WEBVTT - Bloomberg Surveillance TV: July 3rd, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.000 Terminal and the Bloomberg Business app. Joining us now to 0:00:37.000 --> 0:00:39.599 extend some of this conversation, not the last bit, but 0:00:39.640 --> 0:00:42.519 the bit about foreign exchange in politics, George joins us now, 0:00:42.640 --> 0:00:45.280 George Sarahvellos of Deutsche Bank. George, Welcome to the program, Sir. 0:00:45.680 --> 0:00:50.080 This em type dynamic which keeps gripping developed markets over 0:00:50.120 --> 0:00:53.040 the past I'd say twelve months, maybe even longer, George, 0:00:53.159 --> 0:00:58.360 How are you explaining that to clients at the moment, Well. 0:00:58.080 --> 0:01:01.960 Our views has more to go, it's here to stay. 0:01:02.120 --> 0:01:05.560 And I think the critical driver of all of this 0:01:05.800 --> 0:01:09.680 is that fiscal deficits everywhere are going up. 0:01:09.800 --> 0:01:11.440 And of course this was the case for the US 0:01:11.480 --> 0:01:12.679 over the last two three years. 0:01:12.800 --> 0:01:14.600 But the really big shift since the start of the 0:01:14.680 --> 0:01:17.119 year is if you look at all the countries outside 0:01:17.160 --> 0:01:20.120 of the US, with the UK being one exception, but 0:01:20.240 --> 0:01:26.440 everyone's increasing fiscal spending again, Canada, Germany, China's front loading, 0:01:26.560 --> 0:01:29.240 We're seeing discussions in Japan, and I think it's this 0:01:29.319 --> 0:01:33.760 global increase in deficits combined sticky inflation that is creating 0:01:33.800 --> 0:01:36.319 these tensions as far as the discussion goes, well. 0:01:36.240 --> 0:01:39.160 George, let's talk about the tension specifically in the United Kingdom. 0:01:39.600 --> 0:01:42.640 Just yesterday, the pound and British assets get an absolutely 0:01:42.640 --> 0:01:45.960 whip sword, presumably over the future of Chancellor Reaes, but 0:01:46.000 --> 0:01:47.960 I wonder if it's something bigger than that. Is it 0:01:48.000 --> 0:01:50.920 about her future or the inability of this government to 0:01:50.960 --> 0:01:52.000 consolidate spending. 0:01:54.040 --> 0:01:56.240 I think there's two problems on the UK. There's the 0:01:56.240 --> 0:02:00.560 communication problem and the macro problem. The communication one is 0:02:00.600 --> 0:02:04.560 that effectively these fiscal rules that are extremely clumsy. 0:02:05.280 --> 0:02:07.720 You see, they're dependent on projections. 0:02:07.120 --> 0:02:10.480 Which the OBI has five years out, productivity which none believes. 0:02:10.480 --> 0:02:13.160 And every time you see some shift in guilt yields, 0:02:13.160 --> 0:02:15.840 the market starts talking about gaps. And I think that 0:02:15.960 --> 0:02:19.480 just creates a broader problem of instability, and we see that. 0:02:20.000 --> 0:02:22.359 And then there's the broader macro problem, which I would 0:02:22.480 --> 0:02:25.760 argue applies just as much to the UK as it 0:02:25.800 --> 0:02:28.480 does to the US, which is both of these countries 0:02:28.560 --> 0:02:31.520 are running big twin deficits, and that is why you're 0:02:31.520 --> 0:02:35.560 seeing increase vulnerability to negative news. We experienced it in 0:02:35.600 --> 0:02:38.960 April in the US with a whole Liberation Day back 0:02:39.000 --> 0:02:41.560 and forth, and now we're seeing a small micro version 0:02:41.600 --> 0:02:43.839 of that in the UK. But I would say both 0:02:43.840 --> 0:02:48.840 the UK and the US have those two common denominators, 0:02:49.360 --> 0:02:52.720 external deficit and internal deficit, and that's going to be 0:02:52.800 --> 0:02:53.600 causing problems. 0:02:53.800 --> 0:02:56.040 There's a big difference though, between the two, and we're 0:02:56.080 --> 0:02:58.960 watching it in real time as the United Kingdom tries 0:02:59.000 --> 0:03:02.000 to figure out how to mess their deficit spending and 0:03:02.040 --> 0:03:04.920 how they plan to cut or not from some of 0:03:04.919 --> 0:03:08.040 those expenditures. In the United States, Congress just keeps on 0:03:08.080 --> 0:03:10.679 spending and they're about to pass a bill that increases 0:03:10.680 --> 0:03:13.400 the deficit over the next ten years by some three 0:03:13.440 --> 0:03:16.280 and a half four trillion dollars. Why is the US 0:03:16.400 --> 0:03:19.640 such a different market when it comes to dynamics and 0:03:19.680 --> 0:03:21.800 how much the bond market is waking up to this. 0:03:23.680 --> 0:03:26.360 So you're absolutely right, the US has had a greater 0:03:26.480 --> 0:03:27.920 degree of resilience, so to speak. 0:03:27.960 --> 0:03:30.440 But I would argue since the start of the year, 0:03:30.480 --> 0:03:31.520 you're actually seeing. 0:03:31.280 --> 0:03:36.000 Convergence, whereby the US is becoming more sensitive to these things. Now, 0:03:36.040 --> 0:03:39.360 of course, over the last few months the market has 0:03:39.360 --> 0:03:42.560 calmed down, but let's not forget what happened in April. 0:03:42.800 --> 0:03:45.120 And I would say a key driver why the market 0:03:45.160 --> 0:03:47.920 has calmed down is because we've had some downside surprises 0:03:47.920 --> 0:03:50.760 to inflation, and of course the bond market is most 0:03:50.760 --> 0:03:53.760 sensitive to those inflation surprises. So let's see what happens 0:03:53.800 --> 0:03:55.880 over the next six months. But between the UK and 0:03:55.920 --> 0:03:59.400 the US, I'm a lot more concerned about the US 0:03:59.560 --> 0:04:01.920 because if if I look at the shocks hitting the 0:04:01.960 --> 0:04:05.120 system at the moment in the US, not only do 0:04:05.160 --> 0:04:08.080 you have the tariff discussion, which everyone is so focused on, 0:04:08.440 --> 0:04:11.200 but the bigger underlying shock in my view, is the 0:04:11.240 --> 0:04:14.880 labor market, where you're seeing a very sharp reduction in immigration, 0:04:15.520 --> 0:04:17.960 which is equivalent to a sharp slow down in growth 0:04:17.960 --> 0:04:21.200 and potentially upside surprises to inflation. And that is the 0:04:21.279 --> 0:04:24.680 worst mix if you're thinking about debt sustainability and the 0:04:24.720 --> 0:04:28.039 funding of those twin deficits. So the immigration story to 0:04:28.120 --> 0:04:31.760 me is much bigger than the tariff story as far 0:04:31.760 --> 0:04:32.560 as the US goes. 0:04:32.640 --> 0:04:35.320 So, George, if we could just sort of solidify this parallel, 0:04:35.320 --> 0:04:37.479 if you see the United States as being a more 0:04:37.520 --> 0:04:40.960 significant story and frankly a worse story from the United Kingdom, 0:04:41.000 --> 0:04:43.320 which is experienced a lot experiencing a lot more real 0:04:43.360 --> 0:04:46.520 time volatility in their markets, what do you think will 0:04:46.560 --> 0:04:49.719 be a the breaking point and be the consequence for 0:04:49.760 --> 0:04:52.920 both the dollar and long term yields that have been 0:04:53.200 --> 0:04:55.120 relatively calm amid this process. 0:04:56.880 --> 0:04:59.719 So there's two ways this can get resolved, as you say, 0:05:00.120 --> 0:05:01.800 neither be a calm way or it can be a 0:05:01.839 --> 0:05:05.039 disorderly way. The calm way is what we've seen over 0:05:05.080 --> 0:05:08.200 the last few weeks, where the dollar weakens as the 0:05:08.240 --> 0:05:11.479 dollar weekends, effectively assets cheapen up, you can draw in 0:05:11.560 --> 0:05:15.760 those marginal buyers. We also authored the piece talking about 0:05:15.800 --> 0:05:19.480 a Pennsylvania plan, which effectively I think is being realized. 0:05:19.680 --> 0:05:23.599 The US Treasury shortens the issuance of duration, the domestic banks, 0:05:23.600 --> 0:05:27.760 the pension funds absorbed, the debts of foreigners can disengage. 0:05:27.120 --> 0:05:30.240 From the bond market. I think that's the orderly plan. 0:05:30.720 --> 0:05:34.440 The disorderly one is if the negative supply shock I 0:05:34.480 --> 0:05:38.600 was discussing becomes more acute, you get much bigger inflation surprises, 0:05:38.920 --> 0:05:41.919 and at the same time FED independence gets challenged, and 0:05:41.960 --> 0:05:44.200 we're seeing that in the background. Well, argue, we're not 0:05:44.279 --> 0:05:46.880 in the background in the foreground with some of the statements. 0:05:47.200 --> 0:05:50.680 The reason the market is calm is because inflation is calm. 0:05:50.800 --> 0:05:52.440 But if that growth, inflation. 0:05:52.160 --> 0:05:56.279 Makes worse since that fiscal dominance question, I think will 0:05:56.279 --> 0:05:58.600 come back to the fourth very very quickly, and that's 0:05:58.600 --> 0:06:01.040 where you get at the tipping point disorderly dynamics. 0:06:01.120 --> 0:06:03.320 Yeah, George, I'm pleased you corrected yourself because it's certainly 0:06:03.360 --> 0:06:05.760 not having at a bankground. The President's not being subtle 0:06:05.760 --> 0:06:07.880 about it at all. George, Thank you, sir. Judge Sara 0:06:07.960 --> 0:06:20.160 Velos there of Deutsche Bank, Michael Collins apaging fixed income 0:06:20.240 --> 0:06:22.479 righting the Fed's hands are tied for now, but we 0:06:22.560 --> 0:06:25.000 still think of Fed fund's rate cut or two a 0:06:25.240 --> 0:06:27.920 likely by year. Rent Michael joins us now for more. 0:06:27.960 --> 0:06:30.040 My welcome to the program, sir. Let's talk about these 0:06:30.080 --> 0:06:32.280 rate cuts. Are they cutting interest rates? To the Federal 0:06:32.279 --> 0:06:34.960 Reserve later this year, in your mind, because inflation is 0:06:35.000 --> 0:06:37.680 coming down, or because this labor market is going to 0:06:37.720 --> 0:06:38.320 start cracking. 0:06:39.880 --> 0:06:42.520 Both Actually, you know, I mean we've been in the camp, Jonathan, 0:06:42.560 --> 0:06:45.360 as you know that the Fed has really stuck, right, 0:06:45.360 --> 0:06:47.480 They're going to keep the rate where it is until 0:06:47.520 --> 0:06:50.760 things change, either in terms of a labor market weekning 0:06:51.480 --> 0:06:55.240 or this tariff induced inflation not being as bad as 0:06:55.320 --> 0:06:58.120 feared and maybe being just a one off and seeing 0:06:58.160 --> 0:07:01.080 inflation really stay kind of in the low twoths here. 0:07:01.120 --> 0:07:04.320 And I think in both cases, the data are moving 0:07:04.360 --> 0:07:08.120 in the right direction, right. They are really supporting the 0:07:08.240 --> 0:07:12.080 case for a rate cut or two by the end 0:07:12.120 --> 0:07:14.640 of this year, which, as you've been talking about, is. 0:07:14.560 --> 0:07:15.360 Fully priced in. 0:07:15.760 --> 0:07:18.000 Mike, do you care about this report that we get 0:07:18.360 --> 0:07:19.920 in a forty minutes time? 0:07:20.960 --> 0:07:23.240 You know, I really think the people were talking about 0:07:23.280 --> 0:07:24.080 what is the run rate? 0:07:24.120 --> 0:07:28.280 What is the steady state level of job gains each month? 0:07:28.400 --> 0:07:30.480 And you know, maybe it was you know, we were 0:07:30.560 --> 0:07:33.320 running at four hundred and two hundred and one hundred. 0:07:33.720 --> 0:07:37.600 It feels like because of the just the natural slowing 0:07:37.680 --> 0:07:41.080 in the job market sickles l but also the immigration 0:07:41.240 --> 0:07:45.200 net immigration effect it feels like that natural steady state 0:07:45.240 --> 0:07:49.040 of job growth LISA is below one hundred. Now, who knows, 0:07:49.080 --> 0:07:52.160 maybe it's zero, maybe it's fifty thousand. So I think 0:07:52.200 --> 0:07:56.880 you're naturally going to see a lower prints on these 0:07:56.960 --> 0:08:01.119 monthly job gains and don't know if it should spook 0:08:01.160 --> 0:08:04.080 to market. The lynchpin is that unemployment rate. Right, you 0:08:04.080 --> 0:08:09.600 could still have a fully employed labor market with slowing 0:08:09.880 --> 0:08:12.960 job gains, and I think that's really the conundrum the 0:08:12.960 --> 0:08:15.360 feedis going to face. They're going to see these slowing 0:08:15.440 --> 0:08:20.840 jobs numbers and see the labor markets still look fairly tight. 0:08:21.240 --> 0:08:23.040 The big number today we're looking at really is the 0:08:23.080 --> 0:08:25.600 wage gains. And obviously the wage gains have been slowing 0:08:25.840 --> 0:08:29.680 steadily for a couple of years now, and I think 0:08:29.720 --> 0:08:32.360 we'll continue to see that as companies, you know, they're 0:08:32.400 --> 0:08:35.680 not necessarily firing people, they're just pulling back on hiring 0:08:35.800 --> 0:08:38.960 right now, but wage gains are definitely slowing. 0:08:39.320 --> 0:08:43.400 If you don't see inflation as being a persistent feature 0:08:43.440 --> 0:08:46.080 of this US economy, and if you do see tariffs 0:08:46.520 --> 0:08:51.160 as not as inflationary as people previously believed, why isn't 0:08:51.160 --> 0:08:53.720 the thirty year, Why isn't the ten year yield a 0:08:53.760 --> 0:08:55.360 lot lower in the United States. 0:08:56.559 --> 0:08:59.480 Yeah, I think they're just pricing in you know, five 0:08:59.559 --> 0:09:02.040 rate cut right for the next year or year and 0:09:02.080 --> 0:09:05.479 a half is what's priced in. That seems very reasonable 0:09:05.520 --> 0:09:05.920 to us. 0:09:06.000 --> 0:09:06.160 Right. 0:09:06.200 --> 0:09:08.960 If that happens, then you have a kind of a 0:09:09.080 --> 0:09:12.280 normal upward sloping term structure. 0:09:12.400 --> 0:09:12.559 Right. 0:09:12.640 --> 0:09:16.440 So that's that's what's fully priced in, and that seems natural. 0:09:17.000 --> 0:09:20.440 What is not priced in, Lisa, is the is the 0:09:20.440 --> 0:09:21.600 downside tail risk. 0:09:21.720 --> 0:09:21.840 Right. 0:09:22.360 --> 0:09:25.079 What is not priced in in the credit markets, in. 0:09:25.080 --> 0:09:29.240 The equity markets, in the vol markets, and arguably to 0:09:29.320 --> 0:09:32.360 your point, in the in long term rates is a 0:09:32.480 --> 0:09:37.000 nastier downside surprise where you know, Trump does get his 0:09:37.080 --> 0:09:39.559 way and the funds rate doesn't go down one hundred 0:09:39.640 --> 0:09:42.880 bases points, it goes goes down two or three hundred, right, 0:09:42.880 --> 0:09:44.720 And that is that is a very different world. 0:09:45.240 --> 0:09:46.840 That is not what we're expecting. 0:09:47.360 --> 0:09:50.400 But again, the markets are signing a really low probability 0:09:50.440 --> 0:09:51.800 to that, and probably too. 0:09:51.720 --> 0:09:53.280 Low, am I just to pick up on that. Let's 0:09:53.280 --> 0:09:56.440 just focus on risk assets. Let's talk about equities and say, hi, 0:09:56.559 --> 0:09:59.320 your bonds high, your credit of course you're very familiar 0:09:59.400 --> 0:10:02.000 with you know, now credit spreads right now two eighty 0:10:02.400 --> 0:10:05.080 on high yield spreads and grinding even tighter. And what's 0:10:05.080 --> 0:10:07.880 interesting about that if you take the economic surprise Index 0:10:08.080 --> 0:10:09.839 something else, you know, Well, but for our audience who 0:10:09.880 --> 0:10:12.080 might not be familiar, just where is the data coming 0:10:12.160 --> 0:10:15.720 in relative to expectations? That's been rolling over since November? 0:10:15.800 --> 0:10:17.959 It's had a smallest bounce, but ultimately the trend over 0:10:17.960 --> 0:10:20.800 the last six months not great. So the surprice indexs 0:10:20.840 --> 0:10:23.720 has been rolling over, the equity market's been going higher, 0:10:23.840 --> 0:10:26.120 and credit spreads have been grinding tighter. How do you 0:10:26.160 --> 0:10:29.200 explain that Either we're whistling past the graveyard or the 0:10:29.280 --> 0:10:31.880 data is just becoming less and less relevant. Which one 0:10:31.920 --> 0:10:32.160 is it? 0:10:33.240 --> 0:10:33.440 Yeah? 0:10:33.880 --> 0:10:36.640 I think it's the whistling past the graveyard for sure. 0:10:36.679 --> 0:10:38.760 I know Lisa, it's good to see her fired up 0:10:38.760 --> 0:10:42.000 this morning about this. And you know, the financial conditions 0:10:42.080 --> 0:10:44.199 is something that you know, not a lot of people 0:10:44.240 --> 0:10:45.360 are talking about, right. 0:10:45.440 --> 0:10:45.640 Yeah. 0:10:45.720 --> 0:10:49.400 Could the Fed cut one hundred basis points now? Possibly, 0:10:49.480 --> 0:10:52.840 maybe that's the right level to be at, frankly, but 0:10:53.520 --> 0:10:55.520 you know what would happen to financial conditions? 0:10:55.559 --> 0:10:55.679 Right? 0:10:55.679 --> 0:10:59.120 Would the stock market go up another ten or twenty percent? 0:10:59.120 --> 0:11:03.200 Would credit spread continue to grind in and that brings 0:11:03.200 --> 0:11:06.400 in a whole host of other risks to the upside 0:11:06.400 --> 0:11:09.120 of the economy and the upside of inflation. 0:11:09.280 --> 0:11:10.280 Right, This economy has. 0:11:10.240 --> 0:11:13.680 Been driven by the upper end of the wealth and 0:11:13.720 --> 0:11:17.880 income spectrum, which has been driven by this paper wealth effect. 0:11:18.160 --> 0:11:19.960 Right. I don't think you want to add fuel to 0:11:20.000 --> 0:11:20.520 that fire. 0:11:20.559 --> 0:11:23.320 And I really believe that's one of the reasons the 0:11:23.360 --> 0:11:27.000 FED is really hesitant to cut here because they don't 0:11:27.040 --> 0:11:29.800 want to add add fuel to that fire. 0:11:30.000 --> 0:11:32.280 If you think people are whistling past the graveyard bike, 0:11:32.400 --> 0:11:33.959 what's your highest conviction call right now? 0:11:35.840 --> 0:11:38.480 The conviction is that you know, growth is going to 0:11:38.480 --> 0:11:43.440 moderate a little bit, and recession risk really does look low, right. 0:11:43.520 --> 0:11:46.320 I Mean, the big theme we've been focused on, Lisa 0:11:46.320 --> 0:11:49.840 throughout this whole cycle is you know, where are the 0:11:49.920 --> 0:11:52.880 tipping points in the private sector? You know, yeah, a 0:11:52.880 --> 0:11:57.240 public sector is a mess. The fiscal situation globally is 0:11:57.280 --> 0:12:00.880 a mess. But you know, typically these receptsestions happened, these 0:12:00.880 --> 0:12:04.440 downside risks happen when you have an over levered housing 0:12:04.520 --> 0:12:08.600 sector or financial sector, or corporate sector, or consumer sector 0:12:08.920 --> 0:12:12.800 or mortgage sector and you are not there. This cycle, 0:12:12.840 --> 0:12:16.160 we have not had a releveraging of the private sector. Yeah, 0:12:16.160 --> 0:12:19.439 there are some pockets in lower end consumers where you're 0:12:19.480 --> 0:12:23.360 seeing bigger increases in debt and leverage, and you're seeing 0:12:23.400 --> 0:12:26.560 a lot a big increase in personal bankruptcies and small 0:12:26.640 --> 0:12:31.040 business bankruptcies, which is certainly worrisome, but it's not systemic 0:12:31.160 --> 0:12:33.439 enough to take the whole economy down with it, right, 0:12:33.480 --> 0:12:36.280 So we have a pretty strong conviction that that, yeah, 0:12:36.280 --> 0:12:37.960 it's going to be a slow down the economy, but 0:12:38.000 --> 0:12:41.960 this kind of cataclysmic you know, credit risk off, you know, 0:12:42.080 --> 0:12:45.160 credit crisis is a really low low probability and that's 0:12:45.200 --> 0:12:47.920 frankly what the markets are running with in pricing. 0:12:47.640 --> 0:12:50.200 In my colins, appreciate your time. So my Collin's they 0:12:50.200 --> 0:13:03.400 have PAGM fixed income just with a surrounded table. Stephanie 0:13:03.480 --> 0:13:06.520 Roth of Wolf Ray, Sir Stephanie Givmarniic, good morning. You'll 0:13:06.559 --> 0:13:07.760 first take on this one. 0:13:07.920 --> 0:13:10.120 Yeah, I mean this is something that we were kind 0:13:10.160 --> 0:13:12.880 of warning people about. An environment where the steady state 0:13:12.920 --> 0:13:15.400 pace of hiring comes down pretty substantially and the unemployer 0:13:15.440 --> 0:13:18.000 rate starts to fall because we're in an environment where 0:13:18.360 --> 0:13:23.240 there's a significant detraction from a foreign born population, and 0:13:23.320 --> 0:13:25.199 that puts down a pressure on the unemployment rate. It 0:13:25.240 --> 0:13:28.880 reduces the unemployed people, and at the same time it's 0:13:29.080 --> 0:13:30.600 lowers the steady state pace of hiring. 0:13:30.840 --> 0:13:33.840 So one fifty around one fifty now is what two 0:13:33.920 --> 0:13:36.480 years ago, two fifty, two twenty five. 0:13:37.360 --> 0:13:40.120 Granted a lot of a lot of the job games 0:13:40.120 --> 0:13:41.720 was driven by a government, so I think we have 0:13:41.800 --> 0:13:43.240 to take that with the grain of salt. If you 0:13:43.240 --> 0:13:45.480 look at private perils, that was fairly sluggish, and by 0:13:45.520 --> 0:13:47.760 category it was, you know, kind. 0:13:47.559 --> 0:13:48.240 Of slow as well. 0:13:48.400 --> 0:13:50.760 So the steady state pace of growth has come down. 0:13:51.080 --> 0:13:53.280 I would look at it from a private perspective in 0:13:53.320 --> 0:13:56.160 particular first, and then we're an environment where you're seeing 0:13:56.160 --> 0:13:58.640 a tightening in parts of the labor market, which is 0:13:58.679 --> 0:14:01.000 what the signal from the unploy What do you make. 0:14:00.840 --> 0:14:04.079 Of the fact that we didn't see hourly earnings significantly 0:14:04.200 --> 0:14:07.520 rise or rise even as much as people previously expected. 0:14:07.559 --> 0:14:09.920 It kind of goes to this idea, can we get 0:14:10.080 --> 0:14:15.240 a decent job's number without really any kind of inflationary impulse. 0:14:15.880 --> 0:14:17.640 I think it was the timing of the survey week, 0:14:17.679 --> 0:14:20.479 So this is something that gets that someone I'm underappreciated 0:14:20.480 --> 0:14:24.080 when you're when you're forecasting the job, the payroll gains, 0:14:24.920 --> 0:14:27.040 it tends to be very sensitive to the timing of 0:14:27.040 --> 0:14:28.800 the survey week, and this time it was earlier in 0:14:28.840 --> 0:14:31.880 the month, which doesn't capture the fifteenth, which just then tends. 0:14:32.040 --> 0:14:33.640 Fifteenth tends to be the time where you get pay 0:14:33.680 --> 0:14:36.360 raises and that type of thing, so that tends to 0:14:37.120 --> 0:14:40.240 put downward pressure on the average early earnings number. So 0:14:40.240 --> 0:14:42.160 we were looking for point two for particularly this reason. 0:14:42.520 --> 0:14:44.480 Do you think that this calls into the question the 0:14:44.560 --> 0:14:46.239 need for the Fed to cut in September? 0:14:47.800 --> 0:14:49.920 Yeah, in our base case we have them not cutting, 0:14:49.920 --> 0:14:54.280 although it's it's a close call. It certainly reduces the odds. 0:14:55.040 --> 0:14:57.760 Certainly July is off the table, and now the question is, 0:14:57.760 --> 0:14:59.960 you know, can they still cut in September base cases, 0:15:00.120 --> 0:15:02.960 they probably don't. But there's a lot more data and 0:15:03.240 --> 0:15:05.960 this is just one print among many that we're going 0:15:06.000 --> 0:15:07.520 to be getting by the time we get to September. 0:15:07.600 --> 0:15:09.760 Stephanie Roth is going to stick with us around the table. 0:15:09.840 --> 0:15:11.840 The job's number two moments ago one hundred and forty 0:15:11.880 --> 0:15:14.560 seven thousand, high than expected. The estimate in our survey 0:15:14.880 --> 0:15:17.560 was one of six The unemployment rate expected a climb 0:15:17.560 --> 0:15:20.800 to four point three percent, actually dropped to four point 0:15:20.880 --> 0:15:23.200 one percent from four point two. Got a bunch of 0:15:23.200 --> 0:15:25.400 other data as well, because it is Thursday, and it 0:15:25.440 --> 0:15:27.640 is payrolls Thursday this time around because of the long weekend, 0:15:27.680 --> 0:15:29.920 so we've got jobless claims as well, and claims came 0:15:29.960 --> 0:15:32.800 in much lower than expected two thirty three. The estimate 0:15:32.880 --> 0:15:35.160 was too forty one. We've got Torson slog with us 0:15:35.160 --> 0:15:37.280 around the table from Apollo Torson. I want to come 0:15:37.320 --> 0:15:38.840 to you a bit earlier than expected because I want 0:15:38.840 --> 0:15:41.800 your view on this. You were expecting unemployment to start climbing, 0:15:42.240 --> 0:15:44.520 unemployments falling back. What explains that. 0:15:44.640 --> 0:15:46.800 I think the key iss you here is the immigration factor, 0:15:46.800 --> 0:15:49.400 as definitely is mentioning that it is very very important. 0:15:49.400 --> 0:15:52.640 So Tera Watson, and when the Edelburg estimates now that 0:15:52.800 --> 0:15:55.920 we are seeing significant decline in the long run payroll 0:15:55.960 --> 0:15:58.520 growth of closal to around fifty thousand, and the fact 0:15:58.560 --> 0:16:00.880 that the on enplotment is going down is something that 0:16:00.920 --> 0:16:02.000 of course is quite surprising. 0:16:02.000 --> 0:16:03.480 And the fact that we now have so. 0:16:03.560 --> 0:16:06.240 Strong payroll growth even with the decline in the long 0:16:06.320 --> 0:16:08.760 run steady state for non found payrolls tells you that 0:16:08.840 --> 0:16:11.200 this was a fairly strong report, and this is a 0:16:11.280 --> 0:16:13.800 very strong economy, which argues to your point, which is 0:16:13.840 --> 0:16:15.520 our view, that the fare will only cut once this 0:16:15.640 --> 0:16:18.040 year simply because rate will stay higher for longer. There 0:16:18.120 --> 0:16:20.640 is no need, especially not with power At the same 0:16:20.680 --> 0:16:23.200 time saying that he expects a meaningful rise in inflation 0:16:23.240 --> 0:16:24.280 over the coming months. 0:16:24.120 --> 0:16:25.680 Is it fair to say that this was the goal 0:16:25.960 --> 0:16:28.920 of the Trump administration, that they wanted to get immigration down, 0:16:29.320 --> 0:16:31.080 so that even if you have payrolls growth of one 0:16:31.200 --> 0:16:33.440 hundred to one hundred and fifty k, could actually see 0:16:33.440 --> 0:16:35.440 the unemployment rate starts to fall. 0:16:35.360 --> 0:16:39.360 Exactly because both labor supply is declining when you deport 0:16:39.440 --> 0:16:41.560 roughly around a million people at an annual rate, and 0:16:41.600 --> 0:16:44.640 at the same time, labor demand may also eventually slow down. 0:16:44.680 --> 0:16:46.320 But if it doesn't slow down, then the decline in 0:16:46.360 --> 0:16:48.880 labor supply on its own will exactly create a report 0:16:48.920 --> 0:16:50.800 like this one maybe where you have a declining on 0:16:50.840 --> 0:16:53.360 employment rate. So it is obviously better than the contents 0:16:53.480 --> 0:16:56.000 was expected, also better than what we had expected, but 0:16:56.200 --> 0:16:58.720 it tells you very clearly that the label supply story 0:16:59.000 --> 0:17:01.320 is playing a very important role at the same time. 0:17:01.160 --> 0:17:05.000 It also suggests that the economy or the business environment 0:17:05.080 --> 0:17:07.480 is much more solid than many people expected as well 0:17:07.520 --> 0:17:10.119 in terms of hiring, in terms of looking for that, 0:17:10.200 --> 0:17:12.960 and it's coming without the inflationary impulse that some people 0:17:13.000 --> 0:17:14.080 were worried about. 0:17:14.320 --> 0:17:15.880 Do you think that that's durable? 0:17:16.280 --> 0:17:18.520 Well, and that brings us back to the discussion around 0:17:18.600 --> 0:17:20.760 what is the effect of the trade wall. Terror is 0:17:20.760 --> 0:17:23.600 not going to have an impact so far, it's remarkable 0:17:23.760 --> 0:17:26.439 where you have inflation basically to still study and now 0:17:26.560 --> 0:17:29.159 job GROLs still redtly strong. So in that sense that 0:17:29.240 --> 0:17:31.560 literally is very little sign of the tradewall having a 0:17:31.560 --> 0:17:32.640 macroeconomic impact. 0:17:32.720 --> 0:17:33.840 At this point, there are going to. 0:17:33.760 --> 0:17:35.760 Be people who look at this and say, this might 0:17:35.800 --> 0:17:38.720 be the last gas before real material weakening. We can't 0:17:38.760 --> 0:17:41.919 trust these numbers. Max Kuttner's already gone. What do you 0:17:41.920 --> 0:17:42.440 say to that? 0:17:42.640 --> 0:17:44.440 Well, that's why the next few weeks with the earning 0:17:44.480 --> 0:17:47.080 season will become very very important, because then's where we'll 0:17:47.080 --> 0:17:49.199 figure out is the pick coming through the python in 0:17:49.240 --> 0:17:52.440 terms of the terriffs heading eventually earnings Because at the 0:17:52.520 --> 0:17:54.359 end of the day, we are raising about four hundred 0:17:54.359 --> 0:17:56.919 billion dollars in tax revenue at an annual rate. At 0:17:56.960 --> 0:17:59.760 the moment, total earning for this SMP is about two trillion, 0:18:00.640 --> 0:18:02.359 so that means that someone needs to pay four hundred 0:18:02.359 --> 0:18:04.480 billion dollars if tax revenue is going off one hundred 0:18:04.480 --> 0:18:07.439 million dollars. Is it consumers through higher inflation or is 0:18:07.480 --> 0:18:10.919 it companies through lower earnings? And we still with this report, 0:18:10.960 --> 0:18:13.000 of course, have just not seen that yet, so it 0:18:13.080 --> 0:18:15.040 TechEd to appoint lead is that over the next several weeks. 0:18:15.119 --> 0:18:18.120 We'll find out in Q two how did companies actually 0:18:18.119 --> 0:18:21.600 respond to higher TERFs. Did they respond by passing prices 0:18:21.600 --> 0:18:23.520 through in the form of high inflation. We'll find that 0:18:23.560 --> 0:18:26.199 out also very soon, or did they also in this 0:18:26.280 --> 0:18:28.840 case turn out to actually lower their earnings and say 0:18:28.840 --> 0:18:30.520 we're going to eat some of the terrorists. And that 0:18:30.560 --> 0:18:33.439 becomes the main question for marcuts now, namely, what was 0:18:33.520 --> 0:18:35.920 actually the response to tariffs in the second quarter. 0:18:36.119 --> 0:18:38.120 My McKay is back with us for a little bit more. Mike, 0:18:38.160 --> 0:18:40.040 you've taken a second look at the numbers. What explains 0:18:40.200 --> 0:18:41.160 the upside surprise? 0:18:42.800 --> 0:18:46.119 There's just some hiring in a lot of different categories. 0:18:46.320 --> 0:18:48.120 The big you're going to laugh at this. The biggest 0:18:48.119 --> 0:18:52.879 category for hiring was government seventy three thousand additional jobs, 0:18:52.920 --> 0:18:56.480 but that is almost all in state and local government, 0:18:56.480 --> 0:18:59.200 a lot of it in state and local education. Seven 0:18:59.240 --> 0:19:04.240 thousand jobs lost in the federal government. Now, maybe we 0:19:04.280 --> 0:19:05.960 get a lot more once we get to the fall 0:19:06.000 --> 0:19:09.280 and some of those people who are getting severance finally 0:19:09.400 --> 0:19:12.240 leave the labor force. To what you guys have been 0:19:12.280 --> 0:19:16.399 talking about. The interesting thing here is that the number 0:19:16.480 --> 0:19:20.040 of people who are in the labor force foreign born 0:19:20.240 --> 0:19:23.600