WEBVTT - Bloomberg Surveillance TV: June 10, 2024 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 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 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.560 Terminal and the Bloomberg Business app. Sarah Hunt Alpine Saxon 0:00:37.600 --> 0:00:40.040 would saying this, just when you think you can make 0:00:40.040 --> 0:00:42.360 a case for a summer cup, in comes the jobs 0:00:42.440 --> 0:00:44.840 number and takes it off the table. While that noise 0:00:44.920 --> 0:00:46.600 we all heard is likely the sound of the door 0:00:46.640 --> 0:00:50.120 closing on July, the inflation numbers will add or detract 0:00:50.200 --> 0:00:54.160 the evidence being used by the competing Yes, they should 0:00:54.520 --> 0:00:55.720 and know they shouldn't. 0:00:56.000 --> 0:00:56.360 Cams. 0:00:56.600 --> 0:00:58.440 Sarah's with us for more. Sarah good wanted to you 0:00:58.560 --> 0:01:01.840 good morning, Never mind good news, bad news? What was Friday? 0:01:02.080 --> 0:01:04.600 What was that? I think it was mixed news? 0:01:04.640 --> 0:01:04.800 Right? 0:01:04.880 --> 0:01:07.160 So this is you start to have all these discussions 0:01:07.160 --> 0:01:09.680 about the differences between this survey and that survey, and 0:01:09.720 --> 0:01:11.480 can we count on this and what's the birth death 0:01:11.520 --> 0:01:14.120 model doing. I think it just is indicative of the 0:01:14.120 --> 0:01:16.600 fact that it's a confusing market. And I think that 0:01:16.600 --> 0:01:19.240 that is on the labor side certainly, and I think 0:01:19.240 --> 0:01:21.840 that that's part of what's coming into play as we 0:01:21.880 --> 0:01:25.520 go forward. We started off this monster rally when the 0:01:25.520 --> 0:01:27.520 FED basically said at the end of last year, or 0:01:27.800 --> 0:01:30.240 you know, the October of last year. 0:01:30.560 --> 0:01:31.559 We're done raising rates. 0:01:31.560 --> 0:01:33.399 There's going to be an easing cycle. People built in 0:01:33.440 --> 0:01:35.600 a ton of easing and now people are looking at 0:01:35.600 --> 0:01:37.880 maybe taking that away. And I thought that laur Calvalstina's 0:01:38.319 --> 0:01:40.920 note this morning was really interesting on you know, if 0:01:40.959 --> 0:01:42.600 we don't get one at all, you've got some weakness 0:01:42.600 --> 0:01:43.440 in the equity. 0:01:43.120 --> 0:01:44.520 Market, and at least it's got thoughts on that. 0:01:44.600 --> 0:01:47.319 But before we get there, if the payrolls report slammed 0:01:47.319 --> 0:01:50.160 the door shut on July, can Wednesday morning reopen it? 0:01:51.560 --> 0:01:54.000 Wednesday morning could reopen it because, as a number of 0:01:54.040 --> 0:01:56.280 people have noted this morning, it's not just the labor 0:01:56.320 --> 0:01:58.240 market that the FED is looking at. If the inflation 0:01:58.320 --> 0:02:00.960 really looks like it's come out down. But to your 0:02:01.040 --> 0:02:03.160 point earlier, the housing market is not getting any better. 0:02:03.160 --> 0:02:05.000 Rents are not coming down. They're not looking at a 0:02:05.000 --> 0:02:07.320 whole lot cheaper, at least not in urban areas. So 0:02:07.640 --> 0:02:10.160 I think it could because you have that discussion of 0:02:10.200 --> 0:02:12.720 are we cutting rates or are we normalizing? And obviously 0:02:12.720 --> 0:02:14.800 the market's going to take any cut as a start 0:02:14.840 --> 0:02:17.440 of amazing cycle. But if they can do something like 0:02:17.440 --> 0:02:20.440 the UCV, they would just basically say we're normalizing, but 0:02:20.560 --> 0:02:23.200 we're hawkishly normalizing and we're not going to cut don't 0:02:23.240 --> 0:02:25.960 look at this as a cycle. It could certainly open it, 0:02:26.120 --> 0:02:28.120 but I don't think to July. I think it opens 0:02:28.160 --> 0:02:29.359 it later in the year. 0:02:29.560 --> 0:02:31.240 On the flip side, if we get a hot as 0:02:31.240 --> 0:02:34.400 an expected CPI print. You were talking about Lori Cavacina's 0:02:34.400 --> 0:02:36.160 call this idea that if there are no rate cuts 0:02:36.160 --> 0:02:38.000 this year, it could cause an eight percent decline in 0:02:38.040 --> 0:02:40.480 the S and P five hundred. What if Judson Wang 0:02:40.639 --> 0:02:43.160 comes out later this week and says that he has 0:02:43.240 --> 0:02:45.880 a new development that's going to build robots that do 0:02:45.919 --> 0:02:48.680 our dishes and take care of our children. Could that 0:02:49.000 --> 0:02:51.000 totally change any kind of selloff? 0:02:51.400 --> 0:02:53.720 Well, I think that there's already been a bifurcation in 0:02:53.720 --> 0:02:56.120 what a selloff means. Nvidia has not been part of 0:02:56.160 --> 0:02:58.079 any of that sell off. You've seen other tech sell 0:02:58.080 --> 0:03:00.160 off in ways that Nvidia has not. There is there's 0:03:00.160 --> 0:03:02.800 a secular story there that is difficult to say that 0:03:03.000 --> 0:03:04.760 whatever is going on with the FED is going to 0:03:04.760 --> 0:03:07.520 be important for that piece of technology. But there's also 0:03:07.560 --> 0:03:09.200 a big future element, and I think that that's what 0:03:09.200 --> 0:03:11.080 people are starting to recognize, is that you have to 0:03:11.120 --> 0:03:13.800 really go further into the future to try to monetize 0:03:13.800 --> 0:03:15.840 this unless you're in video and you're selling them the 0:03:15.919 --> 0:03:18.160 chips right now. So there's a little bit of a 0:03:18.480 --> 0:03:21.000 thing going on right there where there's a secular story 0:03:21.040 --> 0:03:23.359 in one part of technology, but a market story in 0:03:23.400 --> 0:03:24.280 the rest of technology. 0:03:24.320 --> 0:03:26.639 And do you believe that we're currently at rates that 0:03:26.720 --> 0:03:29.520 could cause the market story to gain legs if we 0:03:29.600 --> 0:03:32.480 stay here, for example, in the market I'm not just 0:03:32.520 --> 0:03:35.920 talking about FED funds rate that that could really crimp 0:03:35.960 --> 0:03:38.480 how people understand forward looking profits for a lot of 0:03:38.480 --> 0:03:41.680 the companies in the other ninety three four hundred and 0:03:41.720 --> 0:03:42.119 ninety three. 0:03:42.160 --> 0:03:45.400 Interestingly enough, I think it's almost less about profits as 0:03:45.480 --> 0:03:48.080 what it does to things like the housing market, which 0:03:48.120 --> 0:03:50.360 is still pretty stagnant, and what it does to people 0:03:50.400 --> 0:03:53.040 who have been waiting for a chance to refinance. Because 0:03:53.040 --> 0:03:54.440 the idea was we're going to hike, We're going to 0:03:54.440 --> 0:03:57.040 go very high, then we're going to come down quickly. 0:03:57.400 --> 0:03:59.600 That's not happening. So there's a lot of extent going 0:03:59.640 --> 0:04:02.920 on in some of the fixed income markets, and I 0:04:02.960 --> 0:04:05.160 think that whether or not the stresses start to be 0:04:05.240 --> 0:04:08.000 a part there, I'm less worried about the larger cash 0:04:08.080 --> 0:04:11.000 rich companies on whether or not higher five percent versus 0:04:11.000 --> 0:04:13.440 four point seventy five or four fifty makes a big difference. 0:04:13.440 --> 0:04:15.440 But if you don't get a cycle coming down, there's 0:04:15.480 --> 0:04:17.160 a lot of areas where I think that there's some 0:04:17.200 --> 0:04:18.320 tension and refinancing. 0:04:18.400 --> 0:04:20.039 So let's get into it. Places you want to be, 0:04:20.360 --> 0:04:21.440 places you want to avoid. 0:04:21.760 --> 0:04:24.479 What are they well, I think you need to be 0:04:24.520 --> 0:04:26.960 in the part of the technology sector that's quite clearly 0:04:27.440 --> 0:04:30.400 throwing off buckets of cash and doing really well in 0:04:30.440 --> 0:04:32.560 almost any environment. I think it's hard to say that 0:04:32.560 --> 0:04:34.520 that's a place you want to stay away from. The 0:04:34.520 --> 0:04:37.839 oil picture just got more difficult for energy, and I 0:04:37.880 --> 0:04:40.400 think that that's still something that is throwing off a 0:04:40.440 --> 0:04:42.520 lot of cash, throwing off a lot of dividends. You've 0:04:42.560 --> 0:04:45.360 got good buybacks there. Retail's very difficult right now. You've 0:04:45.400 --> 0:04:47.440 seen a bunch of retailers come out and say, you know, 0:04:47.680 --> 0:04:49.840 your year sales are not doing that well, and we're 0:04:49.880 --> 0:04:51.839 kind of worried about the next couple of quarters. So 0:04:51.880 --> 0:04:53.760 there are areas where it's quite clear that there has 0:04:53.800 --> 0:04:57.360 been a slowing and there are areas where there may 0:04:57.400 --> 0:05:00.360 be some acceleration, but the overall economic picture is going 0:05:00.400 --> 0:05:02.320 to weigh on some of those materials and energy kind 0:05:02.320 --> 0:05:04.560 of stocks. Some of the industrials are doing quite well 0:05:04.560 --> 0:05:06.560 and going to continue to do quite well. It's very 0:05:06.600 --> 0:05:07.640 pick and choose right now. 0:05:07.760 --> 0:05:10.440 You hinted at something that the longer rates stay at 0:05:10.480 --> 0:05:13.159 these levels, there could be some real credit stresses that 0:05:13.200 --> 0:05:15.600 percolate into something different. Can you give us a sense 0:05:15.680 --> 0:05:18.839 walk us through what that looks like. How severe could 0:05:18.839 --> 0:05:21.159 that look? Is that a credit crunch, is it a 0:05:21.160 --> 0:05:23.520 sudden plunge, or is it just sort of a slow 0:05:23.560 --> 0:05:25.920 bleed on economic growth? It just becomes more and more 0:05:25.920 --> 0:05:26.799 evident over time. 0:05:27.279 --> 0:05:29.400 So I think that one of the reasons that you've seen, 0:05:29.480 --> 0:05:31.400 I mean, there has been some equity volatility, but not 0:05:31.440 --> 0:05:33.440 the kind of volatility you would expect given some of 0:05:33.480 --> 0:05:35.280 the things that have gone on with interest rates over 0:05:35.279 --> 0:05:38.320 the last couple of years. Is that we've had all 0:05:38.360 --> 0:05:41.320 these government programs that came through in the financial crisis 0:05:41.400 --> 0:05:43.520 that people now look to to say, you know what, 0:05:43.560 --> 0:05:45.440 if there's a really big problem with interest rates, there's 0:05:45.440 --> 0:05:47.200 going to be some sort of program to help them. 0:05:47.279 --> 0:05:47.400 Right. 0:05:47.480 --> 0:05:49.920 So the whole issue with the banks that started last 0:05:49.960 --> 0:05:52.160 year where the Fed said okay or Treasury said you 0:05:52.200 --> 0:05:54.080 can go put us collateral at one hundred cents on 0:05:54.120 --> 0:05:55.960 the dollar, even though rates have gone up and that 0:05:56.000 --> 0:05:58.040 collateral may not be worth one hundred cents on the dollar. 0:05:58.200 --> 0:05:59.800 There are a lot of programs to deal with that. 0:06:00.040 --> 0:06:01.359 So I don't know that it's as much of a 0:06:01.400 --> 0:06:04.000 crisis as it would have been in past eras where 0:06:04.000 --> 0:06:06.320 you didn't have a kind of backstop on some of that. 0:06:06.800 --> 0:06:09.320 So I don't know where that goes. But you've seen 0:06:09.360 --> 0:06:12.360 commercial real estate have problems. You've seen even apartment housing. 0:06:12.640 --> 0:06:14.320 There's certain parts of the real estate market that are 0:06:14.360 --> 0:06:17.120 really showing some stress, and those are long assets and 0:06:17.200 --> 0:06:19.279 a lot of those were financed at times where now 0:06:19.320 --> 0:06:21.200 if you have to refinance anything, you're looking at a 0:06:21.240 --> 0:06:24.320 much bigger number, and what you paid for that asset 0:06:24.600 --> 0:06:27.479 is now problematic relative to where interest rates are. So 0:06:27.520 --> 0:06:29.520 I think that there's a question of what those assets 0:06:29.560 --> 0:06:32.160 are worth. But I also feel like there's an underlying 0:06:32.200 --> 0:06:34.839 feeling that there will be something if it gets really bad. 0:06:35.520 --> 0:06:37.680 So, just to sum this all up, and John was 0:06:37.680 --> 0:06:39.839 asking what you like and what you don't like. You 0:06:40.000 --> 0:06:42.320 do like big tech and companies that are just generating 0:06:42.320 --> 0:06:45.640 bucket loads of cash. Consumer cyclicals are a little bit questionable. 0:06:46.200 --> 0:06:48.960 How cautious are you given that you just don't have 0:06:49.080 --> 0:06:51.960 visibility at the time when you also are charged with 0:06:52.040 --> 0:06:52.880 generating alpha. 0:06:53.400 --> 0:06:56.719 Well, it's tough because you have a multiple situation that 0:06:56.800 --> 0:06:58.640 I mean, if you take that, you know to Peter 0:06:58.720 --> 0:07:00.719 Cheers point at the top ten STOC thirty five percent 0:07:00.720 --> 0:07:03.000 of the SMP. But you have a multiple issue in 0:07:03.000 --> 0:07:04.720 some of the other areas, and I think you have 0:07:04.760 --> 0:07:06.880 to be careful both about what you pay and what 0:07:06.920 --> 0:07:09.520 everybody's balance. It looks like, right this comes back to cash. 0:07:09.720 --> 0:07:12.360 Am I generating cash? Because if you're not, and or 0:07:12.360 --> 0:07:15.120 if you have any refinancing that you have to do, you. 0:07:15.120 --> 0:07:17.040 Have to be quite difficult. 0:07:17.360 --> 0:07:18.880 It could be quite difficult, So you have to be 0:07:18.880 --> 0:07:21.280 careful about that. So I think that you just really 0:07:21.280 --> 0:07:23.640 need to pay attention to valuations in a way that 0:07:23.680 --> 0:07:25.760 we really haven't had to in sort of a while, 0:07:25.960 --> 0:07:29.960 because you just now have more vulnerability on what happens 0:07:30.000 --> 0:07:31.679 with the rest of the financial picture and what happens 0:07:31.680 --> 0:07:32.240 with interest rates. 0:07:32.360 --> 0:07:34.640 We started this hour and we've been talking about politics, 0:07:34.680 --> 0:07:36.080 and I could see about the corner of my eye 0:07:36.360 --> 0:07:38.040 not a gelang twenty five. 0:07:38.200 --> 0:07:40.120 Have we got a clue? Well, the next year has 0:07:40.120 --> 0:07:43.240 in store for us? We do not. How difficult is that? 0:07:43.280 --> 0:07:45.200 As an investor, it is difficult. 0:07:45.240 --> 0:07:47.760 But if also like if you take the politics out 0:07:47.760 --> 0:07:49.560 of it, and you say how much has the regime 0:07:49.720 --> 0:07:52.200 changed in terms of what that means for the equity markets, 0:07:52.480 --> 0:07:56.080 as long as you're not radically changing tax policy or 0:07:56.080 --> 0:07:58.800 you're radically changing a lot of the tariff policy. I mean, 0:07:58.840 --> 0:08:01.320 there was supposed to be a big switch when Biden 0:08:01.360 --> 0:08:03.320 took office about what was going to happen with China. 0:08:03.400 --> 0:08:05.400 It didn't really switch that much. There may be a 0:08:05.480 --> 0:08:08.200 change in immigration. That may we'll see what that could 0:08:08.240 --> 0:08:09.920 happen to the labor markets. If you get a change 0:08:09.920 --> 0:08:13.000 in administrations. We don't know enough yet to start trying 0:08:13.000 --> 0:08:15.560 to figure out how what that playbook looks like. And 0:08:15.600 --> 0:08:17.440 I think that's going to be very difficult to party. 0:08:17.520 --> 0:08:19.120 So do you're short in the time horizon, make really 0:08:19.120 --> 0:08:21.600 tactical calls or just assume that things carry on as 0:08:21.720 --> 0:08:23.280 usual and there's no big change. 0:08:23.520 --> 0:08:26.000 I think we're always looking for a longer picture, right, 0:08:26.000 --> 0:08:28.040 We're not very short term traders. We're looking for a 0:08:28.080 --> 0:08:31.120 longer picture. This goes back to am I generating cash? 0:08:31.120 --> 0:08:32.520 What does my balance you look like? What is the 0:08:32.559 --> 0:08:34.680 economy going to? Do you look at the macro picture 0:08:34.760 --> 0:08:37.640 more because the political picture is going to change and 0:08:37.679 --> 0:08:38.800 we just don't know how that's. 0:08:38.600 --> 0:08:39.160 Going to change. 0:08:39.280 --> 0:08:41.720 Sarah, this was great. Sarah Hunt of Amplied Saxon would 0:08:51.160 --> 0:08:53.440 were a bit of a rookie figh frequency economics rights 0:08:53.440 --> 0:08:56.679 in this well incoming data will ultimately drive rate moves. 0:08:56.679 --> 0:08:58.680 Our base case remains that the Fed will make the 0:08:58.720 --> 0:09:01.640 policy stance lesser strict if this yere in response to 0:09:01.640 --> 0:09:05.080 a slow in growth and inflation backdop Repeta is with 0:09:05.160 --> 0:09:07.520 us right now, repeta before we run away with this 0:09:07.559 --> 0:09:08.880 way can start on Wednesday. 0:09:09.000 --> 0:09:10.600 We need to start with last Friday. 0:09:10.679 --> 0:09:13.000 Do you believe that that job states a Friday morning 0:09:13.440 --> 0:09:16.000 overstates the strength of the US economy. 0:09:18.280 --> 0:09:21.640 The job data show us that this economy is still creating, 0:09:22.240 --> 0:09:25.240 you know, jobs that are very fast faced. You know, 0:09:25.360 --> 0:09:29.160 this is something that you know if you look at 0:09:29.160 --> 0:09:32.600 the underlying trend though, you know, we're not really seeing 0:09:32.640 --> 0:09:35.880 a breakout either to the upside or downside. But the 0:09:35.960 --> 0:09:38.720 US economy is still creating a lot of jobs. The 0:09:38.800 --> 0:09:41.200 it's the household survey where you know, there's a little 0:09:41.240 --> 0:09:43.440 bit more of a concern. The unemployment trade ticking up, 0:09:43.880 --> 0:09:47.120 still very low by historical standards, still you know, in 0:09:47.160 --> 0:09:50.240 line with where you know the FED marks the longer 0:09:50.320 --> 0:09:54.000 run rate. But this economy is still very strong. The 0:09:54.120 --> 0:09:57.760 labor market is very supportive of incomes of households, and 0:09:58.080 --> 0:09:59.240 we continue to see that. 0:10:00.160 --> 0:10:02.280 Numbers if you take them at face value. From Friday, 0:10:02.360 --> 0:10:05.040 we saw wages increase at a faster paced month of 0:10:05.120 --> 0:10:07.800 a month so many people expected you say that the 0:10:07.880 --> 0:10:12.360 data are pointing to little threat of inflation from labor costs. 0:10:12.720 --> 0:10:13.760 What gives you that conviction? 0:10:15.320 --> 0:10:17.680 You know, if you look at the average hourly earning number, 0:10:17.720 --> 0:10:20.520 buy on their own. Yes, you know there's an reacceleration. 0:10:20.679 --> 0:10:23.200 That's you know that we saw in the latest numbers 0:10:23.480 --> 0:10:25.520 if you look at unit labor costs, and you know 0:10:25.600 --> 0:10:28.959 these data are extremely volative order to quarter. But if 0:10:28.960 --> 0:10:32.120 you look at the underlying trend we have seen. If 0:10:32.160 --> 0:10:34.000 you look at the year and ear changes, we are 0:10:34.080 --> 0:10:38.640 seeing a consistent improvement in productivity. And you know, if 0:10:38.679 --> 0:10:40.480 you look at the revision to the latest numbers on 0:10:40.559 --> 0:10:44.960 unit labor costs, consist a consistent deceleration at unit labor costs. 0:10:45.320 --> 0:10:47.640 Also if you look at other numbers, right, I mean 0:10:48.080 --> 0:10:52.679 we are seeing sort of mixed signals, So I don't 0:10:52.720 --> 0:10:56.120 want to overreact to one month's number. If our base 0:10:56.200 --> 0:11:00.439 case is that economic activity is slowing, that demand side 0:11:00.480 --> 0:11:04.040 of the economy is slowing, especially in the services sector. 0:11:04.080 --> 0:11:05.959 If you look at the services spending numbers in the 0:11:06.080 --> 0:11:09.920 latest two months, that is slower. The problem is that 0:11:09.960 --> 0:11:12.280 we've seen this before, right, We see a slowdown and 0:11:12.320 --> 0:11:15.319 then we see rebounds. So what we're looking for is 0:11:15.360 --> 0:11:18.679 a consistent slowdown. The early numbers are certainly suggesting that, 0:11:19.000 --> 0:11:22.200 So we're not expecting a reacceleration in economic activity. We've 0:11:22.240 --> 0:11:25.160 already seen a step down in household spending. It's just 0:11:25.200 --> 0:11:27.959 a matter of some more evidence. Then the Fed is 0:11:28.000 --> 0:11:29.040 also looking for the same. 0:11:29.240 --> 0:11:31.640 Can you frame how important then CPI is going to 0:11:31.640 --> 0:11:34.720 be on Wednesday in terms of either supporting your thesis 0:11:34.920 --> 0:11:40.960 of a gradual slowing but also disinflation versus sort of rejecting. 0:11:40.520 --> 0:11:45.040 It, right, I mean the CPI data, We expect them 0:11:45.080 --> 0:11:47.160 to show what the pc data is showing. Right The 0:11:47.600 --> 0:11:50.640 inflation is sort of moving sideway. It's really not much 0:11:50.679 --> 0:11:53.360 of an improvement right now. But what we are seeing 0:11:53.559 --> 0:11:58.079 is a deceleration, you know, a deflation in goods prices. 0:11:58.600 --> 0:12:02.080 The services side is where you know, all the problem lies. 0:12:02.200 --> 0:12:07.400 That's what's boosting prices in you know, the CPI versus PCE. 0:12:07.720 --> 0:12:10.360 You've got that housing component which is much waightier in 0:12:10.440 --> 0:12:14.360 the CPI numbers. We do think that that is also 0:12:14.440 --> 0:12:17.720 going to come down, but gradually. And we also think 0:12:17.760 --> 0:12:21.160 that this you know, ex housing component of course, services 0:12:21.640 --> 0:12:24.000 that is also something that we're watching very carefully. And 0:12:24.280 --> 0:12:28.000 all indications are if you see services spending you know, 0:12:28.080 --> 0:12:30.440 sort of moderate, then you would expect that, you know, 0:12:30.480 --> 0:12:34.640 if as that demand slows, that those price pressures will 0:12:34.679 --> 0:12:36.679 also abeate. But if you look at you know, some 0:12:36.760 --> 0:12:38.959 of the there's conflicting evidence, right, if you look at 0:12:38.960 --> 0:12:43.320 some of the numbers on travel, on entertainment, you know, 0:12:43.400 --> 0:12:46.200 those numbers are still there. There's still signaling that there 0:12:46.440 --> 0:12:49.840 is staying power to the services side. But we do 0:12:49.920 --> 0:12:52.640 think that we're going to see you know, overcoming a 0:12:52.640 --> 0:12:55.280 months of moderation. You know. The whole the whole idea 0:12:55.480 --> 0:12:57.800 is that the US economy continues to grow. The FED 0:12:57.880 --> 0:13:01.079 has delivered over five hundred and twenty bass points of 0:13:03.080 --> 0:13:06.240 tightening without causing a recession. They're going to be careful 0:13:06.280 --> 0:13:08.880 as they move forward. We think the base case still 0:13:08.960 --> 0:13:11.960 is that the US economy grows, you know, but it 0:13:12.040 --> 0:13:14.920 slows down the moreventum de series. 0:13:14.760 --> 0:13:16.560 Rabeta appreciate it. Ubita Feruki. 0:13:16.559 --> 0:13:19.400 There five frequency economics looking ahead to Wednesday, a FED decision, 0:13:19.400 --> 0:13:31.599 and the data in the morning. Joining us now is 0:13:31.600 --> 0:13:35.240 black Rock, Samanda Line. I'm alongside Mark Sandy of Moody's Analystics. 0:13:35.320 --> 0:13:37.640 Let's set the stage like this. There's two surveys that 0:13:37.679 --> 0:13:39.720 go into the jobs report, Amanda, you know them, well, 0:13:39.960 --> 0:13:41.720 two very very different stories. 0:13:41.880 --> 0:13:43.160 What was Friday about? 0:13:43.400 --> 0:13:45.480 Well, I think just taking a step back, as you 0:13:45.520 --> 0:13:48.760 note that the overall establishment survey showed really strong momentum. 0:13:48.800 --> 0:13:50.640 Perhaps that might have been driven by some of the 0:13:50.640 --> 0:13:53.880 immigration that's coming into the country. The household survey showed 0:13:54.040 --> 0:13:56.880 a pretty meaningful decline, but that was really in folks 0:13:56.960 --> 0:13:59.000 that are under the age of twenty five, so it 0:13:59.120 --> 0:14:01.720 was it was really concentrated. And I think we've spoken 0:14:01.760 --> 0:14:04.920 about the bifurcation in the economy in sessions past. I 0:14:04.920 --> 0:14:07.920 think that's partly what you're seeing there, But in aggregate, 0:14:07.960 --> 0:14:11.320 as Mike noted, the economy is still chugging along. Even 0:14:11.360 --> 0:14:13.960 if we expect some deceleration from say we're the Atlanta 0:14:13.960 --> 0:14:16.200 Fed GDP now is say we end the year at 0:14:16.200 --> 0:14:19.920 two percent, that's still trend or above trend growth. And 0:14:20.000 --> 0:14:23.040 I think for us, the shallow rate cutting cycle that 0:14:23.080 --> 0:14:26.440 we're expecting is really a product of that, because it's 0:14:26.520 --> 0:14:28.840 not obvious to us that there's urgency for the Fed 0:14:28.880 --> 0:14:31.440 to ease. We expect them to normalize, but not really 0:14:31.480 --> 0:14:32.240 to ease policy. 0:14:32.400 --> 0:14:35.200 Mark Zandy two very different surveys. From your perspective, would 0:14:35.240 --> 0:14:37.600 you put more weight on one versus the other? If 0:14:37.600 --> 0:14:39.640 you're sitting on the fmsay. 0:14:40.560 --> 0:14:42.720 The establishment survey, the survey businesses. 0:14:42.880 --> 0:14:47.120 I think that's the better measure Meanche's the job market strong, resilient, 0:14:47.520 --> 0:14:48.520 creating lots of jobs. 0:14:48.800 --> 0:14:51.920 The job growth is very broad based. But you can't 0:14:51.920 --> 0:14:53.200 dismiss the household survey. 0:14:53.720 --> 0:14:56.920 In the increase in the unemployment rate, it does indicate 0:14:56.920 --> 0:14:59.960 that the liver market is really cooling off. 0:15:00.040 --> 0:15:01.600 You look under the hood of. 0:15:01.600 --> 0:15:04.880 The job market, you know, hiring is weakening or seeing 0:15:04.880 --> 0:15:08.720 fewer quits, unfield positions or declining number of ten jobs 0:15:08.720 --> 0:15:13.040 are declining, hours work or declining. So you know, the 0:15:13.120 --> 0:15:15.320 job market's okay, it's fine, it's moving forward, but it's 0:15:15.320 --> 0:15:18.400 cooled off. It's you know, exactly where the Fed would 0:15:18.400 --> 0:15:22.200 want to see the labor market resilient, creating jobs, but 0:15:22.720 --> 0:15:26.120 you know, not at a point where it's fading inflationary pressures. 0:15:26.440 --> 0:15:30.360 Dialing this weird aspect of the jobs report into what 0:15:30.360 --> 0:15:34.320 we're expecting in terms of CPI On Wednesday, Mark, are 0:15:34.320 --> 0:15:35.920 we measuring inflation correctly? 0:15:37.600 --> 0:15:40.560 Well, yeah, we're measuring it, but there's all kinds of 0:15:40.600 --> 0:15:43.600 problems with it. I mean, you know, if Barbara King 0:15:43.640 --> 0:15:46.800 for the day at the Federal Reserve Board and looking 0:15:46.840 --> 0:15:50.120 at the inflation measures I'd be focused on something that's 0:15:50.200 --> 0:15:55.040 called the harmonized inflation measure or harmonized CPI or harmonized PCEE. 0:15:55.200 --> 0:15:59.960 That's everything except owner's equivalent rent. That's a mouthful bute 0:16:00.080 --> 0:16:02.680 Or is this implicit cost of owning your own home? 0:16:03.240 --> 0:16:06.600 That is very problematic. You know, I've learned a lot 0:16:06.640 --> 0:16:10.160 about this, you know, digging deep into it. It's very problematic. 0:16:10.320 --> 0:16:13.640 Even when things are going well. The housing market is 0:16:13.680 --> 0:16:17.280 well functioning, but as you know, the housing market's a mess. 0:16:17.800 --> 0:16:20.640 We've got a very severe shortage of affordable housing. We 0:16:20.680 --> 0:16:23.080 have a surfeit of high end housing, and that's a 0:16:23.120 --> 0:16:25.440 scrambling thing. So if you really want to get a 0:16:25.480 --> 0:16:28.520 sense of underlying inflation, my view is you use harmonized 0:16:28.560 --> 0:16:29.880 by the way, that's what's used in the rest of 0:16:29.920 --> 0:16:30.600 the world, and if you. 0:16:30.560 --> 0:16:34.720 Do, it shows that, well, you know, mission accomplished. We're there. 0:16:35.160 --> 0:16:37.600 Inflation's back to the FEDS target has been for quite 0:16:37.600 --> 0:16:38.040 some time. 0:16:38.320 --> 0:16:40.480 Amanda picking up on that point, I'm glad that Mark 0:16:40.520 --> 0:16:42.440 brought up the housing market. We heard this from Sarah 0:16:42.520 --> 0:16:46.240 Hunt also that this is actually completely skewing a lot 0:16:46.280 --> 0:16:48.240 of the measures that we're looking at because the housing 0:16:48.280 --> 0:16:51.200 market's broken, and this is a key aspect of the 0:16:51.280 --> 0:16:53.000 US economy and input into inflation. 0:16:53.120 --> 0:16:54.800 How much are you watching that and. 0:16:54.800 --> 0:16:57.120 Sort of using that as a gauge of credit strength 0:16:57.160 --> 0:16:58.040 more broadly. 0:16:57.760 --> 0:16:59.320 Yeah, that's part of the reason why we like to 0:16:59.320 --> 0:17:02.400 look at the supercore, which is the services x housing. 0:17:02.440 --> 0:17:04.680 We're looking at a range of metrics when we're looking 0:17:04.680 --> 0:17:07.560 at the degree of restriction of monetary policy. I think 0:17:07.600 --> 0:17:12.000 from a pragmatic view, we're not expecting major changes to 0:17:12.080 --> 0:17:15.600 the Fed's inflation targets or the reaction function. I think 0:17:15.640 --> 0:17:17.560 they need to get to their target before they even 0:17:17.640 --> 0:17:20.320 think about kind of re evaluating whether or not these 0:17:20.359 --> 0:17:21.240 metrics make sense in. 0:17:21.240 --> 0:17:22.040 This new cycle. 0:17:22.520 --> 0:17:26.119 But from a credit perspective, really we're not seeing a 0:17:26.200 --> 0:17:30.080 massive degree of restriction across the credit landscape. We're seeing 0:17:30.119 --> 0:17:33.119 it in pockets, but we're not seeing it widespread. And 0:17:33.160 --> 0:17:37.360 so there are certain areas where sure borrowers would love 0:17:37.400 --> 0:17:40.480 to have some rate relief, But is twenty five or 0:17:40.480 --> 0:17:42.640 fifty basis points going to move the needle for them? 0:17:42.720 --> 0:17:45.679 Probably not, And it's really the depth of that cutting 0:17:45.680 --> 0:17:48.159 cycle that really matters for risk appetite. I think the 0:17:48.200 --> 0:17:51.480 good news is that most of these corporates are managing 0:17:51.520 --> 0:17:54.080 this backdrop in a resilient way. It's largely a function 0:17:54.119 --> 0:17:57.359 of growth. However, if we have a significant slowdown in 0:17:57.440 --> 0:18:01.000 growth and we have persistently elevated cost of capital, I 0:18:01.000 --> 0:18:02.800 think that's where we could become much more cautious. 0:18:02.840 --> 0:18:05.120 If the sources of finance shifted. We've talked a little 0:18:05.119 --> 0:18:06.840