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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: table Cities Veronica Clark Invesco's Rob Wildner. I am not
Speaker 2: going to bury the lead for Veronica. We're going straight
Speaker 2: to your cool July rate cut. I need to know
Speaker 2: how bad the number needs to be tomorrow to keep
Speaker 2: that in play.
Speaker 3: Yeah, Honestly, I think the bar for bad labor market
Speaker 3: data for the fad to be cutting sooner than the
Speaker 3: marketers pricing is pretty low. Tomorrow, we think we're going
Speaker 3: to see one hundred and forty thousand perils, which is
Speaker 3: a further slowing obviously from the slowing we had in April.
Speaker 3: The level of job growth, you know, that's still a
Speaker 3: pretty healthy level. But it's the trend that's concerning. I
Speaker 3: think the unemployment rate can go to four point zero
Speaker 3: percent tomorrow. That's the fads end of year forecast, and
Speaker 3: where we're hitting that sooner than they expected.
Speaker 2: The favorite phrase of every constructive economist on Wall Street
Speaker 2: right now, rebounising normalization. You don't share it, you know,
Speaker 2: don't share it.
Speaker 3: No. I think the issue is when you're going from
Speaker 3: a you know, a region where you're running too strong,
Speaker 3: and you're moving to a region where you're running too weak,
Speaker 3: you will have a moment where you look like you're
Speaker 3: in balance. It's the trend that's concerning, and I don't
Speaker 3: see any good reason why this cycle wouldn't follow previous
Speaker 3: cycles where you do get that slow weakening and you
Speaker 3: suddenly get an accelerated weakening.
Speaker 1: So now for the cage fight. Rob Waldner, who has
Speaker 1: completely the opposite view. He doesn't think July is anywhere
Speaker 1: in the cards. You think September probably, I mean, how
Speaker 1: much do you disagree with that approach?
Speaker 4: I think the big thing I disagree with is we
Speaker 4: think the growth will continue at a more steady pace
Speaker 4: than I think. Veronica, you laid out, which is, you know,
Speaker 4: we having a me with a lot of momentum to it,
Speaker 4: and so the growth on its own doesn't really justify
Speaker 4: a rate cut, and so the rate cut narrative of
Speaker 4: multiple rate cuts, I think is built on a growth narrative.
Speaker 4: What justifies rate cut in September is kind of the
Speaker 4: way that banker Candida laid it out yesterday, which is, hey,
Speaker 4: the economy might be growing, but inflation is coming down.
Speaker 4: We're in there in continued disinflation, and we just don't
Speaker 4: need as much restriction as we used to have. So
Speaker 4: that's a different kind of narrative, and I think one
Speaker 4: where the Fed will be a little bit more cautious
Speaker 4: and will continue to be data dependent, which means, you know,
Speaker 4: they do one in September and then they watch to
Speaker 4: see how things come in. You know, we think probably
Speaker 4: September and December maybe two cuts.
Speaker 2: So pause. The difference between you both is not just
Speaker 2: a few months. You've got a completely different way of
Speaker 2: looking at this economy. How many cuts are you looking
Speaker 2: for in the next twelve months?
Speaker 3: Two hundred basis points total, two hundred basis points touch
Speaker 3: twenty five.
Speaker 2: Okay, you'll know where they're that, are.
Speaker 5: You No, we're not on a base case. We're not
Speaker 5: looking for two hundred basis point.
Speaker 2: Okay, so you can drive a truck to the two
Speaker 2: opinions around this type right now.
Speaker 5: Which is a really well no rate hikes at the table.
Speaker 6: Okay, well there you go. But rob to that point
Speaker 6: just to sort of elaborate the aspect that you disagree
Speaker 6: with that we're hearing from Veronica, this is going to
Speaker 6: be more like a normal cycle or once they embark,
Speaker 6: seeing that weakness is going to accelerate.
Speaker 1: What in the data gives you confidence that's not the case?
Speaker 4: Well, I think what in the data would point the
Speaker 4: other way. We don't see that in the data that
Speaker 4: would point to this weakness. I think there's a lot
Speaker 4: of concentration on this increase in the unemployment rate which
Speaker 4: you talked about, and looking at you know, pass cycles
Speaker 4: as rule other things like this which have pointed to
Speaker 4: you know, recessions following and increase in unemployment. What we
Speaker 4: see in the labor market is that the stress has
Speaker 4: been removed from the labor market, right, That's that's what
Speaker 4: job openings and hires and quits are telling us.
Speaker 5: But still a healthy labor market.
Speaker 4: You know, look at the job as claims number today,
Speaker 4: So we don't see you know, we don't see a big.
Speaker 5: Growing weakness there.
Speaker 1: Veronica, I'm sure that you guys get a lot of pushback.
Speaker 3: Yeah, no, absolutely, but yeah, I would would certainly disagree
Speaker 3: on the signs of weakness. I think we you know,
Speaker 3: in the labor market, what we've seen is you know,
Speaker 3: hiring rates that are at ten year lows, you know,
Speaker 3: part time employment, increasing hours work coming down. It feels
Speaker 3: like all the early signs of businesses looking to cut
Speaker 3: labor costs, and we heard that in the anecdotes of
Speaker 3: the ISM report yesterday. Well we don't see it are
Speaker 3: the layoffs, but that would really be the last step.
Speaker 3: And we have had a worsening of you know, consumer
Speaker 3: sentiment around job prospects, around the labor market in the
Speaker 3: last couple of months, and we've seen that reflected in
Speaker 3: a pullback and spending. We've had real good spending declining
Speaker 3: three or four months of this year, restaurant spending declining.
Speaker 3: It can be that pullback and spending in activity that
Speaker 3: gets businesses finally to to you know, do that last
Speaker 3: step of cutting labor costs, which is layoffs.
Speaker 2: Can we talk a little bit about communication. How do
Speaker 2: you think this sort of plays out on Wednesday?
Speaker 3: Yeah, it's going to be tricky because we have two
Speaker 3: pretty important reports before then, obviously tomorrow, and then we're
Speaker 3: going to get CPI inflation in the morning of the meeting.
Speaker 3: I do think the report tomorrow, if it is, you know,
Speaker 3: showing like what we expect, slowing in job growth, rise
Speaker 3: in the unemployment rate, this is a FED that is
Speaker 3: going to leave all options on the table. We probably
Speaker 3: do see, you know, the dots come up, you know,
Speaker 3: twenty five basis points showing just fifty basis points of
Speaker 3: cuts for this year. But I think it's really important
Speaker 3: for us to base our FED outlook on where we
Speaker 3: think the data are going, and not FED speak, which
Speaker 3: could sound stale in a couple of months.
Speaker 1: It also depends rob on what the market kind of
Speaker 1: gives them, in the sense that we've already seen suddenly
Speaker 1: more rate cuts baked in. How do they respond to
Speaker 1: this idea that this is a market suddenly more biased
Speaker 1: to seeing weakness and continuing with the goldilocks trends that
Speaker 1: make their job easier to really signal that they're going
Speaker 1: to continue on the same path.
Speaker 4: Well, you know, they've had a there's been a real
Speaker 4: challenge for the FED and for the market, which is
Speaker 4: the narrative has changed so much and what some pricing
Speaker 4: has changed so much over the last year.
Speaker 5: If you just look at the volatility.
Speaker 4: Of expected rate cuts in twenty twenty four, has been
Speaker 4: huge because it's responded to higher for longer than slower
Speaker 4: multiple cuts at the beginning of this year. And they've
Speaker 4: been very steady through the whole thing. You haven't seen
Speaker 4: them react to that. They've been we we think we're
Speaker 4: we're we're we have a chance at soft landing. We
Speaker 4: think we're in disinflation. They've been very, very steady, and
Speaker 4: so I think I don't think they're going to respond
Speaker 4: to this change in market narratives. I think we're going
Speaker 4: to get power talking about disinflation continuing.
Speaker 5: There's a lot of contension.
Speaker 4: Around the inflation exact inflation numbers of what they're telling us.
Speaker 5: I think we'll probably see quite a bit of.
Speaker 4: Conversation around that, And you know, I don't know, I
Speaker 4: would be surprised if there's a lot of discussion around
Speaker 4: the labor market, but maybe there will be.
Speaker 2: Let's have a conversation about the bond market, but a
Speaker 2: big move five days thirty basis points a lower on
Speaker 2: a ten year plus more than twenty basis points alow
Speaker 2: at the front end on a two year yield. Leash
Speaker 2: and I were talking about this a little bit earlier.
Speaker 2: We've had tons of conversations about how riscuskewed asymmetrically to
Speaker 2: lower yields going into data points because the FED won't
Speaker 2: respond to strength. Given the move we've had over the
Speaker 2: last week or so, just what is the setup going
Speaker 2: into payrolls, going into CPI next week.
Speaker 4: Well, because the curve is inverted, right, we have negative
Speaker 4: carry the further you go out in the curve, and
Speaker 4: so I think that limits the ability to rally too
Speaker 4: much from here. I mean, so if you get down
Speaker 4: closer to four percent, I think we would be going
Speaker 4: would be going underweight.
Speaker 5: You know.
Speaker 4: And I think that this both the rates market really
Speaker 4: is a range trade here. It has been for quite
Speaker 4: a long time, and we're getting towards the bottom of
Speaker 4: that of that range.
Speaker 2: You don't think we're more sensitive to weak data but
Speaker 2: more sensitive to strong data tomorrow. Is that fair?
Speaker 5: I think that's fair? Yeah, Okay, all right, let's.
Speaker 7: Think about it.
Speaker 2: Maybe it was the way I phrased it, Rob Wildner,
Speaker 2: Evan Vesca, thanks to appreciate it, produca clark A city,
Speaker 2: but quite a cool for July at Mills is whether
Speaker 2: it's around the table Edward Morning's he is, John, Let's
Speaker 2: start there with foreign policy? Where does that rank just
Speaker 2: in terms of voter concerns this year?
Speaker 8: I think it's probably one of the biggest dreggs on
Speaker 8: Joe Biden's reelection. If you go back and you look
Speaker 8: at it right track, wrong track of the country, favorable
Speaker 8: unfavorable ratings. When you go to see where it shifted
Speaker 8: from Biden having a net favorable rating to a net
Speaker 8: unfavorable rating, it was back in the awful withdrawal from
Speaker 8: Afghanistan in August of twenty twenty one. He's not recovered since.
Speaker 8: And when you look at Trump voters, one of the
Speaker 8: things that they're saying is that there wasn't the same
Speaker 8: level of geopolitical issues under Trump, and so you know,
Speaker 8: fear or not, that's driving support for Trump, and it
Speaker 8: is pulling down the pulling numbers for Biden, especially among
Speaker 8: key parts of Biden's base, younger voters.
Speaker 2: Do you think his execution or ideology, because what we
Speaker 2: see from Biden is proud of it. He talks about alliances, allies, multilateralism.
Speaker 2: What you hear from the former president is a form
Speaker 2: of isolationism, and that's going right the way through some
Speaker 2: parts of Congress as well. Which one is it?
Speaker 7: I think it's both.
Speaker 8: I mean America first, which is Trump's saying, is something
Speaker 8: that's really popular with his space. It's a part of
Speaker 8: populism politics. That is a core part of kind of
Speaker 8: the ability to appear appeal to a broader swath of
Speaker 8: voters than Republicans have traditionally done.
Speaker 7: There's a big bifurcation.
Speaker 8: You look at the Senate, which is more senior, kind
Speaker 8: of been in DC longer, fully supportive of Ukraine and
Speaker 8: was overwhelming in their support for.
Speaker 7: Their last aid package.
Speaker 8: It was a house of representatives, the newer members to
Speaker 8: d C that are more aligned with President Trunk, more
Speaker 8: aligned with the MAGA movement, and those were the ones
Speaker 8: that really did not want to see kind of the
Speaker 8: funding that went to Ukraine and that got passed a
Speaker 8: couple months ago.
Speaker 1: Tomorrow, President Bien is going to be in France. He's
Speaker 1: going to be there for the head of the G seven,
Speaker 1: and he's going to deliver a speech on the anniversary
Speaker 1: of D Day. I'm curious about this speech.
Speaker 5: On democracy and freedom.
Speaker 1: It will be music to the ears of a lot
Speaker 1: of the European leaders there. How will it be received,
Speaker 1: do you think in the United States?
Speaker 8: So, I think it's important to remind the world of
Speaker 8: America's power. I think it's import to remind the world
Speaker 8: of the accomplishment that occurred eighty years ago. I'm also
Speaker 8: looking at the fact that we are going to commemorate
Speaker 8: and celebrate the seventy fifth anniversary of the NATO Alliance,
Speaker 8: and so in an American audience, I still think that
Speaker 8: American leadership is important. But there's also kind of it's
Speaker 8: the economy, it's the inflation, it's the day to day,
Speaker 8: harder kind of existence. As voters that look at this
Speaker 8: more as a nice to have than a necessary because
Speaker 8: we have not had that same level of threat that
Speaker 8: we felt in the immediate aftermath of World War Two.
Speaker 8: One of the questions I get a lot at Raymond
Speaker 8: James is, you know, we're celebrating the seventy fifth anniversary
Speaker 8: of NATO. Are we going to celebrate an eightieth especially
Speaker 8: if there is a second Trump presidency.
Speaker 7: What I tell them is that something.
Speaker 8: That was under the radar in the Defense Authorization Bill
Speaker 8: last year was Congress try to future proof this. Congress
Speaker 8: is concerned about the NATO alliance and strip the president
Speaker 8: of the power of unilaterally withdrawing from NATO. So Congress
Speaker 8: here's about this, probably more so than the average voter.
Speaker 1: But there isn't going to necessarily be a galvanizing kind
Speaker 1: of impetus from the idea of talking about democracy and freedom.
Speaker 1: And this is I think a big divergence from the
Speaker 1: last Trump Biden mix up, where basically you had the
Speaker 1: threat of losing democracy as somehow galvanizing voters to get
Speaker 1: to the voter booth. Is it going to have the
Speaker 1: same appeal this time around?
Speaker 8: So I think there's probably going to depend on how
Speaker 8: much the Biden campaign tries to execute on this strategy.
Speaker 7: And I'd also say how much Trump talks about.
Speaker 8: It to the extent that he is tweeting out in
Speaker 8: raising kind of real awareness with January sixth, that was
Speaker 8: something that helped out Democrats in the lead up to
Speaker 8: the midterm elections. The Biden focus on democracy didn't rank
Speaker 8: high with voters, but on the margin, and this election
Speaker 8: is going to be decided very very small margins. Biden
Speaker 8: is going to try to shift the attention to Trump,
Speaker 8: shift that attention to what we were talking about as
Speaker 8: it relates to the temperament during crisis leadership of the
Speaker 8: United States and saying for the next four years, who
Speaker 8: do you trust more? You might not really have liked
Speaker 8: the geopolitical risks that have existed over the last several years,
Speaker 8: but going into the future, the next crisis we hit,
Speaker 8: who do you want in the oval office?
Speaker 7: Biden is going to make the case that it should
Speaker 7: be him.
Speaker 2: Could we just tase out your thoughts on Night's just
Speaker 2: a little bit more if we've had the Dutch Prime
Speaker 2: Minister on this program with this Mark Ritza, and ritz
Speaker 2: has made the point that the former president was right,
Speaker 2: and I'd love your perspective on this. Do you think
Speaker 2: he undermined the Alliance so reinforced it?
Speaker 8: John's a great question, because what Donald Trump's number one
Speaker 8: issue with the Alliance was the members of the Alliance
Speaker 8: not paying their fear share, And over the course of
Speaker 8: the last six plus years, you've seen a dramatic increase
Speaker 8: in the kind of other members besides the United States
Speaker 8: increasing their dollar amounts.
Speaker 7: And so one of the questions going.
Speaker 8: Forward is how much does a threat to the alliance
Speaker 8: really come down to a transactional discussion. And if you
Speaker 8: get up to that two percent and maybe look at
Speaker 8: kind of the two percent that was not spent over
Speaker 8: the last several decades, that shifting.
Speaker 7: That dollar burden.
Speaker 8: And it goes back to that conversation of a lot
Speaker 8: of Americans SUPPORTINATO. A lot of Americans want to be
Speaker 8: the world superpower. I just don't think they want to
Speaker 8: be the only ones paying for it.
Speaker 2: A well said it's going to see you as always
Speaker 2: knows that as Raymond James. Let's get to Vassiliosakis of
Speaker 2: Aviva Investors, who joined just now. Vassilios, how can we
Speaker 2: have a statement that shows a right cut and at
Speaker 2: the same time inflation above target well into next year?
Speaker 2: Makes sense of it for us? O?
Speaker 5: Thank he doesn't.
Speaker 9: Actually so, I think what's happening here is that went
Speaker 9: into the previous meeting having a very very high degree
Speaker 9: of confidence, over confidence that the data.
Speaker 5: Is going to cooperate.
Speaker 9: It made all that noise about the importance of negotiated
Speaker 9: wages for Q one that they became available in May.
Speaker 9: In the end, pretty much all the data have surprise
Speaker 9: on the upside. Us so in the updated projections, which
Speaker 9: I thought there were actually more hawkys than I expected them.
Speaker 9: We went for this year's growth rate from zero one
Speaker 9: six percent zero point nine percent and inflation from two
Speaker 9: point three to zero point five percent, and all that
Speaker 9: within the context of data dependence and conditional guidance, and
Speaker 9: yet we had an.
Speaker 5: Interest rate cut being delivered today.
Speaker 9: I think that was almost exclusively driven by the fact
Speaker 9: that it would have been far too embarrassing for the
Speaker 9: Governing Council to back pedle or on his previous pre commitment.
Speaker 5: But I think going forward, I.
Speaker 9: Hope in terms of credibility with the CBS going to
Speaker 9: maintain a very very neutral stance, and definitely going forward,
Speaker 9: I think the bar for gaining more confidence has.
Speaker 1: Increased, which is interesting, especially at a time where you
Speaker 1: do see inflation expectations over the next five to ten
Speaker 1: years in Germany start to tick up just a bit
Speaker 1: on the heels of this report, I am curious what
Speaker 1: you make of this. Ian Shepherdson talking now before this,
Speaker 1: before this release, he expects the FED to end up
Speaker 1: cutting rates more than the ECB. That is counterintuitive against
Speaker 1: what a lot of people thought at the beginning of
Speaker 1: this year. Are you on that page now?
Speaker 9: I think you're given where the data sound right now,
Speaker 9: it doesn't seem likely. That's not our house view. Equally,
Speaker 9: at the same time, we have to point out that
Speaker 9: where the FED stands right now, it's one hundred and
Speaker 9: fifty base points higher well, sorry, one hundred and seventy
Speaker 9: five points higher now compared to the FED. It would
Speaker 9: take a significant acceleration for the US economy and significant resilience,
Speaker 9: ongoing resilience. Look, I think I've been on the camp
Speaker 9: that the Eurozone growth has been surprise on the upside.
Speaker 9: But nonetheless, in order for such a scenario, which for
Speaker 9: sees ICB cutting by less compared to the FED, you
Speaker 9: would need to see a significant two things happening.
Speaker 5: Basically, you would need.
Speaker 9: To see further fiscal expansion in the eurisone, which.
Speaker 5: I don't think it's likely.
Speaker 9: And you would need to see Chinese growth surprisingly materially
Speaker 9: on the upside, which again I don't think it's likely.
Speaker 9: So I wouldn't say that now we're actually in this
Speaker 9: comp that personally I am in this.
Speaker 2: Car batch Roselipraci vassili Astnak Is there a avia investors
Speaker 2: responding to that?
Speaker 5: Easy?
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Speaker 1: Mm hmm