Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. Stocks bouncing back as
Speaker 2: President Donald Trump temper's his trade stance on China. Seema
Speaker 2: Shah of Principal Asset Management Rights in the following Even
Speaker 2: after the strong performance of the past six months with
Speaker 2: the S and P five hundred thirty five percent from
Speaker 2: its liberation day trough, equity markets have further room to run.
Speaker 2: Seema joins us now for more. Sema, welcome to the program.
Speaker 2: Will you get a helping hand from earning season and
Speaker 2: from bank earnings this week?
Speaker 3: Hey John, Yeah, I think that that is definitely on
Speaker 3: the cards. You know, when we're looking across at the
Speaker 3: macro outlook, we're still feeling pretty positive. Of course, there
Speaker 3: are some signs that slow down within the labor market,
Speaker 3: but we're not talking about recessionary area, and typically in
Speaker 3: this kind of environment we can see continued performance from financials.
Speaker 3: So along with those tech stocks which continue to drive
Speaker 3: the market, we would think that financials can join in
Speaker 3: with that rally and help push the act market a
Speaker 3: little bit further.
Speaker 2: The same it's not just bank earnings on the calendar,
Speaker 2: also a meeting potentially between the two leaders from China
Speaker 2: from the US President Trump and leadership. How big a
Speaker 2: factor will there be in your routelook the trade negotiations,
Speaker 2: the friction, the tension between China and the United States.
Speaker 3: Yeah, it's a great question because you know, in the
Speaker 3: last couple of weeks, it's completely fadden out of the headlines.
Speaker 3: You know, nobody really talking about the risk associated with it.
Speaker 3: So the news on Friday, I think did come as
Speaker 3: a clearly did job the market.
Speaker 4: It has the potential to have very very serious.
Speaker 3: Impact on the economy, both from a growth side and
Speaker 3: from an inflation side, so we obviously have to keep
Speaker 3: a close eye on that at the moment. From our perspective,
Speaker 3: we're going to go along the assumption that things eventually
Speaker 3: kind of work themselves out simply because the risk is
Speaker 3: so big, but it does clearly have the potential and
Speaker 3: so investors and I think the key thing is that
Speaker 3: there has been so much complacency within the market about
Speaker 3: what could happen to have much further the equity market
Speaker 3: could run that this has been a good reminder that
Speaker 3: there are still risks on the horizon.
Speaker 5: Risks of re escalation between the US and China.
Speaker 6: How much does it also reiterate the risk.
Speaker 5: That this is now just a one time price shock,
Speaker 5: but it's an ongoing process of terroriffs that come on
Speaker 5: in different waves and price effects that happen over time,
Speaker 5: kind of like what we saw from Levi's last week.
Speaker 3: Yeah, and you know, at least I mean, I think
Speaker 3: this is one of the things that we've been considering
Speaker 3: is that from the tariff perspective, this is an ongoing story.
Speaker 3: We know that tariffs are going to be used continuously
Speaker 3: as a geopolitical time and for any other kind of
Speaker 3: negotiations that the US is looking to do. We're also
Speaker 3: expecting even before Friday that tariffs would continue to move
Speaker 3: a little bit higher. They change in focus sectors, more
Speaker 3: company focus. So I think this is still in built,
Speaker 3: but we have seen time and time again that from
Speaker 3: a market perspective, these kind of headlines, they do start
Speaker 3: to move back and back and back in people's mindsets,
Speaker 3: especially as companies do start to kind of navigate their
Speaker 3: way through.
Speaker 4: So it's not to say that there won't be any impact.
Speaker 6: There will be.
Speaker 3: It is contributing to an economic slowdown, but we're not
Speaker 3: looking at something which is recession, like provided the US
Speaker 3: China negotiations do move in the right direction over the
Speaker 3: coming weeks.
Speaker 5: So if there isn't really that gread of a chance
Speaker 5: of recession, which is what I'm hearing from you, do
Speaker 5: you buy any dip or was always have on Friday
Speaker 5: something that you want to welcome usher in and dive into.
Speaker 3: I do think, and I think any kind of noise,
Speaker 3: either with regards to their shutdown or even with the
Speaker 3: trade engines, these are opportunities because we're trying to look
Speaker 3: beyond the noise. And you know this has been a
Speaker 3: really good learning for this year is back in April
Speaker 3: when everyone was really worried about recession. They're worried about
Speaker 3: how there was going to be a very significant market correction.
Speaker 3: We are very very significantly from those moments and the
Speaker 3: market has matched to look through, so we would assume
Speaker 3: that this is going to be a continuation. Evaluations are
Speaker 3: that much higher. The economic BACKDOB is a little bit slower,
Speaker 3: so you know, we're not going to be expecting to
Speaker 3: see gains as significant as we've had in the last
Speaker 3: couple of months. But to our mind, this is still
Speaker 3: a positive setup for equities.
Speaker 1: The issue though, with what's going on with trade is
Speaker 1: that JD. Vance is talking about the fact that it's
Speaker 1: up to Beijing to choose the path of reason. Does
Speaker 1: it not feel different this time than it did in
Speaker 1: the spring?
Speaker 3: There are definitely differences, and I think the key thing
Speaker 3: is that, you know, China is showing that it has
Speaker 3: a lot of power in this. You know, it's got
Speaker 3: a very very strong negotiating tool. So it's very much
Speaker 3: sitting in I guess, in the area and you know,
Speaker 3: what is the US going to do to to kind
Speaker 3: of bring down the tensions. So there is a difference,
Speaker 3: But I think at the end of the day, because
Speaker 3: the impact could be so serious, it's almost that too
Speaker 3: big to fail situation, which we would assume is is
Speaker 3: going to push both sides to some kind of negotiation point.
Speaker 3: You know, it doesn't necessarily mean that we're going to
Speaker 3: be looking at lower tasks. We could be even looking
Speaker 3: at slightly higher tasks and where they are today, but
Speaker 3: we wouldn't expect there to be a move back to
Speaker 3: the one hundred, one hundred and thirty five percent tasks that
Speaker 3: we did see earlier this year.
Speaker 1: Do you think this just gets done by November first,
Speaker 1: where the President said that seems like an eternity for him,
Speaker 1: or is this a twenty twenty sixth story for the market.
Speaker 3: I think we can get somewhere by November the first,
Speaker 3: and I have to say, I think it's going to
Speaker 3: be very very rocky road with a lot.
Speaker 4: Of noise, a lot of back and forth.
Speaker 3: But certainly I think that the issues with China is
Speaker 3: not something which can be put to bed very quickly.
Speaker 3: I would assume that this is going to be a
Speaker 3: situation that we're going to be talking about through twenty
Speaker 3: twenty six through twenty twenty seven, and that rivalry between
Speaker 3: the two countries is going to be something which is
Speaker 3: a continued pain point which comes back to rock the market.
Speaker 3: Every now and then over the foreseeable future.
Speaker 5: What was interesting, and John pointed this out earlier, is
Speaker 5: that on Friday we saw rally and to US treasuries,
Speaker 5: and this was different than what we saw after the August,
Speaker 5: the April second Liberation Day, and it raises the question
Speaker 5: about whether the market is looking through any kind of
Speaker 5: price shocks as one time transitory, or whether it's complacent
Speaker 5: about the inflationary ramifications of this decoupling between the US
Speaker 5: and China over a longer period of time.
Speaker 2: How do you see that?
Speaker 4: Yeah, it's an interesting one because you know, in the
Speaker 4: last couple of.
Speaker 3: Months you haven't really seen the inflation impact that people
Speaker 3: are anticipating in April, and so I think that what
Speaker 3: we saw on Friday was just this assumption that this
Speaker 3: is the continuation. There will only be a one time shock,
Speaker 3: You'll be very modest. This is really really early day.
Speaker 3: So to our minds, one of the key risks that
Speaker 3: we do need to look out for in twenty twenty
Speaker 3: six is, you know, the inflation number is moving a
Speaker 3: little bit higher than anticipated. At the moment, we're expecting
Speaker 3: CPI to be hovering around the kind of the mid
Speaker 3: I actually said the three point two to three point
Speaker 3: three percent level. If we were to see it move
Speaker 3: above three and a half percent towards it four percent number, well,
Speaker 3: then I think the equations kind of change, and I
Speaker 3: think that that would be a real sticking point for
Speaker 3: the market. But it is really early days, and I
Speaker 3: think as we go into to earning season that to
Speaker 3: us is going to be the key thing that we're
Speaker 3: listening out for. What are CEOs telling us about the
Speaker 3: price impact, how much they're planning to be passing on.
Speaker 3: And I think that that picture won't be very clear
Speaker 3: until we're looking into Q one Q two of next year.
Speaker 2: Stay with us. More Bloomberg Surveillance coming up after this.
Speaker 2: Let's turn to the US dollar. The index down eight
Speaker 2: percent year today, facing ongoing volatility. Jean Balvan, head of
Speaker 2: the black Rock Investment Institute, rights, we see the US
Speaker 2: dollar slide tied to expected FED rate cuts and fiscal concerns,
Speaker 2: not evidence its reserve status is under threat. Jehan joins
Speaker 2: us now for more. Johnk and morning, Good morning. How
Speaker 2: difficult people finally get to draw a distinction between one
Speaker 2: and the other.
Speaker 7: Yeah, I think, you know, if you look at this
Speaker 7: year and the commentaries around the dollar and so on,
Speaker 7: and connect the dots between you know, uncertainty and pausing
Speaker 7: so on. It's easy to tell the story that investors
Speaker 7: are more skeittish about the dollar, and it's a specific
Speaker 7: dollar kind of risk premium that is being applied. But
Speaker 7: I mean when you look under the hood and the
Speaker 7: facts so far this year, I mean, there's no massive
Speaker 7: disconnect between the dollar weakness we've seen in historical fundamental
Speaker 7: behavior and so on the face of it. You know,
Speaker 7: there might be down the road question about the reserve
Speaker 7: currency status, but I don't think we have the evidence
Speaker 7: for it yet. I think moreover, when you look since
Speaker 7: the you know, all the discussion about central bank independence
Speaker 7: and so on, like eat it up over the summer
Speaker 7: and a bit before, the dollar didn't really weaken against
Speaker 7: other kind of G ten currencies, So we think it's
Speaker 7: more of a broader fiscal story.
Speaker 6: Globally, you see y'll curve steep uh.
Speaker 7: And that has some impact on gold versus currencies, But
Speaker 7: I don't think we see really a US dollar kind
Speaker 7: of reserve currency trade yet.
Speaker 5: I brought I'm glad that you brought up gold, because
Speaker 5: the dollar has to appreciated dramatically against gold, and you
Speaker 5: could argue that the only reason why you haven't seen
Speaker 5: a greater weakening than the dollar is because nobody else
Speaker 5: is much better. I mean, how much is this absolutely
Speaker 5: debasement but represented in gold, not necessarily anything specific about
Speaker 5: the dollar as reserve status, but is generally a change
Speaker 5: in the global financial system.
Speaker 7: Yeah, I think that's a that's the that's there's more
Speaker 7: to data think going on right now, which is how
Speaker 7: we will resolve these fiscal outlooks.
Speaker 6: Globally.
Speaker 7: We see what's happening in France, we see Japan and
Speaker 7: the US, so I think it's it's a common story. Uh,
Speaker 7: the dollar, sorry, the goal gold is attractive in that context.
Speaker 7: I'm not sure, uh you know, if it's going to
Speaker 7: be a long term trade, but clearly when the guard,
Speaker 7: when when the markets is a bit more anxious about
Speaker 7: these questions, we see a narrative that it's gold up.
Speaker 7: It's been playing up. It hasn't worked for a long time.
Speaker 7: It has been working this year, for sure.
Speaker 5: You talked about a yeld curve steepening, and the more
Speaker 5: we talk about this, the more I question why we're
Speaker 5: not seeing an even steper yield curve where we're not
Speaker 5: seeing even more of a sell off in long bonds
Speaker 5: globally and developed markets, given some of the fiscal concerns,
Speaker 5: and given frankly, this debasement that we've been talking about,
Speaker 5: does that strike you as odd?
Speaker 7: I think we're getting We might be getting lucky at this,
Speaker 7: at this juncture where the US economy might be weakening
Speaker 7: just enough so that this doesn't really come to head.
Speaker 6: Just right now.
Speaker 7: We were a bit more concerned coming into September that
Speaker 7: you would see, you know, inflation maybe not behaving. Last
Speaker 7: time I was here, I was talking about like the
Speaker 7: doubts we had about the ability of the FED to
Speaker 7: cut as much as the market was expecting. Now we
Speaker 7: are a bit more confident that the Fed can deliver.
Speaker 7: Macro is weakening enough, and that's going to help relieve
Speaker 7: some of the debt servicing cost tensions that were happening.
Speaker 7: So we might be for the next few months, or
Speaker 7: I don't know, for a long in a more of
Speaker 7: a lucky spot where these concerns are not really coming
Speaker 7: to head. But underneath that, I totally agree that there's
Speaker 7: a bit of a disconnect, and that's why we think
Speaker 7: longer term was I need to see long long term
Speaker 7: rates go up from here in a ten year closer
Speaker 7: to five makes more sense for US than four percent,
Speaker 7: you know, a few years down their road.
Speaker 1: John, When you say there's no evidence right now that
Speaker 1: the dollars reserve currency status is under threat, what would
Speaker 1: you see if it was, what would be happening?
Speaker 6: I think you would.
Speaker 7: So you look at this year, and fifty percent of
Speaker 7: the weakening that we've seen can be attributed to the
Speaker 7: increase easing expectation from the FAD. So just the interest
Speaker 7: rate differential story that we've seen this year playing out
Speaker 7: explains a bit, explains a big part of the move.
Speaker 7: And then you know the yield curve steepening investor asking
Speaker 7: more for a term premium for you know, holding that
Speaker 7: us that maybe that has played some role as well.
Speaker 7: But the point is that if you look at like
Speaker 7: how the dollars behave relative to like term premium the
Speaker 7: VIX or interest rate differential, historically that relation ship hasn't
Speaker 7: really broken. If we were seeing that relationship broke break
Speaker 7: and the dollar being much weaker than these fundamentals suggests,
Speaker 7: then I think that would start to be evidence that
Speaker 7: the investors are asking for more than just the fundamentals,
Speaker 7: and they're more worried about a dollar.
Speaker 2: What signal do you take from the relationship between gold
Speaker 2: and risk more generally the equity market move pad with
Speaker 2: the gold move this year.
Speaker 7: Yeah, I think there's a story around, you know, some
Speaker 7: concern of fiscal dominance maybe playing out down the road,
Speaker 7: not a reality, but markets are paying some.
Speaker 6: Credence to that.
Speaker 7: But at the same time, before you get there, you
Speaker 7: have an environment that's going to be pretty supportive for equity.
Speaker 6: So I don't think there's really a disconnect.
Speaker 7: It's an easy financial condition world maintained for longer bids,
Speaker 7: you know, equities, but you want to get some insurance
Speaker 7: with gold.
Speaker 2: Did you think we are on the path towards fiscal
Speaker 2: dominance in twenty six I think this.
Speaker 6: Is a huge call.
Speaker 7: And one things that I keep saying is it's very
Speaker 7: in twenty twenty five. One thing that we need to
Speaker 7: guard against is like extra apple laid from like what
Speaker 7: looks very dramatic and then your term to long term
Speaker 7: consequences and big change. Right, So on a day you
Speaker 7: see some headlines you can be tempted to see I
Speaker 7: never would have expected to see headline like this, so
Speaker 7: hence we're going to see physical dominance At the same time.
Speaker 7: I think these are big steps. There's going to be
Speaker 7: equalibrium forces playing out, So I think this is something
Speaker 7: you need to put more weight on than you would
Speaker 7: have had historically.
Speaker 6: But I don't think this is a default.
Speaker 2: So at least I talked a lot about this. You
Speaker 2: look at the TRAS rate that's aggressively shortened duration. The
Speaker 2: Federal Reserve under this leadership is putting a priority on
Speaker 2: cutting interest rates, so at least a bias to reduce
Speaker 2: interest rates even with inflation around three. Now, that might
Speaker 2: not be fiscal dominance per se, but maybe the symptoms
Speaker 2: of it. The consequence is a similar There's some crossover
Speaker 2: here which I think speaks to the gout trait doesn't
Speaker 2: it to some extent at least.
Speaker 7: Yeah, I think as long as long as the macro
Speaker 7: picture evolves in a way that I mean, it's sounds
Speaker 7: cynical to put it this way, but like there's a
Speaker 7: proper cover for cutting rates from a macro perspective. Markets
Speaker 7: might be concerned about, like what's really the motivation behind it,
Speaker 7: and whether it's like yeah, but as long as we
Speaker 7: have the proof of it, I think we're going to
Speaker 7: run with We're not in the fiscal dominance world just yet,
Speaker 7: but yeah, I think it's going to depend on if
Speaker 7: we reach the point where it's really very hard to
Speaker 7: explain cutting rates just on the business of the macro outlook,
Speaker 7: and and it looks like we're deviating, then I think
Speaker 7: it's going to be and I want to I don't
Speaker 7: think it's going to be continuous. I think there's going
Speaker 7: to be like a discontinuity at that point if we
Speaker 7: deal there.
Speaker 2: Stay with US mobile imperc surveillance. Coming up after this,
Speaker 2: building on this historic story Norman Rule, they form a
Speaker 2: senior US intelligence official rites in the following. The Middle
Speaker 2: Age continues to post many challenges, but the president's approach
Speaker 2: reshuffled the strategic deck, offering opportunities and leaving the US
Speaker 2: the undisputed major power in the region. No, I'm joined
Speaker 2: us now for more. Norm Wickoff Kushner, the President of
Speaker 2: the United States. No, what made a difference here?
Speaker 8: Well, we've got a form a president who has spent
Speaker 8: the first ten months of his administration developing a new
Speaker 8: policy for the Middle East, a policy that focused on
Speaker 8: constraining Iran, Iron's nuclear program, Iran's proxies, providing Israel with
Speaker 8: unalloyed support, but also building very strong relations with a
Speaker 8: variety of Arab partners, resetting relations with Saudi Arabia, the
Speaker 8: United Arab Emirates, but also maintaining strong relations with Qatar,
Speaker 8: and ensuring strong relations with Turkey and Egypt. And together
Speaker 8: this provided an architecture that enabled the Trump administration to
Speaker 8: speak with pretty much everyone that needed to be brought
Speaker 8: to the table, but also to provide pressure on all
Speaker 8: of those parties through those channels, and then he used
Speaker 8: unorthodox approaches mister Wikoff and mister kush and I have
Speaker 8: dealt with mister Kushner in the past, and he's a
Speaker 8: very sober and hard working individual and we've seen extraordinary results.
Speaker 8: We should not over be it, not understate the tectonic
Speaker 8: nature of this moment.
Speaker 1: Norm was it the strategy behind this Trump team that
Speaker 1: really changed it. We spoke to almost hawk Seen on Friday,
Speaker 1: who was an individual that worked under Biden and said
Speaker 1: this deal was on the table in January. What's changed
Speaker 1: in the nine months.
Speaker 8: Well, aspects of this deal are We're always going to
Speaker 8: be on the table. I mean the idea that there
Speaker 8: would be a prisoner exchange, of a release of Palestin prisoners,
Speaker 8: the release of hostages, that there would be some sort
Speaker 8: of a disarmament of Hamas. That was going to be
Speaker 8: true no matter what administration was going to be in power.
Speaker 8: But the idea that you would bring pressure upon the
Speaker 8: parties to.
Speaker 6: Make this happen.
Speaker 8: I don't think that was going to be achievable in
Speaker 8: the Biden administration because of the nature of their relationship
Speaker 8: with the player in the region. And the Trump administration
Speaker 8: had a very different approach, and that approach made this happen.
Speaker 8: So we should be clear the Biden administration's approach to
Speaker 8: the region was unlikely to achieve this result, and the
Speaker 8: Trump administration did this in ten months.
Speaker 4: Normal when it.
Speaker 1: Comes to what comes next, is going to be this
Speaker 1: unprecedented peace conference in Egypt. What do you expect that
Speaker 1: will come of that? Will we get more information on
Speaker 1: what Phase two looks like when it comes to Gaza.
Speaker 6: This is an extraordinary conference in and of itself. This
Speaker 6: is unusual.
Speaker 8: Twenty nations, the President of Indonesia is showing up. You've
Speaker 8: got twenty nations dealing with Mohammuda Bas, who has not
Speaker 8: been to.
Speaker 6: Israel in some time.
Speaker 8: You've got the Prime Minister of Egypt who has been
Speaker 8: invited and may show up nonetheless at the end of
Speaker 8: this important holiday seat holiday. If that happens, that would
Speaker 8: be the first time he has been in Egypt in
Speaker 8: quite a while. That the Israeli Prime Minister attends, that
Speaker 8: would be the first time he would be meeting with
Speaker 8: some of these countries that remember, there are countries attending
Speaker 8: this that do not have relations with.
Speaker 6: Israel.
Speaker 8: And this would be the Israeli Prime Minister attending with
Speaker 8: Prime President Mohamud A Bass, someone he has refused to recognize.
Speaker 8: So this would be an opportunity for Natanyahu and a
Speaker 8: Boss to in essence set the stage for that second effort,
Speaker 8: that second phase also for these countries to identify with
Speaker 8: support they're going to provide, and for the President to
Speaker 8: pull them together and start that process. And it is
Speaker 8: critical to this security that this AID be put in
Speaker 8: place to provide the Palestinian people with the humanitarian and
Speaker 8: security architecture they need to restore their lives.
Speaker 5: Norman, just to that point, you were talking about whether
Speaker 5: it be be Natanya who the Prime Minister of Israel
Speaker 5: will be going. His office said this morning, thanks to
Speaker 5: President Trump for the invitation, that he won't be able
Speaker 5: to attend to to the beginning of the Jewish holiday
Speaker 5: this evening. So we'll see whether he eventually makes it there.
Speaker 5: But right now it doesn't seem like it's the case.
Speaker 5: And I'm just wondering, if you parse this out, is
Speaker 5: this coalescing of powers in the region.
Speaker 6: Going to be helpful to bring Israel back into.
Speaker 5: The international fold or is Israel still the odd man out?
Speaker 5: Is it going to take a lot for them to
Speaker 5: regain some of their previous reputation.
Speaker 8: Well, again, we'll see how long the conference lasts and
Speaker 8: if at the end of the holidays the Prime Minister
Speaker 8: is able to attend.
Speaker 6: We need to see what the.
Speaker 8: Prime minister's politics are like if the hard right becomes
Speaker 8: a problem which prevents him from participating as well, because
Speaker 8: he would be meeting with a boss, he would have
Speaker 8: to make some concessions.
Speaker 6: He has stated no palicitating.
Speaker 8: Authority in the West Bank, so that's Aeron Gaza that
Speaker 8: that's going to be a problem. But we've got a
Speaker 8: situation where the Israelis are now not going to be
Speaker 8: responsible for security or some of the of some of
Speaker 8: the reconstitution of governance in Gaza. The Palestinians will be
Speaker 8: doing this. Will Hamas be responsible for the problems of
Speaker 8: Gaza or the Palestinian authority. It's no longer Israel's responsibility.
Speaker 8: It's not a Palestinian issue and an international inst issue.
Speaker 8: So in essence, the blame shifts from its an Israeli
Speaker 8: problem to an international problem. But again, we must get
Speaker 8: a humanitarian aid, security aid, and rebuild the lives for
Speaker 8: the Palestinian people. So I think before we get to
Speaker 8: that political problem, this is a humanitarian and a security issue,
Speaker 8: and that's where the emphasis will remain.
Speaker 6: At this point. Nor I wonder if there's a broader conclusion.
Speaker 5: Also, because we used to see that the alliance between
Speaker 5: Western nations used to be the United States, Europe, and
Speaker 5: a couple of others, maybe Japan. Now it seems to
Speaker 5: be really shifting to the Middle East. How much has
Speaker 5: this deal in the US's relationship with Saudi Arabia in particular,
Speaker 5: really solidify that idea.
Speaker 6: Well, you've seen several things.
Speaker 8: So first of all, this wouldn't have happened had the
Speaker 8: United States work with Egypt, Qatar, and even Turkey.
Speaker 6: Certainly that's true.
Speaker 8: However, there have been months of intensive diplomatic conversations with
Speaker 8: Saudi Arabia and the United of Arab Emirates, and Saudi
Speaker 8: Arabia working with France and other countries that in essence
Speaker 8: created an architecture that also made this happen outside of
Speaker 8: the United States itself, and that's Saudi Emoradi and diplomatic
Speaker 8: pressure was itself a dynamic that cannot be ignored. So
Speaker 8: these capitals, these rising powers, are something that need to
Speaker 8: be recognized and work with, and the Trump administration, to
Speaker 8: its credit, did exactly that over the last ten months.
Speaker 8: And we're seeing the results so ranging from the chip
Speaker 8: deals that the Trump administration is putting together, the energy discussions,
Speaker 8: and now we're seeing this in the Middle East. It's
Speaker 8: a very interesting and dynamic approach.
Speaker 2: Stay with US Multilemberg. Savannah's coming up off to this.
Speaker 2: Let's stick with the data still impacted by the government shutdown,
Speaker 2: Abigail what a ups right in the following. If the
Speaker 2: government reopens early in the week, it's possible that we
Speaker 2: may receive the September employment situation within two or three
Speaker 2: business days. Abigail joins us now for more, Abigail. If
Speaker 2: we don't, we could have this really strange situation at
Speaker 2: the end of the month where the Federal Reserve has
Speaker 2: the CPI report, but doesn't have payrolls, has CPI about
Speaker 2: three percent, and still decides to cut interest rates. How
Speaker 2: uncomfortable might that moment.
Speaker 4: Be running Thanks thanks for having me join.
Speaker 9: Yeah, look, I think you're totally right to focus in
Speaker 9: on the kind of balance between the labor market and
Speaker 9: the inflation data. I think that's clearly what drove the
Speaker 9: in the September meeting, was this shift towards concerns over
Speaker 9: the labor market. And while we might not get the
Speaker 9: September employment report, as you said, the FMC are expected
Speaker 9: to get the September CPI data later this month, which
Speaker 9: I think will be helpful for them and understanding kind
Speaker 9: of potentially where that balance of risks is. I would
Speaker 9: say that even though we don't have the September employment report,
Speaker 9: we do have kind of other data that we can
Speaker 9: look at to get a sense of the state of
Speaker 9: the labor market, and in particular, you know, we've been
Speaker 9: looking very close at what we're seeing in the initial
Speaker 9: and continuing claim data. These data are not being published,
Speaker 9: you know, in the normal kind of formal report from
Speaker 9: the Department of Labor, but we are able to kind
Speaker 9: of patch together the kind of state level data, and
Speaker 9: you're continuing to see kind of elevated levels of continuing
Speaker 9: claims in those data as well versus this point last year.
Speaker 9: So I do think that that kind of balance between
Speaker 9: the two, you know, the labor market data and the
Speaker 9: inflation side, will keep the FED on tracks kind of
Speaker 9: cut at the meeting at the end of the month. A.
Speaker 5: Yeah, what initially kicked off the sense that the FED
Speaker 5: might be behind the curve and needed to catch up by
Speaker 5: cutting rates was the revisions to the payrolls that really
Speaker 5: came in so much more significantly than people expected. But
Speaker 5: Sneldasai was on the show last week and she said, actually,
Speaker 5: what it means is that the economy was doing pretty
Speaker 5: well without all of those jobs, and without that job
Speaker 5: of creation. Doesn't that speak to a wave of productivity,
Speaker 5: not necessarily to a real weakness.
Speaker 2: I mean, how do you sort of square these ideas.
Speaker 5: That maybe we are just operating with a lower job
Speaker 5: creation base.
Speaker 9: Yeah, Look, I think obviously there's been, you know, a
Speaker 9: wealth of people kind of coming out with estimates of.
Speaker 6: What the run rate of kind of payrolls.
Speaker 9: Or the run rate of employment grows might look like,
Speaker 9: particularly obviously given the shifts we're seeing in terms of
Speaker 9: potentially population grows, but also kind of what we're seeing
Speaker 9: in terms of changes in participation rates. I think we've
Speaker 9: seen obviously participation kind of coming off a little bit,
Speaker 9: and I think that's probably like the driven bicyclicality rather
Speaker 9: than say kind of demographics, which has been the kind
Speaker 9: of down drift that we've seen there in kind of
Speaker 9: recent years. I think the question in terms of the
Speaker 9: kind of run rate and kind of the time together
Speaker 9: of what we're seeing in terms of growth in the
Speaker 9: labor market, I think really what you've seen is it
Speaker 9: stepped down just in terms of demand within the labor market.
Speaker 9: I do think it's potentially more demand driven than it
Speaker 9: is supply driven at this juncture. And I think one
Speaker 9: of the things we have seen is obviously a lot
Speaker 9: of a lot of noise in terms of the growth
Speaker 9: numbers with swings from kind of noisy components, but you
Speaker 9: have seen a step down in terms of the pace
Speaker 9: of domestic demand that underlying pace of demand in the
Speaker 9: US economy was relatively soft through the first half of
Speaker 9: this year versus where it was last year. So I
Speaker 9: do think they kind of slow down you've seen in
Speaker 9: the labor market and the slow down you've seen in
Speaker 9: kind of the broader economy or are kind of broadly
Speaker 9: consistent with one another.
Speaker 6: How do you square that with Delta?
Speaker 5: And I know that this is sort of not a
Speaker 5: perfect data set, but it is the data set that
Speaker 5: we have. Delta reported earnings and it was better than expected,
Speaker 5: and they said they see no reason for there to
Speaker 5: be any softness in the path a head. They're seeing
Speaker 5: demand really pick up across the board. How do you
Speaker 5: square that with a decelerating in labored demand that you
Speaker 5: just talked about.
Speaker 9: Yeah, look, I think there's a potential reason for that
Speaker 9: could be that we are seeing but a narrowing I
Speaker 9: think in terms of the drivers of consumption.
Speaker 8: Right.
Speaker 9: So, one of the things that we've been referencing for
Speaker 9: a while is that we'd expected the lower end of
Speaker 9: the income spectrum would become under more pressure through the
Speaker 9: beginning of this.
Speaker 4: Year, and I do think we have seen that.
Speaker 9: I think one of the things we have seen, though,
Speaker 9: is that the upper income groups are continuing to sit
Speaker 9: on relatively healthy balance sheets. And there's a number of
Speaker 9: elements that we're seeing in terms of the income data,
Speaker 9: particularly the Nipper revisions with a big, a big kind
Speaker 9: of revision in terms of dividend income supporting income growers
Speaker 9: in recent years. And I think that's also unlikely to
Speaker 9: be equally distributed across the income distribution. So if you
Speaker 9: think about kind of where the kind of support for
Speaker 9: kind of recreational services is coming from, it's likely to
Speaker 9: be coming from those upper income groups disproportionately. So I
Speaker 9: think that's that's the reason why you know, we have
Speaker 9: a slowing in terms of the economy, we have a
Speaker 9: slowing in terms of consumption given the potential for kind
Speaker 9: of pass through of tariff headwinds later this year, but
Speaker 9: we don't have an outright contraction. And I do think
Speaker 9: it is because you do have that kind of stronger
Speaker 9: upper income group in particular still kind of able to support,
Speaker 9: you know, the pace of consumption as we go forward.
Speaker 1: And again when it comes to terraffs, how are you
Speaker 1: thinking about the latest rhetoric we have when it comes
Speaker 1: to Beijing In Washington, and potentially an increased teriff rate
Speaker 1: on China.
Speaker 6: Yeah.
Speaker 9: Look, I mean, China is the area where we have
Speaker 9: seen obviously the strongest kind of ratcheting up of tariffs.
Speaker 9: They're sitting with the highest weighted average tariff of kind
Speaker 9: of any country and trading partner that the US has,
Speaker 9: And I think, you know, the kind of resurgence of
Speaker 9: the rhetoric around potential for the one hundred percent tariff
Speaker 9: to be added late last week, I think this is
Speaker 9: just a you know, a timely reminder that this is
Speaker 9: an area where we could continue to see tensions kind
Speaker 9: of flaring up. Obviously, we had the kind of November
Speaker 9: tenth deadline already in the calendar for the potential for
Speaker 9: the reciprocal rate on China to increase. I think, you know,
Speaker 9: the kind of deadline here for the one hundred percent
Speaker 9: of November first potentially gives you a little bit more
Speaker 9: time to see kind of more progress and negotiations between
Speaker 9: the two. So I think for now, you know, we're
Speaker 9: watching to see how that progresses. I think obviously the
Speaker 9: experience of earlier this year we saw a very strong kind
Speaker 9: of increase in terms of tariffs on China that proved
Speaker 9: relatively short lived, so we would be watching to see
Speaker 9: kind of how that rhetoric develops in terms of before
Speaker 9: we would want to kind of think about how that
Speaker 9: might feed into into a kind of the economic outlook
Speaker 9: and our expectations.
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