --> 00:12:04,440 Speaker 1: downside risks happen when you have an over levered housing 240 00:12:04,520 --> 00:12:08,600 Speaker 1: sector or financial sector, or corporate sector, or consumer sector 241 00:12:08,920 --> 00:12:12,800 Speaker 1: or mortgage sector and you are not there. This cycle, 242 00:12:12,840 --> 00:12:16,160 Speaker 1: we have not had a releveraging of the private sector. Yeah, 243 00:12:16,160 --> 00:12:19,439 Speaker 1: there are some pockets in lower end consumers where you're 244 00:12:19,480 --> 00:12:23,360 Speaker 1: seeing bigger increases in debt and leverage, and you're seeing 245 00:12:23,400 --> 00:12:26,560 Speaker 1: a lot a big increase in personal bankruptcies and small 246 00:12:26,640 --> 00:12:31,040 Speaker 1: business bankruptcies, which is certainly worrisome, but it's not systemic 247 00:12:31,160 --> 00:12:33,439 Speaker 1: enough to take the whole economy down with it, right, 248 00:12:33,480 --> 00:12:36,280 Speaker 1: So we have a pretty strong conviction that that, yeah, 249 00:12:36,280 --> 00:12:37,960 Speaker 1: it's going to be a slow down the economy, but 250 00:12:38,000 --> 00:12:41,960 Speaker 1: this kind of cataclysmic you know, credit risk off, you know, 251 00:12:42,080 --> 00:12:45,160 Speaker 1: credit crisis is a really low low probability and that's 252 00:12:45,200 --> 00:12:47,920 Speaker 1: frankly what the markets are running with in pricing. 253 00:12:47,640 --> 00:12:50,200 Speaker 2: In my colins, appreciate your time. So my Collin's they 254 00:12:50,200 --> 00:13:03,400 Speaker 2: have PAGM fixed income just with a surrounded table. Stephanie 255 00:13:03,480 --> 00:13:06,520 Speaker 2: Roth of Wolf Ray, Sir Stephanie Givmarniic, good morning. You'll 256 00:13:06,559 --> 00:13:07,760 Speaker 2: first take on this one. 257 00:13:07,920 --> 00:13:10,120 Speaker 7: Yeah, I mean this is something that we were kind 258 00:13:10,160 --> 00:13:12,880 Speaker 7: of warning people about. An environment where the steady state 259 00:13:12,920 --> 00:13:15,400 Speaker 7: pace of hiring comes down pretty substantially and the unemployer 260 00:13:15,440 --> 00:13:18,000 Speaker 7: rate starts to fall because we're in an environment where 261 00:13:18,360 --> 00:13:23,240 Speaker 7: there's a significant detraction from a foreign born population, and 262 00:13:23,320 --> 00:13:25,199 Speaker 7: that puts down a pressure on the unemployment rate. It 263 00:13:25,240 --> 00:13:28,880 Speaker 7: reduces the unemployed people, and at the same time it's 264 00:13:29,080 --> 00:13:30,600 Speaker 7: lowers the steady state pace of hiring. 265 00:13:30,840 --> 00:13:33,840 Speaker 2: So one fifty around one fifty now is what two 266 00:13:33,920 --> 00:13:36,480 Speaker 2: years ago, two fifty, two twenty five. 267 00:13:37,360 --> 00:13:40,120 Speaker 7: Granted a lot of a lot of the job games 268 00:13:40,120 --> 00:13:41,720 Speaker 7: was driven by a government, so I think we have 269 00:13:41,800 --> 00:13:43,240 Speaker 7: to take that with the grain of salt. If you 270 00:13:43,240 --> 00:13:45,480 Speaker 7: look at private perils, that was fairly sluggish, and by 271 00:13:45,520 --> 00:13:47,760 Speaker 7: category it was, you know, kind. 272 00:13:47,559 --> 00:13:48,240 Speaker 3: Of slow as well. 273 00:13:48,400 --> 00:13:50,760 Speaker 7: So the steady state pace of growth has come down. 274 00:13:51,080 --> 00:13:53,280 Speaker 7: I would look at it from a private perspective in 275 00:13:53,320 --> 00:13:56,160 Speaker 7: particular first, and then we're an environment where you're seeing 276 00:13:56,160 --> 00:13:58,640 Speaker 7: a tightening in parts of the labor market, which is 277 00:13:58,679 --> 00:14:01,000 Speaker 7: what the signal from the unploy What do you make. 278 00:14:00,840 --> 00:14:04,079 Speaker 5: Of the fact that we didn't see hourly earnings significantly 279 00:14:04,200 --> 00:14:07,520 Speaker 5: rise or rise even as much as people previously expected. 280 00:14:07,559 --> 00:14:09,920 Speaker 5: It kind of goes to this idea, can we get 281 00:14:10,080 --> 00:14:15,240 Speaker 5: a decent job's number without really any kind of inflationary impulse. 282 00:14:15,880 --> 00:14:17,640 Speaker 7: I think it was the timing of the survey week, 283 00:14:17,679 --> 00:14:20,479 Speaker 7: So this is something that gets that someone I'm underappreciated 284 00:14:20,480 --> 00:14:24,080 Speaker 7: when you're when you're forecasting the job, the payroll gains, 285 00:14:24,920 --> 00:14:27,040 Speaker 7: it tends to be very sensitive to the timing of 286 00:14:27,040 --> 00:14:28,800 Speaker 7: the survey week, and this time it was earlier in 287 00:14:28,840 --> 00:14:31,880 Speaker 7: the month, which doesn't capture the fifteenth, which just then tends. 288 00:14:32,040 --> 00:14:33,640 Speaker 7: Fifteenth tends to be the time where you get pay 289 00:14:33,680 --> 00:14:36,360 Speaker 7: raises and that type of thing, so that tends to 290 00:14:37,120 --> 00:14:40,240 Speaker 7: put downward pressure on the average early earnings number. So 291 00:14:40,240 --> 00:14:42,160 Speaker 7: we were looking for point two for particularly this reason. 292 00:14:42,520 --> 00:14:44,480 Speaker 5: Do you think that this calls into the question the 293 00:14:44,560 --> 00:14:46,239 Speaker 5: need for the Fed to cut in September? 294 00:14:47,800 --> 00:14:49,920 Speaker 7: Yeah, in our base case we have them not cutting, 295 00:14:49,920 --> 00:14:54,280 Speaker 7: although it's it's a close call. It certainly reduces the odds. 296 00:14:55,040 --> 00:14:57,760 Speaker 7: Certainly July is off the table, and now the question is, 297 00:14:57,760 --> 00:14:59,960 Speaker 7: you know, can they still cut in September base cases, 298 00:15:00,120 --> 00:15:02,960 Speaker 7: they probably don't. But there's a lot more data and 299 00:15:03,240 --> 00:15:05,960 Speaker 7: this is just one print among many that we're going 300 00:15:06,000 --> 00:15:07,520 Speaker 7: to be getting by the time we get to September. 301 00:15:07,600 --> 00:15:09,760 Speaker 2: Stephanie Roth is going to stick with us around the table. 302 00:15:09,840 --> 00:15:11,840 Speaker 2: The job's number two moments ago one hundred and forty 303 00:15:11,880 --> 00:15:14,560 Speaker 2: seven thousand, high than expected. The estimate in our survey 304 00:15:14,880 --> 00:15:17,560 Speaker 2: was one of six The unemployment rate expected a climb 305 00:15:17,560 --> 00:15:20,800 Speaker 2: to four point three percent, actually dropped to four point 306 00:15:20,880 --> 00:15:23,200 Speaker 2: one percent from four point two. Got a bunch of 307 00:15:23,200 --> 00:15:25,400 Speaker 2: other data as well, because it is Thursday, and it 308 00:15:25,440 --> 00:15:27,640 Speaker 2: is payrolls Thursday this time around because of the long weekend, 309 00:15:27,680 --> 00:15:29,920 Speaker 2: so we've got jobless claims as well, and claims came 310 00:15:29,960 --> 00:15:32,800 Speaker 2: in much lower than expected two thirty three. The estimate 311 00:15:32,880 --> 00:15:35,160 Speaker 2: was too forty one. We've got Torson slog with us 312 00:15:35,160 --> 00:15:37,280 Speaker 2: around the table from Apollo Torson. I want to come 313 00:15:37,320 --> 00:15:38,840 Speaker 2: to you a bit earlier than expected because I want 314 00:15:38,840 --> 00:15:41,800 Speaker 2: your view on this. You were expecting unemployment to start climbing, 315 00:15:42,240 --> 00:15:44,520 Speaker 2: unemployments falling back. What explains that. 316 00:15:44,640 --> 00:15:46,800 Speaker 8: I think the key iss you here is the immigration factor, 317 00:15:46,800 --> 00:15:49,400 Speaker 8: as definitely is mentioning that it is very very important. 318 00:15:49,400 --> 00:15:52,640 Speaker 8: So Tera Watson, and when the Edelburg estimates now that 319 00:15:52,800 --> 00:15:55,920 Speaker 8: we are seeing significant decline in the long run payroll 320 00:15:55,960 --> 00:15:58,520 Speaker 8: growth of closal to around fifty thousand, and the fact 321 00:15:58,560 --> 00:16:00,880 Speaker 8: that the on enplotment is going down is something that 322 00:16:00,920 --> 00:16:02,000 Speaker 8: of course is quite surprising. 323 00:16:02,000 --> 00:16:03,480 Speaker 9: And the fact that we now have so. 324 00:16:03,560 --> 00:16:06,240 Speaker 8: Strong payroll growth even with the decline in the long 325 00:16:06,320 --> 00:16:08,760 Speaker 8: run steady state for non found payrolls tells you that 326 00:16:08,840 --> 00:16:11,200 Speaker 8: this was a fairly strong report, and this is a 327 00:16:11,280 --> 00:16:13,800 Speaker 8: very strong economy, which argues to your point, which is 328 00:16:13,840 --> 00:16:15,520 Speaker 8: our view, that the fare will only cut once this 329 00:16:15,640 --> 00:16:18,040 Speaker 8: year simply because rate will stay higher for longer. There 330 00:16:18,120 --> 00:16:20,640 Speaker 8: is no need, especially not with power At the same 331 00:16:20,680 --> 00:16:23,200 Speaker 8: time saying that he expects a meaningful rise in inflation 332 00:16:23,240 --> 00:16:24,280 Speaker 8: over the coming months. 333 00:16:24,120 --> 00:16:25,680 Speaker 2: Is it fair to say that this was the goal 334 00:16:25,960 --> 00:16:28,920 Speaker 2: of the Trump administration, that they wanted to get immigration down, 335 00:16:29,320 --> 00:16:31,080 Speaker 2: so that even if you have payrolls growth of one 336 00:16:31,200 --> 00:16:33,440 Speaker 2: hundred to one hundred and fifty k, could actually see 337 00:16:33,440 --> 00:16:35,440 Speaker 2: the unemployment rate starts to fall. 338 00:16:35,360 --> 00:16:39,360 Speaker 8: Exactly because both labor supply is declining when you deport 339 00:16:39,440 --> 00:16:41,560 Speaker 8: roughly around a million people at an annual rate, and 340 00:16:41,600 --> 00:16:44,640 Speaker 8: at the same time, labor demand may also eventually slow down. 341 00:16:44,680 --> 00:16:46,320 Speaker 8: But if it doesn't slow down, then the decline in 342 00:16:46,360 --> 00:16:48,880 Speaker 8: labor supply on its own will exactly create a report 343 00:16:48,920 --> 00:16:50,800 Speaker 8: like this one maybe where you have a declining on 344 00:16:50,840 --> 00:16:53,360 Speaker 8: employment rate. So it is obviously better than the contents 345 00:16:53,480 --> 00:16:56,000 Speaker 8: was expected, also better than what we had expected, but 346 00:16:56,200 --> 00:16:58,720 Speaker 8: it tells you very clearly that the label supply story 347 00:16:59,000 --> 00:17:01,320 Speaker 8: is playing a very important role at the same time. 348 00:17:01,160 --> 00:17:05,000 Speaker 5: It also suggests that the economy or the business environment 349 00:17:05,080 --> 00:17:07,480 Speaker 5: is much more solid than many people expected as well 350 00:17:07,520 --> 00:17:10,119 Speaker 5: in terms of hiring, in terms of looking for that, 351 00:17:10,200 --> 00:17:12,960 Speaker 5: and it's coming without the inflationary impulse that some people 352 00:17:13,000 --> 00:17:14,080 Speaker 5: were worried about. 353 00:17:14,320 --> 00:17:15,880 Speaker 9: Do you think that that's durable? 354 00:17:16,280 --> 00:17:18,520 Speaker 8: Well, and that brings us back to the discussion around 355 00:17:18,600 --> 00:17:20,760 Speaker 8: what is the effect of the trade wall. Terror is 356 00:17:20,760 --> 00:17:23,600 Speaker 8: not going to have an impact so far, it's remarkable 357 00:17:23,760 --> 00:17:26,439 Speaker 8: where you have inflation basically to still study and now 358 00:17:26,560 --> 00:17:29,159 Speaker 8: job GROLs still redtly strong. So in that sense that 359 00:17:29,240 --> 00:17:31,560 Speaker 8: literally is very little sign of the tradewall having a 360 00:17:31,560 --> 00:17:32,640 Speaker 8: macroeconomic impact. 361 00:17:32,720 --> 00:17:33,840 Speaker 9: At this point, there are going to. 362 00:17:33,760 --> 00:17:35,760 Speaker 5: Be people who look at this and say, this might 363 00:17:35,800 --> 00:17:38,720 Speaker 5: be the last gas before real material weakening. We can't 364 00:17:38,760 --> 00:17:41,919 Speaker 5: trust these numbers. Max Kuttner's already gone. What do you 365 00:17:41,920 --> 00:17:42,440 Speaker 5: say to that? 366 00:17:42,640 --> 00:17:44,440 Speaker 8: Well, that's why the next few weeks with the earning 367 00:17:44,480 --> 00:17:47,080 Speaker 8: season will become very very important, because then's where we'll 368 00:17:47,080 --> 00:17:49,199 Speaker 8: figure out is the pick coming through the python in 369 00:17:49,240 --> 00:17:52,440 Speaker 8: terms of the terriffs heading eventually earnings Because at the 370 00:17:52,520 --> 00:17:54,359 Speaker 8: end of the day, we are raising about four hundred 371 00:17:54,359 --> 00:17:56,919 Speaker 8: billion dollars in tax revenue at an annual rate. At 372 00:17:56,960 --> 00:17:59,760 Speaker 8: the moment, total earning for this SMP is about two trillion, 373 00:18:00,640 --> 00:18:02,359 Speaker 8: so that means that someone needs to pay four hundred 374 00:18:02,359 --> 00:18:04,480 Speaker 8: billion dollars if tax revenue is going off one hundred 375 00:18:04,480 --> 00:18:07,439 Speaker 8: million dollars. Is it consumers through higher inflation or is 376 00:18:07,480 --> 00:18:10,919 Speaker 8: it companies through lower earnings? And we still with this report, 377 00:18:10,960 --> 00:18:13,000 Speaker 8: of course, have just not seen that yet, so it 378 00:18:13,080 --> 00:18:15,040 Speaker 8: TechEd to appoint lead is that over the next several weeks. 379 00:18:15,119 --> 00:18:18,120 Speaker 8: We'll find out in Q two how did companies actually 380 00:18:18,119 --> 00:18:21,600 Speaker 8: respond to higher TERFs. Did they respond by passing prices 381 00:18:21,600 --> 00:18:23,520 Speaker 8: through in the form of high inflation. We'll find that 382 00:18:23,560 --> 00:18:26,199 Speaker 8: out also very soon, or did they also in this 383 00:18:26,280 --> 00:18:28,840 Speaker 8: case turn out to actually lower their earnings and say 384 00:18:28,840 --> 00:18:30,520 Speaker 8: we're going to eat some of the terrorists. And that 385 00:18:30,560 --> 00:18:33,439 Speaker 8: becomes the main question for marcuts now, namely, what was 386 00:18:33,520 --> 00:18:35,920 Speaker 8: actually the response to tariffs in the second quarter. 387 00:18:36,119 --> 00:18:38,120 Speaker 2: My McKay is back with us for a little bit more. Mike, 388 00:18:38,160 --> 00:18:40,040 Speaker 2: you've taken a second look at the numbers. What explains 389 00:18:40,200 --> 00:18:41,160 Speaker 2: the upside surprise? 390 00:18:42,800 --> 00:18:46,119 Speaker 10: There's just some hiring in a lot of different categories. 391 00:18:46,320 --> 00:18:48,120 Speaker 10: The big you're going to laugh at this. The biggest 392 00:18:48,119 --> 00:18:52,879 Speaker 10: category for hiring was government seventy three thousand additional jobs, 393 00:18:52,920 --> 00:18:56,480 Speaker 10: but that is almost all in state and local government, 394 00:18:56,480 --> 00:18:59,200 Speaker 10: a lot of it in state and local education. Seven 395 00:18:59,240 --> 00:19:04,240 Speaker 10: thousand jobs lost in the federal government. Now, maybe we 396 00:19:04,280 --> 00:19:05,960 Speaker 10: get a lot more once we get to the fall 397 00:19:06,000 --> 00:19:09,280 Speaker 10: and some of those people who are getting severance finally 398 00:19:09,400 --> 00:19:12,240 Speaker 10: leave the labor force. To what you guys have been 399 00:19:12,280 --> 00:19:16,399 Speaker 10: talking about. The interesting thing here is that the number 400 00:19:16,480 --> 00:19:20,040 Speaker 10: of people who are in the labor force foreign born 401 00:19:20,240 --> 00:19:23,600 Speaker 10: went up this month. Same is true of the people 402 00:19:23,640 --> 00:19:26,960 Speaker 10: who are in the labor force who are native born, 403 00:19:27,200 --> 00:19:31,960 Speaker 10: although the overall level of the labor force falls by 404 00:19:32,040 --> 00:19:35,480 Speaker 10: one hundred and twenty people one hundred and thirty thousand people. 405 00:19:35,560 --> 00:19:38,520 Speaker 10: So you can see why the unemployment rate went down. 406 00:19:38,600 --> 00:19:42,639 Speaker 10: Ninety three thousand people went or got employed according to 407 00:19:42,640 --> 00:19:45,520 Speaker 10: the Household Survey, and two hundred and twenty two thousand 408 00:19:45,640 --> 00:19:48,960 Speaker 10: lost jobs. But because of the drop in the labor force. 409 00:19:49,000 --> 00:19:53,879 Speaker 10: There you're seeing a lower unemployment rate. But the labor 410 00:19:53,920 --> 00:19:57,560 Speaker 10: force doesn't seem to be having been affected by the 411 00:19:57,720 --> 00:20:02,040 Speaker 10: overall numbers of people who are are being deported. Manufacturing 412 00:20:02,080 --> 00:20:06,440 Speaker 10: lost seven thousand jobs during the month. Construction gained fifteen 413 00:20:06,480 --> 00:20:10,040 Speaker 10: thousand more than anticipated retail trade only two thousand. Now, 414 00:20:10,040 --> 00:20:13,280 Speaker 10: if we are seeing a slowing in spending that might 415 00:20:13,400 --> 00:20:15,240 Speaker 10: be showing up there. That might be one of the 416 00:20:15,280 --> 00:20:19,600 Speaker 10: first ones that we see that is a problem. And Lisa, 417 00:20:19,640 --> 00:20:24,919 Speaker 10: I checked on you and arts and entertainment hiring was 418 00:20:25,000 --> 00:20:27,920 Speaker 10: up by twenty thousand. I don't know whether you are 419 00:20:28,040 --> 00:20:31,160 Speaker 10: arts or entertainment, but you would follow. 420 00:20:30,960 --> 00:20:34,640 Speaker 2: That boat, Mike, both yeah, arts and entertainment, Darren. 421 00:20:34,680 --> 00:20:36,680 Speaker 9: So right now, you're okay. 422 00:20:36,400 --> 00:20:38,800 Speaker 5: All right, thanks, I'm so glad that was the news 423 00:20:38,800 --> 00:20:39,240 Speaker 5: you need to. 424 00:20:39,160 --> 00:20:42,399 Speaker 2: Now, Mike McKay, thank you, sir. Looking at Bonos this morning, 425 00:20:42,400 --> 00:20:44,600 Speaker 2: Bonyo time by eight or nine basis points at the 426 00:20:44,600 --> 00:20:46,000 Speaker 2: front end of the curve, off the back of this 427 00:20:46,080 --> 00:20:48,399 Speaker 2: upside surprise. Once you push that through phone exchange, you 428 00:20:48,400 --> 00:20:50,360 Speaker 2: get a strong a dollar. You're a dollar right now, 429 00:20:50,400 --> 00:20:53,000 Speaker 2: negative by about half of one percent one seventeen forty two. 430 00:20:53,200 --> 00:20:55,920 Speaker 2: Talked about the equity response to that not convincing, still 431 00:20:55,920 --> 00:20:58,399 Speaker 2: positive though by about two tens to one percent. Talk 432 00:20:58,440 --> 00:21:01,280 Speaker 2: about the market. Jeff Rosenberg of Blank Crook jumps on 433 00:21:01,320 --> 00:21:03,280 Speaker 2: a till to us, Jess, welcome to the program. What 434 00:21:03,320 --> 00:21:04,400 Speaker 2: announced you too? With this one? 435 00:21:04,400 --> 00:21:04,879 Speaker 3: This morning. 436 00:21:05,720 --> 00:21:07,520 Speaker 11: You know, Jonathan, I haven't heard you say it yet, 437 00:21:07,560 --> 00:21:10,720 Speaker 11: but you know, this is a great example of where 438 00:21:10,760 --> 00:21:13,639 Speaker 11: the first reaction is not necessarily the last reaction. 439 00:21:13,960 --> 00:21:16,520 Speaker 9: I think we got to rewrite these headlines, everybody. 440 00:21:17,400 --> 00:21:20,959 Speaker 11: This is about the private payrolls and private payrolls disappointed 441 00:21:21,000 --> 00:21:22,080 Speaker 11: to the downside. 442 00:21:22,720 --> 00:21:24,920 Speaker 9: Mike McKee just talked about it. The upside. 443 00:21:24,920 --> 00:21:29,000 Speaker 11: Surprise it's government and that may be surprising. Federal government 444 00:21:29,160 --> 00:21:32,040 Speaker 11: was down. That's not surprising. That's DOGE and the cuts. 445 00:21:32,200 --> 00:21:34,960 Speaker 11: It's state and local that's very high. If it's education, 446 00:21:35,520 --> 00:21:37,960 Speaker 11: to me, that sort of sounds like there's a lot 447 00:21:37,960 --> 00:21:42,000 Speaker 11: of education workers coming back into the job market in June. 448 00:21:42,359 --> 00:21:46,160 Speaker 11: Now that's a seasonal adjustment effect. So the story here 449 00:21:46,440 --> 00:21:49,080 Speaker 11: is not the headline the market is reacting to that. 450 00:21:49,240 --> 00:21:50,359 Speaker 9: Maybe it's the algos. 451 00:21:50,680 --> 00:21:53,840 Speaker 11: Let's get the humans back in the room, back into 452 00:21:53,880 --> 00:21:54,800 Speaker 11: the trading. 453 00:21:54,800 --> 00:21:56,600 Speaker 9: And look through this report. 454 00:21:56,680 --> 00:21:59,160 Speaker 11: This is a slow down and a little bit disappointment 455 00:21:59,200 --> 00:22:01,720 Speaker 11: on the private pay rolls side. You know, you look 456 00:22:01,720 --> 00:22:05,360 Speaker 11: at private services, it's well below sixty eight thousand, it's 457 00:22:05,400 --> 00:22:06,119 Speaker 11: well below. 458 00:22:05,880 --> 00:22:07,560 Speaker 9: The six month average. 459 00:22:07,600 --> 00:22:10,760 Speaker 11: And not like earth shattering here, but this is the 460 00:22:10,880 --> 00:22:12,560 Speaker 11: slowing in the job market. 461 00:22:12,600 --> 00:22:15,680 Speaker 9: That we are expecting the market reaction is trading off 462 00:22:15,720 --> 00:22:18,080 Speaker 9: of the headline. But I think the story here is much. 463 00:22:18,040 --> 00:22:22,280 Speaker 11: More about private payrolls, and that is actually a very 464 00:22:22,320 --> 00:22:23,040 Speaker 11: different headline. 465 00:22:23,080 --> 00:22:25,600 Speaker 9: Now we'll see if the market eventually picks up on 466 00:22:25,680 --> 00:22:27,560 Speaker 9: that at the end of the day. 467 00:22:27,680 --> 00:22:29,600 Speaker 2: Jeffy Right, I always say it, So let's read one 468 00:22:29,680 --> 00:22:32,200 Speaker 2: fifteen minutes. The first move is not always the right move, 469 00:22:32,359 --> 00:22:33,959 Speaker 2: So let's wait and see what happens now in the day. 470 00:22:34,000 --> 00:22:35,080 Speaker 2: There you go, Jeff, I got it out. 471 00:22:35,200 --> 00:22:35,440 Speaker 9: Jeff. 472 00:22:35,480 --> 00:22:37,920 Speaker 2: Let's talk about what we're saying in private payrolls then, 473 00:22:38,400 --> 00:22:40,359 Speaker 2: and talk about this move in the market. Would you 474 00:22:40,400 --> 00:22:43,000 Speaker 2: fight what we're seeing high yield to the front end? 475 00:22:43,160 --> 00:22:45,280 Speaker 2: Would you fight what we're seeing in the FX market 476 00:22:45,600 --> 00:22:46,440 Speaker 2: a stronger dollar? 477 00:22:47,680 --> 00:22:49,720 Speaker 11: Yeah, I mean that's basically My point is that the 478 00:22:49,760 --> 00:22:53,080 Speaker 11: initial reaction here may be a bit overstated with regards 479 00:22:53,119 --> 00:22:53,960 Speaker 11: to repricing. 480 00:22:54,000 --> 00:22:54,720 Speaker 9: Now, I agree with you. 481 00:22:55,080 --> 00:22:58,160 Speaker 11: I think July may have been overstated to begin with, 482 00:22:58,480 --> 00:23:01,760 Speaker 11: But I think the broader story year is the slowing 483 00:23:01,840 --> 00:23:04,360 Speaker 11: in the in the payrolls that we've seen for some time. 484 00:23:04,440 --> 00:23:06,560 Speaker 9: I think it's actually confirmed by this report. 485 00:23:06,840 --> 00:23:09,560 Speaker 11: And then I want to re emphasize what Torsten just said, 486 00:23:09,560 --> 00:23:12,119 Speaker 11: because I couldn't agree more that it's really going to 487 00:23:12,200 --> 00:23:16,920 Speaker 11: be about profit margins and what we learned from corporations. 488 00:23:17,520 --> 00:23:19,800 Speaker 11: I think you use Torston the pig and the python, 489 00:23:20,000 --> 00:23:20,959 Speaker 11: that's exactly it. 490 00:23:21,040 --> 00:23:23,840 Speaker 9: I mean, we're still waiting for the impact to show up. 491 00:23:24,280 --> 00:23:25,480 Speaker 9: It's been showing. 492 00:23:25,240 --> 00:23:28,760 Speaker 11: Up, and you know, the other story around around payrolls 493 00:23:28,800 --> 00:23:32,600 Speaker 11: is they've been overstated. And so the big question is 494 00:23:32,600 --> 00:23:35,800 Speaker 11: is there an underlying weakening here that is a little 495 00:23:35,840 --> 00:23:37,800 Speaker 11: bit greater than what is anticipating. 496 00:23:37,800 --> 00:23:38,919 Speaker 9: I think the story here today of. 497 00:23:38,960 --> 00:23:43,080 Speaker 11: Headline versus privates is kind of throwing more confusion in there. 498 00:23:43,320 --> 00:23:46,359 Speaker 11: The revisions were a surprise to the upside people looking for, 499 00:23:46,680 --> 00:23:48,959 Speaker 11: you know, the revision story to show up. So that 500 00:23:49,040 --> 00:23:51,840 Speaker 11: was a little bit stronger than expected. But I think 501 00:23:52,040 --> 00:23:54,879 Speaker 11: it's really going to be about the corporate reaction here, 502 00:23:55,000 --> 00:23:56,600 Speaker 11: and it's been as we saw in the Jolt Stata, 503 00:23:56,720 --> 00:23:59,439 Speaker 11: you know, it's been a pretty stagnant, very you know, 504 00:23:59,520 --> 00:24:01,119 Speaker 11: benign kind of layoff environment. 505 00:24:01,160 --> 00:24:03,400 Speaker 9: We have to see whether or not that is maintained. 506 00:24:03,440 --> 00:24:06,280 Speaker 5: But Jeff, isn't this kind of conducive to risk assets? 507 00:24:06,320 --> 00:24:08,160 Speaker 5: And I say this at a time when you have 508 00:24:08,200 --> 00:24:11,040 Speaker 5: a potentially stimulative bill coming out of Washington, d C, 509 00:24:11,240 --> 00:24:15,520 Speaker 5: albeit increasing the deficit. But you have sort of steady, 510 00:24:15,600 --> 00:24:18,280 Speaker 5: if slowing growth at the same time that you have 511 00:24:18,320 --> 00:24:21,240 Speaker 5: a FED that is poised to cut race in September 512 00:24:21,280 --> 00:24:24,840 Speaker 5: and potentially again later this year. Isn't that potentially still 513 00:24:24,920 --> 00:24:27,920 Speaker 5: okay for everything to continue on the status quo. 514 00:24:29,640 --> 00:24:33,680 Speaker 11: Well, yes, in some sense that's the case, but it's 515 00:24:33,760 --> 00:24:36,840 Speaker 11: already well into the price. So you look at like 516 00:24:36,880 --> 00:24:39,040 Speaker 11: the performance of cyclicals versus defenses. 517 00:24:39,200 --> 00:24:40,840 Speaker 9: For example, you. 518 00:24:40,800 --> 00:24:45,119 Speaker 11: Know you're seeing you know, expansionary type moves in the 519 00:24:45,160 --> 00:24:47,760 Speaker 11: face of that. You know you said slowing, but steady 520 00:24:47,880 --> 00:24:50,880 Speaker 11: identicize more the slowing. You know, most of the economic 521 00:24:50,960 --> 00:24:54,080 Speaker 11: data is slowing, and that's what the payroll data here 522 00:24:54,200 --> 00:24:56,960 Speaker 11: is validating. That's not the end of the world, and 523 00:24:56,960 --> 00:24:59,280 Speaker 11: it's not saying the sky is falling or there's recession, 524 00:24:59,520 --> 00:25:03,080 Speaker 11: but this is it is consistent with a mid cycle slowdown. 525 00:25:03,119 --> 00:25:05,680 Speaker 11: So there's a little bit of a disconnect between kind 526 00:25:05,720 --> 00:25:08,720 Speaker 11: of what we're seeing in valuations and what we're seeing 527 00:25:08,720 --> 00:25:09,840 Speaker 11: in terms of the slowdown. 528 00:25:09,880 --> 00:25:12,920 Speaker 9: And that doesn't necessarily you know me and you jump 529 00:25:13,000 --> 00:25:16,679 Speaker 9: in with bold feet and everything's sky is clear. 530 00:25:17,080 --> 00:25:19,320 Speaker 11: You got to take a little bit of caution with 531 00:25:19,400 --> 00:25:21,880 Speaker 11: respect to what's in the price versus what we're seeing 532 00:25:21,880 --> 00:25:23,240 Speaker 11: in terms of the macro backdrop. 533 00:25:23,359 --> 00:25:25,800 Speaker 2: I Jeff appreciate it. Jeff Rosenberg there of black Rock, 534 00:25:25,920 --> 00:25:27,960 Speaker 2: the message you sent earlier on about two as ago, 535 00:25:28,560 --> 00:25:30,840 Speaker 2: which one which is basically the dates or the marketer 536 00:25:30,920 --> 00:25:32,159 Speaker 2: on two different pages exactly. 537 00:25:32,200 --> 00:25:35,679 Speaker 5: And this is partly because the market right now is 538 00:25:35,720 --> 00:25:38,920 Speaker 5: looking to AI, is looking to different advancements, is looking 539 00:25:38,920 --> 00:25:41,560 Speaker 5: too good enough, and the economy is looking at a 540 00:25:41,640 --> 00:25:43,800 Speaker 5: very different backdrop where you have very low hiring and 541 00:25:43,880 --> 00:25:46,480 Speaker 5: very low firing, and that at some point you have 542 00:25:46,520 --> 00:25:47,480 Speaker 5: to have a meeting of the two. 543 00:25:47,760 --> 00:25:51,200 Speaker 2: Stephanie, you heard, Jeff there the distinction headline payrolls versus 544 00:25:51,200 --> 00:25:53,639 Speaker 2: private payrolls. You talked about it briefly as well. Two 545 00:25:53,680 --> 00:25:55,680 Speaker 2: different stories kind of to some. 546 00:25:55,720 --> 00:25:59,479 Speaker 7: Extent, the government, the strength and government specifically tied education 547 00:25:59,600 --> 00:26:03,280 Speaker 7: was probably seasonal. Quirk totally agree with that. The fact 548 00:26:03,280 --> 00:26:06,240 Speaker 7: that private perils are on the seventies shouldn't be that alarming, though, 549 00:26:06,280 --> 00:26:08,560 Speaker 7: because we know that the steady state pace of perils 550 00:26:08,600 --> 00:26:10,560 Speaker 7: growth has come down. We should be concerned if it 551 00:26:10,600 --> 00:26:12,480 Speaker 7: was stronger than that, because we don't have a labor 552 00:26:12,480 --> 00:26:15,080 Speaker 7: force to support it. That if it was running notably 553 00:26:15,080 --> 00:26:17,280 Speaker 7: above one hundred thousand, you're going to start running into 554 00:26:17,280 --> 00:26:18,560 Speaker 7: problems with inflationary pressures. 555 00:26:18,560 --> 00:26:21,119 Speaker 2: Picking up Telson, You've been making the argument the unemployment 556 00:26:21,119 --> 00:26:23,760 Speaker 2: will climb, you're expecting it to rise in the months 557 00:26:23,800 --> 00:26:25,560 Speaker 2: to come. What convince is you with that at the moment? 558 00:26:25,680 --> 00:26:27,800 Speaker 8: Well, the problem also with this story, with the data 559 00:26:27,840 --> 00:26:30,800 Speaker 8: today is that the AI story is just not playing out. 560 00:26:31,040 --> 00:26:33,119 Speaker 8: So that means that we're not seeing people losing their 561 00:26:33,160 --> 00:26:35,440 Speaker 8: jobs and the onploiner rate going up because of that fact. 562 00:26:35,800 --> 00:26:38,320 Speaker 8: The expectation from our side was that there was a 563 00:26:38,320 --> 00:26:41,119 Speaker 8: slowdown in demand that pushes the unemployment rate higher. But 564 00:26:41,200 --> 00:26:43,080 Speaker 8: the fact that not even the AI story is showing 565 00:26:43,160 --> 00:26:45,320 Speaker 8: up here and it really is mainly a story of 566 00:26:45,840 --> 00:26:48,760 Speaker 8: just a simple decline in labor force participation because we 567 00:26:48,840 --> 00:26:51,280 Speaker 8: simply have a smaller labor force. And also the added 568 00:26:51,320 --> 00:26:54,520 Speaker 8: issue here government employment going forward, if we're not also 569 00:26:54,600 --> 00:26:57,040 Speaker 8: going to hire more workers for ICE, if we're going 570 00:26:57,080 --> 00:26:59,479 Speaker 8: to hire generally speaking, at a number of different fronts 571 00:26:59,560 --> 00:27:02,160 Speaker 8: with a huge budget increase, we could also now begin 572 00:27:02,200 --> 00:27:04,159 Speaker 8: to spend much more time over the coming months on 573 00:27:04,240 --> 00:27:06,160 Speaker 8: thinking about what's going on in the private sex time 574 00:27:06,160 --> 00:27:08,080 Speaker 8: employment numbers relative to the government sect. 575 00:27:08,119 --> 00:27:09,840 Speaker 2: You changed your mind then, because you've been talking about 576 00:27:09,880 --> 00:27:12,520 Speaker 2: stackflation for a while. Later this year, well, it challenge 577 00:27:12,560 --> 00:27:12,959 Speaker 2: to that right. 578 00:27:13,040 --> 00:27:15,440 Speaker 8: So on the inflation side, I mean j Powelin CenTra 579 00:27:15,600 --> 00:27:17,439 Speaker 8: just a few days ago said again that he expects 580 00:27:17,440 --> 00:27:20,200 Speaker 8: a meaningful increase in inflation. He said that the congressional hearings. 581 00:27:20,320 --> 00:27:22,320 Speaker 8: He said that also at the press conference. So we 582 00:27:22,400 --> 00:27:25,040 Speaker 8: still have If the fit chess says I expect a 583 00:27:25,080 --> 00:27:28,440 Speaker 8: meaningful increase in inflation, that's something we should take very seriously. 584 00:27:28,720 --> 00:27:31,120 Speaker 8: So to what Jeff point was exactly that I still 585 00:27:31,119 --> 00:27:33,520 Speaker 8: think that we're waiting to see what was the corporate 586 00:27:33,560 --> 00:27:37,200 Speaker 8: response in the second quarter to terriffs and tariffs. Yes, 587 00:27:37,240 --> 00:27:39,639 Speaker 8: it may seem like it's behind us uncertainty. It certainly 588 00:27:39,640 --> 00:27:41,600 Speaker 8: looks better. We can begin to talk about now with 589 00:27:41,640 --> 00:27:43,520 Speaker 8: this report what that means for July the ninth and 590 00:27:43,600 --> 00:27:46,119 Speaker 8: the deadline next week. But the conclusion is, if we 591 00:27:46,160 --> 00:27:49,040 Speaker 8: at least at the moment, still have a question mark 592 00:27:49,080 --> 00:27:51,840 Speaker 8: around how did companies active response to tariffs, I think 593 00:27:51,880 --> 00:27:53,840 Speaker 8: it's too early to take the champagne bottle out here 594 00:27:53,880 --> 00:27:54,720 Speaker 8: and say this is. 595 00:27:54,640 --> 00:27:56,600 Speaker 2: All over them, Toss and slot. It's definitely roth to 596 00:27:56,640 --> 00:27:59,600 Speaker 2: the turview. Thank you, don't pop the champagne just yet. 597 00:28:00,560 --> 00:28:03,160 Speaker 2: I think we're about twelve days away from numbers from 598 00:28:03,200 --> 00:28:05,479 Speaker 2: JP Morgan when we start to hear from Corporate America 599 00:28:05,480 --> 00:28:07,720 Speaker 2: about what the plans are for the next several quarters 600 00:28:07,720 --> 00:28:08,000 Speaker 2: and beyond. 601 00:28:08,119 --> 00:28:10,680 Speaker 5: Yeah, July fifteenth, you start to kick off those bank earnings. 602 00:28:10,720 --> 00:28:13,920 Speaker 5: Then you see whether it's profit margins or whether they're 603 00:28:13,920 --> 00:28:16,760 Speaker 5: going to just pass it along to consumers less than 604 00:28:16,760 --> 00:28:19,600 Speaker 5: the banking sector and more than others. I'm sitting here thinking, 605 00:28:19,640 --> 00:28:21,600 Speaker 5: how do you price in or how do you factor 606 00:28:21,680 --> 00:28:27,080 Speaker 5: in slow moving changes that are seismic in monthly data? 607 00:28:27,160 --> 00:28:29,399 Speaker 5: And I think this is the reason why everyone's head's 608 00:28:29,400 --> 00:28:31,360 Speaker 5: just kind of spinning, because you have all these stories 609 00:28:31,359 --> 00:28:34,680 Speaker 5: that make perfect sense and these theories, but the numbers 610 00:28:34,920 --> 00:28:36,160 Speaker 5: aren't really catching us. 611 00:28:36,160 --> 00:28:37,679 Speaker 2: So what do you do? You get to the beach 612 00:28:37,960 --> 00:28:40,160 Speaker 2: if you're not already left? All right, I think a 613 00:28:40,160 --> 00:28:42,280 Speaker 2: lot of people are already left, haven't they. If you're still 614 00:28:42,280 --> 00:28:44,280 Speaker 2: with us, thank you, take us into the car with you. 615 00:28:44,520 --> 00:28:47,880 Speaker 2: Mu's journey with Bloomberg TV in the background. This is 616 00:28:47,920 --> 00:28:53,320 Speaker 2: the Bloomberg Sevenants podcast, bringing you the best in markets, economics, angiopolitics. 617 00:28:53,560 --> 00:28:56,040 Speaker 2: You can watch the show live on Bloomberg TV weekday 618 00:28:56,080 --> 00:28:59,320 Speaker 2: mornings from six am to nine am Eastern. Subscribe to 619 00:28:59,320 --> 00:29:02,920 Speaker 2: the podcast Apple, Spotify or anywhere else you listen, and 620 00:29:02,960 --> 00:29:06,040 Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business app. 621 00:29:10,040 --> 00:29:10,480 Speaker 8: Mm hmm