WEBVTT - Midyear Outlook for Equities and ECB Decision 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:47.320 the Bloomberg Terminal, and the Bloomberg Business App. We are 0:00:47.360 --> 0:00:50.080 in the front row right now in the shock of 0:00:50.159 --> 0:00:53.680 these markets. The perfect guest, Stephen Whiting, is with City 0:00:53.680 --> 0:00:56.000 Group and just to say the least, he is steeped 0:00:56.040 --> 0:00:59.600 in the linkage of our economics to our market. Steve, 0:00:59.640 --> 0:01:04.679 I can't to start with, is our economics linked to 0:01:04.880 --> 0:01:07.280 our stock market right now? Well? 0:01:07.319 --> 0:01:10.280 It is, but it is out of sync in some 0:01:10.319 --> 0:01:12.360 ways from the way it has been in the past. 0:01:13.120 --> 0:01:15.720 We have been just looking back at the last year 0:01:15.760 --> 0:01:19.039 and a half in a period of poor corporate profits, 0:01:19.319 --> 0:01:23.000 with a few magnificent exceptions. If you take a look 0:01:23.240 --> 0:01:27.600 at global EPs X mag seven. It was about negative 0:01:27.720 --> 0:01:32.119 seven percent last year, and we now see it recovering, 0:01:32.440 --> 0:01:36.600 while the labor market, which was torrential in terms of 0:01:36.600 --> 0:01:40.759 its rebound from the pandemic, is slowing down. So slowing 0:01:40.800 --> 0:01:44.000 employment and rising corporate profits. That's this moment. 0:01:44.240 --> 0:01:48.080 Annawan, publishing moments Ago on LinkedIn follows up where their 0:01:48.400 --> 0:01:54.120 zeitgeist changing birth death analysis. This is inside baseball, folks, 0:01:54.280 --> 0:01:58.040 only Widing reads this stuff. I don't, but Anna says 0:01:58.200 --> 0:02:01.360 it's here in the job reveal visions will show a 0:02:01.440 --> 0:02:03.480 more tepid American labor market. 0:02:03.600 --> 0:02:06.320 Do you agree, Well, let's just be careful to see 0:02:06.360 --> 0:02:09.600 the actual data, and she says, she says that, yeah, 0:02:09.639 --> 0:02:13.240 the levels versus the growth rates. And you know, when 0:02:13.240 --> 0:02:15.359 you're dealing with you one hundred and fifty million people, 0:02:15.440 --> 0:02:18.239 you know, is what does that necessarily mean? But I 0:02:18.240 --> 0:02:19.960 think if you take a look at the labor market, 0:02:20.480 --> 0:02:23.600 and this is all discussed in our City Global Wealth 0:02:23.639 --> 0:02:27.080 Midyear Outlook report we're releasing today, what you're seeing is 0:02:27.720 --> 0:02:31.160 a real slow down in gross hiring. And despite all 0:02:31.160 --> 0:02:34.280 the you know, the reports on layoffs, they're not up 0:02:34.360 --> 0:02:37.000 that much in the aggregate, but a real slow down 0:02:37.000 --> 0:02:38.320 and hiring. And you can take a look at the 0:02:38.680 --> 0:02:42.760 Jolts report. We've had four million fewer unfilled job openings 0:02:42.760 --> 0:02:45.400 from you know, twelve million, eight million rounded, right, so 0:02:45.840 --> 0:02:48.120 you know this path is coming down. There's something else now, 0:02:48.120 --> 0:02:50.679 this is really zooming in on the on the near term, 0:02:50.680 --> 0:02:53.400 and people get very crazed about this. But we had 0:02:53.440 --> 0:02:55.520 over two hundred and sixty thousand jobs created in the 0:02:55.520 --> 0:02:58.880 first quarter of the year. Guess what happens at midyear, right, 0:02:59.000 --> 0:03:01.679 we have a less sea an economy. Right, we're just 0:03:01.720 --> 0:03:04.679 thinking about agricultural cycles. See, maybe that's the one that 0:03:04.720 --> 0:03:07.360 people can can think about. We don't need to hire 0:03:07.400 --> 0:03:09.799 and fire everyone because of the time of the year 0:03:09.880 --> 0:03:11.799 the way we used to. If you take a look 0:03:11.840 --> 0:03:15.200 at economic surprises, the city economic surprise indecks, you will 0:03:15.200 --> 0:03:17.600 see that it's stronger in the winter and weaker in 0:03:17.639 --> 0:03:20.360 the spring and summer. And suddenly everyone is saying this, 0:03:20.560 --> 0:03:23.880 you know, economy was trenchally strong is now in a 0:03:23.919 --> 0:03:27.760 bust again. And that is not really happening either. But 0:03:27.800 --> 0:03:30.600 it wouldn't surprise me if job gains are about half 0:03:30.639 --> 0:03:31.560 the first quarter pace. 0:03:32.120 --> 0:03:34.920 Interesting, So Steve, I'm just I'm looking at the Wealth 0:03:34.960 --> 0:03:36.760 al of twenty twenty four, the mid year edition for 0:03:36.800 --> 0:03:40.960 you guys, renewed growth, New challenges, Building resistant portfolios is 0:03:41.760 --> 0:03:45.400 a resilient portfolio. Can I back away from the mag seven? 0:03:45.440 --> 0:03:47.800 Can I try to do some homework here and try 0:03:47.840 --> 0:03:49.920 to find some value outside of the magnizine seven? 0:03:50.080 --> 0:03:51.840 I think we just have to take a look. When 0:03:51.840 --> 0:03:53.760 you're when you deal with three trillion dollar companies, maybe 0:03:53.760 --> 0:03:56.360 you can take you know, an individual view. I would 0:03:56.360 --> 0:03:59.200 just say that, you know, for every chip maker, there's 0:03:59.240 --> 0:04:01.920 a customer, and if all of those customers are all 0:04:02.000 --> 0:04:04.800 spending like mad all at once, you know, we might 0:04:04.840 --> 0:04:07.200 think about their motes in the future and whether or 0:04:07.240 --> 0:04:09.440 not they're going to be competing in the same space. 0:04:10.000 --> 0:04:12.200 And you know, the good news and again the renewed 0:04:12.240 --> 0:04:14.960 growth part is on profits. I think ten out of 0:04:15.040 --> 0:04:17.880 eleven sectors will have EPs gains this year. I think 0:04:18.600 --> 0:04:23.040 much larger swath of the world will have EPs gains. 0:04:23.200 --> 0:04:24.880 And it's not that they're all going to be value 0:04:24.920 --> 0:04:28.600 the same, that'll never happen, but the rise in profits 0:04:28.720 --> 0:04:31.839 is the positive catalyst for more of the world equity market. 0:04:31.880 --> 0:04:33.720 All right, Well, how about a fixed income here? I mean, 0:04:33.880 --> 0:04:36.360 Lisa Mitteo is sitting in here at a two year 0:04:36.440 --> 0:04:40.880 treasury darn near five percent, no gray hairs, she sleeps fine. 0:04:41.080 --> 0:04:43.440 What's wrong with buying a two year treasury? Just sitting there? 0:04:43.520 --> 0:04:45.520 Well, you know, the world doesn't end in two years though, 0:04:45.520 --> 0:04:47.880 that's part part of the issue, you know. So the 0:04:47.920 --> 0:04:51.400 treasury market very efficiently is embedding a lot of easing, 0:04:51.960 --> 0:04:56.359 and the inverted yield curve makes it difficult. But you know, 0:04:56.400 --> 0:04:58.680 when the Fed says that it's long term normal rate 0:04:58.760 --> 0:05:01.520 is two point six percent, say that they're exaggerating. It 0:05:01.560 --> 0:05:03.880 isn't going to be that low. You know, what can 0:05:03.920 --> 0:05:06.200 you do with a four year duration? Where will you 0:05:06.320 --> 0:05:09.320 want to be in four years in terms of the 0:05:09.320 --> 0:05:12.320 interest rate that you're earning? And we think, again, there 0:05:12.320 --> 0:05:15.279 are big pieces of the bond market that without a 0:05:15.279 --> 0:05:17.880 lot of duration risk, you know, can can earn you 0:05:17.920 --> 0:05:18.520 six percent. 0:05:18.880 --> 0:05:20.960 What are we going to see? An issuance? What are 0:05:21.000 --> 0:05:23.320 we going to see? I mean, this is a nuts time. 0:05:23.440 --> 0:05:27.080 Even people that have nailed this, they don't Nvidia into 0:05:27.120 --> 0:05:30.880 the moon agree, there's a there's a there's a resonance, 0:05:31.080 --> 0:05:35.320 an anxiety to it, a frenzy almost is that Jodenny says, 0:05:35.320 --> 0:05:38.599 it's the roaring twenties. What are cfo's going to do? 0:05:39.360 --> 0:05:42.120 What I mean, I look at the bond issuance and 0:05:42.400 --> 0:05:45.120 this is not z body up at be you there's 0:05:45.160 --> 0:05:49.040 something going on here. Why are we seeing normal financing? 0:05:49.160 --> 0:05:53.320 Steve Whiting, Well, look, I think they're I guess that. 0:05:53.400 --> 0:05:55.480 You know, the thing that's most surprising if we look 0:05:55.560 --> 0:05:58.640 back now that in ten of the last fifteen years 0:05:58.720 --> 0:06:02.000 we're close to a zero policy rate, and you know, 0:06:02.160 --> 0:06:05.479 we had this wonderful period in twenty twenty one where 0:06:05.520 --> 0:06:08.680 Americans could get two and a half percent mortgages again, 0:06:08.920 --> 0:06:10.839 and you know and say, you know, put that on 0:06:10.880 --> 0:06:13.919 the wall. In the US, I think we've had just 0:06:14.040 --> 0:06:18.440 tremendous amount of refinancing and locking in, you know, of 0:06:18.560 --> 0:06:22.000 really good levels here that make the equity market better, 0:06:22.800 --> 0:06:26.120 and you know, have limited our need for for refinancing. 0:06:26.400 --> 0:06:28.719 I think again it'll pick up. There's some increase in 0:06:28.760 --> 0:06:31.760 interest costs, and even the US Treasury is better off 0:06:31.760 --> 0:06:34.039 because of the FEDS tightening. And I know that we've 0:06:34.040 --> 0:06:36.720 had a couple billion a couple hundred billion dollar increase 0:06:37.160 --> 0:06:39.320 on the level of our interest costs that will still 0:06:39.480 --> 0:06:41.800 go up in a bit of time. But they've knocked 0:06:41.839 --> 0:06:44.680 it out. They've stopped this from being early eighties kind 0:06:44.720 --> 0:06:45.320 of increased. 0:06:45.320 --> 0:06:58.440 Steve White, you think it's so much Mike Wilson, He 0:06:58.520 --> 0:07:02.960 joins us, Now some what cautious on this great bull market. Mike, 0:07:03.200 --> 0:07:06.840 how does a cautious bull play the madness of this 0:07:06.960 --> 0:07:08.080 technology rally? 0:07:09.880 --> 0:07:12.040 Yeah, I think that's a good way to phrase it, Tom. 0:07:12.080 --> 0:07:14.480 I mean, you know, it is a bull market in 0:07:14.520 --> 0:07:17.320 a lot of different areas of the market, and many 0:07:17.480 --> 0:07:19.400 parts of the market are in a bear market, and 0:07:19.480 --> 0:07:23.280 so that creates a really good opportunity at the stock 0:07:23.400 --> 0:07:25.640 level and at the index level. Now, of course, everybody 0:07:25.680 --> 0:07:29.240 knows about the you know, concentration in the index. Everyone 0:07:29.280 --> 0:07:32.760 knows about the you know, incredible outperformance of the of 0:07:32.800 --> 0:07:35.960 the high quality gross stocks relative to say low quality 0:07:36.000 --> 0:07:38.280 small caps. And and that's what we've been doing, is 0:07:38.320 --> 0:07:41.400 we've been really trying to create the relative value trades 0:07:41.440 --> 0:07:43.520 within the market. The one that is the most consistent. 0:07:43.560 --> 0:07:46.360 There's been several over the last eighteen months. And it's 0:07:46.680 --> 0:07:48.360 and by the way I should have set the stage, 0:07:48.480 --> 0:07:53.200 it's it's a late cycle economy and a late cycle economy. 0:07:53.520 --> 0:07:56.960 Full employment you know that that is fairly tight. They're 0:07:57.000 --> 0:08:01.240 maybe about to start cutting Typically large app quality is 0:08:01.280 --> 0:08:03.280 the place to be, and that is essentially the S 0:08:03.320 --> 0:08:05.800 and P. Five hundred. So that all makes sense, and 0:08:05.880 --> 0:08:08.320 I think there's this there's sort of this appetite to 0:08:08.440 --> 0:08:11.840 want to veer away from that, to go down to 0:08:11.920 --> 0:08:14.880 quality curve. Everybody say, well, we can't keep buying the 0:08:14.920 --> 0:08:17.160 same stocks, and the reality is is that's the way 0:08:17.200 --> 0:08:19.240 it usually is at the end of a cycle, and 0:08:19.240 --> 0:08:20.840 they can go on for longer than you think. 0:08:21.200 --> 0:08:23.560 Mike Wilson, if we get a breakdown in yields and 0:08:23.560 --> 0:08:25.520 I've got a ten year real yield one point nine 0:08:25.640 --> 0:08:29.760 nine percent, check, yes, one point nine nine percent. If 0:08:29.840 --> 0:08:34.800 yields actually breakdown for whatever, Ellen Zenner reason, how does 0:08:34.840 --> 0:08:36.760 that change equity dynamics? 0:08:38.400 --> 0:08:41.520 Well, I mean, look, it depends on why yields are falling. Okay, 0:08:41.600 --> 0:08:43.960 So if yields are falling, because the FED is going 0:08:44.000 --> 0:08:46.520 to give us some sort of insurance cuts here, which 0:08:46.600 --> 0:08:49.960 is Ellen's view, and quite frankly that's the Fed's view too, right, 0:08:50.000 --> 0:08:52.280 They're not, I mean, they're they're they're signaling they're going 0:08:52.320 --> 0:08:55.439 to cut rates because they can not, because they have 0:08:55.520 --> 0:08:58.840 to and in that environment, well, that kind of speaks 0:08:58.840 --> 0:09:00.800 to more of the same, which is that we continue 0:09:00.840 --> 0:09:04.480 to see you know, high quality stocks outperforming. Now, by 0:09:04.480 --> 0:09:06.200 the way, it doesn't have to be seven stocks. It 0:09:06.240 --> 0:09:09.280 can be areas and industrials, it can be some healthcare stocks, 0:09:09.320 --> 0:09:13.199 it can be consumer stocks. But what usually does well is, 0:09:13.280 --> 0:09:16.320 you know, his rates come down slowly because growth is 0:09:16.360 --> 0:09:20.040 slowing but not crashing, is higher multiples. And that's the 0:09:20.120 --> 0:09:23.800 environment we're in and that probably persists now. Things are 0:09:23.920 --> 0:09:26.560 stretched on evaluation basis, and we've written about that's why 0:09:26.559 --> 0:09:29.000 we're not as bullish as others in terms of where 0:09:29.000 --> 0:09:31.560 the index can go over the next six or twelve months. 0:09:32.120 --> 0:09:35.719 And so therefore, you know, we're trying to define opportunities 0:09:35.760 --> 0:09:37.920 away from the stocks that have already run. And I 0:09:37.920 --> 0:09:40.520 would say the other theme that's worked really well is 0:09:40.600 --> 0:09:44.440 operational efficiency. So companies that maybe aren't growing as fast 0:09:44.440 --> 0:09:46.960 in the top line, but are doing a phenomenal job 0:09:47.000 --> 0:09:50.400 of managing their businesses to you know, generate cash flow 0:09:50.440 --> 0:09:51.840 from whatever revenue they are getting. 0:09:53.080 --> 0:09:56.040 Hey, Mike, talk to us about I guess the industrial 0:09:56.080 --> 0:09:58.080 economy here is it's a sector we should be looking 0:09:58.080 --> 0:10:00.040 out away from the Magnificent seven. I mean, I've we 0:10:00.120 --> 0:10:03.120 got a government is talking about a lot of fiscal 0:10:03.320 --> 0:10:07.920 stimulus here, a lot of investments spending and going forward 0:10:08.000 --> 0:10:10.320 over the next decade or so, and maybe even some 0:10:10.400 --> 0:10:13.280 rates coming down. Is the industrial sector someplace where people 0:10:13.280 --> 0:10:15.880 should be looking for some opportunities. 0:10:16.480 --> 0:10:18.120 Well, we think so. We've been talking about this for 0:10:18.160 --> 0:10:20.480 about a year now, and for the reasons you've mentioned. 0:10:20.520 --> 0:10:23.400 In many ways, I would say the industrial sector has 0:10:23.480 --> 0:10:26.679 more legs to the stool than the technology sector. Right 0:10:26.679 --> 0:10:30.360 the technology sector has AI spending, but quite frankly, core 0:10:30.520 --> 0:10:34.840 IT spending is somewhat in a recession right now because 0:10:34.880 --> 0:10:38.160 of all the payback from the COVID pull forward. Meanwhile, 0:10:38.160 --> 0:10:41.720 industrials have you know, the CHIPSAC program, they have the 0:10:41.920 --> 0:10:46.760 IRA policy, they have the reshoring, they have the infrastructure 0:10:46.840 --> 0:10:48.920 upgrades that are going on all over the world, the 0:10:48.960 --> 0:10:53.640 green infrastructure sort of retrofitting. So there's a lot of 0:10:54.320 --> 0:10:57.080 sort of irons in the fire that can drive strong 0:10:57.120 --> 0:10:59.720 revenue growth for capital goods companies. Now, once again, not 0:10:59.840 --> 0:11:03.200 all industrial companies are created equal. Right now, not all 0:11:03.240 --> 0:11:07.120 going to benefit equally from this sort of trend. But 0:11:07.320 --> 0:11:10.640 you know, the capital goods companies that have exposure to 0:11:10.679 --> 0:11:12.480 those types of spending should continue to do well. 0:11:13.400 --> 0:11:16.440 So one of the other areas of you know, Mike, 0:11:16.480 --> 0:11:18.880 a lot of folks think about, is just how about 0:11:18.880 --> 0:11:21.600 this energy space here? We've got wtech crude oil now 0:11:21.640 --> 0:11:24.520 down below seventy five It was as high as ninety 0:11:24.640 --> 0:11:28.080 just several weeks ago. What do we do with global 0:11:28.200 --> 0:11:31.960 energy here? If this world is trying to move towards 0:11:32.320 --> 0:11:33.760 a greener energy space. 0:11:34.720 --> 0:11:37.160 It is I mean, look, I think energy longer term, 0:11:37.200 --> 0:11:40.959 intermediate term is probably still an attractive asset because we're 0:11:40.960 --> 0:11:43.040 going to continue to use fossil fuels even with the 0:11:43.720 --> 0:11:47.200 green transition. However, in the short term energy prices have 0:11:47.200 --> 0:11:49.600 been under pressure for two reasons. I think. Number one, 0:11:49.800 --> 0:11:52.480 we've seen a little bit of a supply boost from 0:11:52.640 --> 0:11:54.840 OPEC talking about it. In the intermediate term, they may 0:11:54.840 --> 0:11:56.920 continue to produce more. It looks like Saudiy Raby's trying 0:11:56.960 --> 0:11:59.320 to take share back and prices have come down for 0:11:59.320 --> 0:12:00.559 that reason. But I don't I still think there's a 0:12:00.559 --> 0:12:03.199 little bit of a sluggish demand picture that doesn't get 0:12:03.200 --> 0:12:05.320 a lot of attention, and this is one of our 0:12:05.360 --> 0:12:07.800 concerns about the broader market, which is that we still 0:12:07.840 --> 0:12:10.800 think there's a decent chance of you know, not just 0:12:10.840 --> 0:12:12.640 a soft landing, but also a hard landing and a 0:12:12.720 --> 0:12:15.240 no landing, and we just don't know the outcome there, 0:12:15.240 --> 0:12:18.240 and so we are watching the energy space closely as 0:12:18.240 --> 0:12:21.480 a signal that maybe driving demand as we go into 0:12:21.480 --> 0:12:24.880 the summer or other forms of demand for energy is 0:12:24.920 --> 0:12:26.920 not as robust as you might think given the strength 0:12:26.960 --> 0:12:27.920 in the overall economy. 0:12:27.960 --> 0:12:30.840 Mike Wilson, I got one minute left. How do you 0:12:30.960 --> 0:12:35.360 use cash now as a hedge? Are you? Are you 0:12:35.520 --> 0:12:39.320 fully in the markets with your caution or is cash 0:12:39.400 --> 0:12:41.040 a constructive tool? 0:12:42.480 --> 0:12:44.560 Well, we always have some cash on the sidelines. You 0:12:44.559 --> 0:12:47.319 should as any you know, asset owner investor should I 0:12:47.360 --> 0:12:49.320 mean obvious if you're an asset manager. Is a little different. 0:12:49.800 --> 0:12:52.679 And I do think the barbell of cash and high 0:12:52.760 --> 0:12:55.439 quality stocks has been the place to be and it 0:12:55.480 --> 0:12:57.120 probably will continue to be the place to be as 0:12:57.120 --> 0:12:59.080 long as we remain in this sort of late cycle 0:12:59.520 --> 0:13:03.040 softly outcome. Right, So in other words, cash is probably 0:13:03.040 --> 0:13:06.680 better than long duration because long duration has risk and 0:13:06.720 --> 0:13:10.240 you're getting another percent returned on front end cash, So 0:13:10.280 --> 0:13:12.959 there's nothing wrong with that, But being fully invested in 0:13:13.080 --> 0:13:16.280 high quality stocks. Is is also part of that strategy. 0:13:16.480 --> 0:13:29.559 Mike Wilson, thank you so much for that. We speak 0:13:29.600 --> 0:13:33.160 with Monica Defense, head of a Monday Institute of Course 0:13:33.240 --> 0:13:37.720 of Europe on this ECB decision. Monica, just to frame 0:13:37.800 --> 0:13:40.319 this full of guard and the challenge of the press conference, 0:13:41.040 --> 0:13:44.240 is there disinflation in Europe? 0:13:45.480 --> 0:13:48.640 Yes, we think that the trend is there, but the 0:13:48.760 --> 0:13:53.199 direction one't billinear. So we do expect a little bit 0:13:53.200 --> 0:13:56.800 of stolling and then our volatility and on the back 0:13:56.840 --> 0:13:59.800 of this probably we will have actually the cuts today, 0:14:00.840 --> 0:14:03.319 but we are not expecting a catcher to come into 0:14:03.360 --> 0:14:08.880 life just because on this inflation that is taking longer 0:14:08.920 --> 0:14:12.520 and is lower than expected. They don't really they are 0:14:12.559 --> 0:14:14.640 not really in a rush to cut father Paul. 0:14:14.679 --> 0:14:18.360 I see on the nominal GDP question core inflation, they're twosh. 0:14:18.960 --> 0:14:22.240 I'm gonna say, as a conversational point, get out to growth, 0:14:22.440 --> 0:14:25.800 which is not what you'd expect from the Fed. Next 0:14:26.040 --> 0:14:30.120 year's growth one point four percent, down a tenth. So 0:14:30.160 --> 0:14:33.520 you got a nominal GDP that is different than the 0:14:33.560 --> 0:14:35.960 nominal GDP of the party you're going to in New 0:14:36.040 --> 0:14:36.960 Jersey this weekend. 0:14:37.040 --> 0:14:41.640 Exactly so Monica, Is this the ECB telling the markets 0:14:41.880 --> 0:14:46.040 global Wall Street that inflation in Europe is in check? 0:14:46.120 --> 0:14:47.480 Is that what we're hearing today? 0:14:49.320 --> 0:14:52.200 Yes, this is probably what is happening. But if I 0:14:52.200 --> 0:14:55.520 can go back to your point before, having in mind 0:14:55.520 --> 0:14:59.480 that the central banks one target the GDP growth, it's 0:14:59.640 --> 0:15:02.560 really on the output gap, and this might help us 0:15:02.600 --> 0:15:06.640 explaining what to expect from the central banks, notably the 0:15:06.640 --> 0:15:10.000 FED moving forward where the outpook gap is narrowing and 0:15:10.040 --> 0:15:11.640 is expected to progressively. 0:15:11.720 --> 0:15:15.240 Our father, so Mana, give us a sense of just 0:15:15.320 --> 0:15:19.280 kind of broadly defined how the EU economy is today. 0:15:19.280 --> 0:15:22.960 Does the EU economy need these rate cuts or is 0:15:23.000 --> 0:15:24.920 it kind of rebounding on its own? 0:15:26.560 --> 0:15:30.840 Well, the U economy is approved has proved to be 0:15:31.080 --> 0:15:35.160 less reason relented than the US. We came out of 0:15:35.200 --> 0:15:39.960 the post pandemic in a slower manner. But we think 0:15:39.960 --> 0:15:43.200 that now, at least for the second ATA, we are 0:15:43.320 --> 0:15:46.240 just approaching to two potentials. So we are coming from 0:15:46.320 --> 0:15:52.080 south approaching the potential growth. Obviously, within the Uter Zone 0:15:52.160 --> 0:15:56.240 there are countries that are really running at different at 0:15:56.320 --> 0:15:59.480 different speed. And this is if you weren't complicating the 0:15:59.560 --> 0:16:02.200 job that the easy be has. 0:16:02.080 --> 0:16:05.160 To do so given that backgroup, Monica, when you talk 0:16:05.200 --> 0:16:08.440 to your institution investor clients at a MUNDI, where are 0:16:08.440 --> 0:16:12.040 they looking for opportunities if they're willing to take some 0:16:12.200 --> 0:16:13.400 risk in this market. 0:16:14.560 --> 0:16:20.080 Well, we really need to have magnify a lenses. So 0:16:20.280 --> 0:16:24.680 when because just because top down is really difficult to 0:16:24.800 --> 0:16:31.120 find convincing structural investment opportunities. When it goes to Europe, 0:16:31.160 --> 0:16:35.600 probably having the easy B set for further cuts and 0:16:35.720 --> 0:16:39.520 the cycle that is expected to renew some momentum, small 0:16:39.520 --> 0:16:43.480 cap might be an interesting opportunity as well as the 0:16:43.680 --> 0:16:49.960 UK equities for example, just because of the sector, the 0:16:49.960 --> 0:16:53.800 equity composition, the sector composition of the of the equity market. 0:16:53.960 --> 0:16:58.200 When it goes to the US, probably our clients are 0:16:58.240 --> 0:17:01.200 a little bit more coacious where there are plenty of 0:17:01.240 --> 0:17:02.960 opportunities in emerging markets. 0:17:03.360 --> 0:17:06.960 Monica, is there a divide at the ECB? Regard has 0:17:06.960 --> 0:17:11.160 done such a good job of straddling the political tension, 0:17:11.240 --> 0:17:14.240 But on this historic day of a rate cut in 0:17:14.320 --> 0:17:18.600 the ECB, even around an inflation forecast that lives that 0:17:18.680 --> 0:17:22.840 in itself is absurd. But Monica, how big is the division, 0:17:22.960 --> 0:17:25.840 say between Germany and Finland? I mean just as one. 0:17:25.680 --> 0:17:32.359 Example, when it goes to inflation, for sure, dries just 0:17:32.400 --> 0:17:36.440 because all prices have been impacted in a different way 0:17:37.840 --> 0:17:41.679 the two regions and going in that granularity is what 0:17:42.160 --> 0:17:45.359 I meant with having such a hard job when it 0:17:45.400 --> 0:17:50.560 goes to the ECB decision. But EVI said that probably 0:17:50.840 --> 0:17:54.399 there is this core of countries that because of the 0:17:54.400 --> 0:17:57.640 weight that they have also on the markets that I'm 0:17:57.640 --> 0:18:01.600 not saying are in the driving seats, but possibly are 0:18:01.640 --> 0:18:04.600 definitely relevant as a marketing impact at least. 0:18:05.160 --> 0:18:07.600 Do you agree that there's a little bit of vibrancy 0:18:07.640 --> 0:18:10.560 here in the Eurozone they look at a growth lift 0:18:10.840 --> 0:18:13.600 for twenty twenty four. Do you agree? 0:18:14.760 --> 0:18:20.160 Yes, yes, I agree, and we really think that because 0:18:20.200 --> 0:18:25.000 of the Olympics, because of tourism, there are some there 0:18:25.040 --> 0:18:28.359 is going to be some seasonal momentum. Obviously, what the 0:18:28.480 --> 0:18:33.320 European euro Area needs is an industrial policy that can 0:18:33.480 --> 0:18:37.399 set the region into a longer structural, higher trend. 0:18:38.480 --> 0:18:40.680 Monica, thank you so much. Monica defend with us with 0:18:40.760 --> 0:18:54.640 a Munday Institute. John Storphus joins us because he knows 0:18:54.680 --> 0:18:56.320 you just got to be in the market to win. 0:18:56.920 --> 0:19:01.000 John stofas, how have you amended your bod market call 0:19:01.160 --> 0:19:02.840 in the last number of days. 0:19:04.359 --> 0:19:06.760 Good morning, Tom, and thanks for having me on the show. 0:19:07.119 --> 0:19:11.160 Must they really haven't amended it a hell of a lot, 0:19:11.200 --> 0:19:14.920 while we have recognized the fact that the utilities are 0:19:14.920 --> 0:19:20.880 really performing remarkably well, which essentially suggests to us that 0:19:20.920 --> 0:19:24.919 the market is becoming more confident on a FED cut 0:19:25.720 --> 0:19:29.359 and I think much more realistically now focusing on Kutzfort 0:19:29.600 --> 0:19:33.040 probably in November and December of about twenty five BIPs 0:19:33.040 --> 0:19:36.000 a piece, maybe only one to twenty five BIPs and 0:19:36.080 --> 0:19:39.800 maybe just to continue with other guests have said today 0:19:40.400 --> 0:19:44.760 on your show, indeed you know it's coming, and the 0:19:44.800 --> 0:19:49.880 FED has been remarkably successful at a hike cycle eleven hikes, 0:19:49.920 --> 0:19:53.960 seven pauses or skips as they call them, without putting 0:19:54.000 --> 0:19:56.080 us into a recession thus far. 0:19:56.600 --> 0:19:58.280 Hey, what do you make John of these earnings here 0:19:58.359 --> 0:20:00.840 we've had we just kind of pretty I guess decent 0:20:00.840 --> 0:20:04.080 earnings period is enough to support this market here if 0:20:04.119 --> 0:20:05.240 we have a FED that's going to be kind of 0:20:05.240 --> 0:20:08.520 standing on the sidelines a little bit, you know, Paul, 0:20:08.760 --> 0:20:09.240 I got to. 0:20:09.280 --> 0:20:12.199 Say that the earnings we think are really pretty phenomenal. 0:20:12.240 --> 0:20:15.000 The overall number, you know, shows growth at around seven 0:20:15.080 --> 0:20:18.840 point seven percent on the EA page on the Bloomberg terminal, 0:20:19.280 --> 0:20:23.359 and on back of earnings of around four percent, and 0:20:23.520 --> 0:20:26.199 that is much better than expected at the beginning of 0:20:26.280 --> 0:20:30.840 the earning season for Q one I recall, I think 0:20:30.840 --> 0:20:33.080 it was about that people were looking for about three 0:20:33.119 --> 0:20:38.359 point nine percent in the surveys in terms of earnings growth. 0:20:38.640 --> 0:20:41.840 And when you look at it, it's eight sectors positive 0:20:41.840 --> 0:20:45.639 earnings growth, and within those eight six of them double 0:20:45.720 --> 0:20:49.199 digit earnings growth. Only one of them a defensive sector, 0:20:49.200 --> 0:20:53.360 which is the utes. But you've got communications services, you've 0:20:53.400 --> 0:20:58.919 got consumer discretionary, you've got information technology and financials with 0:20:59.119 --> 0:21:02.439 double digit earnings growth. This is a big deal and 0:21:02.640 --> 0:21:06.240 very seldomension have to lift up the hood, right, bring 0:21:06.240 --> 0:21:07.960 out the Bloomberg and lift up the hood. 0:21:08.480 --> 0:21:11.720 You mentioned utilities. Is this just a play on AI 0:21:11.960 --> 0:21:15.400 or is there something I'm missing here on utilities, Paul, 0:21:15.560 --> 0:21:16.720 I think it's two things. 0:21:16.760 --> 0:21:19.679 One is that most of the utilities, as I recall, 0:21:19.760 --> 0:21:25.320 in the and P five hundred youth sector, are regulated, 0:21:25.480 --> 0:21:30.520 so they've been experiencing higher costs in terms of fuel 0:21:30.680 --> 0:21:33.360 and operational costs. 0:21:33.400 --> 0:21:40.840 Now, so likely the regulators granted them increased billing I mean, 0:21:41.280 --> 0:21:43.359 for those of us who have con ed, do we 0:21:43.440 --> 0:21:49.480 know it? But the reality is the earning more because 0:21:49.600 --> 0:21:53.560 likely the regulators have naturally given them the ability to 0:21:53.640 --> 0:21:56.159 raise their prices. But the other story there is the 0:21:56.240 --> 0:22:00.000 longer term story, or the duration story as we say nowadays, 0:22:00.359 --> 0:22:04.560 anything tech related likely is that utes are likely to 0:22:04.600 --> 0:22:09.560 be huge participants in the build out of the new 0:22:10.800 --> 0:22:14.679 grid in terms of transporting electricity and the whole process 0:22:15.040 --> 0:22:18.199 of producing it. And that's the longer term story that 0:22:18.280 --> 0:22:21.119 I think investors who are intermediate to long term looking 0:22:21.160 --> 0:22:25.119 for on top of a dividend, on top of better earnings, 0:22:25.400 --> 0:22:25.960 et cetera. 0:22:26.280 --> 0:22:30.199 Paul years ago, did we have market timing? Was it 0:22:30.240 --> 0:22:31.199 as big as it is? 0:22:31.320 --> 0:22:35.240 I'll note it's tough to do, that's for sure, market timing. 0:22:35.520 --> 0:22:38.359