Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business app. Joining us now to
Speaker 2: extend some of this conversation, not the last bit, but
Speaker 2: the bit about foreign exchange in politics, George joins us now,
Speaker 2: George Sarahvellos of Deutsche Bank. George, Welcome to the program, Sir.
Speaker 2: This em type dynamic which keeps gripping developed markets over
Speaker 2: the past I'd say twelve months, maybe even longer, George,
Speaker 2: How are you explaining that to clients at the moment, Well.
Speaker 3: Our views has more to go, it's here to stay.
Speaker 4: And I think the critical driver of all of this
Speaker 4: is that fiscal deficits everywhere are going up.
Speaker 3: And of course this was the case for the US
Speaker 3: over the last two three years.
Speaker 4: But the really big shift since the start of the
Speaker 4: year is if you look at all the countries outside
Speaker 4: of the US, with the UK being one exception, but
Speaker 4: everyone's increasing fiscal spending again, Canada, Germany, China's front loading,
Speaker 4: We're seeing discussions in Japan, and I think it's this
Speaker 4: global increase in deficits combined sticky inflation that is creating
Speaker 4: these tensions as far as the discussion goes, well.
Speaker 2: George, let's talk about the tension specifically in the United Kingdom.
Speaker 2: Just yesterday, the pound and British assets get an absolutely
Speaker 2: whip sword, presumably over the future of Chancellor Reaes, but
Speaker 2: I wonder if it's something bigger than that. Is it
Speaker 2: about her future or the inability of this government to
Speaker 2: consolidate spending.
Speaker 4: I think there's two problems on the UK. There's the
Speaker 4: communication problem and the macro problem. The communication one is
Speaker 4: that effectively these fiscal rules that are extremely clumsy.
Speaker 3: You see, they're dependent on projections.
Speaker 4: Which the OBI has five years out, productivity which none believes.
Speaker 4: And every time you see some shift in guilt yields,
Speaker 4: the market starts talking about gaps. And I think that
Speaker 4: just creates a broader problem of instability, and we see that.
Speaker 4: And then there's the broader macro problem, which I would
Speaker 4: argue applies just as much to the UK as it
Speaker 4: does to the US, which is both of these countries
Speaker 4: are running big twin deficits, and that is why you're
Speaker 4: seeing increase vulnerability to negative news. We experienced it in
Speaker 4: April in the US with a whole Liberation Day back
Speaker 4: and forth, and now we're seeing a small micro version
Speaker 4: of that in the UK. But I would say both
Speaker 4: the UK and the US have those two common denominators,
Speaker 4: external deficit and internal deficit, and that's going to be
Speaker 4: causing problems.
Speaker 5: There's a big difference though, between the two, and we're
Speaker 5: watching it in real time as the United Kingdom tries
Speaker 5: to figure out how to mess their deficit spending and
Speaker 5: how they plan to cut or not from some of
Speaker 5: those expenditures. In the United States, Congress just keeps on
Speaker 5: spending and they're about to pass a bill that increases
Speaker 5: the deficit over the next ten years by some three
Speaker 5: and a half four trillion dollars. Why is the US
Speaker 5: such a different market when it comes to dynamics and
Speaker 5: how much the bond market is waking up to this.
Speaker 4: So you're absolutely right, the US has had a greater
Speaker 4: degree of resilience, so to speak.
Speaker 3: But I would argue since the start of the year,
Speaker 3: you're actually seeing.
Speaker 4: Convergence, whereby the US is becoming more sensitive to these things. Now,
Speaker 4: of course, over the last few months the market has
Speaker 4: calmed down, but let's not forget what happened in April.
Speaker 4: And I would say a key driver why the market
Speaker 4: has calmed down is because we've had some downside surprises
Speaker 4: to inflation, and of course the bond market is most
Speaker 4: sensitive to those inflation surprises. So let's see what happens
Speaker 4: over the next six months. But between the UK and
Speaker 4: the US, I'm a lot more concerned about the US
Speaker 4: because if if I look at the shocks hitting the
Speaker 4: system at the moment in the US, not only do
Speaker 4: you have the tariff discussion, which everyone is so focused on,
Speaker 4: but the bigger underlying shock in my view, is the
Speaker 4: labor market, where you're seeing a very sharp reduction in immigration,
Speaker 4: which is equivalent to a sharp slow down in growth
Speaker 4: and potentially upside surprises to inflation. And that is the
Speaker 4: worst mix if you're thinking about debt sustainability and the
Speaker 4: funding of those twin deficits. So the immigration story to
Speaker 4: me is much bigger than the tariff story as far
Speaker 4: as the US goes.
Speaker 5: So, George, if we could just sort of solidify this parallel,
Speaker 5: if you see the United States as being a more
Speaker 5: significant story and frankly a worse story from the United Kingdom,
Speaker 5: which is experienced a lot experiencing a lot more real
Speaker 5: time volatility in their markets, what do you think will
Speaker 5: be a the breaking point and be the consequence for
Speaker 5: both the dollar and long term yields that have been
Speaker 5: relatively calm amid this process.
Speaker 4: So there's two ways this can get resolved, as you say,
Speaker 4: neither be a calm way or it can be a
Speaker 4: disorderly way. The calm way is what we've seen over
Speaker 4: the last few weeks, where the dollar weakens as the
Speaker 4: dollar weekends, effectively assets cheapen up, you can draw in
Speaker 4: those marginal buyers. We also authored the piece talking about
Speaker 4: a Pennsylvania plan, which effectively I think is being realized.
Speaker 4: The US Treasury shortens the issuance of duration, the domestic banks,
Speaker 4: the pension funds absorbed, the debts of foreigners can disengage.
Speaker 3: From the bond market. I think that's the orderly plan.
Speaker 4: The disorderly one is if the negative supply shock I
Speaker 4: was discussing becomes more acute, you get much bigger inflation surprises,
Speaker 4: and at the same time FED independence gets challenged, and
Speaker 4: we're seeing that in the background. Well, argue, we're not
Speaker 4: in the background in the foreground with some of the statements.
Speaker 4: The reason the market is calm is because inflation is calm.
Speaker 3: But if that growth, inflation.
Speaker 4: Makes worse since that fiscal dominance question, I think will
Speaker 4: come back to the fourth very very quickly, and that's
Speaker 4: where you get at the tipping point disorderly dynamics.
Speaker 2: Yeah, George, I'm pleased you corrected yourself because it's certainly
Speaker 2: not having at a bankground. The President's not being subtle
Speaker 2: about it at all. George, Thank you, sir. Judge Sara
Speaker 2: Velos there of Deutsche Bank, Michael Collins apaging fixed income
Speaker 2: righting the Fed's hands are tied for now, but we
Speaker 2: still think of Fed fund's rate cut or two a
Speaker 2: likely by year. Rent Michael joins us now for more.
Speaker 2: My welcome to the program, sir. Let's talk about these
Speaker 2: rate cuts. Are they cutting interest rates? To the Federal
Speaker 2: Reserve later this year, in your mind, because inflation is
Speaker 2: coming down, or because this labor market is going to
Speaker 2: start cracking.
Speaker 1: Both Actually, you know, I mean we've been in the camp, Jonathan,
Speaker 1: as you know that the Fed has really stuck, right,
Speaker 1: They're going to keep the rate where it is until
Speaker 1: things change, either in terms of a labor market weekning
Speaker 1: or this tariff induced inflation not being as bad as
Speaker 1: feared and maybe being just a one off and seeing
Speaker 1: inflation really stay kind of in the low twoths here.
Speaker 1: And I think in both cases, the data are moving
Speaker 1: in the right direction, right. They are really supporting the
Speaker 1: case for a rate cut or two by the end
Speaker 1: of this year, which, as you've been talking about, is.
Speaker 6: Fully priced in.
Speaker 5: Mike, do you care about this report that we get
Speaker 5: in a forty minutes time?
Speaker 1: You know, I really think the people were talking about
Speaker 1: what is the run rate?
Speaker 6: What is the steady state level of job gains each month?
Speaker 1: And you know, maybe it was you know, we were
Speaker 1: running at four hundred and two hundred and one hundred.
Speaker 1: It feels like because of the just the natural slowing
Speaker 1: in the job market sickles l but also the immigration
Speaker 1: net immigration effect it feels like that natural steady state
Speaker 1: of job growth LISA is below one hundred. Now, who knows,
Speaker 1: maybe it's zero, maybe it's fifty thousand. So I think
Speaker 1: you're naturally going to see a lower prints on these
Speaker 1: monthly job gains and don't know if it should spook
Speaker 1: to market. The lynchpin is that unemployment rate. Right, you
Speaker 1: could still have a fully employed labor market with slowing
Speaker 1: job gains, and I think that's really the conundrum the
Speaker 1: feedis going to face. They're going to see these slowing
Speaker 1: jobs numbers and see the labor markets still look fairly tight.
Speaker 1: The big number today we're looking at really is the
Speaker 1: wage gains. And obviously the wage gains have been slowing
Speaker 1: steadily for a couple of years now, and I think
Speaker 1: we'll continue to see that as companies, you know, they're
Speaker 1: not necessarily firing people, they're just pulling back on hiring
Speaker 1: right now, but wage gains are definitely slowing.
Speaker 5: If you don't see inflation as being a persistent feature
Speaker 5: of this US economy, and if you do see tariffs
Speaker 5: as not as inflationary as people previously believed, why isn't
Speaker 5: the thirty year, Why isn't the ten year yield a
Speaker 5: lot lower in the United States.
Speaker 1: Yeah, I think they're just pricing in you know, five
Speaker 1: rate cut right for the next year or year and
Speaker 1: a half is what's priced in. That seems very reasonable
Speaker 1: to us.
Speaker 6: Right.
Speaker 1: If that happens, then you have a kind of a
Speaker 1: normal upward sloping term structure.
Speaker 6: Right.
Speaker 1: So that's that's what's fully priced in, and that seems natural.
Speaker 1: What is not priced in, Lisa, is the is the
Speaker 1: downside tail risk.
Speaker 4: Right.
Speaker 6: What is not priced in in the credit markets, in.
Speaker 1: The equity markets, in the vol markets, and arguably to
Speaker 1: your point, in the in long term rates is a
Speaker 1: nastier downside surprise where you know, Trump does get his
Speaker 1: way and the funds rate doesn't go down one hundred
Speaker 1: bases points, it goes goes down two or three hundred, right,
Speaker 1: And that is that is a very different world.
Speaker 6: That is not what we're expecting.
Speaker 1: But again, the markets are signing a really low probability
Speaker 1: to that, and probably too.
Speaker 2: Low, am I just to pick up on that. Let's
Speaker 2: just focus on risk assets. Let's talk about equities and say, hi,
Speaker 2: your bonds high, your credit of course you're very familiar
Speaker 2: with you know, now credit spreads right now two eighty
Speaker 2: on high yield spreads and grinding even tighter. And what's
Speaker 2: interesting about that if you take the economic surprise Index
Speaker 2: something else, you know, Well, but for our audience who
Speaker 2: might not be familiar, just where is the data coming
Speaker 2: in relative to expectations? That's been rolling over since November?
Speaker 2: It's had a smallest bounce, but ultimately the trend over
Speaker 2: the last six months not great. So the surprice indexs
Speaker 2: has been rolling over, the equity market's been going higher,
Speaker 2: and credit spreads have been grinding tighter. How do you
Speaker 2: explain that Either we're whistling past the graveyard or the
Speaker 2: data is just becoming less and less relevant. Which one
Speaker 2: is it?
Speaker 6: Yeah?
Speaker 1: I think it's the whistling past the graveyard for sure.
Speaker 1: I know Lisa, it's good to see her fired up
Speaker 1: this morning about this. And you know, the financial conditions
Speaker 1: is something that you know, not a lot of people
Speaker 1: are talking about, right.
Speaker 6: Yeah.
Speaker 1: Could the Fed cut one hundred basis points now? Possibly,
Speaker 1: maybe that's the right level to be at, frankly, but
Speaker 1: you know what would happen to financial conditions?
Speaker 6: Right?
Speaker 1: Would the stock market go up another ten or twenty percent?
Speaker 1: Would credit spread continue to grind in and that brings
Speaker 1: in a whole host of other risks to the upside
Speaker 1: of the economy and the upside of inflation.
Speaker 6: Right, This economy has.
Speaker 1: Been driven by the upper end of the wealth and
Speaker 1: income spectrum, which has been driven by this paper wealth effect.
Speaker 6: Right. I don't think you want to add fuel to
Speaker 6: that fire.
Speaker 1: And I really believe that's one of the reasons the
Speaker 1: FED is really hesitant to cut here because they don't
Speaker 1: want to add add fuel to that fire.
Speaker 5: If you think people are whistling past the graveyard bike,
Speaker 5: what's your highest conviction call right now?
Speaker 1: The conviction is that you know, growth is going to
Speaker 1: moderate a little bit, and recession risk really does look low, right.
Speaker 1: I Mean, the big theme we've been focused on, Lisa
Speaker 1: throughout this whole cycle is you know, where are the
Speaker 1: tipping points in the private sector? You know, yeah, a
Speaker 1: public sector is a mess. The fiscal situation globally is
Speaker 1: a mess. But you know, typically these receptsestions happened, these
Speaker 1: downside risks happen when you have an over levered housing
Speaker 1: sector or financial sector, or corporate sector, or consumer sector
Speaker 1: or mortgage sector and you are not there. This cycle,
Speaker 1: we have not had a releveraging of the private sector. Yeah,
Speaker 1: there are some pockets in lower end consumers where you're
Speaker 1: seeing bigger increases in debt and leverage, and you're seeing
Speaker 1: a lot a big increase in personal bankruptcies and small
Speaker 1: business bankruptcies, which is certainly worrisome, but it's not systemic
Speaker 1: enough to take the whole economy down with it, right,
Speaker 1: So we have a pretty strong conviction that that, yeah,
Speaker 1: it's going to be a slow down the economy, but
Speaker 1: this kind of cataclysmic you know, credit risk off, you know,
Speaker 1: credit crisis is a really low low probability and that's
Speaker 1: frankly what the markets are running with in pricing.
Speaker 2: In my colins, appreciate your time. So my Collin's they
Speaker 2: have PAGM fixed income just with a surrounded table. Stephanie
Speaker 2: Roth of Wolf Ray, Sir Stephanie Givmarniic, good morning. You'll
Speaker 2: first take on this one.
Speaker 7: Yeah, I mean this is something that we were kind
Speaker 7: of warning people about. An environment where the steady state
Speaker 7: pace of hiring comes down pretty substantially and the unemployer
Speaker 7: rate starts to fall because we're in an environment where
Speaker 7: there's a significant detraction from a foreign born population, and
Speaker 7: that puts down a pressure on the unemployment rate. It
Speaker 7: reduces the unemployed people, and at the same time it's
Speaker 7: lowers the steady state pace of hiring.
Speaker 2: So one fifty around one fifty now is what two
Speaker 2: years ago, two fifty, two twenty five.
Speaker 7: Granted a lot of a lot of the job games
Speaker 7: was driven by a government, so I think we have
Speaker 7: to take that with the grain of salt. If you
Speaker 7: look at private perils, that was fairly sluggish, and by
Speaker 7: category it was, you know, kind.
Speaker 3: Of slow as well.
Speaker 7: So the steady state pace of growth has come down.
Speaker 7: I would look at it from a private perspective in
Speaker 7: particular first, and then we're an environment where you're seeing
Speaker 7: a tightening in parts of the labor market, which is
Speaker 7: what the signal from the unploy What do you make.
Speaker 5: Of the fact that we didn't see hourly earnings significantly
Speaker 5: rise or rise even as much as people previously expected.
Speaker 5: It kind of goes to this idea, can we get
Speaker 5: a decent job's number without really any kind of inflationary impulse.
Speaker 7: I think it was the timing of the survey week,
Speaker 7: So this is something that gets that someone I'm underappreciated
Speaker 7: when you're when you're forecasting the job, the payroll gains,
Speaker 7: it tends to be very sensitive to the timing of
Speaker 7: the survey week, and this time it was earlier in
Speaker 7: the month, which doesn't capture the fifteenth, which just then tends.
Speaker 7: Fifteenth tends to be the time where you get pay
Speaker 7: raises and that type of thing, so that tends to
Speaker 7: put downward pressure on the average early earnings number. So
Speaker 7: we were looking for point two for particularly this reason.
Speaker 5: Do you think that this calls into the question the
Speaker 5: need for the Fed to cut in September?
Speaker 7: Yeah, in our base case we have them not cutting,
Speaker 7: although it's it's a close call. It certainly reduces the odds.
Speaker 7: Certainly July is off the table, and now the question is,
Speaker 7: you know, can they still cut in September base cases,
Speaker 7: they probably don't. But there's a lot more data and
Speaker 7: this is just one print among many that we're going
Speaker 7: to be getting by the time we get to September.
Speaker 2: Stephanie Roth is going to stick with us around the table.
Speaker 2: The job's number two moments ago one hundred and forty
Speaker 2: seven thousand, high than expected. The estimate in our survey
Speaker 2: was one of six The unemployment rate expected a climb
Speaker 2: to four point three percent, actually dropped to four point
Speaker 2: one percent from four point two. Got a bunch of
Speaker 2: other data as well, because it is Thursday, and it
Speaker 2: is payrolls Thursday this time around because of the long weekend,
Speaker 2: so we've got jobless claims as well, and claims came
Speaker 2: in much lower than expected two thirty three. The estimate
Speaker 2: was too forty one. We've got Torson slog with us
Speaker 2: around the table from Apollo Torson. I want to come
Speaker 2: to you a bit earlier than expected because I want
Speaker 2: your view on this. You were expecting unemployment to start climbing,
Speaker 2: unemployments falling back. What explains that.
Speaker 8: I think the key iss you here is the immigration factor,
Speaker 8: as definitely is mentioning that it is very very important.
Speaker 8: So Tera Watson, and when the Edelburg estimates now that
Speaker 8: we are seeing significant decline in the long run payroll
Speaker 8: growth of closal to around fifty thousand, and the fact
Speaker 8: that the on enplotment is going down is something that
Speaker 8: of course is quite surprising.
Speaker 9: And the fact that we now have so.
Speaker 8: Strong payroll growth even with the decline in the long
Speaker 8: run steady state for non found payrolls tells you that
Speaker 8: this was a fairly strong report, and this is a
Speaker 8: very strong economy, which argues to your point, which is
Speaker 8: our view, that the fare will only cut once this
Speaker 8: year simply because rate will stay higher for longer. There
Speaker 8: is no need, especially not with power At the same
Speaker 8: time saying that he expects a meaningful rise in inflation
Speaker 8: over the coming months.
Speaker 2: Is it fair to say that this was the goal
Speaker 2: of the Trump administration, that they wanted to get immigration down,
Speaker 2: so that even if you have payrolls growth of one
Speaker 2: hundred to one hundred and fifty k, could actually see
Speaker 2: the unemployment rate starts to fall.
Speaker 8: Exactly because both labor supply is declining when you deport
Speaker 8: roughly around a million people at an annual rate, and
Speaker 8: at the same time, labor demand may also eventually slow down.
Speaker 8: But if it doesn't slow down, then the decline in
Speaker 8: labor supply on its own will exactly create a report
Speaker 8: like this one maybe where you have a declining on
Speaker 8: employment rate. So it is obviously better than the contents
Speaker 8: was expected, also better than what we had expected, but
Speaker 8: it tells you very clearly that the label supply story
Speaker 8: is playing a very important role at the same time.
Speaker 5: It also suggests that the economy or the business environment
Speaker 5: is much more solid than many people expected as well
Speaker 5: in terms of hiring, in terms of looking for that,
Speaker 5: and it's coming without the inflationary impulse that some people
Speaker 5: were worried about.
Speaker 9: Do you think that that's durable?
Speaker 8: Well, and that brings us back to the discussion around
Speaker 8: what is the effect of the trade wall. Terror is
Speaker 8: not going to have an impact so far, it's remarkable
Speaker 8: where you have inflation basically to still study and now
Speaker 8: job GROLs still redtly strong. So in that sense that
Speaker 8: literally is very little sign of the tradewall having a
Speaker 8: macroeconomic impact.
Speaker 9: At this point, there are going to.
Speaker 5: Be people who look at this and say, this might
Speaker 5: be the last gas before real material weakening. We can't
Speaker 5: trust these numbers. Max Kuttner's already gone. What do you
Speaker 5: say to that?
Speaker 8: Well, that's why the next few weeks with the earning
Speaker 8: season will become very very important, because then's where we'll
Speaker 8: figure out is the pick coming through the python in
Speaker 8: terms of the terriffs heading eventually earnings Because at the
Speaker 8: end of the day, we are raising about four hundred
Speaker 8: billion dollars in tax revenue at an annual rate. At
Speaker 8: the moment, total earning for this SMP is about two trillion,
Speaker 8: so that means that someone needs to pay four hundred
Speaker 8: billion dollars if tax revenue is going off one hundred
Speaker 8: million dollars. Is it consumers through higher inflation or is
Speaker 8: it companies through lower earnings? And we still with this report,
Speaker 8: of course, have just not seen that yet, so it
Speaker 8: TechEd to appoint lead is that over the next several weeks.
Speaker 8: We'll find out in Q two how did companies actually
Speaker 8: respond to higher TERFs. Did they respond by passing prices
Speaker 8: through in the form of high inflation. We'll find that
Speaker 8: out also very soon, or did they also in this
Speaker 8: case turn out to actually lower their earnings and say
Speaker 8: we're going to eat some of the terrorists. And that
Speaker 8: becomes the main question for marcuts now, namely, what was
Speaker 8: actually the response to tariffs in the second quarter.
Speaker 2: My McKay is back with us for a little bit more. Mike,
Speaker 2: you've taken a second look at the numbers. What explains
Speaker 2: the upside surprise?
Speaker 10: There's just some hiring in a lot of different categories.
Speaker 10: The big you're going to laugh at this. The biggest
Speaker 10: category for hiring was government seventy three thousand additional jobs,
Speaker 10: but that is almost all in state and local government,
Speaker 10: a lot of it in state and local education. Seven
Speaker 10: thousand jobs lost in the federal government. Now, maybe we
Speaker 10: get a lot more once we get to the fall
Speaker 10: and some of those people who are getting severance finally
Speaker 10: leave the labor force. To what you guys have been
Speaker 10: talking about. The interesting thing here is that the number
Speaker 10: of people who are in the labor force foreign born
Speaker 10: went up this month. Same is true of the people
Speaker 10: who are in the labor force who are native born,
Speaker 10: although the overall level of the labor force falls by
Speaker 10: one hundred and twenty people one hundred and thirty thousand people.
Speaker 10: So you can see why the unemployment rate went down.
Speaker 10: Ninety three thousand people went or got employed according to
Speaker 10: the Household Survey, and two hundred and twenty two thousand
Speaker 10: lost jobs. But because of the drop in the labor force.
Speaker 10: There you're seeing a lower unemployment rate. But the labor
Speaker 10: force doesn't seem to be having been affected by the
Speaker 10: overall numbers of people who are are being deported. Manufacturing
Speaker 10: lost seven thousand jobs during the month. Construction gained fifteen
Speaker 10: thousand more than anticipated retail trade only two thousand. Now,
Speaker 10: if we are seeing a slowing in spending that might
Speaker 10: be showing up there. That might be one of the
Speaker 10: first ones that we see that is a problem. And Lisa,
Speaker 10: I checked on you and arts and entertainment hiring was
Speaker 10: up by twenty thousand. I don't know whether you are
Speaker 10: arts or entertainment, but you would follow.
Speaker 2: That boat, Mike, both yeah, arts and entertainment, Darren.
Speaker 9: So right now, you're okay.
Speaker 5: All right, thanks, I'm so glad that was the news
Speaker 5: you need to.
Speaker 2: Now, Mike McKay, thank you, sir. Looking at Bonos this morning,
Speaker 2: Bonyo time by eight or nine basis points at the
Speaker 2: front end of the curve, off the back of this
Speaker 2: upside surprise. Once you push that through phone exchange, you
Speaker 2: get a strong a dollar. You're a dollar right now,
Speaker 2: negative by about half of one percent one seventeen forty two.
Speaker 2: Talked about the equity response to that not convincing, still
Speaker 2: positive though by about two tens to one percent. Talk
Speaker 2: about the market. Jeff Rosenberg of Blank Crook jumps on
Speaker 2: a till to us, Jess, welcome to the program. What
Speaker 2: announced you too? With this one?
Speaker 3: This morning.
Speaker 11: You know, Jonathan, I haven't heard you say it yet,
Speaker 11: but you know, this is a great example of where
Speaker 11: the first reaction is not necessarily the last reaction.
Speaker 9: I think we got to rewrite these headlines, everybody.
Speaker 11: This is about the private payrolls and private payrolls disappointed
Speaker 11: to the downside.
Speaker 9: Mike McKee just talked about it. The upside.
Speaker 11: Surprise it's government and that may be surprising. Federal government
Speaker 11: was down. That's not surprising. That's DOGE and the cuts.
Speaker 11: It's state and local that's very high. If it's education,
Speaker 11: to me, that sort of sounds like there's a lot
Speaker 11: of education workers coming back into the job market in June.
Speaker 11: Now that's a seasonal adjustment effect. So the story here
Speaker 11: is not the headline the market is reacting to that.
Speaker 9: Maybe it's the algos.
Speaker 11: Let's get the humans back in the room, back into
Speaker 11: the trading.
Speaker 9: And look through this report.
Speaker 11: This is a slow down and a little bit disappointment
Speaker 11: on the private pay rolls side. You know, you look
Speaker 11: at private services, it's well below sixty eight thousand, it's
Speaker 11: well below.
Speaker 9: The six month average.
Speaker 11: And not like earth shattering here, but this is the
Speaker 11: slowing in the job market.
Speaker 9: That we are expecting the market reaction is trading off
Speaker 9: of the headline. But I think the story here is much.
Speaker 11: More about private payrolls, and that is actually a very
Speaker 11: different headline.
Speaker 9: Now we'll see if the market eventually picks up on
Speaker 9: that at the end of the day.
Speaker 2: Jeffy Right, I always say it, So let's read one
Speaker 2: fifteen minutes. The first move is not always the right move,
Speaker 2: So let's wait and see what happens now in the day.
Speaker 2: There you go, Jeff, I got it out.
Speaker 9: Jeff.
Speaker 2: Let's talk about what we're saying in private payrolls then,
Speaker 2: and talk about this move in the market. Would you
Speaker 2: fight what we're seeing high yield to the front end?
Speaker 2: Would you fight what we're seeing in the FX market
Speaker 2: a stronger dollar?
Speaker 11: Yeah, I mean that's basically My point is that the
Speaker 11: initial reaction here may be a bit overstated with regards
Speaker 11: to repricing.
Speaker 9: Now, I agree with you.
Speaker 11: I think July may have been overstated to begin with,
Speaker 11: But I think the broader story year is the slowing
Speaker 11: in the in the payrolls that we've seen for some time.
Speaker 9: I think it's actually confirmed by this report.
Speaker 11: And then I want to re emphasize what Torsten just said,
Speaker 11: because I couldn't agree more that it's really going to
Speaker 11: be about profit margins and what we learned from corporations.
Speaker 11: I think you use Torston the pig and the python,
Speaker 11: that's exactly it.
Speaker 9: I mean, we're still waiting for the impact to show up.
Speaker 9: It's been showing.
Speaker 11: Up, and you know, the other story around around payrolls
Speaker 11: is they've been overstated. And so the big question is
Speaker 11: is there an underlying weakening here that is a little
Speaker 11: bit greater than what is anticipating.
Speaker 9: I think the story here today of.
Speaker 11: Headline versus privates is kind of throwing more confusion in there.
Speaker 11: The revisions were a surprise to the upside people looking for,
Speaker 11: you know, the revision story to show up. So that
Speaker 11: was a little bit stronger than expected. But I think
Speaker 11: it's really going to be about the corporate reaction here,
Speaker 11: and it's been as we saw in the Jolt Stata,
Speaker 11: you know, it's been a pretty stagnant, very you know,
Speaker 11: benign kind of layoff environment.
Speaker 9: We have to see whether or not that is maintained.
Speaker 5: But Jeff, isn't this kind of conducive to risk assets?
Speaker 5: And I say this at a time when you have
Speaker 5: a potentially stimulative bill coming out of Washington, d C,
Speaker 5: albeit increasing the deficit. But you have sort of steady,
Speaker 5: if slowing growth at the same time that you have
Speaker 5: a FED that is poised to cut race in September
Speaker 5: and potentially again later this year. Isn't that potentially still
Speaker 5: okay for everything to continue on the status quo.
Speaker 11: Well, yes, in some sense that's the case, but it's
Speaker 11: already well into the price. So you look at like
Speaker 11: the performance of cyclicals versus defenses.
Speaker 9: For example, you.
Speaker 11: Know you're seeing you know, expansionary type moves in the
Speaker 11: face of that. You know you said slowing, but steady
Speaker 11: identicize more the slowing. You know, most of the economic
Speaker 11: data is slowing, and that's what the payroll data here
Speaker 11: is validating. That's not the end of the world, and
Speaker 11: it's not saying the sky is falling or there's recession,
Speaker 11: but this is it is consistent with a mid cycle slowdown.
Speaker 11: So there's a little bit of a disconnect between kind
Speaker 11: of what we're seeing in valuations and what we're seeing
Speaker 11: in terms of the slowdown.
Speaker 9: And that doesn't necessarily you know me and you jump
Speaker 9: in with bold feet and everything's sky is clear.
Speaker 11: You got to take a little bit of caution with
Speaker 11: respect to what's in the price versus what we're seeing
Speaker 11: in terms of the macro backdrop.
Speaker 2: I Jeff appreciate it. Jeff Rosenberg there of black Rock,
Speaker 2: the message you sent earlier on about two as ago,
Speaker 2: which one which is basically the dates or the marketer
Speaker 2: on two different pages exactly.
Speaker 5: And this is partly because the market right now is
Speaker 5: looking to AI, is looking to different advancements, is looking
Speaker 5: too good enough, and the economy is looking at a
Speaker 5: very different backdrop where you have very low hiring and
Speaker 5: very low firing, and that at some point you have
Speaker 5: to have a meeting of the two.
Speaker 2: Stephanie, you heard, Jeff there the distinction headline payrolls versus
Speaker 2: private payrolls. You talked about it briefly as well. Two
Speaker 2: different stories kind of to some.
Speaker 7: Extent, the government, the strength and government specifically tied education
Speaker 7: was probably seasonal. Quirk totally agree with that. The fact
Speaker 7: that private perils are on the seventies shouldn't be that alarming, though,
Speaker 7: because we know that the steady state pace of perils
Speaker 7: growth has come down. We should be concerned if it
Speaker 7: was stronger than that, because we don't have a labor
Speaker 7: force to support it. That if it was running notably
Speaker 7: above one hundred thousand, you're going to start running into
Speaker 7: problems with inflationary pressures.
Speaker 2: Picking up Telson, You've been making the argument the unemployment
Speaker 2: will climb, you're expecting it to rise in the months
Speaker 2: to come. What convince is you with that at the moment?
Speaker 8: Well, the problem also with this story, with the data
Speaker 8: today is that the AI story is just not playing out.
Speaker 8: So that means that we're not seeing people losing their
Speaker 8: jobs and the onploiner rate going up because of that fact.
Speaker 8: The expectation from our side was that there was a
Speaker 8: slowdown in demand that pushes the unemployment rate higher. But
Speaker 8: the fact that not even the AI story is showing
Speaker 8: up here and it really is mainly a story of
Speaker 8: just a simple decline in labor force participation because we
Speaker 8: simply have a smaller labor force. And also the added
Speaker 8: issue here government employment going forward, if we're not also
Speaker 8: going to hire more workers for ICE, if we're going
Speaker 8: to hire generally speaking, at a number of different fronts
Speaker 8: with a huge budget increase, we could also now begin
Speaker 8: to spend much more time over the coming months on
Speaker 8: thinking about what's going on in the private sex time
Speaker 8: employment numbers relative to the government sect.
Speaker 2: You changed your mind then, because you've been talking about
Speaker 2: stackflation for a while. Later this year, well, it challenge
Speaker 2: to that right.
Speaker 8: So on the inflation side, I mean j Powelin CenTra
Speaker 8: just a few days ago said again that he expects
Speaker 8: a meaningful increase in inflation. He said that the congressional hearings.
Speaker 8: He said that also at the press conference. So we
Speaker 8: still have If the fit chess says I expect a
Speaker 8: meaningful increase in inflation, that's something we should take very seriously.
Speaker 8: So to what Jeff point was exactly that I still
Speaker 8: think that we're waiting to see what was the corporate
Speaker 8: response in the second quarter to terriffs and tariffs. Yes,
Speaker 8: it may seem like it's behind us uncertainty. It certainly
Speaker 8: looks better. We can begin to talk about now with
Speaker 8: this report what that means for July the ninth and
Speaker 8: the deadline next week. But the conclusion is, if we
Speaker 8: at least at the moment, still have a question mark
Speaker 8: around how did companies active response to tariffs, I think
Speaker 8: it's too early to take the champagne bottle out here
Speaker 8: and say this is.
Speaker 2: All over them, Toss and slot. It's definitely roth to
Speaker 2: the turview. Thank you, don't pop the champagne just yet.
Speaker 2: I think we're about twelve days away from numbers from
Speaker 2: JP Morgan when we start to hear from Corporate America
Speaker 2: about what the plans are for the next several quarters
Speaker 2: and beyond.
Speaker 5: Yeah, July fifteenth, you start to kick off those bank earnings.
Speaker 5: Then you see whether it's profit margins or whether they're
Speaker 5: going to just pass it along to consumers less than
Speaker 5: the banking sector and more than others. I'm sitting here thinking,
Speaker 5: how do you price in or how do you factor
Speaker 5: in slow moving changes that are seismic in monthly data?
Speaker 5: And I think this is the reason why everyone's head's
Speaker 5: just kind of spinning, because you have all these stories
Speaker 5: that make perfect sense and these theories, but the numbers
Speaker 5: aren't really catching us.
Speaker 2: So what do you do? You get to the beach
Speaker 2: if you're not already left? All right, I think a
Speaker 2: lot of people are already left, haven't they. If you're still
Speaker 2: with us, thank you, take us into the car with you.
Speaker 2: Mu's journey with Bloomberg TV in the background. This is
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Speaker 8: Mm hmm