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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: joining us, here are the numbers. Four you one's seventy
Speaker 2: five is the number the estimate was two forty. That's
Speaker 2: the headline payrolls print. Looking at unemployment, it comes in at
Speaker 2: three point nine percent previous number three point eight the
Speaker 2: estimate three point eight and wage growth month over month
Speaker 2: zero point two percent the estimate zero point three. To react,
Speaker 2: here's the lineup. Mohammad al Aeron of Queens College, Cambridge
Speaker 2: alongside Black Rocks Jeff Rosen. Muhammed first, to you your
Speaker 2: reaction to this one?
Speaker 3: You said it John, a goldilocks report that will please
Speaker 3: the Fed and please the markets. I'm not particularly surprised
Speaker 3: on the miss on job creation because we've been running
Speaker 3: at very high levels for the year and a monthly
Speaker 3: average of two fifty one thousand before this one. I'm
Speaker 3: a little bit surprised on the wage the zero point two,
Speaker 3: that's the one that surprises me. But overall it is
Speaker 3: a goldilocks.
Speaker 2: Report, Muhammed, At first look, how would you explain that?
Speaker 2: How would you explain this continued strength and payrolls growth
Speaker 2: and this little weakness, touch of weakness, softness in wages.
Speaker 4: I know how it will be explained.
Speaker 3: It will be explained by new entrants into the labor
Speaker 3: force at much lower level, at a much lower lower level.
Speaker 3: I'm just surprised it has made that much of an impact.
Speaker 3: So that's something that one needs to look at much
Speaker 3: more closely.
Speaker 1: Jeff Rosenberg, I love your take on this because right
Speaker 1: now the market is celebrating. Are you celebrating also? Do
Speaker 1: you think this is a reason to buy or do
Speaker 1: you view this as basically a lot of noise for
Speaker 1: people who are just looking for any direction at all.
Speaker 5: Well, I think Jonathan said it. This couldn't have been
Speaker 5: scripted better. This report runs the tables for a good report.
Speaker 5: This is bad news. A little bit is good news,
Speaker 5: but it's really just about how bearish we got. Jonathan
Speaker 5: mentioned it, ECI. The rate moves the expectations in front
Speaker 5: of Wednesday's FOMC, So some of this is just positioning.
Speaker 5: You had a lot of bearishness, so people put shorts on.
Speaker 5: There was a big momentum to higher rates. But this
Speaker 5: is a good report across the board for validating what
Speaker 5: we heard from Jay Powell on Wednesday that kind of
Speaker 5: what me worry about inflation. No, things are going to slow.
Speaker 5: Don't get over excited. And I think it's a little
Speaker 5: bit of that over excitement on the short side that's
Speaker 5: being rung out of the markets right now.
Speaker 1: Mohamma, Does it concern you that we saw the unemployment
Speaker 1: rate take up to three point nine percent, the sort
Speaker 1: of incremental shift up about a half a percentage point
Speaker 1: for some of the recent lows.
Speaker 3: Does it concern me? Yes, because people are losing their jobs.
Speaker 3: But let's not forget we've had twenty seventh straight months
Speaker 3: of the unemployment rate below four four percent. We haven't
Speaker 3: seen that since the sixties, So we have been an
Speaker 3: exceptional economy. And does it surprise me. No, But if
Speaker 3: the increase accelerates, that would really worry me. Remember, especially
Speaker 3: at the low income side, wage are key to consumption
Speaker 3: and key to economic growth. Pandemic savings have been run down,
Speaker 3: credit card balances have been run up. So wage income
Speaker 3: is absolutely critical to the well being of this economy.
Speaker 3: So three point nine percent is still a really good
Speaker 3: unemployment rate, but I wouldn't want to see it get
Speaker 3: close to four and a half percent anytime soon.
Speaker 1: This software print though, that we're seeing and digesting right now, Muhammad,
Speaker 1: is this enough for potentially people to start talking about
Speaker 1: cuts this summer?
Speaker 4: Oh?
Speaker 3: I suspect that what was pushed back to December got
Speaker 3: pushed you know, I don't know which way we go
Speaker 3: anywhere got pushed forward to November before this and after
Speaker 3: Chap How this will take us to September. You know,
Speaker 3: there is a bigger issue and others can speak to
Speaker 3: it much better than I.
Speaker 4: Can, including drift.
Speaker 3: Is this volatility that we're seeing in the indust rate structure,
Speaker 3: It is causing havoc elsewhere in the world when US
Speaker 3: waits swing as much as they do on a short
Speaker 3: on short term basis. So this volatility, which we are
Speaker 3: continuing to see in weights, risks. I'm afraid risks breaking
Speaker 3: something elsewhere, and that's what we've got to keep an
Speaker 3: eye on.
Speaker 2: Well, let's get into that. So the next step for
Speaker 2: this conversation, for anyone who wants the calendar, May fifteenth
Speaker 2: is when we get the CPR report. So this can
Speaker 2: all change once again, as you will know, Jeff, Let's
Speaker 2: talk about that. How much expectations have swinged, how much
Speaker 2: the narrative has changed. I remember a conversation we had
Speaker 2: with Aberdeen, James Athey, he killed it. Narrative, table tennis, narrative,
Speaker 2: ping pong, just back and forth, back and forth. We've
Speaker 2: gone from seven cuts to one. Arguably by the end
Speaker 2: of today we'll be talking about two again because of
Speaker 2: this job's print. Jeff, what do you make of that,
Speaker 2: just how quickly we've gone from one direction to the
Speaker 2: other in rate pricing.
Speaker 5: Well, it's because the FED is abandoned forecast based monetary policy.
Speaker 1: Right.
Speaker 5: We basically have had a very bad experience with trying
Speaker 5: to forecast inflation. So we've abandoned forecasts and we react
Speaker 5: to the data. And we're reacting to the data because
Speaker 5: the FED reacts to the data, and that's basically what
Speaker 5: they tell us to do, and it's very hard print
Speaker 5: to print to know where that data is going. We've
Speaker 5: had serial degrees of surprises and we're continuing to see
Speaker 5: those surprises, and so that's why there's this heightened degree
Speaker 5: of volatility because the FED is basically no longer willing
Speaker 5: to provide a forecast, to stick with its forecast, to
Speaker 5: give the market a clear trajectory, and so we're really
Speaker 5: forced to react change those expectations for timing December Novembers
Speaker 5: of Denber July based on every other data, every single
Speaker 5: data point.
Speaker 2: Mohammad, You've said this a million times every time we've
Speaker 2: spoken on Payrose Friday, the lack of a strategic anchoring
Speaker 2: of the feder reserve contributing to this whip sawing that
Speaker 2: we've seen in rate pricing on every single data point.
Speaker 2: You've talked about the being hyper sensitive to incoming information
Speaker 2: in the Financial Times. I saw your recent article Chafouse
Speaker 2: Dutishness is right, not for the reasons that he believes.
Speaker 2: Can you talk to us a little bit more about that, Muhammad?
Speaker 3: Yeah, and I want to thank Jeff. I wanted to
Speaker 3: reach out and hug him through my computer because he
Speaker 3: just said what I've been saying, which is, rather than
Speaker 3: provide a strategic anchor to markets, the FED got on
Speaker 3: the roller coaster of reacting to high frequency data. And
Speaker 3: therefore we have a very reactive FED. And what does
Speaker 3: that do. It amplifies the volatility in the market. So
Speaker 3: there is a concern that the FED is overly data dependent.
Speaker 3: I think that overly data dependent stance is what may
Speaker 3: end up leading us into a FED policy mistake. I
Speaker 3: hope we don't get there, and that's why a strategic
Speaker 3: view is necessary. And I suspect if you were to
Speaker 3: take a strategic view, you would not have validated the
Speaker 3: markets over reaction from going from seven cuts all the
Speaker 3: way to one with some people even say you're going
Speaker 3: to get a hike. You would have said, no, this
Speaker 3: economy is slowing. It's slowing in a gradual fashion. Let's
Speaker 3: not push it into something more dramatic, and you would
Speaker 3: stick to your two to three cuts this year. But
Speaker 3: this FED is data dependent, John, So I don't know
Speaker 3: where they're going to end up.
Speaker 1: Jeff, was your take on that this idea that the
Speaker 1: fluctuations in and of themselves sort of whipsaw action and
Speaker 1: whipside arratives and markets is actually creating a potential headwind
Speaker 1: to how this all plays out and potentially to the
Speaker 1: FED actually achieving their soft landing.
Speaker 5: Well, I mean, it is a headwinds, but we also
Speaker 5: have to see the other side of this that the
Speaker 5: equity market has been much more resilient to these shifts
Speaker 5: in the interest rate narrative. And when you think about
Speaker 5: financial conditions and the transmission of market volatility into the
Speaker 5: real economy, it's mostly going to happen from the equity side.
Speaker 5: Not to say that interest rates and credit spreads don't matter,
Speaker 5: but we're talking about volatility around elevated rates of base
Speaker 5: rates of borrowing in an environment of very muted and
Speaker 5: compressed credit spreads. So the marginal financial condition easing and tightening,
Speaker 5: it's coming from the equity side, and there the story
Speaker 5: has been much more about the numerator, much more about
Speaker 5: the secular growers, the tech story, the incredible earnings that
Speaker 5: we're seeing, and as long as the rate picture stays
Speaker 5: bounded unlike what we had over the last two years
Speaker 5: with these huge swings from FED policy inflation uncertainty, I
Speaker 5: think you can mitigate some of that transmission of the
Speaker 5: volatility that we're talking about as a result of the
Speaker 5: fed's policy shift from forecast to data dependence into the
Speaker 5: real economy, because you're not really seeing it transmitted through
Speaker 5: the equity market.
Speaker 1: But Jeff, do you think that there is sort of
Speaker 1: a challenge the broadening out trade to Mohammed's point that
Speaker 1: this actually could cause something to break outside of.
Speaker 5: The United States at a time when.
Speaker 1: A lot of people are saying the US is no
Speaker 1: longer so exceptional. The rest of the world is catching up.
Speaker 1: Does this challenge that?
Speaker 5: I mean, there are certainly challenges. You know, Jonathan highlighted
Speaker 5: the yen reaction, the FX component of interest rate divergences.
Speaker 5: You always have those degrees. I think what we've seen, though,
Speaker 5: is a remarkable degree of resiliency in the global economy.
Speaker 5: I think we talked on Wednesday about the difference is
Speaker 5: in emerging market sensitivity to FED policy this time round
Speaker 5: really much more about a function of the change and
Speaker 5: the more traditional policy approach happening in emergen market central
Speaker 5: banks much more credible policy dampening. Some of that passed through.
Speaker 5: So I think you have certainly the core interest rate volatility.
Speaker 5: You know, you look at the move index. It was
Speaker 5: once at fifty. Now it's between one hundred, one hundred
Speaker 5: and fifty two hundred, much higher degree of interest rate volatility,
Speaker 5: and that has its problems. As Muhammad laid out, I
Speaker 5: think we're seeing a little bit less passed through though
Speaker 5: in some of these more traditional areas, and that can
Speaker 5: kind of mitigate some of this concern about the effect
Speaker 5: of the policy uncertainty from data dependence into the real economy.
Speaker 5: Not taking away what Mohammad said, though, I agree with
Speaker 5: his point that you still have the potential there for
Speaker 5: a policy mistake as a result of no longer anchoring
Speaker 5: to forecast based policy.
Speaker 2: Let's reach fideli yen. Let's talk about that move, not
Speaker 2: just on the sension, but talk about it the week.
Speaker 2: It's been phenomenal. Moments ago, we had a one fifty
Speaker 2: one handle on dolly en. Right now just about holding
Speaker 2: onto one fifty two and one fifty two twenty four
Speaker 2: on the week, it's about four percentage points of yen strength.
Speaker 2: But go from the highs of Monday, Monday one sixty seventeen,
Speaker 2: from those highs to where we are, you've seen a
Speaker 2: move of more than five percentage points. Yen strength, Yen
Speaker 2: strength big time. I've mentioned the time in Tokyo repeatedly.
Speaker 2: It's nine forty four pm going into the weekend in Tokyo.
Speaker 2: Raise a glass sort of, you know, walk away f
Speaker 2: a pretty good going into the weekend, Bramo, because that's
Speaker 2: the stronger Japanese yen. The Japanese authorities wanted they could.
Speaker 1: Either walk away or they could lean in, do a
Speaker 1: little more intervention. Now when they're in a holiday and
Speaker 1: you're actually getting a tailwind from the US economic data
Speaker 1: and oh yeah, yeah, you want to be short us,
Speaker 1: you want to be speculative.
Speaker 2: Good luck, Muhammad. I don't know if this move sticks,
Speaker 2: but I'm sure they wanted to. How happy do you
Speaker 2: think authorities are abroad after this number?
Speaker 3: So certainly the Japanese authority are very happy. Between chair pals,
Speaker 3: more dubbish than expected press conference in today's number. A
Speaker 3: lot of the pressure has been relieved. And like you say,
Speaker 3: we were at one sixty on Monday, and we are
Speaker 3: at one sixty risking another disorderly move. I suspect that
Speaker 3: around the world people will feel some relief. You have
Speaker 3: emerging market economies that need to cut interest rates from
Speaker 3: a domestic side, but are afraid of the consequences for
Speaker 3: that currency. Yes, Jeff is right, that have been resilient
Speaker 3: so far, but the degree of resilience has come down
Speaker 3: a lot, so we shouldn't test them too much. You
Speaker 3: have the ECB that wants to diverge from for good
Speaker 3: reasons for the ones that diverge from the FED, and
Speaker 3: keeps on telling us we're not fed dependent, but knows
Speaker 3: in the back of its mind that does a limit.
Speaker 3: You know, for the rest of the world, it's about
Speaker 3: the movement in the US yield curve. It's about what
Speaker 3: US weights are doing for the US economy, I agree,
Speaker 3: which is about the equity market. But for the rest
Speaker 3: of the world because of exchange rates, it's about what
Speaker 3: you yields do.
Speaker 2: Well, let's sit on the rest of the world, Muhammad,
Speaker 2: just for a beat. So the conversation has been dominated,
Speaker 2: as you know, over the last month, with words like exceptionalism.
Speaker 2: You've written about ITIP divergence. There will be some people
Speaker 2: getting excited about the prospect of convergence, that this was
Speaker 2: peak exceptionalism. When we're moving on beyond that, that maybe
Speaker 2: we've seen the peak and the US dollar a peak
Speaker 2: in US yields. Do you think those conversations this morning,
Speaker 2: Muhammad after one job sprint are a little bit too premature?
Speaker 3: Totally true, premature. There's three elements to this exceptional US behavior.
Speaker 3: One is its growth performance, Two is the manner in
Speaker 3: which it's investing in the future, and three it's its
Speaker 3: ability to get away with a fiscal stance that other
Speaker 3: countries cannot get away with. In order to get convergence,
Speaker 3: you would need convergence on all three, and we're not
Speaker 3: going to get convergence on all three. US is going
Speaker 3: to remain exceptional. It's growth performance may not outpace others
Speaker 3: as much as it has, but it is the only
Speaker 3: major economy in the West that is seriously investing in
Speaker 3: tomorrow's engines of growth. And because of the role of
Speaker 3: the dollar, it can run an irresponsible fiscal policy for
Speaker 3: much longer than others.
Speaker 2: Can they retain the privilege of venting recklessly maybe for
Speaker 2: a little bit longer. The photograph of New Street Research
Speaker 2: has a neutral rating and a one seventy five price
Speaker 2: target on shares of Apple. He joins US now for
Speaker 2: more perre I want to go straight to sales and
Speaker 2: then we'll get to financial engineering. Do you think the
Speaker 2: sales declines are behind us?
Speaker 6: Yes, I think we are positively riching like a trophy
Speaker 6: and a stabilization. It doesn't look like we're going to
Speaker 6: see like a major correction in sales. So I would say, yes,
Speaker 6: the declines behind us. Things are stabilizing, but we we're
Speaker 6: not going to have like a significant reveum from where
Speaker 6: we are today.
Speaker 2: But that's what I want to get into. So jp
Speaker 2: Mo're going to talk about a launch pad into the
Speaker 2: AI upgrade cycle. How much of a launch pad do
Speaker 2: you say in September?
Speaker 4: Yes, I'd be very very careful about that. If you
Speaker 4: look at what people.
Speaker 6: Tell me around on you know, the silicon of the iPhone,
Speaker 6: it doesn't look like this September product cycle is going
Speaker 6: to be a cycle where generatively is like a revolution
Speaker 6: in terms of hardware, and if it's not a revolution
Speaker 6: in terms of hardware, can be really like a revolution
Speaker 6: in terms of features and drive, really like an upgrade cycle.
Speaker 4: So I've heard this argument.
Speaker 6: A lot of people are asking more and more whether
Speaker 6: we could get into a very nice polect cycle.
Speaker 4: I think it's too early to say, and I think
Speaker 4: it would be.
Speaker 6: It wouldn't be problem to be overly optimistic. You know,
Speaker 6: generatively I is still in the making, and how you
Speaker 6: get that into an iPhone and create like a world
Speaker 6: factor that really gets people, that gets through the world
Speaker 6: people willing to accelerate the relasement of their pot.
Speaker 4: We need to be convinced. I need to be convinced
Speaker 4: and see what the physical would look like.
Speaker 2: We're not convinced what's going on in China Rise. There
Speaker 2: seems to be a disconnect between the guidance that we're
Speaker 2: getting from the company, what their talagus is happening on
Speaker 2: the ground, and what independent researchers are saying as well.
Speaker 2: What explains that spread that distance between the company and
Speaker 2: independent researchers.
Speaker 6: It's a very it's very surprising. It's a major surprise.
Speaker 6: We didn't see that coming at all. We were clearly
Speaker 6: expecting Apple to create like a much lower point in China.
Speaker 6: So unfortunately, I don't have an explanation for you.
Speaker 4: Join.
Speaker 6: It's like it's something we'll have to better better understand.
Speaker 4: In the next few days.
Speaker 6: We're going to try and circle back with independent research
Speaker 6: providers to understand in their methodology where they could have
Speaker 6: been missing or how the disconnect could could be explained.
Speaker 6: So what we see is like some Chinese players coming
Speaker 6: back into the market, coming back into the higher end
Speaker 6: of the market, putting a risk, you know, the twenty
Speaker 6: million odds like units iPhone one the last three four
Speaker 6: years out of a lack.
Speaker 4: Of competition in China. This is not materializing.
Speaker 6: So does that menu this Chinese phone went into the channels,
Speaker 6: did well in early weeks, but actually didn't convince consumers.
Speaker 6: That would be one explanation, but we need more research
Speaker 6: to figure that out. As I said, a very very
Speaker 6: strong supprise, very significant supply YEA, and.
Speaker 1: To build them out. The CFO of Apple saying the
Speaker 1: reality is different from maybe what you read at times
Speaker 1: about what we see in China. This rais is a
Speaker 1: question of how much Apple either needs to address vision,
Speaker 1: paying to promisey and kind of what the line is
Speaker 1: from authorities in terms of discouraging or encouraging people or
Speaker 1: allowing them to buy iPhones going forward in the region,
Speaker 1: or whether it really even matters. In other words, how
Speaker 1: much do you have to have clarity on this faith
Speaker 1: in the stack?
Speaker 6: Well, because things have stabilized and normalized, you know, over
Speaker 6: a couple of years, you don't really have growth in
Speaker 6: iPhone set the positive aspect of it, that doesn't create
Speaker 6: that much of a downside rate, but also not that
Speaker 6: much of an upside rate. So I think the iPhone
Speaker 6: is like vastly mostly like a deary standpoints, and so
Speaker 6: the only thing that could really created create a suffrice
Speaker 6: from here on the iPhone is like a significant product cycle,
Speaker 6: and of course if that happens, it would have to
Speaker 6: be related to generative that's like the new features the
Speaker 6: company is working on. So so that's really where we're standing,
Speaker 6: and not much is going to happen on the iPhone
Speaker 6: front until we see this fire cycle. And my point
Speaker 6: is like building conviction on the product cycle for this September.
Speaker 4: Is probably to early. You don't have enough of it
Speaker 4: of that coming.
Speaker 1: Is it still a gross stock or is this a
Speaker 1: value stock delivering buybacks that count for basically more than
Speaker 1: the value both forward and GM put together.
Speaker 4: That's a good question.
Speaker 6: I would say it's I would struggle to call it
Speaker 6: a gross stock, but it's still a compounding stock if
Speaker 6: you add up you know, the kind of like still
Speaker 6: excellent pricing powers of franchise.
Speaker 4: As which in the prices can go in the right
Speaker 4: direction in low single digit every every year.
Speaker 6: The growth potentroling services and the excellent financial performance that
Speaker 6: translates into very good buybacks. It's still like a story
Speaker 6: that can compound earnings and take a flow in mid
Speaker 6: to high single digits. So that's a good compounder. And
Speaker 6: of course the quality of the stock is reflected in
Speaker 6: the price. It's trading at a fifty percent premium of
Speaker 6: a SMP name that has the same kind of growth
Speaker 6: potential growth out, So if it's an expensive single digit compounder,
Speaker 6: I would say that. And that's the reason why we're
Speaker 6: very neutral on this. You know, we we don't see
Speaker 6: major issues with where valuation or where expectations are.
Speaker 4: It's just that it compounds slowly.
Speaker 1: Pr Services was a relative bright spot for Apple, but
Speaker 1: they're obviously.
Speaker 5: Dealing with a lot of regulation around the world. Is
Speaker 5: there a ceiling on how much they could bring in
Speaker 5: from services?
Speaker 6: A ceiling is actually the right way to think about it,
Speaker 6: more than downside risks. So Apple has a lot of pressure.
Speaker 6: So you can't imagine like an aggressive move with aggressive
Speaker 6: and aggressive pricing and monetization strategy coming through in that environment. Now,
Speaker 6: what you see over the last two three years that
Speaker 6: the regulatory pressure, like the channel like I would say
Speaker 6: public opinion pressure that Apple has on like the very
Speaker 6: comfortable monetizations they can exercise on them on the on
Speaker 6: on the appisode, basically means that the take create is
Speaker 6: eroding very slowly over time.
Speaker 4: But like now, like the risk of your calm down
Speaker 4: appears very very remote. So this is overall.
Speaker 6: Growing, you know in low in loa tings with you know,
Speaker 6: revenues from Google for licensing continuing to grow, the app
Speaker 6: store continuing to grow in probably even if the tech
Speaker 6: rate is coming down, the volume or on the on
Speaker 6: the app store is still still growing. And then apples
Speaker 6: in house subscriptions, all these things that are like.
Speaker 4: Nice healthy I would.
Speaker 6: Say low latins growers, and like a reacceleration from the
Speaker 6: levels is very unlikely, but that grows is still very
Speaker 6: high quality.
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Speaker 5: Mm hmm