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Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Welcome to Bloomberg Markets.
Speaker 3: I'm Vonni Quinn with Tim Stenebek on this Friday, July fifth,
Speaker 3: post non farm payrolls and of course a lot to
Speaker 3: talk about. It's not just post jobs data today, Tim, Yeah,
Speaker 3: we thought.
Speaker 4: It was going to be kind of a quiet week, right,
Speaker 4: but not really. We have big UK election results. We're
Speaker 4: going to talk about that, Biden holding a campaign at
Speaker 4: rally a little bit later. We'll bring that to you
Speaker 4: live as we do get it. And of course those
Speaker 4: payroll numbers fine.
Speaker 2: Exactly and markets that are on the move.
Speaker 3: And next week we already get into earning season and
Speaker 3: we have fed Ja Powell speaking, so we really are
Speaker 3: ramping up the activity here and it is interesting to
Speaker 3: see stocks on the move with the NOWSDAK one hundred
Speaker 3: now up nine tenths of one percent. But just to
Speaker 3: repeat those numbers in case somehow you might have missed them.
Speaker 3: Today we had June non farm payrolls up two hundred
Speaker 3: and six thousand, but some revisions downward to some previous months,
Speaker 3: the unemployment rate at four point one percent, but not
Speaker 3: triggering the sum rule. Let's get to somebody who knows
Speaker 3: a lot more about the inner workings of the non
Speaker 3: farm payrolls report and how it's impacting bond markets and heels.
Speaker 3: Michael McKee joins us now in studio, and Michael, the
Speaker 3: revisions were very important. Are they typically this important to
Speaker 3: the bond market?
Speaker 5: Not typically, But basically, this is one of the largest
Speaker 5: sets of revisions. Say go back and revise the prior
Speaker 5: two months that we have seen in one hundred and
Speaker 5: eleven thousand jobs taken away is quite a bit. So
Speaker 5: basically it sort of evens out the number we got
Speaker 5: today to the last two months and suggests that the
Speaker 5: economy and the labor market are still relatively strong, but
Speaker 5: not as strong as the Fed might have thought.
Speaker 4: I'm guessing My question, though, Mike, is is really about
Speaker 4: how when things go from bad news being good news
Speaker 4: to bad news actually being bad news. Because the labor
Speaker 4: market weekning is good news for the Fed. I mean,
Speaker 4: this was a Fed friendly report. Look at the bond market,
Speaker 4: no question. But at what point does they do they
Speaker 4: start to see too much softness in the jobs market.
Speaker 5: That's a good question. They predicted four point one percent,
Speaker 5: which is what we have by the end of the year.
Speaker 5: Now does it stay at four point one percent or
Speaker 5: does it continue to worsen? That's going to be the
Speaker 5: big question. Does the Psalm rule come into play? Does
Speaker 5: the Psalm rule even apply in the current macroeconomic situation?
Speaker 6: Should later col her.
Speaker 7: See if she'll.
Speaker 5: Because the other half of this is that wages are
Speaker 5: still rising three point nine percent year over your basis,
Speaker 5: even if you're looking at the CPI instead of the
Speaker 5: fedce PCE. Workers are still getting ahead in terms of
Speaker 5: pay over inflation. So the good news and there's bad news.
Speaker 3: So they are still getting ahead, Michael, But at least
Speaker 3: that didn't take up, right, three point nine percent you
Speaker 3: know year over year, point three percent month over month
Speaker 3: is not enough to calm the Fed that you know,
Speaker 3: inflation won't.
Speaker 2: Be taking up at least thanks to wages.
Speaker 7: Well, we're not there yet.
Speaker 5: The Fed looks at maybe three and a half percent,
Speaker 5: closer to three as a stable level of wage gains
Speaker 5: that would It's the level you would want to see
Speaker 5: if you had two percent inflation, which is their target.
Speaker 5: So they're still thinking that's a little bit high. But
Speaker 5: the progress in coming down, especially with the labor market cooling,
Speaker 5: and a lot of the labor market cooling we saw
Speaker 5: today was in the services sector, which has bothered the
Speaker 5: FED because that their primary input price is wages. So
Speaker 5: if we're seeing wages come down a little bit and
Speaker 5: fewer jobs, it's going to take some of the wage
Speaker 5: pressure off going forward.
Speaker 4: Okay, the June payrolls report is behind us. Let's move
Speaker 4: to next week when we hear from j.
Speaker 7: Powell.
Speaker 4: He's going to do his semi annual Monitor Policy Report
Speaker 4: to the Senate and the House, and then we get
Speaker 4: June consumer price prices out on Thursday.
Speaker 5: Yeah, it's quite quite a week. It's going to be
Speaker 5: quite a week. I think the CPI is going to
Speaker 5: be more of the focus. J Powell is probably not
Speaker 5: going to give an indication of where the Fed's going
Speaker 5: to go. He will even probably dodge questions about July.
Speaker 5: And nobody thinks they're going to do anything in July,
Speaker 5: and the question about September is how do these inflation
Speaker 5: reports come in between now and the September FED meeting.
Speaker 5: And so that's why the market's going to pay more
Speaker 5: attention to CPI than to Powell. But it'll be interesting
Speaker 5: to hear what he has to say about how the
Speaker 5: FED is thinking about the progress that they have made
Speaker 5: so far.
Speaker 3: You know those commentators who say the Fed should already
Speaker 3: be on the move. I'm thinking Neil Dota, mommadala area
Speaker 3: and so on.
Speaker 4: They are, you know, even think it was more get
Speaker 4: on with it already is I think what he said
Speaker 4: exactly what he said.
Speaker 5: The fear is that they end up behind the curve.
Speaker 5: And those are the people who would be looking at
Speaker 5: the PSALM rule, which, just to just to explain it
Speaker 5: a little bit, it's the three month moving average of
Speaker 5: the unemployment rate minus the lowest three month moving average
Speaker 5: number of the past twelve months. Sounds complicated, Yeah, it's
Speaker 5: not that bad. You could do it on an Excel spreadsheet.
Speaker 6: Hopefully Clauda doesn't give us anyway.
Speaker 5: If you get half a percent rise, then in theory
Speaker 5: from the low in theory, you're in recession. However, you
Speaker 5: have to look at why the unemplated employment rate is rising.
Speaker 5: Normally in a recession, it's because jobs are going away.
Speaker 5: In this case, jobs aren't going away, but more people
Speaker 5: are going into the labor market, and so there's a
Speaker 5: greater supply and we have a higher unemployment rate. And
Speaker 5: not to predict what Claudia is going to say, but
Speaker 5: I think she has noted that this is a question
Speaker 5: about the accuracy of the PAM rule in this particular situation.
Speaker 3: Yeah, she's absolutely saying that, you know, maybe this is
Speaker 3: something that we should be watching closely, but that there
Speaker 3: could also be, of course, exceptions to the rule that
Speaker 3: has proved you know, pretty golden stuff.
Speaker 5: If we hit the sm rule, it doesn't matter whether
Speaker 5: Claudia Sam exactly thinks it's accurate or not. The markets
Speaker 5: are going to freak out anyway, because that's what they do.
Speaker 3: Yes, exactly, particularly the last eighteen months or so. Michael,
Speaker 3: Thank you so much. Michael McKee. There are senior correspondent
Speaker 3: there on all things economy and jobs related. Let's move
Speaker 3: to somebody else now who knows a lot about this area.
Speaker 3: Jane o Ites, a senior policy advisor at Working Nation
Speaker 3: that's a nonprofit media organization focused on employment. She's also,
Speaker 3: by the way, a former US Department of Labor official,
Speaker 3: I believe in the Obama administration. So, Jane, what was
Speaker 3: the takeaway for you today on the state of the
Speaker 3: labor market in the United States right now and how
Speaker 3: much it might be weakening.
Speaker 8: Well, I think, just as Michael said, I was thrilled
Speaker 8: to see more people entering the labor force. That labor
Speaker 8: market participation rate has been just, you know, stubbornly stuck,
Speaker 8: so it's great to see it come up a little bit.
Speaker 8: I was disappointed to see the huge drop again in
Speaker 8: temporary help because you know that temporary area is a
Speaker 8: way that a lot of people get back into the
Speaker 8: workforce or get their first job.
Speaker 6: Why do you think that's happening, Jane, Well, I.
Speaker 8: Think the easy answer Tim would be to say, it's
Speaker 8: all the layoffs in tech. You know, a lot of
Speaker 8: the temporary workforce was specifically in tech. You had places
Speaker 8: that trained people that had an associates or a bachelor's
Speaker 8: degree in a specific thing, you know, like they took
Speaker 8: they did data analytics, or they did some kind of
Speaker 8: data visualization software. And since all the layoffs are happening,
Speaker 8: there's not that need for new talent and in the
Speaker 8: tech space. But I'm watching it because you know it's
Speaker 8: down five hundred thousand plus in the last three years.
Speaker 8: That's a lot of a decline.
Speaker 9: For sure.
Speaker 3: It is Jane, what more could the administration be doing
Speaker 3: right now?
Speaker 2: You know, it comes.
Speaker 3: Out every month and says, look, we've been doing a
Speaker 3: fantastic job. This doesn't happen. It happens proactively, and our
Speaker 3: policies have created all these jobs.
Speaker 2: Is there more that could be done?
Speaker 8: Well? I think the only evidence that we see this
Speaker 8: month that things are starting to work is the uptick
Speaker 8: in construction. You know, construction and manufacturing have been relatively flat,
Speaker 8: so that increased this month. In construction. The twenty eight thousand,
Speaker 8: which is over what the average has been, is a
Speaker 8: good sign that the infrastructure money is really starting to
Speaker 8: kick in at the local levels. So I'll take that
Speaker 8: as a ray of hope and hope that it's a
Speaker 8: trend that really continues, Jane.
Speaker 4: President Biden, weighing in this morning after those numbers came out,
Speaker 4: he said, quote, we have more work to do. Wages
Speaker 4: are growing faster than prices, and more Americans are joining
Speaker 4: the workforce. Too many Americans are still feeling squeezed by
Speaker 4: the cost of living, so that's certainly his concern, and
Speaker 4: obviously it's very political. The first question the debate was
Speaker 4: all about the economy last Thursday night. What more from
Speaker 4: your view? And I know you focus on at working nation,
Speaker 4: you focus on the future of work, but what more
Speaker 4: on your view you you can sort of match worker
Speaker 4: salaries with price increases.
Speaker 8: Hardest thing tim in that space is things like chicken
Speaker 8: and eggs and gas can start to come down, but
Speaker 8: rents are and hassing prices are still stubborn. So people
Speaker 8: are seeing that, especially young workers who are trying to
Speaker 8: buy their first house or move out of their parents'
Speaker 8: home and get their first apartment. So I think it's
Speaker 8: going to take a lot of time, and I do
Speaker 8: think there's got to be continued work in Congress, you know,
Speaker 8: to make sure that there are policies in place to
Speaker 8: make sure that first time home buyers get a good
Speaker 8: chance at getting that first home.
Speaker 3: Jane, the payoff between inflation and wage gains, right, it's
Speaker 3: a finely balanced one for the worker. What is the
Speaker 3: sweet spot where workers are getting enough to cover inflation
Speaker 3: but they're not stoking inflation by getting those rises.
Speaker 8: Yeah, I think the best thing is when we see
Speaker 8: people working more full time people, you know, I think
Speaker 8: one of the great things is a lot of workers.
Speaker 8: That number came down in what we call discouraged workers,
Speaker 8: came down by almost five hundred thousand. I mean, so
Speaker 8: I think people are moving from temporary employment, from part
Speaker 8: time employment into full time jobs. That's great because it
Speaker 8: takes the pressure off on things like healthcare. You know,
Speaker 8: people get benefits, people have paid leave, they can have
Speaker 8: sick days if their kid gets sick or if they
Speaker 8: get sick. So I think that's something that's going to
Speaker 8: remove some of the pressure. I think the other thing
Speaker 8: is more, you know, more stores have to join the band.
Speaker 8: The band that's joining saying, like the Walmart and targets
Speaker 8: of the world, saying they're going to make an effort
Speaker 8: to lower prices. I think the price increases that we
Speaker 8: saw during COVID in goods are still stubbornly high, and
Speaker 8: I wonder if there's not ways to bring those prices down.
Speaker 4: Gina, I know that one area of concern for you
Speaker 4: is the idea that you the youngest people who are
Speaker 4: eligible to work aren't necessarily working right now, and when
Speaker 4: you think about those jobs that that teenagers get sixteen
Speaker 4: to nineteen years old, talk about why that's a focus
Speaker 4: for you.
Speaker 6: We don't hear a lot about that, Kim.
Speaker 8: You know me too well, right, that's the bottom line, Fannie.
Speaker 8: This has been a drum beat that I've had for years,
Speaker 8: even when I was in the administration and working nation
Speaker 8: does a lot trying to cover these young people as well.
Speaker 8: If you don't learn those employability skills, think of your
Speaker 8: first job. You know, you learned how to get there
Speaker 8: on time, You learned how to do your job, You
Speaker 8: learn how to work with others, work in a team.
Speaker 8: If you don't get those skills, where schools just can't
Speaker 8: do it. It's unfair for us to look at high schools,
Speaker 8: community colleges, four year institutions, they and say they should
Speaker 8: be doing all these things. They can treat, they can
Speaker 8: train us, they can teach us to think, you know,
Speaker 8: to problem solve, but they can't teach us the things
Speaker 8: we learn uniquely on the job. So you are right
Speaker 8: in double the high, double digit unemployment in that sixteen
Speaker 8: to nineteen year old age group is going to pay
Speaker 8: deficits to us in the future, we're going to see
Speaker 8: those people struggle to really get a foothold in the workforce.
Speaker 3: Where are we as well on minority hiring. You know,
Speaker 3: there had been some you know, progress made on that,
Speaker 3: but it feels like it's potentially stolled.
Speaker 2: What can happen in that regard.
Speaker 8: Look, I think that there's still some progress. I mean,
Speaker 8: if you looked at the labor market, participation rates, you know,
Speaker 8: Latinos and blacks are really increasing every month. But the
Speaker 8: bottom line is the unemployment rate is still stubbornly higher
Speaker 8: among people of color than it is of whites. I'm
Speaker 8: not quite sure what that is. I certainly feel that
Speaker 8: as construction adds jobs, construction, you know, both in commercial
Speaker 8: construction and home construction, have always been open to hiring
Speaker 8: people of color, even hiring oftentimes people who may have
Speaker 8: a criminal record. So I mean, I think that's all
Speaker 8: positive news. I think the negative news is until we
Speaker 8: see the other sector that's really been great on higher
Speaker 8: people across the board of color, men and women, manufacturing.
Speaker 8: Until we see some real job growth there, I don't
Speaker 8: think we're going to make any real improvement in those numbers.
Speaker 6: Jane.
Speaker 4: We only have about forty seconds left, But very briefly,
Speaker 4: we're waiting for President Biden to make remarks at a
Speaker 4: rally in Wisconsin right now. What do you want to
Speaker 4: hear from him on the jobs front? What does he
Speaker 4: need to say to convince voters to go vote for
Speaker 4: him come November.
Speaker 8: So I think he's going to say he has to
Speaker 8: say that he's going to concentrate on this and he
Speaker 8: has to motivate people to come back to work and
Speaker 8: motivate employers to continue the hiring trend.
Speaker 4: All right, Jane Oaates, thank you so much for joining
Speaker 4: us on this Friday afternoon. This Job's Friday here in
Speaker 4: New York. Jane joining us from Arlington, Virginia. That's jaye
Speaker 4: ooas Senior policy advisor at Working Nation. It's a nonprofit
Speaker 4: media organization focused on employment. Also a former US Department
Speaker 4: of Labor official in the Obama administration.
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Speaker 4: Bondi'll certainly down across the curve as we look at
Speaker 4: the two year down ten basis points, Vonnie, the thirty
Speaker 4: year down five basis points.
Speaker 2: Yeah, it was a huge day for years.
Speaker 3: The whole curve shifted and again, as you say, the
Speaker 3: two tenths part of the curve, perhaps more so than
Speaker 3: the long end.
Speaker 2: Let's bring in somebody that would tell us a lot more.
Speaker 3: About that, and that is in studio, Michael McKenzie of
Speaker 3: Bloomberg News and of course with us remotely is Bloomberg
Speaker 3: Intelligence rate strategist to Ira Jersey, Michael, let me come
Speaker 3: to you first. How big of a move is this
Speaker 3: in yields? Considering we've seen several round trips for yields
Speaker 3: this year.
Speaker 10: I think it's so pretty much a range found market.
Speaker 10: That said, the softening we are seeing labor, he's sort
Speaker 10: of called the market now more comfortable pricing pretty much
Speaker 10: close to fret us responsible to rate clups this year.
Speaker 10: September remains live, and.
Speaker 4: You know, Michael, we're gonna have to they're still working
Speaker 4: on getting your mic up. Excuse me, I'm going to
Speaker 4: jump in. Was genius what we're saying. I'm going to
Speaker 4: get you. You'll get to ask the question again, Vonnie,
Speaker 4: But I do want to bring in Ira Jersey, who's
Speaker 4: with us from New Jersey. He's Bloomberg Bloomberg Intelligence senior
Speaker 4: rates strategists. Same question over to you that that Vonnie asked.
Speaker 4: Since we have seen such a round trip when it
Speaker 4: comes to rates, how do you look at today's news
Speaker 4: and the and the drop in rates that we're seeing
Speaker 4: across the curve, Ira.
Speaker 11: Yeah, I think the Fed thinks that the or the
Speaker 11: market things. I should say that the Fed thinks that
Speaker 11: they need an excuse in order to cut interest rates.
Speaker 11: And when you have, you know, a slowing job market,
Speaker 11: then certainly that is one of the key indicators. So
Speaker 11: not a huge surprise that we've had a bit of
Speaker 11: a rally on the somewhat softer data, particularly that little
Speaker 11: tickup in the unemployment rate, although it really was pretty
Speaker 11: incremental overall. You know, the fact that the front end
Speaker 11: is rallying so much is a signal not so much
Speaker 11: that that the Fed is necessarily going to start cutting early,
Speaker 11: that the Federal Reserve might cut more than the market
Speaker 11: was thinking before. So when you look at the you know,
Speaker 11: all throughout the curve and shorter term interest rate, it's
Speaker 11: like like so for futures for example, which are now
Speaker 11: the new short term interust rate instrument to look at
Speaker 11: and not everyone uses to hedge. You look at at
Speaker 11: one year and eighteen months out from today, and those
Speaker 11: of rallied the most, and I think that that's a
Speaker 11: signal that, look, no one really cares in the macro
Speaker 11: if they cut in September or cut in November or
Speaker 11: cut in December. It's a matter of where they get
Speaker 11: to at the end. And we're starting to think that, hey,
Speaker 11: maybe instead of only cutting the three and a half percent,
Speaker 11: maybe they're only going to cut the three percent, And
Speaker 11: that's starting to get price in the market now.
Speaker 3: Well, if that is fascinating, well, Michael McKenzie, let's bring
Speaker 3: you back in here, because it'd be nice if you reacted.
Speaker 2: To what Ira said, and also, you know, explain to
Speaker 2: us a.
Speaker 3: Little bit about why we are seeing the jobs report
Speaker 3: weakening ever so slightly but such a big move in
Speaker 3: the bond market, because you know, it may not be
Speaker 3: a big move to us this year, but in general,
Speaker 3: an eight basis point move is it's a really big move.
Speaker 10: It is a big move, but you have to remember
Speaker 10: we had July fourth, yesterday, a lot of people aren't
Speaker 10: in the market today. I think also, you've got two
Speaker 10: big events to come next week. You've got to pals
Speaker 10: semi annual testimony to Congress and then you'll have the CPI,
Speaker 10: And I think the CPI date is what the market
Speaker 10: is probably weighing. You get confirmation that they could push
Speaker 10: beyond more than just pricing into cuts for this year.
Speaker 10: I think the other interesting thing here is the market
Speaker 10: still isn't pricing in one hundred basis points it cuts
Speaker 10: that the Fed itself expects for next year, and that'll
Speaker 10: be the next leg of this trade. If you do
Speaker 10: get signs that inflation is cooling, the labor market is
Speaker 10: continue to cool down here, then you're going to see
Speaker 10: the markets start to get more comfortable price meeting what
Speaker 10: the Fed is expecting for next year, and that will
Speaker 10: help the front end. And it is very much a
Speaker 10: market that I think is the front end is going
Speaker 10: to lead the charge here. The uncertainty, of course, is
Speaker 10: what's just how much can the back end rally? Given
Speaker 10: the election is going to increasingly come into focus and
Speaker 10: as someone explained to me today, you're going to be
Speaker 10: a remind all the time about the spending is not
Speaker 10: going to slow down. The deficits are going to continue
Speaker 10: to rise, and you're going to see I think a
Speaker 10: restoration of a positive term premium in the back end
Speaker 10: of the curve.
Speaker 4: Hey, Michael, one of the reasons we love talking to
Speaker 4: you is exactly that you do talk to people every
Speaker 4: day in the bond market, people who are buying and selling,
Speaker 4: people who are participating. But on a day like today,
Speaker 4: the day after fourth of July, when you said not
Speaker 4: many people are actually at the office today, who.
Speaker 6: Is who are you talking to? What are they saying?
Speaker 10: Strategists and investors, and they saw people who are monitoring
Speaker 10: the market. But I think in terms of being positioned,
Speaker 10: taking on new positions, putting new positions to work here,
Speaker 10: you're really going to have to see how the inflation
Speaker 10: call compans out from here. So I think next week
Speaker 10: is probably going to be more important. Also be interesting
Speaker 10: to hear what pow pal. Is he more a little
Speaker 10: bit more dubbish or does he kind of stick very
Speaker 10: tight and stay very very focused here and can say, look,
Speaker 10: we want the optionality. We're still looking to do one
Speaker 10: at least one cut this year, and I think that's
Speaker 10: what the market needs to take on board. Too, but
Speaker 10: I'd say today's movement can be exaggerated given the thin liquidity.
Speaker 3: For sure, IRA, What will Fletcher Powell want to convey
Speaker 3: to Congress next week?
Speaker 11: Yeah, I doubt that he's going to shift significantly from
Speaker 11: the June meeting. I mean, the preponderance of the data
Speaker 11: is actually been fed friendly right where things are slowing down,
Speaker 11: but they're not slowing down quickly. And you know, he
Speaker 11: can point to a lot of the data suggesting that, look,
Speaker 11: you know, the job market is getting more into balance.
Speaker 7: I think we'll use that again.
Speaker 11: He'll more or less stick to the minutes the Monetary
Speaker 11: Policy Report, and remember it's a seventy odd page report.
Speaker 7: I haven't been able to read the whole thing yet, but.
Speaker 11: The Monetary Policy Report just came out a couple hours ago,
Speaker 11: and you know that didn't say anything. At least the
Speaker 11: executive summary didn't say anything much different than what they
Speaker 11: said in the minutes that came out on Wednesday. So
Speaker 11: I think he'll stick to that script. I think he
Speaker 11: has to, because remember he's talking for the whole committee,
Speaker 11: not necessarily his own his own beliefs. Now, if he's asked,
Speaker 11: what do you personally think, I think that that could
Speaker 11: be a little bit more more interesting. Also, remember he
Speaker 11: starts with the Senate this time, so Q and A
Speaker 11: afterwards might be a little bit more technocratic, a little
Speaker 11: bit more technical as opposed to the political grandstanding that
Speaker 11: often happens in the House of Representatives, which will be
Speaker 11: the following day.
Speaker 4: I mean, you still have all weekend where you can
Speaker 4: sit back and enjoy time outside reading that reading that report.
Speaker 4: So Monday, well, we'll expect a full summary when when
Speaker 4: we speak to you, but before then, I want to
Speaker 4: get your thoughts on the way that RAID investors have
Speaker 4: thought about cuts this year after today's data. It was
Speaker 4: a mixed report. We spent a good portion of time
Speaker 4: at the top of our show, Ira going over it.
Speaker 4: How did you see any sort of reset in how
Speaker 4: traders are thinking about cuts from the FED?
Speaker 11: A slight reset for this year, you know, making higher
Speaker 11: probabilities of September like September's now I would say a
Speaker 11: live meeting.
Speaker 7: I still suggest.
Speaker 11: That that the data might not be quite weak enough
Speaker 11: that the Fed's comfortable starting to cut in September. Keep
Speaker 11: in mind that the words to listen for for with
Speaker 11: Powell next week after these data that we received is
Speaker 11: do we have risks of cutting early and risks of
Speaker 11: cutting too late. So, and he was asked specifically earlier
Speaker 11: this week about whether or not September was when they
Speaker 11: were going to start cutting rates, and he said, look,
Speaker 11: you know, every.
Speaker 7: Meeting is live. We're going to let the data. We're
Speaker 7: going to let the data lead us.
Speaker 11: So it really does depend on the next two months
Speaker 11: of data princess to whether or not September is when
Speaker 11: they first cut. But you know, quite frankly, unless you
Speaker 11: trade those instruments, it doesn't really matter. I'm looking more
Speaker 11: like the late twenty twenty five instruments because that's really
Speaker 11: what tends to move to two year note, the five
Speaker 11: year note, and the whole rest of the treasury yields curve.
Speaker 2: Yeah, Michael, I want to come to you on that
Speaker 2: because it's fascinating.
Speaker 3: It used to be that we'd watch the five year
Speaker 3: five year forward a lot, and now, as I was saying,
Speaker 3: it's really you know, one year and eighteen month forwards,
Speaker 3: where else should we be looking for indications?
Speaker 10: Well, I think that's that's where you start. I think
Speaker 10: there is a debate in the market whether or the
Speaker 10: FED may have to actually cut a bit more aggressively
Speaker 10: than what what is currently the consensus, because if things
Speaker 10: really start to slow down, you know, as someone explained
Speaker 10: to me today, it's better that you actually be a
Speaker 10: little faster with the cuts to start and then step
Speaker 10: back and wait to see how things pan out. So
Speaker 10: I mean, then over the next eighteen months is where
Speaker 10: you're going to see I think the majority of cuts
Speaker 10: because I think longer term, you can make a pretty
Speaker 10: good argument that you know, inflation will probably be a
Speaker 10: little stickier. You've got supply chain issues still evolving. We
Speaker 10: still haven't really got beyond the COVID experience in terms
Speaker 10: of how that's changed the economy, and I think you
Speaker 10: can argue that our star is probably all. You know,
Speaker 10: the long term mutual rate is probably higher in this environment,
Speaker 10: particularly with the spending. There's still stimulus coming through the
Speaker 10: economy from the spending we've seen under the Biden administration as.
Speaker 4: Well, Michael, In terms of next catalyst that you're watching,
Speaker 4: next week is a big week. We of course here
Speaker 4: from J Powell on capital hell, we alluded to that
Speaker 4: moments ago, but also we get inflation data coming on Thursday.
Speaker 6: What's the bigger news for you.
Speaker 10: I think you see inflation numbers, Okay, I think that's
Speaker 10: where the market becomes.
Speaker 7: What's really interesting.
Speaker 6: Look at the bob market.
Speaker 10: The moment is that it has been unwilling to go
Speaker 10: beyond pricing in more than two cuts, and that's that's
Speaker 10: what we began this year with six cuts priced. The
Speaker 10: market has been actually very very I think disciplined. It's
Speaker 10: been It's been burnt pretty hard in the past by
Speaker 10: all these trying to anticipate these Fed pivots. They really
Speaker 10: want to see the inflation numbers, and if inflation numbers
Speaker 10: are cooperating and moving in that right direction, that will
Speaker 10: give the Fed the ability to actually go in September.
Speaker 10: So that's why you know it's live, but it's not
Speaker 10: fully priced.
Speaker 2: We're going to thinking too.
Speaker 11: I think makes a good I think Mike makes a
Speaker 11: good point there, because you know, the FED needs cover
Speaker 11: at some level, right because some indicators are still suggesting
Speaker 11: that the economy is running pretty quickly and if they
Speaker 11: start to cut interest rate's people are worried and a
Speaker 11: lot of investors that I talked to you are worried
Speaker 11: about a reacceleration of inflation if the FED does cut
Speaker 11: too early, So so you need to see those inflation
Speaker 11: numbers come down and that is going to continue to
Speaker 11: be the key because that's going to give them the
Speaker 11: cover to be able to cut interest rates, and especially
Speaker 11: if they cut as early as September.
Speaker 3: Yeah, I mean you probably know what I was going
Speaker 3: to ask is about the sum rule. We're going to
Speaker 3: be speaking with Claudia later and she allows for you know,
Speaker 3: exceptions to the rule and so on. But I mean,
Speaker 3: does today's data make it any more likely that we're
Speaker 3: closer to a recession?
Speaker 11: Maybe a little bit, but you know, typically and look,
Speaker 11: I've gone back in history and looked at like percent
Speaker 11: changes in the employment in both the household survey as
Speaker 11: well as the as well as the Establishment survey, and
Speaker 11: all of those are running at levels that we had
Speaker 11: like in the mid two thousands or in the nineteen nineties.
Speaker 7: You know, call it like, you know, when when you're growing.
Speaker 11: The the employment by about one percent one point five
Speaker 11: percent per month on an annualized basis, that's typical, and
Speaker 11: that's right where we are now.
Speaker 7: The question is is will it decelerate further?
Speaker 11: And that's where things like FED forecasts and and everyone's
Speaker 11: forecast will matter as to whether or not you think
Speaker 11: the economy is cooling and having a soft landing, or
Speaker 11: whether or not we are going to go into recession.
Speaker 7: It's not unusual, Vonnie.
Speaker 11: Keep in mind for the Federal Reserve to start cutting
Speaker 11: interest rates when payrolls are still positive but declining. So
Speaker 11: but you know, at the same time, two hundred thousand
Speaker 11: jobs being created a month. If you believe that number,
Speaker 11: which you know, I know anamog and some folks a
Speaker 11: Bloomberg economics question the.
Speaker 7: Validity of it. But if that is correct, then the
Speaker 7: economy's fine.
Speaker 11: Right at least the job market and that part of
Speaker 11: the Fed's mandate is not bad with a four percent
Speaker 11: unemployment rate.
Speaker 4: Hey, forty seconds left, Michael mackenzie, I want to end
Speaker 4: because we're focused on politics. We're going to hear from
Speaker 4: President Biden in just a few minutes. What are you
Speaker 4: watching when it comes to rates? If there were to
Speaker 4: be some big surprise come in the coming days, I.
Speaker 10: Think watch the curve whether we go. Last week got
Speaker 10: a pretty nasty bear steepener. Today we're getting a bullish steepener,
Speaker 10: which is the preferred way the market likes to see
Speaker 10: the curve steepen, but a bear a steepener be problematic.
Speaker 3: All right, both of you, thank you so much for
Speaker 3: keeping us on the straight and narrow or on the curve.
Speaker 2: I would say we talk about the jobs data today.
Speaker 3: That is Bloomberg Intelligence Rates strategist Our A Jersey remotely
Speaker 3: with us and in studio.
Speaker 2: Bloomberg News is Michael McKenzie.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 3: Tina Fordham, steopolitical strategist and founder of Fordham Global Foresight.
Speaker 2: Tina, first, before we get.
Speaker 3: To the UK or anything like that, can I ask
Speaker 3: you your impression of what's going on in the United
Speaker 3: States right now?
Speaker 2: It sort of took a left turn.
Speaker 3: We were all highly focused on everything court related to
Speaker 3: Donald Trump, and suddenly now we're focused on whether President
Speaker 3: Biden could even run for another term.
Speaker 12: Well, for me, it was in highly consistent with what
Speaker 12: we were thinking.
Speaker 9: About this election.
Speaker 12: There are too many variables, too many new factors and
Speaker 12: fluidity in this race for it to follow a typical
Speaker 12: US elections playbook, and that's exactly how it's playing out.
Speaker 9: Things are starting to come loose.
Speaker 4: Yeah, I guess the question is is how much more
Speaker 4: loose do they become before things start to, I guess,
Speaker 4: become tighter. And that's certainly a question a lot of
Speaker 4: Democrats are probably asking right now, Tina.
Speaker 12: Absolutely, But what we're observing is how campaigns and leaders,
Speaker 12: no matter how dedicated they are, can't control everything about
Speaker 12: the process.
Speaker 9: That's what we're witnessing now.
Speaker 12: I mean, I've encountered a fair amount of hostility for
Speaker 12: my observations straight after the debate, saying I think that
Speaker 12: that performance was a game changer and age which.
Speaker 9: Is not reversible.
Speaker 12: Of course, Biden will do better in other contexts, other environments.
Speaker 9: He is a very competent politician with.
Speaker 12: A great deal of experience, and has presided over an
Speaker 12: important economic recovery as far as I'm concerned. But Americans
Speaker 12: are right to ask if he can serve until twenty
Speaker 12: twenty nine, and it isn't a matter for his comms
Speaker 12: team to simply provide reassurance.
Speaker 3: Yeah, exactly, Tina, And just by the end of today,
Speaker 3: we'll have a lot of commentary from Joe Biden. As
Speaker 3: I say, we're waiting for his comments from Madison, Wisconsin.
Speaker 3: But if it were to happen that Joe Biden steps
Speaker 3: aside and somebody else comes in beat Kamala Haaras or
Speaker 3: Gama Newsom or whoever it may be, what would that
Speaker 3: do for Donald Trump's chances of winning? And I mean,
Speaker 3: we have head to head poling right now, but we
Speaker 3: are still very far away from election day.
Speaker 2: When it comes to US elections.
Speaker 9: Well we're very far.
Speaker 12: And yet I think I'd make the case that if
Speaker 12: a change is going to take place on the Democratic ticket,
Speaker 12: it needs to happen in the next few weeks. The
Speaker 12: NATO Summit in two weeks time is a major signpost.
Speaker 9: Actually it's next week, isn't it.
Speaker 12: The US will be hosting in Washington world leaders, including
Speaker 12: the new UK Prime Minister, Secure Starmer, and possibly a
Speaker 12: new French Prime minister. Almost certainly new French prime minister.
Speaker 12: Is a lot of change in the global environment. That
Speaker 12: would also be an opportune time for the US head
Speaker 12: of state to speak to allies. But that may be
Speaker 12: a faster timetable than the White House and the Biden
Speaker 12: team are prepared to look at.
Speaker 4: We do have an article out on the Bloomberg about
Speaker 4: allies being concerned overseas about the current president's ability to
Speaker 4: win election come November. I'm wondering what kind of pressure,
Speaker 4: if any, that could put on Biden to step aside.
Speaker 12: Well, there'll be reluctance from US allies to put on
Speaker 12: any pressure, that's for sure. But part of the reason,
Speaker 12: if not the main reason, why US allies, and indeed
Speaker 12: my CEO and investor clients here in Europe are so
Speaker 12: concerned about Biden's state is because they are so worried
Speaker 12: about a return of Trump to the White House. And
Speaker 12: that is a really consistent view across the political spectrum,
Speaker 12: just because of the feared implications of a Trump two
Speaker 12: point zero on the global trade environment, tariffs and security.
Speaker 12: Remember that here in Europe, security, with the war in
Speaker 12: Ukraine as well as the Middle East number one consideration,
Speaker 12: and US consistency on that is very much in focus.
Speaker 3: Tina, you probably didn't think you were coming on to
Speaker 3: talk us. Given the British election that we've just had.
Speaker 3: We suddenly have a new regime. Does anything change in
Speaker 3: Britain radically pretty soon, and I'm talking about anything from
Speaker 3: relationship with Europe, to fiscal policy to any kind of
Speaker 3: social policy.
Speaker 12: Well, I think British voters certainly hope for a change.
Speaker 12: They gave the Conservative Party, which remember the Conservatives had
Speaker 12: been in power for fourteen years, a real drubbing last night.
Speaker 12: It was something to behold. And one of the things
Speaker 12: that will be surprising for your US viewers is that
Speaker 12: Rishi Sunac is already out of Downing Street. The removal
Speaker 12: van has been kir Starmer has met with King Charles
Speaker 12: and it's all change the.
Speaker 9: Same with the Chancellor of the Exchequer.
Speaker 12: So there's no grace period, there's no lame duck period,
Speaker 12: there's not even a transition period. The new team will
Speaker 12: be in their seats in the coming days.
Speaker 9: A Labor party government with a majority.
Speaker 12: Represents a signific can change, particularly a departure with Brexit.
Speaker 12: And remember that's probably the signature achievement as such for
Speaker 12: the outgoing Conservative Party. But the cupboard is also bear
Speaker 12: for cir Care Starmer, and he's really kind of made
Speaker 12: the biggest promises about returning the UK to growth, growth,
Speaker 12: here is languishing and restoring public services. So business is
Speaker 12: actually backing labor for the first time that I can remember.
Speaker 4: That's a part of his speech. It was this morning
Speaker 4: for me, but this afternoon for you. That really struck
Speaker 4: me earlier today was the idea that government is there
Speaker 4: to help and that the services are there for the
Speaker 4: people they are elected. I mean, you don't necessarily hear
Speaker 4: that here in the United States. A lot of people
Speaker 4: think government really gets in the way, and that's certainly
Speaker 4: the philosophy of a lot of folks here in the US.
Speaker 4: Can you explain how things like the NHS have been
Speaker 4: under pressure and how it's such a loved organization and
Speaker 4: how that was so crucial to labor's victory here.
Speaker 12: Yeah, crumbling public services appear in the top three concerns
Speaker 12: for British voters.
Speaker 9: It will surprise Americans.
Speaker 12: On the right to understand that the NHS is a
Speaker 12: much loved national institution. People look with horror at the
Speaker 12: United States and the idea of medical bankruptcies doesn't exist
Speaker 12: in this country. And so finding a way for the
Speaker 12: NHS to be more efficient in light of a you know,
Speaker 12: an aging population and everything else is a major task,
Speaker 12: to be sure, and one that you know, I think
Speaker 12: any incoming government would have to be looking at tax increases.
Speaker 9: But the American viewers.
Speaker 12: Need to resist the temptation to, you know, to kind
Speaker 12: of put everything in US terms. Labor Party is has
Speaker 12: got socialists in its name. It's it has taken a
Speaker 12: lot of steps to cultivate ties in the city of London,
Speaker 12: our equivalent of Wall Street, and frankly, the Conservative Party
Speaker 12: has not been a party of business for some time.
Speaker 12: With Brexit that kind of through through financial services under
Speaker 12: the bus, Labor will have no honeymoon, and their landslide
Speaker 12: victory is probably more of a you know, of a
Speaker 12: kicking to the outgoing Conservatives, as someone called it a
Speaker 12: loveless landslide, and I think that that's probably fair. But
Speaker 12: also it has been a completely peaceful, civilized, drama free transition,
Speaker 12: and I think that should be inspiring for US Americans.
Speaker 3: Yes, a drama free transition. Gosh, when did we last
Speaker 3: have one of those?
Speaker 2: I'm really not quite sure. Tina.
Speaker 3: Thank you so much. Can't wait to keep in touch
Speaker 3: with you throughout the next three months. Astina Fordham, geopolitical
Speaker 3: strategist and founder of Fordham Global Foresight.
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