1 00:00:02,440 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hortern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,920 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,840 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,360 --> 00:00:40,200 Speaker 3: Distraction's not going away, But one individual that is hyper 11 00:00:40,200 --> 00:00:43,840 Speaker 3: focus on the actual policies that were discussed this week 12 00:00:44,040 --> 00:00:46,760 Speaker 3: is of course the NATO Secretary General Jen Stoltenberg, and 13 00:00:46,760 --> 00:00:49,879 Speaker 3: this was his final NATO summit. You're going to be 14 00:00:50,280 --> 00:00:52,279 Speaker 3: retiring in the fall. You've been at the Helm for 15 00:00:52,320 --> 00:00:54,040 Speaker 3: a decade, so you've seen a lot. We're going to 16 00:00:54,040 --> 00:00:56,880 Speaker 3: get into some of those distractions that were happening at 17 00:00:56,880 --> 00:00:58,120 Speaker 3: the summit, but I want to get into some of 18 00:00:58,160 --> 00:01:00,440 Speaker 3: the policies. We just heard President Biden and they're talking 19 00:01:00,440 --> 00:01:04,160 Speaker 3: about the limits they've placed on Ukraine, about striking deeper 20 00:01:04,200 --> 00:01:06,280 Speaker 3: into Russia. He basically said they don't want to even 21 00:01:06,319 --> 00:01:09,200 Speaker 3: capacity to hit the Kremlin. But Celenzi is asking to 22 00:01:09,240 --> 00:01:13,840 Speaker 3: attack Russian jets on Russian air bases that strike Ukrainian cities. 23 00:01:14,120 --> 00:01:16,800 Speaker 3: Do you get the sense that the US doesn't trust Zelenski. 24 00:01:17,840 --> 00:01:20,560 Speaker 4: Well, First of all, the US and other allies have 25 00:01:21,000 --> 00:01:24,800 Speaker 4: loosened the restrictions that have imposed on the use of 26 00:01:24,880 --> 00:01:29,000 Speaker 4: the weapons that have deniated to Ukraine. So Ukraine is 27 00:01:29,040 --> 00:01:34,000 Speaker 4: now able to also strike against the military targets inside 28 00:01:34,000 --> 00:01:35,880 Speaker 4: the Russia. And we need to remember what this is. 29 00:01:35,920 --> 00:01:38,640 Speaker 4: This is a word of Russian Russia has attacked the Ukraine. 30 00:01:39,120 --> 00:01:43,000 Speaker 4: That's violation in national law. Ukraine has the right, according 31 00:01:43,040 --> 00:01:46,880 Speaker 4: to national law, to defend themselves. That includes also striking 32 00:01:47,080 --> 00:01:51,400 Speaker 4: legitimate military targets inside the territory of Russia and allies. 33 00:01:51,400 --> 00:01:53,960 Speaker 4: Some allies have given them that permission. All the allies 34 00:01:54,000 --> 00:01:57,280 Speaker 4: have some restrictions, but they have been loosened up a bit. 35 00:01:57,400 --> 00:02:00,280 Speaker 3: But of course the most important ally sending them most 36 00:02:00,280 --> 00:02:02,600 Speaker 3: weaponry is the United States, and they've only said you 37 00:02:02,640 --> 00:02:07,200 Speaker 3: can go about forty kilometers. But to really the Lensky's 38 00:02:07,200 --> 00:02:09,600 Speaker 3: point is to really start to push back the Russians 39 00:02:10,000 --> 00:02:12,680 Speaker 3: and be defensive. They need to get on top of it, 40 00:02:12,720 --> 00:02:15,800 Speaker 3: meaning going maybe three hundred kilometers. Do you think I 41 00:02:15,800 --> 00:02:17,639 Speaker 3: mean you were part of these discussions. Do you think 42 00:02:17,639 --> 00:02:20,160 Speaker 3: there's something the new United States? We've seen them before 43 00:02:20,240 --> 00:02:22,520 Speaker 3: drag their feet and then make decisions that the lenscape 44 00:02:22,600 --> 00:02:25,160 Speaker 3: is pushing for. Could you see them coming around to this? 45 00:02:25,160 --> 00:02:27,760 Speaker 4: This was an issue that was discussed at the NATO summit, 46 00:02:27,760 --> 00:02:31,040 Speaker 4: and again some allies have no restrictions on the use 47 00:02:31,080 --> 00:02:34,560 Speaker 4: of their weapons they have delivered. Others have resistions but 48 00:02:34,639 --> 00:02:38,360 Speaker 4: have loosened them. The US is of course important, but 49 00:02:39,080 --> 00:02:42,480 Speaker 4: half of the military support to Ukraine comes from a 50 00:02:42,680 --> 00:02:47,680 Speaker 4: non US allaies comes from Europe and Canada. So when 51 00:02:47,680 --> 00:02:50,680 Speaker 4: it comes to Ukraine and the Europeans have really stepped up, 52 00:02:50,840 --> 00:02:53,080 Speaker 4: and with the decision we made at the NATO summit 53 00:02:53,120 --> 00:02:55,400 Speaker 4: to have a long term pledge and to have a 54 00:02:55,560 --> 00:02:58,240 Speaker 4: formula for burnishing, we will ensure that also in the 55 00:02:58,280 --> 00:03:03,040 Speaker 4: future Europe and I will provide half of the military 56 00:03:03,080 --> 00:03:06,800 Speaker 4: support because they have half of the economic strength of 57 00:03:06,840 --> 00:03:07,399 Speaker 4: the alliance. 58 00:03:07,880 --> 00:03:11,360 Speaker 3: Ukraine didn't get the formal invitation they were helping for, 59 00:03:12,360 --> 00:03:15,120 Speaker 3: so they are still at the gates, knocking on the 60 00:03:15,160 --> 00:03:17,480 Speaker 3: door and they're not let into NATO just yet. While 61 00:03:17,520 --> 00:03:21,240 Speaker 3: they do this, though, it unnerves putin do you think 62 00:03:21,320 --> 00:03:25,360 Speaker 3: they're in a sense almost the worst position, this security 63 00:03:25,400 --> 00:03:28,799 Speaker 3: purgatory because they're still stuck in the middle because they're 64 00:03:28,840 --> 00:03:31,360 Speaker 3: not yet an alliance, but even asking to be an 65 00:03:31,400 --> 00:03:35,840 Speaker 3: alliance really underscores the issue that they're having with their 66 00:03:35,840 --> 00:03:36,680 Speaker 3: neighbor next door. 67 00:03:37,920 --> 00:03:40,560 Speaker 4: At the summit, Allies were very clear that Ukraine will 68 00:03:40,600 --> 00:03:43,560 Speaker 4: become a member. We also stated that this is a 69 00:03:43,680 --> 00:03:49,640 Speaker 4: reversible path towards membership. But actually as important, or perhaps 70 00:03:49,680 --> 00:03:52,920 Speaker 4: even more important than the language in the statement we agreed, 71 00:03:53,400 --> 00:03:56,120 Speaker 4: is that actually we took actions to move Ukraine closer 72 00:03:56,160 --> 00:04:00,000 Speaker 4: to membership. We established a Native Command with seven hundred 73 00:04:00,080 --> 00:04:05,880 Speaker 4: personnel to organize the provisional training and military support to Ukraine. 74 00:04:06,160 --> 00:04:09,280 Speaker 4: We with this long term pledge, and we stepped up 75 00:04:09,280 --> 00:04:12,400 Speaker 4: the work to do what we call interoperability, to ensure 76 00:04:12,400 --> 00:04:16,479 Speaker 4: that Ukrainian forces are fully interoperable with NATAL forces. These 77 00:04:16,480 --> 00:04:19,800 Speaker 4: are concrete actions that actually helps them to prevail, to 78 00:04:20,320 --> 00:04:25,080 Speaker 4: help Ukraine to prevail as a servant independent nation in Europe, 79 00:04:25,480 --> 00:04:28,680 Speaker 4: and all of that moves them closer to membership, and 80 00:04:28,720 --> 00:04:31,800 Speaker 4: then when the time is right, and AWLS agreed they 81 00:04:31,800 --> 00:04:33,559 Speaker 4: will become members straight away. 82 00:04:33,960 --> 00:04:37,920 Speaker 3: As you know, politics overshadowed this summit. Everyone was talking about, 83 00:04:38,360 --> 00:04:42,679 Speaker 3: if not officially, unofficially President Biden's age as the native 84 00:04:42,680 --> 00:04:45,839 Speaker 3: Secretary General who's worked with both of these US presidents 85 00:04:45,880 --> 00:04:50,240 Speaker 3: who are the candidates for November. Do you see potential 86 00:04:50,400 --> 00:04:53,040 Speaker 3: change in the future US commitment to the alliance? 87 00:04:54,960 --> 00:04:58,080 Speaker 4: I expect that the United States will remain a strong 88 00:04:58,160 --> 00:05:02,480 Speaker 4: NATAL ally also in the future, for at least three reasons. 89 00:05:02,600 --> 00:05:05,040 Speaker 4: One is that this is in the US security and 90 00:05:05,560 --> 00:05:07,719 Speaker 4: interest to have a strong NATO in NATO. The United 91 00:05:07,720 --> 00:05:11,040 Speaker 4: States has something Russia and China doesn't have more than 92 00:05:11,040 --> 00:05:15,280 Speaker 4: thirty different anallies. Second, it's very strong bipartisan support in 93 00:05:15,320 --> 00:05:18,760 Speaker 4: the United States for NATO in the public where have 94 00:05:18,800 --> 00:05:22,280 Speaker 4: seen your opinion polls also confirming that, but also in 95 00:05:22,320 --> 00:05:26,159 Speaker 4: the US Congress. I met congress men from both parties 96 00:05:26,200 --> 00:05:29,440 Speaker 4: and they will express some strong support to NATO. And Thirdly, 97 00:05:29,880 --> 00:05:33,839 Speaker 4: the main criticism from former President Trump and others have 98 00:05:33,920 --> 00:05:37,840 Speaker 4: actually not been against NATO. It has been against NATO 99 00:05:38,000 --> 00:05:41,520 Speaker 4: allies not spending enough on NATO and that has changed 100 00:05:42,400 --> 00:05:45,120 Speaker 4: or just during the last years, we have seen significant 101 00:05:45,120 --> 00:05:47,719 Speaker 4: increase in number of allies spending at least two percent 102 00:05:47,720 --> 00:05:49,559 Speaker 4: of GDP on defense, which is a NATO ADI. 103 00:05:49,720 --> 00:05:53,520 Speaker 3: So is your expectation to ignore potentially your expectations that 104 00:05:53,560 --> 00:05:56,159 Speaker 3: Trump's rhetoric will not match his policies on the ground. 105 00:05:56,680 --> 00:05:59,560 Speaker 4: Well, I worked with him when he was from president 106 00:05:59,680 --> 00:06:03,720 Speaker 4: last and again I expect that the United States will 107 00:06:04,200 --> 00:06:08,280 Speaker 4: remain a strong NATO ally because this also makes the 108 00:06:08,360 --> 00:06:12,360 Speaker 4: United States safer and stronger. The United States is big 109 00:06:12,440 --> 00:06:15,440 Speaker 4: twenty five percent of the world's GDP, but toget with 110 00:06:15,520 --> 00:06:18,640 Speaker 4: NATO allies, we are fifty percent of the world's GDP, 111 00:06:18,839 --> 00:06:21,840 Speaker 4: twice as big, fifty percent of the world's military right, 112 00:06:21,920 --> 00:06:25,679 Speaker 4: and this makes the United States stronger. And the main 113 00:06:25,760 --> 00:06:29,200 Speaker 4: criticism the fact that European allies didn't spend that has 114 00:06:29,240 --> 00:06:32,479 Speaker 4: really changed. Twenty three allies spending two percent, and those 115 00:06:32,520 --> 00:06:35,000 Speaker 4: allies are not yet a two percent have a promise 116 00:06:35,080 --> 00:06:38,039 Speaker 4: to be there soon. So this has really improved, not 117 00:06:38,200 --> 00:06:41,480 Speaker 4: least because the criticism from the United States was valid 118 00:06:40,880 --> 00:06:44,240 Speaker 4: and Europeans have heard the call and have stepped up. 119 00:06:44,800 --> 00:06:46,719 Speaker 3: Yen center Berg, thank you so much for your time. 120 00:06:46,760 --> 00:06:59,720 Speaker 3: That was of course John jen Stilterburg, the outgoing Menogy. 121 00:07:00,080 --> 00:07:02,680 Speaker 2: Keith Learner of Truists staying bullish, saying this stocks are 122 00:07:02,680 --> 00:07:06,359 Speaker 2: in a bull market that deserves the benefit of the doubt. Moreover, 123 00:07:06,480 --> 00:07:08,800 Speaker 2: strong first half tend to lead to further gains by 124 00:07:08,880 --> 00:07:11,960 Speaker 2: year end, albeit with normal corrections along the way. Near term, 125 00:07:12,000 --> 00:07:15,080 Speaker 2: we anticipate the stocks will trade in a choppier fashion, 126 00:07:15,160 --> 00:07:18,680 Speaker 2: but still the primary up trend appears intact. Keith's with 127 00:07:18,800 --> 00:07:20,320 Speaker 2: us for more. Keith, I want to build on what 128 00:07:20,400 --> 00:07:22,240 Speaker 2: Lisa has been talking about. I think it's perfect. It's 129 00:07:22,280 --> 00:07:24,720 Speaker 2: the way to think about things. Yesterday we had some 130 00:07:24,880 --> 00:07:28,559 Speaker 2: data the spoke to this goldilocks optimistic, constructive view of things. 131 00:07:28,680 --> 00:07:31,520 Speaker 2: We also had some earnings that said the opposite, and Keith, 132 00:07:31,640 --> 00:07:33,880 Speaker 2: I'm wondering how you view things both on the economic 133 00:07:33,920 --> 00:07:36,120 Speaker 2: data side of things and through the lens of earnings 134 00:07:36,160 --> 00:07:37,360 Speaker 2: in the last twenty four hours. 135 00:07:38,600 --> 00:07:40,520 Speaker 5: Surean great to be with you all. Yeah, yesterday, it 136 00:07:40,560 --> 00:07:44,520 Speaker 5: was an interesting day. We actually downgraded a tech in 137 00:07:44,600 --> 00:07:48,560 Speaker 5: late June after upgrading it in November, and basically our 138 00:07:48,640 --> 00:07:51,680 Speaker 5: view was that after a forty percent gain since we upgraded, 139 00:07:52,080 --> 00:07:54,520 Speaker 5: that things have gone a little bit too stretched. And 140 00:07:55,000 --> 00:07:56,840 Speaker 5: in July we saw the text have to continue to 141 00:07:56,920 --> 00:07:59,240 Speaker 5: kind of grind higher. On the other side, what we 142 00:07:59,280 --> 00:08:02,120 Speaker 5: saw on this kind of mean reversion trade, the road 143 00:08:02,160 --> 00:08:05,480 Speaker 5: bands just got too stretched. The relative performance of small 144 00:08:05,520 --> 00:08:09,000 Speaker 5: caps up until yesterday was at the on a six 145 00:08:09,040 --> 00:08:12,480 Speaker 5: month basis. Was that the greatest underperformance we've seen since 146 00:08:12,560 --> 00:08:16,280 Speaker 5: two thousand is twenty percent underperformance over six months. It's incredible. 147 00:08:16,520 --> 00:08:19,560 Speaker 5: The average stock, the Eco weighted index, also had the 148 00:08:19,640 --> 00:08:24,080 Speaker 5: greatest underperformance on a six month basis since since two thousand. 149 00:08:24,360 --> 00:08:26,800 Speaker 5: So I think what we're seeing right now what happened yesterday, Jonathan, 150 00:08:26,920 --> 00:08:30,240 Speaker 5: is the road band got two stretched, and basically a 151 00:08:30,280 --> 00:08:31,920 Speaker 5: little bit of good news went a long way for 152 00:08:32,160 --> 00:08:34,880 Speaker 5: the other stocks. We got that broadening that everyone's looking for. 153 00:08:34,960 --> 00:08:37,640 Speaker 5: But that boarding is happening. Those big cap tech stocks 154 00:08:37,640 --> 00:08:41,240 Speaker 5: were came in and the market below the surface was 155 00:08:41,280 --> 00:08:43,040 Speaker 5: strong with the headline index was weak. So it's kind 156 00:08:43,080 --> 00:08:44,960 Speaker 5: of interesting in the way this kind of played out. 157 00:08:45,000 --> 00:08:46,640 Speaker 1: I have this image in my head of kids in 158 00:08:46,679 --> 00:08:48,719 Speaker 1: a rubber band fight, stretching it out and waiting to 159 00:08:48,800 --> 00:08:51,800 Speaker 1: kind of let go. Then letting go yesterday was the 160 00:08:51,840 --> 00:08:54,880 Speaker 1: potential for rate cuts on this sort of Goldilocks like 161 00:08:55,160 --> 00:08:58,080 Speaker 1: kind of environment. At what point do you start to 162 00:08:58,080 --> 00:09:01,559 Speaker 1: get concerned that maybe it's still well, not threading a 163 00:09:01,640 --> 00:09:02,520 Speaker 1: needle perfectly. 164 00:09:02,840 --> 00:09:04,520 Speaker 5: That's some of the guidance that we've. 165 00:09:04,320 --> 00:09:07,560 Speaker 1: Heard from banks, from other companies that have reported earnings 166 00:09:07,640 --> 00:09:11,560 Speaker 1: so far. It is early days signals something else that 167 00:09:11,800 --> 00:09:13,400 Speaker 1: might portend a bit more weakness. 168 00:09:14,600 --> 00:09:16,760 Speaker 5: Well, I do think we are seeing a cooling of 169 00:09:16,760 --> 00:09:17,240 Speaker 5: the economy. 170 00:09:17,320 --> 00:09:18,080 Speaker 6: We wouldn't call. 171 00:09:17,960 --> 00:09:20,640 Speaker 5: It weak, and I expect that, you know, earnings will 172 00:09:20,679 --> 00:09:22,680 Speaker 5: be fine, probably not the blowout that we've seen in 173 00:09:22,720 --> 00:09:25,360 Speaker 5: the past, but enough to continue to move the market 174 00:09:25,400 --> 00:09:26,199 Speaker 5: forward by the end. 175 00:09:26,200 --> 00:09:26,680 Speaker 2: Of the year. 176 00:09:27,040 --> 00:09:30,079 Speaker 5: Forward earning estimates continue to grind higher, and I will say, 177 00:09:30,120 --> 00:09:32,000 Speaker 5: I will you know, I think the one lesson during 178 00:09:32,040 --> 00:09:34,439 Speaker 5: this whole period we've seen the last couple of years 179 00:09:34,480 --> 00:09:40,040 Speaker 5: is don't estimate underestimate corporate corporation's resiliency around profits. Right, 180 00:09:40,040 --> 00:09:44,280 Speaker 5: we had this once in a generation pandemic and inflation backdrop, 181 00:09:44,480 --> 00:09:47,320 Speaker 5: and we've seen corporations handle that, you know, pretty pretty well. 182 00:09:47,360 --> 00:09:49,120 Speaker 5: So again, I do think we'll be a little bit 183 00:09:49,120 --> 00:09:51,480 Speaker 5: more of a choppier fashion here near term. But I 184 00:09:51,520 --> 00:09:53,079 Speaker 5: do think then the line trend for the market is 185 00:09:53,120 --> 00:09:55,800 Speaker 5: still is still higher and the economy is just moving 186 00:09:55,840 --> 00:09:59,680 Speaker 5: more towards a trend growth from this really post pandemic stimulus, 187 00:10:00,320 --> 00:10:02,680 Speaker 5: you know boom that we had that's behind us. 188 00:10:02,760 --> 00:10:04,840 Speaker 1: Now, let's talk about some of the areas where we're 189 00:10:04,840 --> 00:10:07,520 Speaker 1: seeing a broadening. Smaller banks, for example, which has been 190 00:10:07,559 --> 00:10:09,520 Speaker 1: one of the most beaten up areas, and we saw 191 00:10:10,120 --> 00:10:12,520 Speaker 1: some gains yesterday as we get some of the banker 192 00:10:12,640 --> 00:10:15,480 Speaker 1: nings from some of the behemoths Chimping, Morgan, Wells, Fargo, 193 00:10:15,480 --> 00:10:15,960 Speaker 1: and City. 194 00:10:16,440 --> 00:10:18,199 Speaker 5: Is there a takeaway that makes. 195 00:10:17,960 --> 00:10:21,200 Speaker 1: You more positive, more constructive just in general on the 196 00:10:21,200 --> 00:10:22,760 Speaker 1: financial financial sector. 197 00:10:24,400 --> 00:10:27,560 Speaker 5: I think timeframes matter, right, so longer term, we still 198 00:10:27,559 --> 00:10:29,439 Speaker 5: actually like tech on a longer term basis, and we 199 00:10:29,600 --> 00:10:31,719 Speaker 5: think there'll be an opportunity to redeploy there on a 200 00:10:31,760 --> 00:10:35,800 Speaker 5: shorter term basis. I just think that areas like the financials, 201 00:10:35,960 --> 00:10:39,280 Speaker 5: even the smaller financials, along with some of the industrials, 202 00:10:39,920 --> 00:10:42,120 Speaker 5: even places like the reads, will likely to perform because 203 00:10:42,400 --> 00:10:45,640 Speaker 5: expectations are so low. So I think by now I 204 00:10:45,640 --> 00:10:47,679 Speaker 5: think we should be thinking more about how things are 205 00:10:47,679 --> 00:10:50,480 Speaker 5: coming in relative to expectations. I think some of these 206 00:10:50,520 --> 00:10:52,959 Speaker 5: areas that have been being up, where you know, the 207 00:10:53,640 --> 00:10:56,400 Speaker 5: small cap index, some PCE small cap index was actually 208 00:10:56,400 --> 00:10:59,360 Speaker 5: negative for the year up until yesterday, that the expectations 209 00:10:59,360 --> 00:11:01,440 Speaker 5: are low. I think you think about the tech side, 210 00:11:01,440 --> 00:11:03,200 Speaker 5: I think expectations there are a little bit higher. So 211 00:11:03,480 --> 00:11:05,319 Speaker 5: I think I think we're going to have maybe more 212 00:11:05,360 --> 00:11:08,240 Speaker 5: that bifurcation during this earning season. 213 00:11:08,360 --> 00:11:10,560 Speaker 2: Keith, give us some clarity on financial it's not exactly 214 00:11:10,679 --> 00:11:12,560 Speaker 2: left for dead. Bank of America is up twenty four 215 00:11:12,559 --> 00:11:15,720 Speaker 2: percent yet today, Goldman's up twenty four percent, Cities up 216 00:11:15,720 --> 00:11:19,240 Speaker 2: twenty seven, close to twenty eight before today's moves. Granted, Keith, 217 00:11:19,240 --> 00:11:22,040 Speaker 2: are you're talking more specifically about the smaller players, the 218 00:11:22,120 --> 00:11:23,320 Speaker 2: regionals midscise. 219 00:11:23,559 --> 00:11:24,240 Speaker 6: Yeah, that's right. 220 00:11:24,600 --> 00:11:26,160 Speaker 5: Yeah, I'm sorry, Yeah, that's right, Johnthan. I mean, it 221 00:11:26,240 --> 00:11:28,559 Speaker 5: was interesting. It was like yesterday during that big rebound, 222 00:11:28,640 --> 00:11:31,720 Speaker 5: the big banks were actually down because what we've seen 223 00:11:31,800 --> 00:11:34,000 Speaker 5: it wasn't just tech. It was this gravitational towards the 224 00:11:34,120 --> 00:11:38,000 Speaker 5: highest quality companies in the different sectors, so not just tech. 225 00:11:38,120 --> 00:11:40,319 Speaker 5: So what you saw yesterday is the smaller banks actually 226 00:11:40,400 --> 00:11:42,400 Speaker 5: outperformed and the other ones came in a bit. I 227 00:11:42,400 --> 00:11:44,280 Speaker 5: think we'll see more of that just because of that. 228 00:11:44,280 --> 00:11:47,400 Speaker 5: Diverned is again longer term, as we moved past this 229 00:11:47,520 --> 00:11:49,680 Speaker 5: kind of snapping back of the Lurber band, which I 230 00:11:49,679 --> 00:11:51,800 Speaker 5: could I think could last, you know, weeks, if not 231 00:11:51,840 --> 00:11:54,240 Speaker 5: a few months. I think the rotation will go back 232 00:11:54,280 --> 00:11:56,800 Speaker 5: towards these larger quality companies. I just think it got 233 00:11:56,920 --> 00:11:59,559 Speaker 5: overdone as far as just the quality theme on a 234 00:11:59,640 --> 00:12:01,520 Speaker 5: very short trend basis, and we're going to see more 235 00:12:01,559 --> 00:12:04,120 Speaker 5: of that unwine because position it has further to go 236 00:12:04,760 --> 00:12:06,440 Speaker 5: based on our world got it? Keith? 237 00:12:06,480 --> 00:12:08,920 Speaker 2: Thank you, sir, Keith Learner of Truists on the latest 238 00:12:08,920 --> 00:12:21,400 Speaker 2: in this market. So response to the data we just 239 00:12:21,440 --> 00:12:23,440 Speaker 2: got and the data we've had over the last few weeks, 240 00:12:23,440 --> 00:12:25,720 Speaker 2: and really placed to say that a good friend of 241 00:12:25,760 --> 00:12:28,440 Speaker 2: ours on this program joins us now Mohammad al Aaron 242 00:12:28,440 --> 00:12:31,520 Speaker 2: of Bloomberg Opinion and of Queen's College, Cambridge. Mohammed one 243 00:12:31,559 --> 00:12:33,240 Speaker 2: for the went the week with you, sir. Let's just 244 00:12:33,280 --> 00:12:35,440 Speaker 2: work through this economic data we got this morning and 245 00:12:35,480 --> 00:12:37,240 Speaker 2: the data yesterday as well. When you look at the 246 00:12:37,240 --> 00:12:39,679 Speaker 2: totality of the data, what kind of conclusions are you 247 00:12:39,800 --> 00:12:40,640 Speaker 2: drawing currently? 248 00:12:42,200 --> 00:12:44,640 Speaker 7: So I have two conclusions when you look at the 249 00:12:44,720 --> 00:12:49,000 Speaker 7: vitality of the data. One is based mostly on the CPI, 250 00:12:49,800 --> 00:12:52,960 Speaker 7: which is that what we're seeing is demand destruction and 251 00:12:53,000 --> 00:12:56,680 Speaker 7: a loss of pricing power. When Mike Mickey commented on 252 00:12:56,760 --> 00:12:58,800 Speaker 7: it yesterday, he said, it's very. 253 00:12:58,600 --> 00:12:59,760 Speaker 6: Broad based. 254 00:13:01,040 --> 00:13:05,360 Speaker 7: Benign inflation numbers, and you're really starting to see the 255 00:13:05,400 --> 00:13:08,320 Speaker 7: demand destruction and the loss of pricing power. And that's 256 00:13:08,360 --> 00:13:11,720 Speaker 7: consistent with what we've heard from companies, and it will 257 00:13:11,760 --> 00:13:14,440 Speaker 7: be consistent with what we will hear from companies next 258 00:13:14,440 --> 00:13:17,040 Speaker 7: week and the week after. And it is also consistent 259 00:13:17,080 --> 00:13:19,440 Speaker 7: with the macro data that's starting to weaken. So that's 260 00:13:19,679 --> 00:13:24,000 Speaker 7: conclusion number one. Conclusion number two is on the cost side, 261 00:13:24,200 --> 00:13:30,200 Speaker 7: we're living in a global economy that, despite China's deflationary impact, 262 00:13:30,800 --> 00:13:33,200 Speaker 7: is not giving us the sort of deflation that we'd like. 263 00:13:34,400 --> 00:13:37,679 Speaker 7: On the PPI, the supply site simply isn't there to 264 00:13:37,840 --> 00:13:40,960 Speaker 7: help what's happening on the demand destruction, which is going 265 00:13:41,000 --> 00:13:43,960 Speaker 7: to force something that you don't like me talking about, 266 00:13:44,520 --> 00:13:46,240 Speaker 7: but I will that you know, there'll be a lot 267 00:13:46,280 --> 00:13:50,480 Speaker 7: more discussion as to what's the right inflation target given 268 00:13:51,040 --> 00:13:56,240 Speaker 7: the dual mandate. So I expect the FED to focus 269 00:13:56,600 --> 00:14:01,679 Speaker 7: much more going forward on the two side risks, and 270 00:14:01,880 --> 00:14:06,360 Speaker 7: within that much more on the employment side of those risks. 271 00:14:06,520 --> 00:14:08,000 Speaker 2: You brought it up, so let's talk about it, and 272 00:14:08,000 --> 00:14:10,280 Speaker 2: then we can talk about the labor market, Muhammad, the 273 00:14:10,360 --> 00:14:14,000 Speaker 2: right inflation target. The question that the chairman's been asking 274 00:14:14,040 --> 00:14:15,560 Speaker 2: for a while, and he talked about it in his 275 00:14:15,600 --> 00:14:19,160 Speaker 2: testimony twice this week. It's their question, are we on 276 00:14:19,200 --> 00:14:22,360 Speaker 2: a sustainable path back to two percent? Do we need 277 00:14:22,400 --> 00:14:24,960 Speaker 2: more confidence? And he said repeatedly, we need more confidence. 278 00:14:25,480 --> 00:14:28,320 Speaker 2: If some officials start to say that they believe they 279 00:14:28,360 --> 00:14:31,800 Speaker 2: are confident we're on a sustainable path back to two percent, 280 00:14:31,920 --> 00:14:34,840 Speaker 2: not two point something, not two point five, not around three, 281 00:14:35,360 --> 00:14:38,680 Speaker 2: but two percent, why would you caution them? How are 282 00:14:38,680 --> 00:14:40,720 Speaker 2: you thinking about the world differently? Why do you think 283 00:14:40,720 --> 00:14:42,520 Speaker 2: that's going to be so difficult. 284 00:14:43,480 --> 00:14:45,440 Speaker 7: So if they just say we're on the path to 285 00:14:45,520 --> 00:14:48,040 Speaker 7: two percent and leave it wide open as to when 286 00:14:48,040 --> 00:14:50,960 Speaker 7: we're going to get there, Already the chair has said 287 00:14:50,960 --> 00:14:53,040 Speaker 7: we won't get in then twenty four. We probably won't 288 00:14:53,040 --> 00:14:55,320 Speaker 7: get there in twenty five. If they leave it wide open, 289 00:14:55,360 --> 00:14:58,920 Speaker 7: I'm fine with that. If, however, they feel that they 290 00:14:58,960 --> 00:15:02,120 Speaker 7: need to deliver the two percent either this year or 291 00:15:02,160 --> 00:15:06,320 Speaker 7: next year, I would worry as to all the undue 292 00:15:06,440 --> 00:15:11,200 Speaker 7: losses to output. I would worry about the employment side 293 00:15:11,320 --> 00:15:11,840 Speaker 7: as well. 294 00:15:12,000 --> 00:15:12,240 Speaker 6: John. 295 00:15:12,320 --> 00:15:17,160 Speaker 7: The only thing keeping segments of the household sector, the 296 00:15:17,200 --> 00:15:20,120 Speaker 7: lower income one and the small business going. The only 297 00:15:20,160 --> 00:15:23,440 Speaker 7: thing keeping those going is labor income. And if we 298 00:15:23,520 --> 00:15:26,240 Speaker 7: lose labor income, we no longer have the balance sheet 299 00:15:26,240 --> 00:15:29,320 Speaker 7: strengths that we had before, and it will result in 300 00:15:29,360 --> 00:15:32,600 Speaker 7: a much much stronger decline in demand. 301 00:15:33,000 --> 00:15:35,240 Speaker 1: Weh but what you're saying is fascinating at a time 302 00:15:35,480 --> 00:15:38,400 Speaker 1: where Steve Shudo yesterday came on of Mizujo and said, 303 00:15:38,840 --> 00:15:42,440 Speaker 1: his fear is, you are seeing companies lose pricing powers. 304 00:15:42,440 --> 00:15:45,520 Speaker 1: We sell from delta and pepsi at the same time 305 00:15:46,000 --> 00:15:49,840 Speaker 1: that that supply side inflation is still present. His worry 306 00:15:49,920 --> 00:15:51,840 Speaker 1: is that leads to margin compression. Now, if the Fed 307 00:15:51,880 --> 00:15:55,080 Speaker 1: cuts rates, they'll be able to pass along those price 308 00:15:55,160 --> 00:15:59,320 Speaker 1: increases to consumers. Inflation will go higher from here. Why 309 00:15:59,440 --> 00:16:01,600 Speaker 1: is that a parferable outcome in your view? 310 00:16:02,600 --> 00:16:04,480 Speaker 7: So I listened to him, and the only question I 311 00:16:04,520 --> 00:16:07,400 Speaker 7: asked myself is what about the lags? What about the lags? 312 00:16:07,840 --> 00:16:10,880 Speaker 7: It's not going to happen instantaneously. In fact, we still 313 00:16:11,000 --> 00:16:14,800 Speaker 7: have the lagged effects of one of the most concentrating 314 00:16:14,880 --> 00:16:19,880 Speaker 7: hiking cycles in history. So the lags right now are 315 00:16:19,920 --> 00:16:24,720 Speaker 7: working the other way. So it doesn't work instantaneously. That's 316 00:16:24,800 --> 00:16:26,520 Speaker 7: not how monetary policy works. 317 00:16:27,120 --> 00:16:29,680 Speaker 1: So when you talk about the labor market, and let's 318 00:16:29,680 --> 00:16:32,240 Speaker 1: go there, because yesterday we got a good sign in 319 00:16:32,320 --> 00:16:35,920 Speaker 1: terms of initial jobless claims and how much they actually 320 00:16:36,080 --> 00:16:39,760 Speaker 1: came down below expectations, why are you looking through that 321 00:16:39,880 --> 00:16:43,240 Speaker 1: as an anomaly, a blip, rather than a sign of 322 00:16:43,720 --> 00:16:45,520 Speaker 1: strength underpinning the economy. 323 00:16:46,920 --> 00:16:49,440 Speaker 7: So you said earlier, you know, how much should we 324 00:16:49,960 --> 00:16:54,600 Speaker 7: conclude from a data that's every month, how about every week? 325 00:16:55,240 --> 00:16:59,160 Speaker 7: The data, the jobless claims data is inherently noisy. If 326 00:16:59,200 --> 00:17:02,400 Speaker 7: you were to take a more the average of three months, 327 00:17:02,560 --> 00:17:06,480 Speaker 7: six months, there is absolutely no doubt that you will 328 00:17:06,520 --> 00:17:09,159 Speaker 7: see that that indicator is not as strong as it 329 00:17:09,280 --> 00:17:11,480 Speaker 7: was before. Now from week to week, it will differ 330 00:17:11,600 --> 00:17:15,520 Speaker 7: enormously because it is noisy data. 331 00:17:15,640 --> 00:17:17,560 Speaker 1: At this point, when you talk about we should really 332 00:17:17,640 --> 00:17:20,480 Speaker 1: be thinking about what the right inflation target is. What's 333 00:17:20,520 --> 00:17:25,919 Speaker 1: the correct balance between inflation target and employment at a 334 00:17:25,960 --> 00:17:29,000 Speaker 1: time when we're talking about something like four point one 335 00:17:29,040 --> 00:17:33,119 Speaker 1: percent on unemployment and you're talking about inflation of two percent. 336 00:17:34,440 --> 00:17:38,480 Speaker 7: Yeah, and it's this notion of undue damage to employment 337 00:17:39,160 --> 00:17:43,080 Speaker 7: and to the economy. There's also a very important distributional 338 00:17:43,119 --> 00:17:47,720 Speaker 7: effect here. So it's pretty easy now because the Fed 339 00:17:47,800 --> 00:17:51,000 Speaker 7: told us that they expect unemployment at four percent. We 340 00:17:51,080 --> 00:17:55,240 Speaker 7: are above that number in June, and we're lucky to 341 00:17:55,240 --> 00:17:58,320 Speaker 7: go even higher than four point one percent. So already 342 00:17:58,480 --> 00:18:03,040 Speaker 7: that part of the mandate is flashing yellow. Meanwhile, the 343 00:18:03,080 --> 00:18:06,600 Speaker 7: other part of the mandate, the even though the Chair 344 00:18:06,680 --> 00:18:09,680 Speaker 7: didn't call it as such this week but did call 345 00:18:09,760 --> 00:18:15,520 Speaker 7: it last week, the disinflation trend is continuing. The big 346 00:18:15,600 --> 00:18:18,880 Speaker 7: question is this inflationary trend to where and at what time. 347 00:18:19,560 --> 00:18:22,000 Speaker 7: I think the Fed will keep this wide open. They'll 348 00:18:22,040 --> 00:18:24,280 Speaker 7: keep on saying two percent is our target. We get there, 349 00:18:24,280 --> 00:18:27,880 Speaker 7: when we get there, They're not gonna sort of be 350 00:18:28,000 --> 00:18:30,159 Speaker 7: very precise as when they're going to get there, and 351 00:18:30,200 --> 00:18:33,160 Speaker 7: they're going to wait and see how the economy economy accommodates. 352 00:18:33,240 --> 00:18:36,800 Speaker 7: And that's the way of doing slightly high inflation targeting 353 00:18:36,800 --> 00:18:37,639 Speaker 7: without calling it that. 354 00:18:38,080 --> 00:18:39,840 Speaker 2: If you are just joining us, welcome to the program. 355 00:18:39,920 --> 00:18:42,639 Speaker 2: Lucky to have with us. Mohammad al Aerial moments after 356 00:18:42,800 --> 00:18:44,760 Speaker 2: we got PPI dight, I want to go through some 357 00:18:44,800 --> 00:18:46,399 Speaker 2: of that data for you, coming in a little bit 358 00:18:46,440 --> 00:18:49,480 Speaker 2: hotter than expected. Going into that print, the rustle of 359 00:18:49,480 --> 00:18:52,120 Speaker 2: small caps was up again by something like one percent, 360 00:18:52,320 --> 00:18:54,360 Speaker 2: faded off the back of it, then started to climb again. 361 00:18:54,400 --> 00:18:57,000 Speaker 2: We're positive again by three quarters of one percent. If 362 00:18:57,000 --> 00:18:58,320 Speaker 2: you switch on the board and turn to the bond 363 00:18:58,359 --> 00:19:00,480 Speaker 2: market going into the number yields will at the front 364 00:19:00,560 --> 00:19:03,240 Speaker 2: end by a couple of basis points. We've erased some 365 00:19:03,280 --> 00:19:05,240 Speaker 2: of that move. We're just about unchanged now on the 366 00:19:05,280 --> 00:19:08,840 Speaker 2: session at about four point fifty eighty two. Not major moves, Mohammad, 367 00:19:08,880 --> 00:19:10,760 Speaker 2: but they're the moves in the last ten minutes or so. 368 00:19:11,240 --> 00:19:13,480 Speaker 2: You said something interesting, many things in fact, but I 369 00:19:13,560 --> 00:19:15,840 Speaker 2: want to pinpoint just one, and you said the labor 370 00:19:15,920 --> 00:19:19,240 Speaker 2: market was starting to flash yellow. When you hear from 371 00:19:19,280 --> 00:19:22,360 Speaker 2: the FED chair, he describes the labor market as being 372 00:19:22,440 --> 00:19:26,120 Speaker 2: strong and a reason to get this right. You've said 373 00:19:26,200 --> 00:19:28,960 Speaker 2: before that this FED should be thinking about moving in July, 374 00:19:29,480 --> 00:19:32,680 Speaker 2: not waiting until September. What is a couple of months 375 00:19:32,680 --> 00:19:35,600 Speaker 2: between friends? Why do you think it is important to 376 00:19:35,600 --> 00:19:38,840 Speaker 2: start getting going and get a moving earlier and sooner 377 00:19:38,920 --> 00:19:39,600 Speaker 2: rather than later. 378 00:19:40,920 --> 00:19:42,879 Speaker 7: If I was as certain as the market is that 379 00:19:42,920 --> 00:19:45,320 Speaker 7: he was going to move in September, I will tell 380 00:19:45,359 --> 00:19:49,680 Speaker 7: you that a couple of months there wasn't much in it. However, 381 00:19:49,800 --> 00:19:54,160 Speaker 7: you have two factors that may complicate a September cut. 382 00:19:53,880 --> 00:19:56,160 Speaker 6: For this FED, and I want to stress for this FED. 383 00:19:56,840 --> 00:20:00,119 Speaker 7: One is they may get one bad data point and 384 00:20:00,119 --> 00:20:03,760 Speaker 7: then because they're so overly data dependent and they're not 385 00:20:03,800 --> 00:20:09,240 Speaker 7: looking forward enough, that could postpone that the first cut 386 00:20:09,320 --> 00:20:11,720 Speaker 7: to November, and then you're starting to talk about it 387 00:20:11,720 --> 00:20:15,719 Speaker 7: along the lane. The second issue the politics, John, is 388 00:20:16,119 --> 00:20:19,520 Speaker 7: what does the politics look like when we get to 389 00:20:19,560 --> 00:20:23,000 Speaker 7: September and how worried are they that that's going to 390 00:20:23,040 --> 00:20:27,639 Speaker 7: be an inflationary shock coming after the elections due to policies. 391 00:20:28,080 --> 00:20:29,879 Speaker 6: So it's not as. 392 00:20:29,720 --> 00:20:32,840 Speaker 7: Simple as saying, well, the market thinks is over eighty 393 00:20:32,880 --> 00:20:36,359 Speaker 7: percent powability is going to happen because this FED is 394 00:20:36,480 --> 00:20:40,440 Speaker 7: very impacted by high frequency indicators. 395 00:20:40,920 --> 00:20:42,520 Speaker 1: Let's flip this on its head, because a number of 396 00:20:42,560 --> 00:20:44,520 Speaker 1: guests have come on the show and said that the 397 00:20:44,560 --> 00:20:47,560 Speaker 1: big fear for the FED and most the worst case 398 00:20:47,600 --> 00:20:49,440 Speaker 1: outcome would be if they had to reverse course and 399 00:20:49,520 --> 00:20:51,639 Speaker 1: high grates again at some point in response to an 400 00:20:51,640 --> 00:20:55,359 Speaker 1: inflationary shock. Do you think that that isn't that big 401 00:20:55,400 --> 00:20:57,879 Speaker 1: of a risk or it wouldn't be that problematic if 402 00:20:57,920 --> 00:21:02,119 Speaker 1: they had to reverse course, say next year, after starting cutting, 403 00:21:02,200 --> 00:21:03,639 Speaker 1: either in July or September. 404 00:21:05,040 --> 00:21:06,800 Speaker 6: So I do agree with the biggest fear. 405 00:21:07,720 --> 00:21:11,080 Speaker 7: They don't want to be in any way resembled to 406 00:21:11,720 --> 00:21:14,919 Speaker 7: the nineteen seventies, and it is a huge fear. And 407 00:21:15,640 --> 00:21:19,600 Speaker 7: already made two mistakes in the last three years, first 408 00:21:19,640 --> 00:21:23,040 Speaker 7: a transitory call that was horribly wrong, and then secondly, 409 00:21:23,080 --> 00:21:25,120 Speaker 7: at the end of last quarter, they got too excited 410 00:21:25,680 --> 00:21:28,679 Speaker 7: about what was happening on the inflation numbers and they 411 00:21:28,680 --> 00:21:32,399 Speaker 7: had to reverse their view, and we saw the amount 412 00:21:32,440 --> 00:21:35,080 Speaker 7: of pivots. I've never seen so many pivots in forward guidance. 413 00:21:35,119 --> 00:21:38,080 Speaker 7: The whole point of forward guidance is to provide smooth 414 00:21:38,119 --> 00:21:42,359 Speaker 7: market adjustments. Instead, we've had this enormous number of pivots 415 00:21:42,400 --> 00:21:46,119 Speaker 7: in the signals from the fair. So I understand that hesitation, 416 00:21:46,920 --> 00:21:48,880 Speaker 7: and I agree that this will be in the back 417 00:21:48,920 --> 00:21:49,760 Speaker 7: of their mind. 418 00:21:50,800 --> 00:21:53,040 Speaker 6: If they do have to hike next year, I think 419 00:21:53,080 --> 00:21:54,000 Speaker 6: it's a low probability. 420 00:21:54,000 --> 00:21:56,280 Speaker 7: But if they do have to hike, it is because 421 00:21:56,320 --> 00:22:01,280 Speaker 7: something has happened, either externally we've had a major shock 422 00:22:01,400 --> 00:22:07,640 Speaker 7: somewhere or the policies elsewhere fiscal trade have fundamentally changed 423 00:22:08,080 --> 00:22:10,480 Speaker 7: and I think people will understand that and they won't 424 00:22:10,480 --> 00:22:12,840 Speaker 7: blame the FED. They'll see that there's something else that 425 00:22:12,880 --> 00:22:14,639 Speaker 7: has happened else where. No one blamed the Bank of 426 00:22:14,680 --> 00:22:17,120 Speaker 7: England and when it had to respond to the list 427 00:22:17,119 --> 00:22:19,439 Speaker 7: trust moment. I don't want to say we're going to 428 00:22:19,440 --> 00:22:21,160 Speaker 7: have the US is going to have a list trust moment. 429 00:22:21,200 --> 00:22:24,679 Speaker 7: It will not, But people understand the credibility of an 430 00:22:24,720 --> 00:22:28,040 Speaker 7: institution when the shock to inflation is coming from outside. 431 00:22:28,240 --> 00:22:30,400 Speaker 2: Muhammed found a question do you have more confidence more 432 00:22:30,440 --> 00:22:33,680 Speaker 2: faith in Shairman powers for the Reserve or Gareth Southgate's 433 00:22:34,040 --> 00:22:35,040 Speaker 2: England team. 434 00:22:36,480 --> 00:22:39,639 Speaker 7: Wow, that's a really, really tough question, John, And I 435 00:22:39,680 --> 00:22:42,800 Speaker 7: think you know, at every interview you get very close 436 00:22:42,880 --> 00:22:45,840 Speaker 7: to the line as Pau mcculor used to say, that 437 00:22:45,920 --> 00:22:47,560 Speaker 7: setarway his courage from stupidity. 438 00:22:47,600 --> 00:22:49,000 Speaker 6: I think I'm going to stay on the right side 439 00:22:49,040 --> 00:22:49,840 Speaker 6: of that line. 440 00:22:50,200 --> 00:22:53,040 Speaker 2: Mohammed's going to catch up. It's a lot loaded in 441 00:22:53,080 --> 00:22:56,119 Speaker 2: that response. Muhammed al Aarian there the brilliant Mhammad al 442 00:22:56,160 --> 00:23:00,640 Speaker 2: Aarian from Queen's College, Cambridge. This is the Bloom Surveillance 443 00:23:00,680 --> 00:23:04,879 Speaker 2: podcast bringing you the best in markets, economics and geo politics. 444 00:23:05,160 --> 00:23:07,640 Speaker 2: You can watch the show live on Bloomberg TV weekday 445 00:23:07,680 --> 00:23:10,879 Speaker 2: mornings from six am to nine am Eastern. Subscribe to 446 00:23:10,920 --> 00:23:14,159 Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen, 447 00:23:14,440 --> 00:23:17,040 Speaker 2: and as always, on the Bloomberg Terminal and the Bloomberg 448 00:23:17,040 --> 00:23:17,640 Speaker 2: Business app.