WEBVTT - Bloomberg Surveillance TV October 18, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hortern. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.760 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.159 terminal and the Bloomberg Business app. Buzy joins us now 0:00:37.159 --> 0:00:39.720 for more. Lizzy, Welcome to the program. Do you think 0:00:40.040 --> 0:00:42.959 this economy is reaccelerating and do you think we're very 0:00:42.960 --> 0:00:45.040 close to this FED skip and a meeting. 0:00:46.000 --> 0:00:48.839 Well, I do think that yesterday's number showing this ongoing 0:00:48.880 --> 0:00:52.919 resilience and strength of the consumer reinforces the notion that 0:00:52.960 --> 0:00:55.880 we are on very solid footing. And when we look 0:00:55.880 --> 0:00:57.880 at what the retail sales numbers are likely to do 0:00:57.960 --> 0:01:01.440 to three third quarter growth would be an acceleration above 0:01:01.520 --> 0:01:04.320 three percent from what we saw even in the second quarter. 0:01:04.720 --> 0:01:08.120 So this does, I think, do two things. First, it 0:01:08.200 --> 0:01:11.959 calls into question the fed's decision to make that outsized 0:01:12.040 --> 0:01:15.240 rate cut in September, that fifty basis point production, but 0:01:15.319 --> 0:01:18.039 it also now calls into question the need for additional 0:01:18.120 --> 0:01:20.400 rate cuts, at least in the near term as we 0:01:20.400 --> 0:01:23.560 look out to that November policy decision. I do think 0:01:23.640 --> 0:01:27.280 any further indications, as I said, with a few data 0:01:27.280 --> 0:01:31.000 points between now and then, any further indications of ongoing strength, 0:01:31.080 --> 0:01:34.319 further strength in the labor market on the consumer, a 0:01:34.400 --> 0:01:38.200 reacceleration and inflation does give the FED and out to 0:01:38.360 --> 0:01:40.600 potentially bypass that November meeting. 0:01:40.840 --> 0:01:43.679 So lindsay, as you know, that's talking about removing restriction, 0:01:44.000 --> 0:01:46.679 not providing accommodation. And you can tell me if that's 0:01:46.720 --> 0:01:49.000 a distinction without a difference or not in just a moment. 0:01:49.200 --> 0:01:51.960 But ultimately, when they say recalibration, it feels like they 0:01:52.000 --> 0:01:55.200 mean autopilot on the way down to neutral. Is that 0:01:55.240 --> 0:01:56.440 the wrong way of thinking about this? 0:01:57.120 --> 0:02:00.240 Well, I do think there's a very important distinction, and unfortunately, 0:02:00.280 --> 0:02:02.200 I think the FED sent the wrong message with a 0:02:02.240 --> 0:02:05.520 fifty basis point cut. It was an inappropriate message to 0:02:05.560 --> 0:02:07.919 the market to suggest that they were in a rush 0:02:08.240 --> 0:02:10.800 to not only get back to neutral, but potentially below 0:02:10.880 --> 0:02:14.400 to provide support to an ailing economy, as opposed to 0:02:14.480 --> 0:02:17.600 a softer twenty five basis point cut, which would have 0:02:17.639 --> 0:02:20.720 indicated that the Fed is simply removing policy, firming at 0:02:20.760 --> 0:02:24.200 a slow and tempered pace back towards neutral as the 0:02:24.280 --> 0:02:27.560 data neutralize. So even if the Fed intended the latter, 0:02:27.760 --> 0:02:32.440 the message was muddled with that outsized rate reduction of 0:02:32.440 --> 0:02:34.720 fifty basis points, And now the Fed is caught in 0:02:34.760 --> 0:02:37.800 a position where they're trying to backpeddal and not only 0:02:38.400 --> 0:02:42.520 recalibrate market expectations, but now determine what the appropriate next 0:02:42.520 --> 0:02:46.400 step will be after that outsized and that outsized cuts. 0:02:46.560 --> 0:02:48.400 That's said Lindsay, a lot of people are looking at 0:02:48.400 --> 0:02:52.080 the growth and potential reacceleration of the US economy and 0:02:52.160 --> 0:02:55.080 not seeing it get accompanied with inflation really picking up 0:02:55.080 --> 0:02:56.880 in a material way. We're not seeing that in break 0:02:56.919 --> 0:02:58.760 even rates, We're not seeing that in a whole host 0:02:58.840 --> 0:03:02.600 of other metrics. At what point do you actually see 0:03:02.720 --> 0:03:07.080 inflation reaccelerating in tandem with growth, given the fact that 0:03:07.120 --> 0:03:12.320 there are some reasons for inflation to keep declining, Well. 0:03:12.120 --> 0:03:15.960 We are seeing some underlying metrics reaccelerate push further away 0:03:15.960 --> 0:03:19.360 from the fed's two percent target. The core PCEE, for example, 0:03:19.480 --> 0:03:23.200 tick tire. The super co also tick Tire. But you're right, 0:03:23.240 --> 0:03:25.560 one tenth of a percentage point is not necessarily an 0:03:25.600 --> 0:03:30.320 indication of a massive reacceleration of inflation. That being said, 0:03:30.680 --> 0:03:33.000 we're not at two percent yet, so I think the 0:03:33.000 --> 0:03:35.680 onus is still on the FED, not necessarily to avoid 0:03:35.680 --> 0:03:40.920 a reacceleration, but to foster further improvement in inflation. The 0:03:40.920 --> 0:03:44.320 Fed's job is not yet done, and a resurgence back 0:03:44.360 --> 0:03:47.520 to a reversion seis way back to two percent is 0:03:47.560 --> 0:03:51.400 not a foregone conclusion. So the FED, motivated by this 0:03:51.560 --> 0:03:55.000 fear of impending weakness in the labor market, shifted their 0:03:55.040 --> 0:03:58.280 focus away from inflation. Now we see that the labor 0:03:58.320 --> 0:04:02.720 market's strength appears to be well founded, and the focus 0:04:02.760 --> 0:04:07.000 of the FED should go back to getting inflation under control. Remember, 0:04:07.080 --> 0:04:11.360 a soft landing is not just about maintaining positive growth, 0:04:11.720 --> 0:04:15.400 but reinstating price stability at two percent, and we still 0:04:15.400 --> 0:04:17.760 have quite a ways to go before we can achieve 0:04:17.760 --> 0:04:18.160 that goal. 0:04:18.320 --> 0:04:21.159 This is so interesting, Lindsay because essentially making the argument 0:04:21.200 --> 0:04:23.200 that maybe the fedge take more of a page from 0:04:23.200 --> 0:04:25.919 the ECB and having more of a single mandate in 0:04:26.000 --> 0:04:30.320 terms of inflation, rather than focus so much on avoiding 0:04:30.360 --> 0:04:33.000 some sort of weakening in the labor market. I just 0:04:33.080 --> 0:04:37.239 wonder how often we've seen this. Whereas basically experiments. 0:04:36.880 --> 0:04:38.880 On either side of the Atlantic. 0:04:38.560 --> 0:04:41.839 We're one the ECB pledges to just focus purely on 0:04:41.880 --> 0:04:44.800 bringing inflation down even in the face of economic weakness, 0:04:45.400 --> 0:04:49.679 and the Federal Reserve to avoid any further weakness says, 0:04:49.720 --> 0:04:52.719 inflation's coming down, that's good enough for us, We're cutting rates. 0:04:53.960 --> 0:04:56.360 Well, I do think that the FED decided to move 0:04:56.400 --> 0:04:59.760 its focus away from inflation prematurely. Remember, when we look 0:04:59.760 --> 0:05:02.000 at it historical cycles, the Fed has been forced to 0:05:02.160 --> 0:05:06.800 raise the Fed Funds rate above historically significantly above that 0:05:06.880 --> 0:05:10.240 peak and inflation. So at five point six percent, five 0:05:10.279 --> 0:05:12.280 and a half on the Fed funds rate was really 0:05:12.320 --> 0:05:15.320 the bare minimum that we should have expected in terms 0:05:15.320 --> 0:05:18.599 of this rate hike cycle. But given the massive amount 0:05:18.680 --> 0:05:22.680 of liquidity and stimulus and cash pumped into the market, 0:05:22.880 --> 0:05:25.480 it was really unreasonable to expect that the bare minim 0:05:25.839 --> 0:05:30.039 would be the appropriate amount of policy restriction to reinstate 0:05:30.120 --> 0:05:32.920 price stability. So I do think that the Fed stops 0:05:32.920 --> 0:05:35.440 short of where we need it to be and now 0:05:35.480 --> 0:05:38.360 to add fuel to the fire. They've reverted to this 0:05:38.520 --> 0:05:44.640 policy pivot prematurely before really seeing that underlying disinflationary trend 0:05:44.800 --> 0:05:47.400 take hold, and that leaves us in a very uncomfortable 0:05:47.400 --> 0:05:51.080 position as growth it remained solid for now. If we 0:05:51.120 --> 0:05:53.919 do start to lose momentum looking out to twenty five 0:05:54.040 --> 0:05:57.839 twenty six, and the FED continues to tolerate above target inflation, 0:05:58.360 --> 0:06:00.920 the biggest risk for the US AICO ONNY longer term 0:06:00.960 --> 0:06:04.240 then is not a downturn like we're seeing necessarily in 0:06:04.560 --> 0:06:07.840 our developed counterparts abroad, but a period of stagflation. 0:06:08.279 --> 0:06:10.839 So lindsay, though, is there a chance if we continue 0:06:10.839 --> 0:06:14.080 to grow and we do see inflation come down, continue 0:06:14.120 --> 0:06:15.800 to come down, even though you do have concerns about 0:06:15.800 --> 0:06:18.479 maybe a reacceleration, is there a chance we could just 0:06:18.600 --> 0:06:20.200 grow bigger and not hotter. 0:06:22.200 --> 0:06:25.080 Absolutely, And I think that's the utopic scenario that the 0:06:25.080 --> 0:06:27.400 FET is looking for, that we continue to see this 0:06:27.520 --> 0:06:31.679 acceleration and underlying growth resilience in the consumer, positive spending, 0:06:31.839 --> 0:06:34.760 and positive acceleration in the labor market at the same 0:06:34.800 --> 0:06:37.880 time that price pressures begin to wane back to two percent. 0:06:38.279 --> 0:06:41.200 But again, that's a big gamble a big bet when 0:06:41.240 --> 0:06:45.680 we haven't seen that established downward trend in price pressures. 0:06:45.720 --> 0:06:49.520 We're still seeing very sticky components, sideways movement in the 0:06:49.520 --> 0:06:52.120 core for one month that as I mentioned, a reacceleration 0:06:52.240 --> 0:06:55.520 more recently, and we're also seeing some of these upside 0:06:55.640 --> 0:06:57.360 risks to inflation that are still. 0:06:57.160 --> 0:06:57.919 Hanging out there. 0:06:58.160 --> 0:07:02.080 International factors that could disrupt commodity markets and lead to 0:07:02.120 --> 0:07:06.520 higher prices, energy prices, fertilizer prices, factors that are outside 0:07:06.520 --> 0:07:09.840 of the Fed's purview. Not to mention, a very contentious 0:07:10.040 --> 0:07:13.000 election coming up in November, and regardless of which side 0:07:13.000 --> 0:07:15.800 of the aisle we find ourselves on, either candidate is 0:07:15.840 --> 0:07:20.280 proposing expansionary fiscal policy, which will continue to complicate the 0:07:20.320 --> 0:07:23.320 Fed's ability to get back to that two percent level 0:07:23.320 --> 0:07:24.320 of inflation. 0:07:24.080 --> 0:07:26.560 And possibly contribute to high yields. Lindsay, We've got to 0:07:26.600 --> 0:07:28.920 leave it there, Thank you, Lindsay, PX the of State. 0:07:29.000 --> 0:07:29.200 Four. 0:07:38.720 --> 0:07:39.960 Let's talk about foreign exchange. 0:07:39.960 --> 0:07:42.400 The US dollar heading towards a third week of gains 0:07:42.400 --> 0:07:44.800 after getting a boost from stronger than expected US retail 0:07:44.880 --> 0:07:47.720 sales and an ECP rate cut. Kit Juice of solt 0:07:47.720 --> 0:07:51.160 Gen writing, the market has been fed a steady diet 0:07:51.320 --> 0:07:53.920 of stronger than expected US data are of late more 0:07:53.960 --> 0:07:56.239 of the same will keep it bid, but perhaps mostly 0:07:56.280 --> 0:07:59.400 against the China sensitive currencies. We're concerned about US tariffs 0:07:59.520 --> 0:08:01.520 and dissip appointment at fiscal easing. 0:08:01.760 --> 0:08:02.559 Aren't going away. 0:08:02.760 --> 0:08:03.480 Kit joined US. 0:08:03.440 --> 0:08:03.960 Now for more. 0:08:04.040 --> 0:08:06.000 Kit, welcome to the program. We caught it with Jeff 0:08:06.080 --> 0:08:08.280 you someone you know well a little bit earlier this morning. 0:08:08.600 --> 0:08:11.920 He's looking for parity next year. Can you get on 0:08:11.960 --> 0:08:12.440 board with that? 0:08:14.160 --> 0:08:16.239 I had this sense that we would get somewhere closer 0:08:16.320 --> 0:08:18.440 to one twenty, not that far on this bounce on 0:08:18.480 --> 0:08:21.800 a US slowdown followed by possibly. 0:08:21.360 --> 0:08:22.240 A move to parity. 0:08:22.320 --> 0:08:24.960 Then, because the long run story is difficult. That the 0:08:25.120 --> 0:08:28.920 challenge right now is that the market has bought so 0:08:29.120 --> 0:08:30.760 many dollars. And when I mean the market and has 0:08:30.760 --> 0:08:33.800 been the fire exchange market, I mean the capital inflows 0:08:33.800 --> 0:08:37.880 from everybody sucked in by US yield by US tech talks, 0:08:37.920 --> 0:08:42.440 by US exceptionalism, US outperformance overall over the last couple 0:08:42.480 --> 0:08:45.640 of years. So you know, the world savings have gone 0:08:45.679 --> 0:08:49.320 to the United States. And I mean I certainly thought 0:08:49.320 --> 0:08:52.040 two months ago that once you started seeing people forced 0:08:52.040 --> 0:08:55.680 to hedge those or reduce their risk that that would 0:08:55.720 --> 0:08:59.080 give the euroor bounce or it wouldn't be anybody's favorite currency, 0:08:59.559 --> 0:09:03.920 but it is the world's biggest net investor abroad, so 0:09:04.360 --> 0:09:06.720 it makes a difference there, and that then the problem 0:09:06.760 --> 0:09:08.880 would come back in two. Three is down the road. 0:09:09.080 --> 0:09:12.040 I'm now utterly confused. Jeff much cleverer than me, But 0:09:12.080 --> 0:09:14.719 I don't think we're going to get to parity on 0:09:14.760 --> 0:09:17.480 the way down now. I think we have to clean 0:09:17.520 --> 0:09:20.400 out some of the positioning at some point and get 0:09:20.400 --> 0:09:24.840 a more meaningful dollar sell off before the US economic 0:09:24.880 --> 0:09:28.000 outperformance can drive us lower. So in my mind it's 0:09:28.000 --> 0:09:30.160 still a couple of years away. What we are now 0:09:30.360 --> 0:09:33.880 is I think the market completely wrong footed by the 0:09:33.960 --> 0:09:36.320 US economy. I mean, along with the Fed and everybody else. 0:09:36.559 --> 0:09:38.560 Sure, so, Kit, let's talk about the difference between the 0:09:38.559 --> 0:09:41.040 Federal Reserve and the ECP. The ECB has also been 0:09:41.080 --> 0:09:44.200 surprised the other way. The ECB has been talking about 0:09:44.320 --> 0:09:47.080 data dependence meeting by meeting. Do you get the sense 0:09:47.120 --> 0:09:49.520 of markets just in the driving seat making the decisions 0:09:49.520 --> 0:09:51.199 now for them? 0:09:51.760 --> 0:09:54.960 The market certainly bullies them to some degree in the 0:09:55.040 --> 0:09:56.920 sense that you know, you can kind of say you know, 0:09:56.960 --> 0:09:59.559 did the Fed go fifty because the market was talking fifty, 0:09:59.640 --> 0:10:02.680 or did the go fifty because because they were really 0:10:02.720 --> 0:10:06.120 shocked by the data at the beginning of August. You know, 0:10:06.200 --> 0:10:08.120 it's a bit of both. In one hopes it's more 0:10:08.160 --> 0:10:10.959 the data that are doing it, but they might now say, yeah, 0:10:11.120 --> 0:10:13.240 if we'd seen the data since then, we wouldn't have acted. 0:10:13.760 --> 0:10:18.040 The Europe is a bit the same thing, but they've got, 0:10:18.080 --> 0:10:20.920 you know, the ECB's big differences. It's only focusing on 0:10:21.000 --> 0:10:24.000 inflation at least in principle, and to that extent, what 0:10:24.040 --> 0:10:27.040 it was getting what it's now had is a surprising 0:10:27.120 --> 0:10:30.199 slowdown inflation, but by its standards, and so it doesn't 0:10:30.200 --> 0:10:34.000 really have an excuse not to get on with with easy. 0:10:34.160 --> 0:10:35.640 We've had one month of that. 0:10:35.800 --> 0:10:37.439 But you'd have to say we're going to get more 0:10:37.480 --> 0:10:40.760 rate cuts down the road because I suspect inflation will 0:10:40.760 --> 0:10:43.200 continue to fall because there is many growth and the 0:10:43.200 --> 0:10:47.360 global back crops change. But they are all you know, yes, 0:10:47.440 --> 0:10:49.839 the market is pushing because that's what the market does, 0:10:50.720 --> 0:10:53.480 and the central banks are finding that when they get 0:10:53.559 --> 0:10:56.440 data that support what the market does, that they can't 0:10:56.440 --> 0:10:58.160 really resist the temptation of going with it. 0:10:58.280 --> 0:11:00.520 As you said, very diplomatically, Kit, we haven't really learn 0:11:00.600 --> 0:11:02.880 that much from ACB news conferences, and whether it's being 0:11:02.920 --> 0:11:05.080 bullied by the market or the data, either way, they've 0:11:05.080 --> 0:11:07.000 been sort of flipping and flopping in terms of their 0:11:07.040 --> 0:11:09.679 overall message. That said, there seems like there was a shift. 0:11:09.720 --> 0:11:11.840 And yesterday what I thought was interesting was it not 0:11:11.880 --> 0:11:14.480 only was Christine Leguard talking about potential weakness, but she 0:11:14.520 --> 0:11:17.319 made it political. She said that the potential of tariffs 0:11:17.360 --> 0:11:21.680 in the United States actually increase the risk of downside 0:11:21.679 --> 0:11:26.120 surprises to the area's struggling economy. How much do you 0:11:26.120 --> 0:11:29.600 see the ECB cutting rates aggressively to get ahead of 0:11:29.640 --> 0:11:30.960 whatever might be coming down the pike. 0:11:33.160 --> 0:11:36.319 It's hard to imagine the ECB cutting rates aggressively. It's 0:11:36.800 --> 0:11:39.920 not in that DNA to do anything other than react 0:11:39.960 --> 0:11:42.960 to inflation. It's still, you know, the job is, the 0:11:43.000 --> 0:11:45.839 job is to hit the inflation target. But I do 0:11:45.880 --> 0:11:48.960 think they can pick up the pace from possibly, let's 0:11:48.960 --> 0:11:50.559 put it this way, from what a lot of economists 0:11:50.600 --> 0:11:53.240 that expected, while not quite keeping up with the pace, 0:11:53.360 --> 0:11:55.000 that's priced end of the front end of the curve. 0:11:55.600 --> 0:11:59.960 Because they are they are, It wouldn't take much more soli. 0:12:00.120 --> 0:12:05.040 Doesn't they expect inflation data to push them into feeling that, yeah, look, 0:12:05.240 --> 0:12:07.160 we have no reason not to get a move on. 0:12:07.600 --> 0:12:09.719 At the same time, Kit on the flip side, there 0:12:09.720 --> 0:12:12.080 seems to be this assumption that if the US puts 0:12:12.120 --> 0:12:15.200 up its walls and does increase terraff substantially, that will 0:12:15.280 --> 0:12:18.440 end up with a stronger dollar and a weaker everyone else. 0:12:18.640 --> 0:12:20.880 And especially giving your opinion about how much of an 0:12:20.920 --> 0:12:23.079 overweight there is in dollar assets, it. 0:12:23.000 --> 0:12:23.959 Seems like you disagree. 0:12:24.000 --> 0:12:26.000 Do you think that people are underprising the worst the 0:12:26.080 --> 0:12:28.120 US economy in that type of scenario. 0:12:29.080 --> 0:12:31.200 I think people are looking at the US economy in 0:12:31.280 --> 0:12:35.080 all scenarios in a state of saying, we know the 0:12:35.200 --> 0:12:39.000 US economy's done phenomenally well. We understand part of it 0:12:39.080 --> 0:12:42.280 was the size of the fiscal easing that we saw 0:12:42.920 --> 0:12:45.640 during the pandemic and immediately as the pandemic was ending. 0:12:46.160 --> 0:12:49.000 We don't understand why the tightening that came after that 0:12:49.080 --> 0:12:52.040 didn't slow the economy more. We don't understand how the 0:12:52.080 --> 0:12:55.120 economy is reaccelerated in the last six weeks. Hell's bells, 0:12:55.440 --> 0:12:59.439 let's stay with US assets because all the good stuff 0:12:59.480 --> 0:13:02.280 comes out of this place. And I think that's there's 0:13:02.320 --> 0:13:04.680 there's that kind of there's that kind of reluctance to 0:13:04.679 --> 0:13:06.120 turn out and say, well where else can I where 0:13:06.120 --> 0:13:06.600 else can I. 0:13:06.559 --> 0:13:07.200 Put my money? 0:13:07.679 --> 0:13:11.360 And you know, I mean the Japanese were selling were 0:13:11.400 --> 0:13:15.000 selling US debt, you know, like crazy in in you know, 0:13:15.080 --> 0:13:17.280 back in July, as they were trying to get out 0:13:17.280 --> 0:13:20.360 of some of their trades. They're right back in there. 0:13:20.400 --> 0:13:24.160 They're buying with Gusto again and probably US equities and 0:13:24.440 --> 0:13:28.000 so on. So you know, there's no I think, I 0:13:28.000 --> 0:13:31.120 think the market, you know, investors are as much caught 0:13:31.160 --> 0:13:35.320 out by this unique economic cycle as economists or or 0:13:35.360 --> 0:13:38.439 central bankers or all the rest of US. And and 0:13:38.720 --> 0:13:43.200 the default is US is a Morazonian economy. It's growing faster, 0:13:43.360 --> 0:13:45.240 There more investment opportunities, It's. 0:13:45.080 --> 0:13:46.160 Got high yield. 0:13:47.200 --> 0:13:49.040 You know, if I'm there, why should I Why should 0:13:49.080 --> 0:13:52.080 I cut back pair hedge my currency too much? I 0:13:52.120 --> 0:13:54.880 know I'm going to end up going back in later anyway, Kip. 0:13:54.880 --> 0:13:57.280 Ahead of the US election, more people are talking about parody, 0:13:57.320 --> 0:13:59.560 even though I know you think it's a few years away, 0:14:00.120 --> 0:14:02.679 but you do say there is one trade that is 0:14:02.760 --> 0:14:06.720 definitely perceived to be safe pre election, meaning regardless of 0:14:06.720 --> 0:14:07.400 either candidate. 0:14:07.480 --> 0:14:08.200 What is it. 0:14:09.720 --> 0:14:11.560 Safe trades briers? You might have to tell me now, 0:14:11.600 --> 0:14:13.880 I'm feeling nervous this morning that Nunny said. No, I 0:14:13.880 --> 0:14:16.760 think people see the people see the safe trades as 0:14:16.760 --> 0:14:19.680 being still to be short the Euro against various things, 0:14:20.120 --> 0:14:23.120 and a lot of people see the political trade to 0:14:23.120 --> 0:14:25.720 be short the UN against everything short. 0:14:25.440 --> 0:14:28.880 To you on because either Harris or Trump is going 0:14:28.920 --> 0:14:29.880 to be tough on China. 0:14:30.840 --> 0:14:33.120 Yeah, I mean, I think the piece in markets thinking 0:14:33.160 --> 0:14:36.200 about about election trades at the moment is that you 0:14:36.320 --> 0:14:40.800 get bigger moves on a Trump event. So Trump is 0:14:41.640 --> 0:14:45.120 he's more outspoken, and he's got clear he's got clear 0:14:45.120 --> 0:14:48.080 intentions on things like Tarris. So if you think the 0:14:48.080 --> 0:14:49.760 odds of them are fifty to fifty, for the sake 0:14:49.800 --> 0:14:52.640 of argument, you get bigger moves on Trump. You don't 0:14:52.640 --> 0:14:55.080 get moves the other way on Harris because she's less 0:14:55.160 --> 0:14:57.680 likely to get a clean sweep apart from anything else. 0:14:57.920 --> 0:15:00.960 So the market ends up concluding I'll have my I'll 0:15:01.000 --> 0:15:04.360 have my Trump tar off trade now because I'm not 0:15:04.400 --> 0:15:07.200 going to get hurt for heaven, and rightly or wrongly, 0:15:07.280 --> 0:15:09.440 that that is a very popular track Kit. 0:15:09.480 --> 0:15:11.880 I appreciate the update from you, sir. We're all confused 0:15:12.000 --> 0:15:24.160 Kit jokes is such. Appreciate it, Thank you, sir. At 0:15:24.160 --> 0:15:27.920 a Stagia Amarosai Capital writing. Some risks and unease, like 0:15:27.960 --> 0:15:30.840 the rebounded yields and US dollar are still percolating in 0:15:30.880 --> 0:15:34.640 the background, but given the positive economic momentum, we stay invested. 0:15:34.840 --> 0:15:37.000 At A Stagia joins us now for more Anastagia, Good monk, 0:15:37.160 --> 0:15:37.640 good morning. 0:15:37.680 --> 0:15:38.520 What do you think is in the. 0:15:38.480 --> 0:15:41.840 Driving seat Reecord expectations Ronics, Which one is it? 0:15:41.880 --> 0:15:43.080 I think it's a little bit of both. 0:15:43.480 --> 0:15:45.080 I mean, first of all, I think what's really truly 0:15:45.120 --> 0:15:47.120 in the driving seat is the fact that the economy 0:15:47.280 --> 0:15:49.720 is resilient, and that has been on full display this 0:15:49.800 --> 0:15:51.680 week actually for the last couple of weeks. You know, 0:15:51.680 --> 0:15:53.760 if you look at the Atlanta Fed GDP, now it's 0:15:53.840 --> 0:15:56.600 actually tracking three point four percent. If you look at 0:15:56.600 --> 0:15:59.560 the City Economic Surprise Index, which has been negative for 0:15:59.640 --> 0:16:01.920 the ball of Q two and maybe even you know 0:16:02.000 --> 0:16:04.080 start of Q three, that's actually turned positive in the 0:16:04.120 --> 0:16:06.440 last couple of weeks. And then we've got retail sales 0:16:06.440 --> 0:16:10.360 that you pointed out point seven percent core core print 0:16:10.400 --> 0:16:12.880 that's really strong too, So I think that's what's truly 0:16:12.920 --> 0:16:15.440 in the driving sea. But I also do think there's 0:16:15.440 --> 0:16:18.680 this extension to the rate cut story, which is the 0:16:18.800 --> 0:16:21.560 rate relief is being felled by the economy. It is 0:16:21.600 --> 0:16:26.120 being felled by companies across corporates and consumers, and that's 0:16:26.160 --> 0:16:27.960 starting to support the economy as well. 0:16:28.400 --> 0:16:31.560 And then John Tie last point financials earnings. 0:16:31.600 --> 0:16:34.360 I think that's been a really really key development in 0:16:34.400 --> 0:16:37.040 the last week, and that's why we've seen financials breakout 0:16:37.080 --> 0:16:37.720 to the upside. 0:16:37.760 --> 0:16:39.800 The coast is clear for the financials. Let's talk about 0:16:39.800 --> 0:16:43.560 tech SML says there's a problem. TYSEMC says there's no problem. 0:16:43.720 --> 0:16:45.640 It's the coast cliff for tech gun into NIX. 0:16:46.720 --> 0:16:49.240 Well, first of all, tech arnies have actually been revised higher, 0:16:49.320 --> 0:16:52.000 you know, unlike the rest of the sectors that actually 0:16:52.080 --> 0:16:55.000 have been revised lower. I do think that the setup 0:16:55.040 --> 0:16:58.200 is constructive for technology. Look, if you look at ASML company, 0:16:58.400 --> 0:17:02.080 that's a particular technology that goes into semiconductive manufacturing, and 0:17:02.160 --> 0:17:04.280 you could see why there may be some delays and 0:17:04.320 --> 0:17:07.040 capex for those. But if you look at TSMC, that 0:17:07.200 --> 0:17:10.760 is the pulse of what is happening with semiconductive production 0:17:10.960 --> 0:17:12.000 right here, right now. 0:17:12.359 --> 0:17:14.520 And the couple of things that I heard from that report. 0:17:14.640 --> 0:17:18.040 First of all is that AI demand is rock solid 0:17:18.119 --> 0:17:21.560 and is accelerating. But John, the really really key thing 0:17:21.600 --> 0:17:24.960 for semiconductors what's happening with non AI demand. And that's 0:17:24.960 --> 0:17:27.800 where TSMC was also more constructive, saying that they do 0:17:27.960 --> 0:17:30.439 expect to pick up and things like smartphone chips and 0:17:30.480 --> 0:17:32.639 other things. So I think that sets it up nicely 0:17:32.720 --> 0:17:33.560 for semiconductors. 0:17:33.800 --> 0:17:37.280 So that secular changes, which is the AI trend, and 0:17:37.320 --> 0:17:40.320 then there are the cyclical changes which we see. You 0:17:40.440 --> 0:17:42.760 said something that I want to pick up on that 0:17:42.840 --> 0:17:47.639 you're already seeing the rate cuts filter into increased economic activity. 0:17:47.960 --> 0:17:50.280 How is it that so many people say the corporate 0:17:50.280 --> 0:17:53.600 America did not feel the rate hikes, but that so 0:17:53.760 --> 0:17:56.440 quickly the rate cuts are getting filtered into the economy. 0:17:56.640 --> 0:17:59.840 Well, part of corporate America did feel the rate increases. 0:18:00.119 --> 0:18:01.960 And that part is, for example, if you had a 0:18:02.040 --> 0:18:03.959 leverage loan, if you issued a leverage loan, you were 0:18:04.000 --> 0:18:06.400 paying much more to service at loan. If you took 0:18:06.400 --> 0:18:09.160 on a private credit loan as well, you were paying 0:18:09.240 --> 0:18:12.040 much more to service at debt as well, and that's where. 0:18:11.840 --> 0:18:12.760 We see some of the resets. 0:18:12.760 --> 0:18:15.320 And of course commercial real estate, you know, a big 0:18:15.359 --> 0:18:18.040 portion of commercial real estate loans have been floating rate, 0:18:18.359 --> 0:18:20.600 and there's a small fracture of the consumers have felt it. 0:18:20.840 --> 0:18:22.760 But that's where I see the first recess. 0:18:22.760 --> 0:18:25.280 So for example, in some of the big five banks 0:18:25.320 --> 0:18:29.359 results that we saw, we see debt underieting really spike, 0:18:29.520 --> 0:18:33.360 and that means companies are issuing more debt, they're refinancing 0:18:33.920 --> 0:18:36.520 prior debt, and those dead costs are starting to reset 0:18:36.560 --> 0:18:39.600 lower for part of corporate America. And then on the 0:18:39.600 --> 0:18:42.840 consumer side, Lisa, you know, if you look at mortgage rates, 0:18:42.880 --> 0:18:45.360 for example, they have pulled back obviously quite a bit 0:18:45.400 --> 0:18:48.080 from the peaks, and we are starting to see an 0:18:48.160 --> 0:18:51.360 uptick in refinancings and the banks are talking about that. 0:18:51.440 --> 0:18:53.439 So those are the early indicators that I see. 0:18:53.560 --> 0:18:56.320 For a while, in the high rate period which lasted, 0:18:56.480 --> 0:18:58.560 it seems like a heartbeat relative to the zero rate 0:18:58.600 --> 0:19:00.920 period that we had. For a very long time, people 0:19:00.920 --> 0:19:03.919 felt like the bond market had precedence over stocks, that 0:19:04.040 --> 0:19:07.160 essentially you could earn more and have less risk by 0:19:07.160 --> 0:19:10.680 going into bonds. Is that equation increasingly shifting as we're 0:19:10.680 --> 0:19:14.199 seeing currently in performance, but also just in terms of 0:19:14.240 --> 0:19:17.320 if you can borrow more easily, doesn't that lift equity 0:19:17.400 --> 0:19:20.840 valuations and increase the potential growth and sustainability? 0:19:20.920 --> 0:19:21.400 It does? 0:19:21.480 --> 0:19:21.760 It does? 0:19:21.800 --> 0:19:23.679 There's so many pieces to pick up on there. You know, 0:19:23.720 --> 0:19:25.920 first of all, now the yields have reset a little 0:19:25.920 --> 0:19:28.000 bit higher to four percent or a little bit above that. 0:19:28.119 --> 0:19:30.480 I do think going back into the bond trade might 0:19:30.520 --> 0:19:33.359 be more compelling, But we're exactly into the bon trede. 0:19:33.359 --> 0:19:33.760 Do you go? 0:19:34.080 --> 0:19:35.760 Because if you look at high yield spreads, if you 0:19:35.760 --> 0:19:38.080 look at investment grades spreads, they're really really tight. 0:19:38.160 --> 0:19:41.560 So I don't know how compelling that is, especially. 0:19:41.040 --> 0:19:44.680 If you are individual and you have to adjust for taxes. 0:19:44.960 --> 0:19:46.080 So but on the flip. 0:19:45.840 --> 0:19:47.439 Side, I do agree with you, and I'll kind of 0:19:47.440 --> 0:19:49.840