Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment and
Speaker 1: international relations. Find Bloomberg Surveillance and Apple Podcast, SoundCloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg terminal. Joining
Speaker 1: us now on this equity market is Nadia Level Senior
Speaker 1: Equity Strategistic UPS Global WAFTH Management. Nadia. I've been taking
Speaker 1: this interview up over the last hour or so. You
Speaker 1: were a team out with your rounte look five thousand
Speaker 1: next year, but not year end in June of next year,
Speaker 1: and then only an extra one hundred points from there
Speaker 1: over the next six months. Can you want me through
Speaker 1: the trajectory of the next twelve months that you're looking
Speaker 1: to play out? Absolutely, you know, we believe that will
Speaker 1: really be a year of discovery for both markets and individuals.
Speaker 1: As we know the last two as have been somewhat unusual.
Speaker 1: But next year we think that financial markets we'll discover
Speaker 1: what normal looks like from a growth and an inflation standpoint.
Speaker 1: We really think it will be a year of two
Speaker 1: half so that's why you see the spread between our
Speaker 1: price starters from mid year and the year end. The
Speaker 1: first have been elevated economic growth, so we're looking for
Speaker 1: growth in the range of four and high inflation. But
Speaker 1: as the year really progresses and things normalize, we're looking
Speaker 1: for the second half to be laurer growth, still healthy
Speaker 1: and above trend, and more subdued inflation. So we think
Speaker 1: in that environment the SMP can reach five thousand by
Speaker 1: the time we get to June of next year. Nadia,
Speaker 1: are you looking right now at what's going on in
Speaker 1: Europe as a blip or a potential risk scenario that
Speaker 1: could move over to the US should this pandemic start
Speaker 1: to pick up again. Absolutely, we always watch a COVID
Speaker 1: cases very closely. Yes, the rising cases overseas is concerned
Speaker 1: and that could translate into the US. We've seen this
Speaker 1: pattern played out before. That's why we don't think that
Speaker 1: we're out of the woods, and that's why we continue
Speaker 1: to believe that the FED will be patient. There are
Speaker 1: areas of the economy that has recovered from COVID, but
Speaker 1: there's still areas that are still on the men, particularly
Speaker 1: on the service side, and so we don't think that
Speaker 1: the FED will be overly aggressive as particularly as COVID
Speaker 1: cases haven't fully resolved yet. How important is an inflation
Speaker 1: call for you, Nadia. We had a Bloomberg Business Week
Speaker 1: cover story on this by Katie Greifeld, pointing out that
Speaker 1: if you make the wrong call here as a strategist,
Speaker 1: it's very bad. If you make the right call, you
Speaker 1: are potentially a hero for decades. Absolutely, you know, the
Speaker 1: inflation numbers is something we're watching closely, but we do
Speaker 1: think that inflations will become more subdued in next year.
Speaker 1: As we know, much of the spike in inflation is
Speaker 1: being driven by the more flexible component of an inflation basket,
Speaker 1: so things that replace more quickly food, energy, auto hotels.
Speaker 1: If you look at the core flexible CPI, it's up
Speaker 1: nearly but while inflation is brought in it out to
Speaker 1: some of the more sticky areas. We do think that
Speaker 1: the more flexible elements will normalize in twenty two and
Speaker 1: so we're looking for inflation to get slightly onto two
Speaker 1: percent by the time we get to end of December.
Speaker 1: There's one thing missing from this call, Naddy, that I
Speaker 1: wonder if clients have picked up on as well. No
Speaker 1: rate hanks until twenty three inflation to subside down towards
Speaker 1: one point eight percent by the end of next year.
Speaker 1: Got all that very bullish at the index level five
Speaker 1: k by the middle of next year. I look through
Speaker 1: the preferred sectors energy, financials, discretion, we healthcare. There's one
Speaker 1: thing that's missing when you talk me through that macrobacter
Speaker 1: up inflation, the FAED patient, Where's investment, Where's the I
Speaker 1: T story? Where's the information technology story? In your recorditly
Speaker 1: market call. Yes, we're mutual on tech at the moment,
Speaker 1: but again with COREE cases rises, you know, we know
Speaker 1: we do typically see volatility and those more reinflation trades
Speaker 1: as well as a reopening trade, and so there is
Speaker 1: room for tacking the portfolio over the long term and
Speaker 1: so on pullbacks on TAG meaningful pullbacks on tech. We
Speaker 1: always advise clients to add to longer term position, but
Speaker 1: headed into two we just think that there's better growth
Speaker 1: opportunities in the more cyclical errors of the market, and
Speaker 1: so that's why we have a position that way. But
Speaker 1: if we do see a sustainable rise in the COVID cases,
Speaker 1: we do know that people take shelter in text so
Speaker 1: that is an opportunity now the really thoughtful stuff as always,
Speaker 1: and good to catch up. Thanks for sharing your out
Speaker 1: look with us now your level there of ups. Thank
Speaker 1: you joining us now is Jimmy Sullivan, chief US market
Speaker 1: strategist macro strategist at TV Securities. Jim, arguably with the
Speaker 1: biggest goal that we've been talking about over the last week,
Speaker 1: we caught up with the colleague premission about it waiting
Speaker 1: until December three two high interest rates. You're at the
Speaker 1: very far end of the range of the people we
Speaker 1: talked to right now, Jim. Why can't they wait that long? Jonathan,
Speaker 1: good morning. Well, I mean, obviously it's hard to be
Speaker 1: very specific on exact timing, but our point broadly is
Speaker 1: that momentum will be down over the next year. And obviously,
Speaker 1: if you simply extrapolate where we are now, growth looks
Speaker 1: very strong and employment is falling, inflation is way way
Speaker 1: too strong, and if you simply extrapolate, and of course
Speaker 1: the FED would have to tighten. But I mean, the key,
Speaker 1: key issue is what momentum is going to look like
Speaker 1: over the next year. And we do think despite the
Speaker 1: budget bill being worked on in Congress and will probably
Speaker 1: ultimately be enacted that there will be significant physical dragon two,
Speaker 1: So the budget deficit will go from basically around twelve
Speaker 1: of GDP and physical one two around five percent in
Speaker 1: physical two. There are some offsets, but we think the
Speaker 1: net of this is going to be pretty significant down
Speaker 1: or momentum. So I think it will feel quite different
Speaker 1: as we get towards the middle of next year in
Speaker 1: terms of momentum and growth as well as inflation, and
Speaker 1: so we'll see where we stand at that point. Then.
Speaker 1: Obviously the FED has bought themselves some time with tapering.
Speaker 1: I mean they've got a seven month tapering, so that
Speaker 1: won't wind down until June. I mean we would say
Speaker 1: the bar for accelerating that is extremely high. So we'll
Speaker 1: see where we stand. Obviously we get towards the middle
Speaker 1: of next year, but we think momentum is going to
Speaker 1: be down between now and that. This is really interesting
Speaker 1: to me that a lot of people have come on
Speaker 1: and they've said it doesn't really matter how much inflation
Speaker 1: does come down next year. If it starts coming down,
Speaker 1: it will edifies the FEDS. It will edify the Fed's position.
Speaker 1: Do you think that that's true or does it need
Speaker 1: to drop a certain amount and by a certain date
Speaker 1: for it to actually support where the FEDS approaches actually
Speaker 1: right now, I think I mean meaningful slowing. I mean,
Speaker 1: the the year of year numbers are still going to
Speaker 1: be quite strong, of course, because you're not going to
Speaker 1: drop out all these high numbers for a while until
Speaker 1: the recent strong month of the month numbers drop out
Speaker 1: them the twelve month change numbers are elevated. But we'll
Speaker 1: see what momentum is like on a monthly basis. And
Speaker 1: I mean, do you have to get to two percent
Speaker 1: year of a year, Absolutely not to be to be
Speaker 1: just hold off and tightening. But that brings in the
Speaker 1: other part of the mandate if you get enough slowing
Speaker 1: on inflation and the focus turns back I think to
Speaker 1: where they stand on the mandate unemployment. And there's a
Speaker 1: lot of debate right now about what is maximum employment.
Speaker 1: Obviously going number pretty strong, that presipation rate numbers have
Speaker 1: been disappointing, but yet payrolls are down four million plus
Speaker 1: from pre COVID level. So I mean this is going
Speaker 1: to be an important debate over the next year. What
Speaker 1: maximum employment. Yeah, I was gonna ask you about that too, Jim.
Speaker 1: I mean, maybe, um, there have been such structural changes
Speaker 1: that this is just the new normal. You know, if
Speaker 1: you can't get employees through the door, even if you're
Speaker 1: wazing rages, raising wages um and there are so many
Speaker 1: jobs out there that anyone could get one, how are
Speaker 1: we not at maximum employment already? Yeah? Well, I mean
Speaker 1: if you again, if you simply extrapolate current numbers, including
Speaker 1: jolts numbers, job openings, where the perticupation rate is, etcetera,
Speaker 1: with wage numbers are doing, then you'd say, on the surface, sure,
Speaker 1: it looks like maximumployment, but everything is so distorted right
Speaker 1: now by COVID. I mean, we had the delta wave
Speaker 1: over the last several months, which clearly contributed to preventing
Speaker 1: the participation rate from starting to improve again despite the
Speaker 1: expiration of unemployment benefits, etcetera. So I mean it's it's
Speaker 1: too soon to really just take these numbers literally, given
Speaker 1: that we're still in the midst of the pandemic, and
Speaker 1: so we'll see where we are in a year's time.
Speaker 1: I mean, I think most FEDE officials would say they
Speaker 1: would not be satisfied that this is the new normal
Speaker 1: in terms of the level of employment and maximum employment.
Speaker 1: I think they want to get these people back. It
Speaker 1: might take time and there will be lags, but they
Speaker 1: do expect most of these people to come back, not
Speaker 1: all of them, and certainly there are most of them
Speaker 1: were retired. I thought most of them just have done
Speaker 1: so well on the market that they stepped out and
Speaker 1: bid adea and well, I mean, then the nature of
Speaker 1: those data is that, I mean, people retire and then
Speaker 1: they unretired. I mean, so people do go back and
Speaker 1: forth in those numbers, and a lot of what we've
Speaker 1: seen is people not coming back into the labor force
Speaker 1: having retired previously. So again, I think it's too soon
Speaker 1: to just simply assume that the participation rate is is
Speaker 1: going to stay where it is, and I think we
Speaker 1: would expect to see recovery over the next year. It's
Speaker 1: not all gonna happen in one month. And certainly most
Speaker 1: FED officials, I mean, obviously, particularly if it's it's brain artists,
Speaker 1: the chair we would say, but even even with pale
Speaker 1: as well, would be hope full and would expect that
Speaker 1: that most of these people can come back with time. Jim,
Speaker 1: just quickly. Lisa has been on top of this one
Speaker 1: through most of this morning. Just how much daylight is
Speaker 1: there between Cham and poal A Governor Brian had you've
Speaker 1: been waiting for the same decision we've been waiting for
Speaker 1: fed watching yourself. How much daylight is there between the two?
Speaker 1: And I mean on monitory policy. Obviously there's talk about
Speaker 1: regulatory policies being a bit more clearly clearly different, but
Speaker 1: on monitory policy not necessarily huge. But but yes, I mean,
Speaker 1: I would say most people would say that Brainard is
Speaker 1: likely to be more dovish. She's more likely to have
Speaker 1: a dovish interpretation of maximum employment, we would say. But again,
Speaker 1: I mean Powell is pretty dubbish as well. Jim A
Speaker 1: Sunivan it's eight Jim, You're confusing it, so thank you sir.
Speaker 1: As always, we spoke with Dr Andrew Pakosh earlier this
Speaker 1: morning on Bloomberg Surveillance and we were talking a lot
Speaker 1: about the situation over in Europe and since then in
Speaker 1: the fast moving newsplot that is the pandemic, we got
Speaker 1: the approval by the FDA of COVID nineteen booster shots
Speaker 1: from MODERNA and Pistor and Bond Tech. The question I
Speaker 1: have really is how much more protection do you get
Speaker 1: from the booster and how much can this dave off
Speaker 1: something from happening in the United States from what's happening,
Speaker 1: say in Germany and Austria. Dr Andrew Pekosh is joining
Speaker 1: us again and we really appreciate it. Johns. Hopkins University,
Speaker 1: Bloomberg School of Public Health, professor and virologist. What's your sense,
Speaker 1: Dr Pakosh, of how much we can prevent another surge
Speaker 1: in viral cases as a result of more people getting boosters. Well,
Speaker 1: you know, boosters will do two things. Um. One is
Speaker 1: it will almost immediately increase your protection against infection, and
Speaker 1: some of the data suggests that will get back up
Speaker 1: to that level that we saw in the early studies.
Speaker 1: The second thing that is starting to come out, though,
Speaker 1: is that that booster, particularly if you get it six
Speaker 1: months after your first doses, seems to be able to
Speaker 1: induce so much longer immune response and therefore you might
Speaker 1: be protected for six months, a year, maybe more um
Speaker 1: after the booster. So it's doing those two things, but
Speaker 1: at the end of the day, it's targeting people who
Speaker 1: already being protected from infection and from severe infection. So
Speaker 1: it's going to move the needle a little bit, but
Speaker 1: but it's not going to be a game changer in
Speaker 1: terms of protecting us from surges of COVID nineteen because
Speaker 1: that's driven by unvaccinated people. And Dr Peckard's going to
Speaker 1: that point the unvaccinated people. You know, I'm just not
Speaker 1: sure what more can be done. I'm just speaking here
Speaker 1: in the US for those folks who choose not to
Speaker 1: get vaccinated. It feels like this is our future, this
Speaker 1: is just the way it's going to be. We've i mean,
Speaker 1: the arguments have been made time and time again, and
Speaker 1: the decisions seemingly have been made. And maybe some mandates
Speaker 1: can move the needle a little bit, whether it's a
Speaker 1: workplace mandate or a government mandate. But is this kind
Speaker 1: of the new normal? Well, what we need to realize
Speaker 1: is that individuals don't get vaccinated, you know, really shouldn't
Speaker 1: have free reign to be able to do anything they
Speaker 1: want because of the threat that they post to the
Speaker 1: rest of the population. Now, this could be mitigated in
Speaker 1: some ways. Uh, twice a week testing could be one
Speaker 1: way to to to to target those populations. Um Limiting
Speaker 1: them from certain activities is another way to do it.
Speaker 1: So we're moving to the stage now where it maybe
Speaker 1: that vaccine mandates alone won't be able to do this,
Speaker 1: but putting in some of those other restrictions may be
Speaker 1: a way to get us through these surges and minimize
Speaker 1: those uh, those massive uh pushes of cases into our
Speaker 1: hospitals which stress our medical care system. Dr Pekosh. Theoretically,
Speaker 1: let's say there is a family, and let's say it's
Speaker 1: almost Thanksgiving and one member of the family is not vaccinated.
Speaker 1: Where is the biggest risk here? Is it for the
Speaker 1: person who's not vaccinated being exposed to people who are
Speaker 1: all vaccinated but still could get the virus. Or is
Speaker 1: it people who are vaccinated getting the virus from the
Speaker 1: person who's unvaccinated. So so so, theoretically, if you're vaccinated
Speaker 1: and you're exposed, you come into contact with someone who's
Speaker 1: infected and not exposed, you do have a higher risk
Speaker 1: of getting the infection, but your risk of getting into
Speaker 1: the hospital after that is much much reduced because of
Speaker 1: the protection of vaccine gives you. Now, this does change
Speaker 1: a little bit if you talk about things like people
Speaker 1: with pre existing community conditions that predispose you to more
Speaker 1: severe disease, or even the elderly, in which case we
Speaker 1: know that the vaccines work, but they don't work as
Speaker 1: well as they do in the healthy populations, so it's
Speaker 1: also about those more vulnerable populations and the increasing the
Speaker 1: exposure of those individuals to the virus if you are unvaccinated. So,
Speaker 1: Dr pecos one thing that we haven't talked about recently,
Speaker 1: I don't think is the concept of herd immunity. Is
Speaker 1: that something that given the level of unvaccinated population, that's
Speaker 1: really not really on the table um it's it's not
Speaker 1: on the table anymore from a practical state because with
Speaker 1: the emergence of the delta variant, some of the estimates
Speaker 1: of what we need for her immunity are now in
Speaker 1: the or sometimes higher part of the population getting vaccinated,
Speaker 1: and that just doesn't seem realistic given what we see
Speaker 1: right now. We can, however, control of severe cases with vaccines.
Speaker 1: The the soon to be approved anti viral treatments will
Speaker 1: give us another important tool that will help us reduce
Speaker 1: the disease severity. And so we have the tools to
Speaker 1: to really minimize the difficult effects of this virus on
Speaker 1: the population. We just have to be more effective at
Speaker 1: using them. Before we let you go, Dr Pekash, going
Speaker 1: back to what's going on in Europe with the Austria
Speaker 1: lockdown and the potential for Germany to do the same.
Speaker 1: Is there any way that you could see US lockdowns
Speaker 1: at some point in the future. Considering that the fact
Speaker 1: that the vaccination rate here is similar to what we
Speaker 1: see in those nations, Well, it's interesting because while the
Speaker 1: overall vaccination rate is similar, we have a lot more
Speaker 1: variation from state to state in terms of how many
Speaker 1: individuals are vaccinated. So in my state of Maryland here
Speaker 1: I feel a little bit more confident than I would
Speaker 1: if I was in another state in terms of how
Speaker 1: much protection is being afforded by the vaccine. It doesn't
Speaker 1: appear to me that there's political will to go through
Speaker 1: lockdowns on a massive nationwide level, but I wouldn't be
Speaker 1: surprised if some of the states that have been good
Speaker 1: about their public health interventions to control COVID nineteen do
Speaker 1: consider some additional um measures if cases do surge again
Speaker 1: this winter. Andrew Pekosh, thank you so much for being
Speaker 1: with us. JOHNS. Hopkins, University of Bloomberg School of Public Health,
Speaker 1: professor and virologists joining us today you can just joined
Speaker 1: us now. Chief Investment Officer at Dow Tech Bank can
Speaker 1: trust you go this econity market, you can't hold it
Speaker 1: down with down a tenth on the SMP and now's
Speaker 1: back at all time highs. And that's like one dred
Speaker 1: futures up another fifty three this morning. Restrictions back in
Speaker 1: Europe struggle the shoulders over here state side, Hugo. What
Speaker 1: do you make of all of this? Well, you've got
Speaker 1: a trifector of tail winds. It's place. You still have
Speaker 1: military support, you still have incrementalism from central banks that
Speaker 1: reining things in, but very very slowly. At Lisa highlighted,
Speaker 1: you've got economic tail winds as well. So you have
Speaker 1: the US keyboard. GDP estimates are actually being ticked up
Speaker 1: a little bit. You've had excellent QU three results from
Speaker 1: large waves of of of US courts as they reported.
Speaker 1: So there's um, there's you know, the final Pieces've got
Speaker 1: central banks, you've got cycled, and then you've just got
Speaker 1: this this wall of liquidity sitting there too. The bond market,
Speaker 1: even though inflation this is a big bow. And the
Speaker 1: bond market, given though inflation hit six point two last week,
Speaker 1: you know, the ten ure years sort at one point,
Speaker 1: it's like it tells you all you need to know.
Speaker 1: But Hugo, that's exactly where I wanted to go, this
Speaker 1: sort of discomfort here with high inflation reads and very
Speaker 1: low bond yields, and you have some people like Wharton
Speaker 1: professor Jeremy Siegel coming out yesterday and Bloomberg Television and
Speaker 1: saying people are not prepared for how fast, how quickly
Speaker 1: the Federal Reserve will have to high rates will have
Speaker 1: to normalize once inflation shows its persistency. What do you
Speaker 1: make of that? Well, I mean there's a lot of
Speaker 1: work being done there by what they have to do,
Speaker 1: you know, if they haven't budged when six point two
Speaker 1: is is the inflation print, and when core inflation is
Speaker 1: north of three and still looking persistent, and you know
Speaker 1: in our estimates we're going to see those core numbers
Speaker 1: continue rising. You know, you can see what wages are doing,
Speaker 1: you can see what rent is doing. They're the core
Speaker 1: components of core inflation. So you know, we know that
Speaker 1: numb was the core. Numb is going to be high
Speaker 1: from periods time, and yet there's still holding pat still
Speaker 1: being incremental. The communication that you saw from the fair,
Speaker 1: you seem from the ECB tells you that they're going
Speaker 1: to do absolutely everything to try not try to ignore it,
Speaker 1: but to to avoid some sort of tape attention. They
Speaker 1: don't think their work is done in terms of fixing
Speaker 1: the economy, So why would they Why would they perform
Speaker 1: such an aggressive utah, we don't they do so the market,
Speaker 1: I mean, the markets already priced in two or three
Speaker 1: hikes for the US, four or five hikes for the UK.
Speaker 1: Why does the market actually think these super doves, I
Speaker 1: mean when you compare them to somebody like Paul Volker, right,
Speaker 1: these are incredibly dovish FED governors. Why does the mr
Speaker 1: market think they would raise rates that much? Well? No,
Speaker 1: I think I think they can raise rates that much. Um. Look,
Speaker 1: the market is always ahead of the Fed. You can
Speaker 1: see that whenever you're looking at the at the forward
Speaker 1: rates implied and and and against the dot log. You
Speaker 1: can see on the way down the famous two hawks
Speaker 1: expecting mean version and now on the way up there
Speaker 1: there what they're communicating will be behind the curve. The
Speaker 1: market can control o three rate hikes, it's already prized
Speaker 1: for them, and that the eggery market has to move
Speaker 1: them much. But three rate hikes is always Remember where
Speaker 1: we're coming from, we're coming from zero, so three rate
Speaker 1: heights is just taking us back to like seventy five
Speaker 1: seventy five to one percent, all right, And the question
Speaker 1: really is can the economy handle that? And I think
Speaker 1: what people are really forgetting here as this economy is
Speaker 1: not being held back by demand rates. They that affects demand,
Speaker 1: you know, it's it's it's it's some financial conditions, credit
Speaker 1: conditions that affects demand. Right now, the economy has been
Speaker 1: held back to twice as well. So if you raise
Speaker 1: rates and you're you're tweaking to that's not really what's
Speaker 1: gonna what was gonna affect jobs and great, so you've
Speaker 1: got some some freedom to to to see raps rise
Speaker 1: without an effect on the actual underlying economy, and the
Speaker 1: market's very cultable. Hugo, it's gonna catch up. I always
Speaker 1: dislike you at the end of the interview. Hugo from
Speaker 1: the Bahamas, Hugo Rogers from the Behalf. It just it
Speaker 1: winds me up, Hugo. Hugo Rogers of down Tech Bank,
Speaker 1: You too, sir, got to see your buddy. This is
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live
Speaker 1: weekdays from seven to ten am Eastern. I'm Bloomberg Radio
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Speaker 1: the terminal, I'm Tom Keen, and this is Bloomberg