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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. A slower FED.

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Speaker 3: Speak on tap. This week we'll hear from Williams, Harker

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Speaker 3: and Cook today. There are six more speakers tomorrow, plus

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Speaker 3: retail sales data. On Thursday, more Fed Speak, plus housing

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Speaker 3: starts and jobless claims. Neila Richardson of ADP writing this,

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Speaker 3: jobs aren't everything. Labor market data has been decent news,

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Speaker 3: but as a federal Reserve takes a wait and see

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Speaker 3: approach on interest rates, we see big changes afoot on

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Speaker 3: pay Neila joining us now and Neila, what I love

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Speaker 3: is you can dig beneath the data at a time

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Speaker 3: when it has been so confusing. Can you give us

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Speaker 3: a sense of just sort of the sea changes under

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Speaker 3: the hood that might be warping some of the overall

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Speaker 3: index levels.

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Speaker 2: That we're tracking.

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Speaker 4: Sure, well, good morning, it's great to be with you

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Speaker 4: all today. I think what's interesting about this moment is

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Speaker 4: that this is the most PopEd and proddugt economy that

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Speaker 4: I've ever seen. Every data point seems live and important.

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Speaker 5: But it's not.

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Speaker 4: It's sometimes like a caffey and what we're looking at

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Speaker 4: at ADP we're going through to what we think is

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Speaker 4: most important in the sea economy, which is how companies

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Speaker 4: hire and what they pay, and that has changed significantly

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Speaker 4: over the last four years. We've seen shifts in geographic

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Speaker 4: distributions of people are commuting long distances. That has an

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Speaker 4: effect on pay. In fact, we find in our latest

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Speaker 4: reports out today that people who actually go the distance

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Speaker 4: for employment make sixteen percent more than people on their

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Speaker 4: own teams. So that's a huge change and it's under examined.

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Speaker 4: In this market. We're seeing pay distribution change. The gaps

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Speaker 4: between the wealthiest workers and the lowest paid workers has

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Speaker 4: grown by our estimate five percentage points over the last

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Speaker 4: four years. We're seeing occupational changes, We're software developers, which

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Speaker 4: should be an.

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Speaker 6: End demand job.

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Speaker 4: With all of this talk about AI, there are fewer

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Speaker 4: selfware developers now than in twenty eighteen. And then of

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Speaker 4: course for all of us who have teenagers, some are

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Speaker 4: hiring is in focus. The summer looks strong in terms

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Speaker 4: of jobs, but not so strong in terms of pay

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Speaker 4: for these young people. So all of these shifts feed

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Speaker 4: into the narrative, and the distribution of the worker not

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Speaker 4: something we talk about a lot.

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Speaker 5: And I guess that's part of the reason why the

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Speaker 5: data has been confusing, because there are these structural shifts

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Speaker 5: that doesn't necessarily show itself on a headline level. So

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Speaker 5: what do we do with the data? Then? Should we

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Speaker 5: just ignore it? Should we discount it? Because things are

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Speaker 5: different and what it's telling us isn't really what's happening

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Speaker 5: under the surface.

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Speaker 4: We can't discount it because we know that a certain

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Speaker 4: really important institution is pegging a certain really important decision

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Speaker 4: on the cancophany of data points. But that one move

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Speaker 4: won't shape the economy. Whether you lower interest rates by

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Speaker 4: one down one dip this year twenty five basis points

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Speaker 4: or two or three really won't change the distribution of

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Speaker 4: the US workforce, which has shifted. And I think that's

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Speaker 4: what we're seeing in the data that pay change. This

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Speaker 4: low level of wage growth that was really keeping the

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Speaker 4: economy on track during the ten years of expansion is

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Speaker 4: not here now that pay is changing, it's evolving, and

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Speaker 4: that involvement in pay means that inflation may go up,

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Speaker 4: may be higher for longer, and the Fed always has

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Speaker 4: to be watchful on the stata point and on pay.

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Speaker 4: In particular.

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Speaker 7: Consumer sentiment did not look good on Friday, and the

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Speaker 7: director of the survey had this to say, the views

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Speaker 7: of middle income consumers resemble those of their lower income counterparts,

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Speaker 7: a departure from historical patterns in which their mentions are

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Speaker 7: squarely between those of higher and lower income consumers. So

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Speaker 7: what are you saying that the wage gage gains are

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Speaker 7: not on par with the inflation that middle and lower

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Speaker 7: income individuals are feeling.

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Speaker 4: You know, what they're seeing is price levels, and they're

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Speaker 4: looking at, yes, their paychecks, but they're looking at what's

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Speaker 4: in their basket at the grocery store. And as long

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Speaker 4: as there's a disconnect between how much their take home

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Speaker 4: pay has grown and how much their basket has shrunk,

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Speaker 4: they're always going to be a little moody. Now we've

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Speaker 4: seen that a moody bad vibes on the consumer side

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Speaker 4: does not necessarily translate to lower retail spending. That's going

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Speaker 4: to be something to watch this week. Last April, retail

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Speaker 4: spending was flat. Those vibes have prepped in how long,

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Speaker 4: how permanent they are, whether they affect spending is going

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Speaker 4: to be really important. We've seen some resilience in the consumer.

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Speaker 4: I would argue from the high end consumer. They have

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Speaker 4: been carrying this economy. So it's a really interesting situation

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Speaker 4: that we're seeing in the pay When you take the

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Speaker 4: pay and the retail side together, what you're seeing is

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Speaker 4: that firms are raising prices because they have to increase

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Speaker 4: pay from all those double digit pay gains safety and

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Speaker 4: from low paid workers. But the people who've actually benefited

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Speaker 4: the most are high earners from asset prices, from higher

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Speaker 4: wage games. And so you have this like combination, this cohabitation.

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Speaker 4: I'm trying to crush it between high spending high earners

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Speaker 4: and low income workers who are seeing high pay growth

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Speaker 4: but not able to spend at the same rates because

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Speaker 4: of higher price levels.

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Speaker 3: I'm glad that you brought that up very that survey

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Speaker 3: that came out and the commentary from what we got

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Speaker 3: from the University of Michigan survey, it kind of raised

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Speaker 3: alarm bells for me because it's atypical. Usually what you

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Speaker 3: see is that middle income workers kind of are in

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Speaker 3: the middle when it comes to how they feel relative

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Speaker 3: to the high end and the low end. They're not

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Speaker 3: this time. They're shifting to the low end, and it

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Speaker 3: raises this question. It's been the big question for a

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Speaker 3: lot of people. Are we seeing the beginning of a

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Speaker 3: shift downward that's going to be a more protractive, protracted

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Speaker 3: weakening in the labor market. Are you seeing that? Is

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Speaker 3: this a problem for you? That whatever it is, you

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Speaker 3: can't reject people's feelings on mass and so there's something

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Speaker 3: going on that's going to potentially have a significant impact

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Speaker 3: on the economy.

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Speaker 4: Feelings do translate into behavior. That's why we measure them,

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Speaker 4: That's why they're important. And if you're seeing a diffusion

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Speaker 4: of bad vibes, I'm wayful that bad vibes through the

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Speaker 4: income distribution. It doesn't spell good news for the economy.

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Speaker 4: When I hear what I hear from main Street is

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Speaker 4: I'm delaying, I'm being like the Fed to watch the

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Speaker 4: watch before I take on that new lease of my

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Speaker 4: new car. I'm going to watch before I buy that

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Speaker 4: investment property, that rental property. So that waiting watching has

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Speaker 4: an effect on the economy. So even if you can

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Speaker 4: afford to spend, you may not do it this quarter

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Speaker 4: because you're waiting.

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Speaker 3: So this is sort of the diversions between the bulls

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Speaker 3: and the bears. Some people I'm thinking of Andrew Hall

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Speaker 3: and Horns out there is thinking this is the beginning

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Speaker 3: of a real weakening that we're going to see in

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Speaker 3: a labor market. Last week's climb and initial job, as claims,

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Speaker 3: was a harbinger of a greater degree of weakening under

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Speaker 3: the hood.

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Speaker 4: Do you see that now? I think again that goes

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Speaker 4: back to my comments about this economy being prodded a

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Speaker 4: little bit. This is a normal economy. You're not going

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Speaker 4: to make straight a's every quarter. You're going to have

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Speaker 4: some weakness here and there. There's going to be weakness

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Speaker 4: in pockets, but that doesn't mean that it's a persistence diffusion.

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Speaker 4: What we're trying to figure out, and it's a hair

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Speaker 4: trigger decision, is when the FED can feel comfortable cutting

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Speaker 4: rates that doesn't mean the economy is bad because they

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Speaker 4: start cutting it. I mean it's necessarily good because they

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Speaker 4: start cutting it. I think what it means is that

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Speaker 4: the FED as a whole collectively feels that they're a

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Speaker 4: little more restrictive than they want to be in this

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Speaker 4: particular normalizing economy.

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Speaker 5: So feeling better about the vibe session maybe, But okay,

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Speaker 5: one of this idea, I get not to harp on this,

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Speaker 5: but this idea of all of a sudden everybody's feeling

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Speaker 5: a lot worse in the middle income consumer too. Jim

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Speaker 5: Bianco and looking at that UMich data basically looked at

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Speaker 5: and said, there's been something strange happening with it. It's

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Speaker 5: actually democratic opinion that has really turned. I wonder if

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Speaker 5: you look at it and say the same thing. Maybe

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Speaker 5: what's actually happening is that political bias, But it's this

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Speaker 5: huge cohort saying maybe Trump is going to be elected,

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Speaker 5: So it's still that political influence. But on the other

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Speaker 5: side too. It's hard to tell.

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Speaker 4: At the stage. We know that that MISS survey has

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Speaker 4: had a methodological change too. It's gone online. We don't

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Speaker 4: know if that changes the sample we've seen though for

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Speaker 4: the past two months pretty downbeat sentiment. I'd be hesitant

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Speaker 4: though then the changes that we've seen on the methodological

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Speaker 4: end to put too much on the political differences right now.

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Speaker 4: But we know that politics does affect opinion, does affect

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Speaker 4: vibes on the economy, and we'll see and should track

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Speaker 4: how that plays out over the course of the next

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Speaker 4: six months.

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Speaker 2: For sure.

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Speaker 3: Neili Richardson of ADP and of Bloomberg Television contributor, thank

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Speaker 3: you so much for being with us as always looking

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Speaker 3: forward to next time. Sam stoveall of CFURI also looking

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Speaker 3: closer at the tech trade, saying this, even those six

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Speaker 3: sectors also advanced, The tech sector was the exclusive outperformer

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Speaker 3: last week, causing one to wonder just how long this

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Speaker 3: can keep? Can this jumbo jet keep flying on only

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Speaker 3: one engine? Sam joins us now and Sam, I have

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Speaker 3: to say this, in some ways is the quote of

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Speaker 3: the morning to me, given the fact that this is

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Speaker 3: the ultimate existential question. Is this US stock market ultimately

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Speaker 3: incredibly vulnerable because of the dominance of the big tech

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Speaker 3: names or is it incredibly resilient because of them? Is

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Speaker 3: it a feature or is it a bug? What do

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Speaker 3: you think?

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Speaker 8: Well, Lisa, good morning, I think that it is resilient. However,

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Speaker 8: I do believe that we are headed for a second

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Speaker 8: decline of five percent or more in this year. Good

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Speaker 8: news is, however, that based on my historical work, every

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Speaker 8: one of those top fifteen first quarters ended up with

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Speaker 8: a gain for the entire year, even though many of

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Speaker 8: them went through two entry year declines of five percent

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Speaker 8: or more, and those average annual increases exceeded twenty percent.

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Speaker 8: But when I look to the S and P five hundred,

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Speaker 8: I see it trading at a thirty two percent premium

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Speaker 8: to its average twenty year pe.

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Speaker 6: I look at TECH at a sixty.

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Speaker 8: Eight percent premium, and I look at TECH at a

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Speaker 8: twenty one percent premium on a relative pe basis, I

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Speaker 8: do sort of wonder if we've jumped gone too far,

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Speaker 8: too fast and need to reset the dials in order

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Speaker 8: to maintain this longer term upward trajectory.

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Speaker 3: So basically, you're saying that you think that TECH is

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Speaker 3: going to pull back a bit as the rest of

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Speaker 3: the index maybe just hovers around where it is now,

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Speaker 3: and that's what's going to drive the index level five

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Speaker 3: percent lower. Is that what I'm hearing from you?

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Speaker 6: Well, I'm saying it's going to decline by at least

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Speaker 6: five percent.

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Speaker 8: Actually, history would say that we're probably going to experience

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Speaker 8: a mild correction, So that forty eight hundred level on

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Speaker 8: the S and P I don't think is out of

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Speaker 8: the question at this point. I think that if we

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Speaker 8: do start to see people take some profits in tech,

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Speaker 8: it's not going to be just tech alone. Tech and

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Speaker 8: consumer communications services are the only two sectors that are

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Speaker 8: outperforming the S and P. Since we had about sixty

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Speaker 8: eight percent of the S and P fifteen hundred sub

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Speaker 8: industries trading above both their fifty and two hundred day

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Speaker 8: moving averages, today that number is down to thirty eight percent.

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Speaker 8: So while the market has been advancing, it's really being

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Speaker 8: led by tech and to a much lesser extent, communication services.

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Speaker 5: And it's been a long time since we've seen a

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Speaker 5: five percent more or decline in this US stock market.

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Speaker 5: It's been a long time since we've seen a two

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Speaker 5: percent decline in this stock market. It is, as Bank

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Speaker 5: of America wants called it, the Pavlovian urged to continue

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Speaker 5: to buy because stocks keep going up? What needs to change?

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Speaker 5: Because valuations alone haven't spooped investors, So what changes that

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Speaker 5: allows for that sell off to happen.

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Speaker 8: Sure well, we did experience a five point five percent

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Speaker 8: decline from March twenty eight through April nineteenth, and we

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Speaker 8: recovered everything we lost by mid May, which is not

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Speaker 8: surprising because of the sixty four declines of five to

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Speaker 8: ten percent since World War Two. It took us only

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Speaker 8: a month and a half to get back to break even.

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Speaker 8: So that's why I typically say that you're better off

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Speaker 8: not allowing your emotions to drive your portfolio decisions.

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Speaker 6: But as we saw last.

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Speaker 8: Time, with the tenure yield creeping higher, causing investors to

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Speaker 8: worry about where it would end up peaking, also the

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Speaker 8: worry about the Fed not likely to cut interest rates

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Speaker 8: three times, as the March dot plots had indicated. Most recently,

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Speaker 8: expectations were for two. Yet I found that investory bulliance

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Speaker 8: was dashed by the dots this time around, with the

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Speaker 8: expectation now only being at one.

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Speaker 6: So I think the question is how long will.

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Speaker 8: The Fed maintain higher for longer and does that increase

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Speaker 8: the risk of recession.

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Speaker 7: You talk about your note this frustration by the Fed

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Speaker 7: and people could have been humbling the meat loaf song

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Speaker 7: two out of three am bad. What are you expecting

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Speaker 7: this week?

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Speaker 1: Then?

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Speaker 7: From all the FEDS speak, do you expect them to

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Speaker 7: be a bit more dubvish given the fact that the

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Speaker 7: data potentially may mean they're going to cut before December.

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Speaker 8: Well, Neil Kashkarri's comments, I think we're basically what he's

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Speaker 8: been saying for a while, which is much more of

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Speaker 8: a hawkish tone. Other commentary could yes, take the other

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Speaker 8: side as well, because the FED wants to remind us that.

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Speaker 6: They are data dependent.

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Speaker 8: At the same time, I think they want to let

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Speaker 8: us know that they are independent of political pressures. Every

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Speaker 8: election year since nineteen ninety two except twenty twelve had

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Speaker 8: the FED either raise or lower interest rates in that

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Speaker 8: election year, and many times it occurred in September. So

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Speaker 8: I don't think the FED would be averse to cutting

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Speaker 8: rates if they felt that the data supported it.

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Speaker 7: And you still think September remains in play, what's your

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Speaker 7: biggest conviction for that.

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Speaker 6: Well, when I look to.

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Speaker 8: The CME forecast model, I see that we're looking at

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Speaker 8: one third or a thirty eight percent in a sense,

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Speaker 8: indicating that we're probably going to stay at that current level.

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Speaker 8: But obviously sixty two percent are implying that we will

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Speaker 8: probably see a cut in September of either twenty five

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Speaker 8: or fifty basis points. That moves up to eighty percent

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Speaker 8: for the July period and even higher for September.

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Speaker 6: I'm sorry for December.

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Speaker 8: So I would tend to say that the chances are

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Speaker 8: increasing that we do end up seeing a cut of

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Speaker 8: sometime this year. Would possibly two still on the table, Sam,

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Speaker 8: A lot.

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Speaker 3: Of people would agree with you. Last week we saw

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Speaker 3: a massive rally in US government dead I'm looking at

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Speaker 3: a twenty one basis point decline in ten your yields

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Speaker 3: down to four point two two percent to end the week.

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Speaker 3: Why is Why is that not igniting a rally? And

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Speaker 3: some aspects of the risk market that have not participated.

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Speaker 3: I'm thinking of small caps in particular.

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Speaker 6: Well, I think, first off.

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Speaker 8: The reason that one reason why the yields have been

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Speaker 8: coming down is because the prices have been going up

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Speaker 8: because interest rates look more attractive here in the US

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Speaker 8: than an overseas, so that's attracting foreign investors. We certainly

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Speaker 8: are looking at small caps now trading at a thirty

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Speaker 8: one percent discount on a relative pe basis, mid caps

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Speaker 8: at twenty five percent discount. I think it's because in

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Speaker 8: investors want to wait until the FED does actually cut

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Speaker 8: rates because of the potential of a rising risk of

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Speaker 8: recession sends. These smaller and mid cap firms are the

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Speaker 8: ones that will take it on the chin more so

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Speaker 8: than large caps should we end up having something deeper

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Speaker 8: than simply soft landing.

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Speaker 6: So I think investors.

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Speaker 8: Are playing it close to the vest at this point

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Speaker 8: and focusing almost exclusively on the larger cap growth universe.

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Speaker 3: Sam Stoveball of CFURI, thank you so much. Right now,

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Speaker 3: we want to dive into what to expect to the

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Speaker 3: remainder of the year and whether the balance of risks has.

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Speaker 1: Shifted as we do.

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Speaker 3: See a disinflationary tilt to more of the data, at

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Speaker 3: least in the United States showing US now Stephen Major

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Speaker 3: of HSBC and Lydia Burssor of EY both with US. Lydia,

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Speaker 3: I want to start with you in terms of what

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Speaker 3: you make over the rally that we've seen in bonds

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Speaker 3: the last couple of weeks in particular, and what this

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Speaker 3: signals about where the balance of risk is at a

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Speaker 3: time with the Fed kind of had a hockey is

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Speaker 3: still last week.

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Speaker 1: Yeah, so we've seen softening in economic data, and I

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Speaker 1: think that the narrative has been shifting towards the economy

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Speaker 1: is slowing more than what was you know, anticipated earlier

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Speaker 1: this year when inflation is surprised on the outside. So

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Speaker 1: what we're seeing in terms of the economy is a

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Speaker 1: gradual slow down in economic activity. The Fed, you know,

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Speaker 1: last week was you know, somewhat you know, slightly more

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Speaker 1: hockey than expected coming out of this meeting. There is

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Speaker 1: really the sense that they have lost some conviction that

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Speaker 1: inflation is moving back sustainably towards the two percon targets.

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Speaker 1: So now when we look at you know, the next

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Speaker 1: couple of months and the coming data that we were discussing,

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Speaker 1: it's all going to be about rebuilding that confidence seeing

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Speaker 1: less that softening and sequential inflation, but also seeing some

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Speaker 1: stuffening in the label market for the Fed to be

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Speaker 1: confident enough to start cutting interest rates.

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Speaker 3: Stephen, what did you make of last week considering that

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Speaker 3: we saw a harkish tilt to the Fed and you

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Speaker 3: just reconfirmed in your media outlook a belief in a

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Speaker 3: rip boring rally in US government bonds. They could potentially

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Speaker 3: take the ten ure YEARLDS three and a half percent.

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Speaker 9: Yeah, I'm quite glad we kept the bullish conviction. I mean,

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Speaker 9: the news flow coming through on the back of these

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Speaker 9: elections that you were talking about in the prelude to

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Speaker 9: this interview, I think that really matters, and I think

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Speaker 9: it kind of overwhelms the impact of these CPI and

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Speaker 9: payrolls releases and the FED speak. So I think it

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Speaker 9: was yourself or Danity that spoke about chaos.

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Speaker 10: And you both mentioned France and Mexico.

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Speaker 9: There's a lot of commonality here that these are spread

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Speaker 9: markets that have a lot of overseas or non resident

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Speaker 9: behind them, and they don't respond well to volatility shocks.

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Speaker 9: In this case, you've had election results that have brought

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Speaker 9: the fiscal challenges back into focus and bonds don't like that.

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Speaker 9: So if you're get a flight to quality, people moved

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Speaker 9: from French bonds to German bonds, from Mexican bonds to

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Speaker 9: US bonds, and globally it's all knocking on, and I

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Speaker 9: think you've got an unwind going on of all these

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Speaker 9: carry trades. So at a time of type credit spreads

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Speaker 9: and a bit of a bowl shock, it's no surprise

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Speaker 9: that treasuries are doing quite well.

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Speaker 5: Even though what happens when all of that meets us

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Speaker 5: political instability? If we do see something in November that

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Speaker 5: looks like uncertainty about the results, confusion about the results,

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Speaker 5: confusion about the policy, where does that money go?

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Speaker 9: Yeah, I guess at the start of the year everyone

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Speaker 9: was focused on how many elections they were going to

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Speaker 9: be this year. It's taken to the halfway point Delhi

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Speaker 9: for there to be a significant shot, because, I mean,

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Speaker 9: the Indian result wasn't a big shock in a way,

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Speaker 9: and it is a very domestic market.

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Speaker 10: The reason Mexico and France matter is because they're so international.

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Speaker 9: So the US election is still a long way away,

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Speaker 9: and I think everyone who's watching this show knows that

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Speaker 9: there's a lot of debt, and they know what the

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Speaker 9: policies are of the two presumed candidates, so it's not

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Speaker 9: like a big unknown out there. It seems to me

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Speaker 9: that part of the reason that data is cooling is

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Speaker 9: because the fiscal impulse is starting to fade. And I

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Speaker 9: think all of us should just recognize whoever's the president

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Speaker 9: in twenty twenty five is going to have double the

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Speaker 9: death stock of eight years ago.

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Speaker 10: So whoever's there is going to be somehow.

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Speaker 9: Restricted in what can be done in terms of future

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Speaker 9: fiscal loosening. I didn't think the US, by the way,

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Speaker 9: is in that bad shape fiscally. I'm talking here about

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Speaker 9: relative to other countries and considering the asset base.

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Speaker 10: The growth of GDP has been has really helped.

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Speaker 9: But of course if the economy is cooling and the

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Speaker 9: debt keeps going up.

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Speaker 10: Then you have more challenges.

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Speaker 9: But I don't think the US treasury market should be

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Speaker 9: so worried about the debt lydia.

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Speaker 5: What about from an economist's point of view, if we

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Speaker 5: do have it doesn't matter who's in. We know what

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Speaker 5: the fiscal situation is, what the debt looks like, a

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Speaker 5: fiscal impulse, that fase doesn't matter. Do we need to

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Speaker 5: start worrying about the deficit?

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Speaker 1: Yeah, I mean we all can agree that, you know,

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Speaker 1: the fiscal policy is on an unsustainable trajectory. When we

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Speaker 1: look at interest payments on the debt, they reason, you know,

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Speaker 1: to three percent of GDP, which is double the pre

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Speaker 1: pandemic rate. Now, I don't think you know, this is

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Speaker 1: threatening the outlook in the short run, but it does

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Speaker 1: both economic challenges in the long run. It pushing interest

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Speaker 1: rates higher can generate inflation, can weigh on growth, and

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Speaker 1: then more importantly, it also means that there is more

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Speaker 1: limited physical space in the events of a down pair.

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Speaker 7: Stephen, when you say that the US doesn't look so bad,

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Speaker 7: is that because relative to what is going on in

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Speaker 7: the rest of the world that the US doesn't look

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Speaker 7: so bad? Or is it because you actually think the

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Speaker 7: US is okay when it comes to its fiscal trajectory.

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Speaker 10: Yeah, a combination of both.

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Speaker 9: I don't know whether this is an English or American saying,

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Speaker 9: but we call it the least dirty shirt, So I

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Speaker 9: sort of imagine looking through my wardrobe and trying to

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Speaker 9: find the cleanest, brightest white shirt to wear. It's a

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Speaker 9: bit like that in that the US debt stock as

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Speaker 9: a percentage of GDP, if you look at the total

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Speaker 9: debt total debt that's public and private sector, since the

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Speaker 9: two thousand and eight financial crisis, it's gone up, but

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Speaker 9: it hasn't gone up.

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Speaker 10: As much as some other countries.

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Speaker 9: And it's also been helped in the US by the

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Speaker 9: fact that household has deleveled, so.

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Speaker 10: On a relative basis.

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Speaker 9: It looks not so bad, and on a historical basis

439
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Speaker 9: it's okay, And I think that part of the factor

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Speaker 9: is the strength of the GDP and the tax take.

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Speaker 9: Now looking forward, the US has incredible taxing ability, But

442
00:23:21,400 --> 00:23:24,200
Speaker 9: as we know, it's all a question of willingness, and.

443
00:23:24,160 --> 00:23:26,600
Speaker 7: It's also a question of policy. You know, we have

444
00:23:26,800 --> 00:23:29,000
Speaker 7: a new report out today talking about the fact that

445
00:23:29,000 --> 00:23:32,280
Speaker 7: if Trump's proposal to exempt tips, for example, from taxation,

446
00:23:32,600 --> 00:23:34,320
Speaker 7: it would bet one hundred and fifty billion to two

447
00:23:34,359 --> 00:23:37,680
Speaker 7: hundred and fifty billion added to thefcial federal budget deficit.

448
00:23:37,960 --> 00:23:40,120
Speaker 7: Is it very difficult to think about twenty twenty five

449
00:23:40,200 --> 00:23:43,320
Speaker 7: until we know Stephn the outcome of November or are

450
00:23:43,359 --> 00:23:45,960
Speaker 7: you just expecting there's going to be a lot more

451
00:23:46,760 --> 00:23:48,800
Speaker 7: debt added to the US.

452
00:23:49,720 --> 00:23:52,880
Speaker 9: I think that that's a big number you just put

453
00:23:52,920 --> 00:23:55,000
Speaker 9: out there. But there's also going to be money coming

454
00:23:55,040 --> 00:23:58,600
Speaker 9: in on the other side, because don't forget there's money

455
00:23:58,600 --> 00:24:00,000
Speaker 9: from tariffs for example.

456
00:24:00,520 --> 00:24:01,720
Speaker 10: I mean, we just don't.

457
00:24:01,560 --> 00:24:03,920
Speaker 9: Know what the outcome is going to be, and it

458
00:24:03,960 --> 00:24:05,959
Speaker 9: all depends on whether we have a sweep or not,

459
00:24:06,240 --> 00:24:08,959
Speaker 9: because I think the fiscal outlook will very much depend

460
00:24:09,000 --> 00:24:13,200
Speaker 9: on whether either candidate wins with a sweep. So so's

461
00:24:13,800 --> 00:24:16,760
Speaker 9: it's tricky and and I think in terms of probabilities

462
00:24:18,160 --> 00:24:22,240
Speaker 9: at the moment, you wouldn't go down a baseline or

463
00:24:22,320 --> 00:24:26,200
Speaker 9: base case of there being fiscal irresponsibility. I think that

464
00:24:26,200 --> 00:24:29,040
Speaker 9: that is it is a risk, it's a scenario, but

465
00:24:29,119 --> 00:24:30,480
Speaker 9: it's not the baseline.

466
00:24:30,600 --> 00:24:33,200
Speaker 10: And at the moment, I.

467
00:24:33,160 --> 00:24:35,280
Speaker 9: Look at US treasuries and I think that their priced

468
00:24:35,320 --> 00:24:38,200
Speaker 9: appropriately given where the policy rate is. If the policy

469
00:24:38,280 --> 00:24:40,200
Speaker 9: rate starts coming down, yields are going to fall, and

470
00:24:40,200 --> 00:24:42,760
Speaker 9: they're going to fall quite fast. That's what really matters.

471
00:24:42,920 --> 00:24:45,440
Speaker 9: Bond yields don't go up because there's a lot of supply,

472
00:24:45,840 --> 00:24:49,480
Speaker 9: and it seems that some people want to inject additional

473
00:24:49,600 --> 00:24:52,800
Speaker 9: term premium into treasuries because of the supply. I think

474
00:24:52,840 --> 00:24:54,960
Speaker 9: it's already there, you can already see it.

475
00:24:55,680 --> 00:24:56,800
Speaker 7: But do I do agree?

476
00:24:58,000 --> 00:24:58,200
Speaker 10: Yeah.

477
00:24:58,200 --> 00:25:01,280
Speaker 1: I mean looking at you know, the elections and what

478
00:25:01,359 --> 00:25:04,560
Speaker 1: the implications could be for the economy, there is a

479
00:25:04,560 --> 00:25:08,320
Speaker 1: lot of uncertainty surrounding you know, the post election landscape.

480
00:25:08,680 --> 00:25:11,919
Speaker 1: When we look at the economic impact, we really focus

481
00:25:12,000 --> 00:25:14,840
Speaker 1: on two key themes that will be very important. The

482
00:25:14,840 --> 00:25:18,120
Speaker 1: first one is fiscal policy. But you know, the Tax

483
00:25:18,160 --> 00:25:20,480
Speaker 1: Cut and Jobs Act in particular, and the expiration of

484
00:25:20,480 --> 00:25:23,080
Speaker 1: the Tax Cut and Jobs Act. That's going to be

485
00:25:23,200 --> 00:25:27,320
Speaker 1: an important issue and you know, can represent a fiscal

486
00:25:27,560 --> 00:25:30,359
Speaker 1: mini physical cliff. We've estimated it could you know, shave

487
00:25:30,440 --> 00:25:33,840
Speaker 1: one percentage point of GDP. There is also what's happening

488
00:25:33,880 --> 00:25:37,199
Speaker 1: on the trade front, with the potential for you know,

489
00:25:37,320 --> 00:25:40,680
Speaker 1: escalation in tariffs. We're already in an environment where inflation

490
00:25:40,840 --> 00:25:44,480
Speaker 1: is still elevated, so seeing you know, more inflationary impulse

491
00:25:45,160 --> 00:25:48,240
Speaker 1: and you know, potentially some heat to growth would not

492
00:25:48,320 --> 00:25:51,240
Speaker 1: necessarily be a desirable environment we want to be and

493
00:25:51,400 --> 00:25:53,960
Speaker 1: especially as the Fed embark on that is in cycle.

494
00:25:54,240 --> 00:25:57,000
Speaker 3: We're talking with Steven Major of HSBC and Lydia Bisor

495
00:25:57,200 --> 00:25:59,840
Speaker 3: of e Y, both of you at a time when

496
00:26:00,160 --> 00:26:04,040
Speaker 3: talking about yields going lower in the face of disinflation

497
00:26:04,359 --> 00:26:06,320
Speaker 3: as well as US just being.

498
00:26:06,080 --> 00:26:07,520
Speaker 1: A haven for a lot of dollars.

499
00:26:07,640 --> 00:26:11,119
Speaker 3: Lydia, at what point to lower yields boost the economy,

500
00:26:11,440 --> 00:26:14,800
Speaker 3: boost the economic activity in the United States and have

501
00:26:14,960 --> 00:26:20,080
Speaker 3: a self reinforcing cycle versus indicate some weakness that actually

502
00:26:20,440 --> 00:26:23,000
Speaker 3: would be negative for the growth prospects.

503
00:26:24,440 --> 00:26:27,040
Speaker 1: Yeah, I mean, when when we look at the economy today,

504
00:26:27,160 --> 00:26:30,800
Speaker 1: we're looking at an economy slow down underway. We've seen

505
00:26:30,840 --> 00:26:34,680
Speaker 1: some rebalancing in the label market market, some softening in

506
00:26:34,800 --> 00:26:38,080
Speaker 1: label market indicators. We're looking at consumers being more cautious

507
00:26:38,119 --> 00:26:42,880
Speaker 1: with your spending, investments also softening, and companies being more

508
00:26:42,920 --> 00:26:47,119
Speaker 1: discerning with their spending and hiring because you know of

509
00:26:47,160 --> 00:26:51,480
Speaker 1: this you know, tighter credit coundition environment and because consumer

510
00:26:51,520 --> 00:26:54,920
Speaker 1: them pass soften and consumers are more price positive. So

511
00:26:54,960 --> 00:26:57,840
Speaker 1: in this economic environment, with signs of softening in the

512
00:26:57,920 --> 00:27:02,280
Speaker 1: label market, we're expecting to see that recalibration and monetary

513
00:27:02,280 --> 00:27:06,400
Speaker 1: policy happening, you know, towards you know, September. We're expecting

514
00:27:06,400 --> 00:27:09,439
Speaker 1: the first rake cuts in September and rates starting to

515
00:27:09,520 --> 00:27:13,520
Speaker 1: gradually move lower and move away from that restrictive fall system.

516
00:27:14,119 --> 00:27:17,639
Speaker 1: And you know, by you know, seeing that those rates

517
00:27:17,640 --> 00:27:21,040
Speaker 1: moving lower, we should you know, ensure that the economy

518
00:27:21,080 --> 00:27:25,760
Speaker 1: doesn't slow down materially. We're expecting to see growth palling

519
00:27:25,760 --> 00:27:28,360
Speaker 1: below trend in the coming quarters, but we're not expecting

520
00:27:28,400 --> 00:27:31,879
Speaker 1: to see a retrenchment in economic activity. And the fact

521
00:27:31,920 --> 00:27:34,040
Speaker 1: that the FED is going to embark on that is

522
00:27:34,080 --> 00:27:37,119
Speaker 1: in cycle should allow for that cycle to continue and

523
00:27:37,200 --> 00:27:38,440
Speaker 1: run through twenty twenty five.

524
00:27:38,680 --> 00:27:40,560
Speaker 3: Steven, what's your view on this, because some people would

525
00:27:40,560 --> 00:27:42,560
Speaker 3: say that this economy has been a lot less sensitive

526
00:27:42,560 --> 00:27:45,199
Speaker 3: to rate hikes, why would they be so sensitive to

527
00:27:45,320 --> 00:27:46,200
Speaker 3: rate cuts.

528
00:27:47,200 --> 00:27:50,840
Speaker 9: Yeah, that's a fair point. So get to be careful

529
00:27:50,840 --> 00:27:56,040
Speaker 9: with this one, because I think that people are expecting

530
00:27:56,160 --> 00:27:59,679
Speaker 9: just very modest rake cuts. In fact, that's all conditioned

531
00:27:59,720 --> 00:28:02,520
Speaker 9: by what the Fed's just told us in their dot blot.

532
00:28:02,640 --> 00:28:06,160
Speaker 10: So I find a bit of an echo.

533
00:28:06,000 --> 00:28:11,000
Speaker 9: Chamber around the mainstream forecasts because they're all basically one standard,

534
00:28:11,000 --> 00:28:14,960
Speaker 9: the aviation from the FED. It strikes me that it's

535
00:28:15,000 --> 00:28:17,760
Speaker 9: probably true that the economy isn't that sensitive to the

536
00:28:17,840 --> 00:28:20,640
Speaker 9: rate cuts, But when the rate cuts come, I think

537
00:28:20,640 --> 00:28:24,520
Speaker 9: they're probably going to be more than the markets pricing in.

538
00:28:24,760 --> 00:28:27,640
Speaker 10: And that's exactly the point that cutting by twenty five

539
00:28:27,640 --> 00:28:29,560
Speaker 10: basus points here or there isn't going to do anything.

540
00:28:30,040 --> 00:28:31,440
Speaker 10: So when the.

541
00:28:31,400 --> 00:28:35,680
Speaker 9: Economy is really cooling, and if unemployment is going up

542
00:28:35,720 --> 00:28:38,440
Speaker 9: at a faster rate than the Fed's forecast, I think

543
00:28:38,440 --> 00:28:41,560
Speaker 9: that that could be a kind of scenario to think

544
00:28:41,560 --> 00:28:45,760
Speaker 9: about the then rates will be cut quite hard and fast. Also,

545
00:28:46,240 --> 00:28:51,080
Speaker 9: it's not just about the US cyclical economic data. It's

546
00:28:51,120 --> 00:28:54,320
Speaker 9: about the it's about the structural facts. It's this huge

547
00:28:54,800 --> 00:28:57,720
Speaker 9: stock of debt It's about what's happening in China and

548
00:28:57,800 --> 00:29:01,760
Speaker 9: Europe and ultimately US rates just look out of line

549
00:29:01,800 --> 00:29:02,560
Speaker 9: with everything else.

550
00:29:02,920 --> 00:29:06,200
Speaker 3: Stephen Major of HSBC, Lydia Bassor of EY, both of you,

551
00:29:06,280 --> 00:29:08,680
Speaker 3: thank you so much. On a week where we'll be

552
00:29:08,720 --> 00:29:10,800
Speaker 3: talking a lot about the Third and Reeds.

553
00:29:11,680 --> 00:29:15,240
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554
00:29:15,240 --> 00:29:18,560
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555
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