WEBVTT - Bloomberg Surveillance TV: June 4, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:35.840 Terminal and the Bloomberg Business app. 0:00:36.360 --> 0:00:37.320 Keep more of City Group. 0:00:37.320 --> 0:00:40.360 Writing this, we view the market as exhibiting the relief 0:00:40.680 --> 0:00:44.320 due to the recent terff roadblogs. However, uncertainty remains in 0:00:44.360 --> 0:00:48.559 corporate management. Teams will resist large capex and hiring plans 0:00:48.760 --> 0:00:51.800 until further clarity on trade rules. Kate joins us now 0:00:52.040 --> 0:00:55.000 with a dose of cold water on the Goldilocks. 0:00:55.360 --> 0:00:58.280 Sorry it is so good. Sorry the borage is too cold. 0:00:58.320 --> 0:01:01.800 Apparently this morning wondering you know what do you make 0:01:01.840 --> 0:01:03.160 of all this Goldilocks talk. 0:01:03.200 --> 0:01:04.800 I mean, not all this Goldilocks talks so. 0:01:04.800 --> 0:01:06.959 Vi the Supermannia which is talking about that, but this 0:01:07.040 --> 0:01:10.080 feeling companies will adapt it to just and get it through, 0:01:10.200 --> 0:01:11.679 and that's what we have continued to say. 0:01:12.000 --> 0:01:14.559 Yeah, look, I have all of the faith in large 0:01:14.560 --> 0:01:17.600 cap companies being able to adopt, but we don't know 0:01:17.600 --> 0:01:20.119 what they're adopting too. And this is the big question mark. 0:01:20.120 --> 0:01:22.480 Everyone says, Okay, we're going to get past tariffs, or 0:01:22.480 --> 0:01:24.039 we're going to get past the worst in terms of 0:01:24.040 --> 0:01:27.319 tariff news, but we know that all of these sectoral 0:01:27.360 --> 0:01:31.160 tariffs can have much greater to pardon me, impact than 0:01:31.200 --> 0:01:33.280 some of the reciprocal tariffs. And if I was a 0:01:33.280 --> 0:01:35.560 company making investment decisions, is what I was writing in 0:01:35.600 --> 0:01:37.920 that note, I would say, like, I can wait it 0:01:37.959 --> 0:01:40.039 out for another couple months or another quarter or two 0:01:40.160 --> 0:01:43.880 before I make decisions, because I want more clarity into 0:01:44.000 --> 0:01:46.200 what my margin story is going to look like. 0:01:46.720 --> 0:01:48.520 And I think that's a prudent thing to do. 0:01:48.560 --> 0:01:50.840 And it is the behavior that these large cap companies 0:01:50.840 --> 0:01:54.560 have exhibited through many years, over a decade at this point, 0:01:54.600 --> 0:01:57.000 and really managed their bottom line. It's one of the 0:01:57.040 --> 0:01:58.920 reasons why we love them and one of the reasons 0:01:58.920 --> 0:01:59.840 why we want to continue to. 0:01:59.800 --> 0:02:02.280 Own There's this larger question, and we were talking about 0:02:02.320 --> 0:02:04.920 it at the open this idea of how long can 0:02:05.000 --> 0:02:09.279 this sort of feeling of adapting, adjusting continue without recognizing 0:02:09.280 --> 0:02:12.080 the structural framework that could be shifting. We just got 0:02:12.160 --> 0:02:15.160 news that the European Commission is recommending that Bulgaria joins 0:02:15.200 --> 0:02:18.160 the Euro next year. There is this question about whether 0:02:18.280 --> 0:02:21.280 the Euro is getting fortified as a viable alternative to 0:02:21.360 --> 0:02:23.120 the dollar at a time where we have seen the 0:02:23.160 --> 0:02:26.400 dollar really lose steam. How much do you give credence 0:02:26.440 --> 0:02:29.160 to that the idea that outside of the US you 0:02:29.200 --> 0:02:32.120 can rely more considerably at the adapting and the adjusting 0:02:32.440 --> 0:02:33.920 and the framework remaining the same. 0:02:34.120 --> 0:02:35.880 I think it's too soon for us to call the 0:02:36.040 --> 0:02:38.400 end of dollar dominance, not just because of trade, but 0:02:38.440 --> 0:02:41.639 because there is to this point not a viable alternative. 0:02:42.040 --> 0:02:44.080 But I think all these moves on the margins are 0:02:44.240 --> 0:02:47.560 very much worth watching. Like if we see different governments, 0:02:47.639 --> 0:02:50.120 if we see different policy makers, if we see different 0:02:50.160 --> 0:02:53.400 investment communities start to take a good look at other 0:02:53.480 --> 0:02:59.359 currency alternatives and just incrementally shift their own positioning, and 0:02:59.680 --> 0:03:02.000 many of them do it at the same time or 0:03:02.040 --> 0:03:04.519 over a number of years, that can really start to 0:03:04.560 --> 0:03:08.240 move the needle. I think most currency strategist would agree 0:03:08.280 --> 0:03:10.520 the dollar was a little overvalued even before all of 0:03:10.520 --> 0:03:12.360 this stuff, and so kind of we're getting back to 0:03:12.400 --> 0:03:15.120 a more normal valuation for the dollar. But this idea 0:03:15.120 --> 0:03:17.160 that we're going to have a massive and consistent decline 0:03:17.200 --> 0:03:19.160 and they're going to be these fiable alternatives by the 0:03:19.240 --> 0:03:22.400 end of twenty five, I think is probably too far gone. 0:03:22.400 --> 0:03:24.200 It doesn't need to be a viable alternative. I mean, 0:03:24.240 --> 0:03:25.680 there's been a lot of talk about this is just 0:03:25.760 --> 0:03:28.440 kind of kind of rebalancing that equilibrium. And when you 0:03:28.480 --> 0:03:30.880 look at the currencies that have performed so well over 0:03:30.919 --> 0:03:32.960 the past few months, you look at the Swiss franc, 0:03:33.080 --> 0:03:35.160 you look at some of the other European or even 0:03:35.200 --> 0:03:37.720 the euro which that probably won't last. But I mean, 0:03:37.800 --> 0:03:39.640 let's take the Swiss frank for example, because I think 0:03:39.680 --> 0:03:41.360 a lot of people have talked about how a lot 0:03:41.400 --> 0:03:44.400 of asset managers have shifted some allocations over to the 0:03:44.440 --> 0:03:46.320 franc as a way to hedge against what's going on 0:03:46.360 --> 0:03:49.320 here in the US. Maybe that's not a structural change, 0:03:49.440 --> 0:03:53.640 but over time that can wottle awagh at the value. 0:03:53.240 --> 0:03:53.720 Of the dollar. 0:03:53.960 --> 0:03:55.760 What I will say is a lot of our clients, 0:03:55.760 --> 0:03:59.200 particularly some very large clients, and I'm going to highlight, 0:03:59.200 --> 0:04:03.080 clients in age specifically have been asking about ways to 0:04:03.120 --> 0:04:05.480 hedge their dollar exposure. They just want to kind of 0:04:05.520 --> 0:04:08.440 neutralize that in portfolios, and that makes a ton of sense. 0:04:08.480 --> 0:04:11.920 So we're seeing this across all segments, but particularly the 0:04:12.000 --> 0:04:15.120 larger clients who have this outsized dollar position, or if 0:04:15.120 --> 0:04:17.000 it's we've seen that kind of drift in the dollar 0:04:17.000 --> 0:04:19.840 position over the last couple of years. Looking right now 0:04:19.880 --> 0:04:23.720 now that there's relative stability as an opportunity for making that. 0:04:23.680 --> 0:04:26.000 Move, is there though a long term case to be 0:04:26.040 --> 0:04:29.280 made for a certain level of instability, a certain lack 0:04:29.320 --> 0:04:32.680 of trust in the US system that had bolstered the 0:04:32.720 --> 0:04:35.839 dollar for basically the last fifty six years. 0:04:36.160 --> 0:04:38.599 I think it's a fair question, honestly, And I think 0:04:38.640 --> 0:04:41.360 as we go through the discussions around tax and as 0:04:41.360 --> 0:04:44.880 we watch what happens to the deficit, and we understand 0:04:44.960 --> 0:04:48.240 that there are going to be some significant challenges to 0:04:48.279 --> 0:04:50.640 the bond market over the next year or two unless 0:04:50.680 --> 0:04:54.279 we have a significant reverse. Of course, it's fair for 0:04:54.360 --> 0:04:58.479 global investors to revisit their portfolios and say, hey, we 0:04:58.520 --> 0:05:01.200 may have the best companies the world in the US, 0:05:01.440 --> 0:05:05.159 the most innovative, the best free cash generators, but we're 0:05:05.160 --> 0:05:07.080 not as confident that we should have this much of 0:05:07.080 --> 0:05:10.800 our fixed income allocation in US bonds. And again this 0:05:10.839 --> 0:05:13.320 is on the margin. We're not talking about a wholesale reversal. 0:05:13.800 --> 0:05:15.840 But you know, when this happens over a period of 0:05:15.920 --> 0:05:17.960 quarters or period of years, it can have a really 0:05:18.000 --> 0:05:19.880 significant impact. 0:05:19.279 --> 0:05:22.120 But Lisa was showing the thirty year yield at four 0:05:22.160 --> 0:05:23.839 to nine, and I look at four to nine and 0:05:23.960 --> 0:05:26.280 change over there. Let's just round it up the five. Yeah, 0:05:26.360 --> 0:05:28.960 that's not attractive. With a ten year at four or five, 0:05:29.000 --> 0:05:31.520 it's not attractive. If I look at the contours of 0:05:31.560 --> 0:05:35.040 this tax bill, great, I love the tax cuts. I'm 0:05:35.080 --> 0:05:37.279 not so great about the fact that they're not making 0:05:37.320 --> 0:05:39.840 that up in any way, shape or form. So if 0:05:39.839 --> 0:05:42.559 you're a long term investor, why would you go longer 0:05:42.600 --> 0:05:43.560 out on the curve right now? 0:05:43.640 --> 0:05:46.760 I mean, we certainly aren't like a lot of acid allocators. 0:05:46.800 --> 0:05:50.000 We've been hiding in the short end, maybe a little 0:05:50.040 --> 0:05:53.000 bit to the belly, but really being very concentrated there. 0:05:53.040 --> 0:05:54.960 And we keep on having this debate within the team 0:05:55.000 --> 0:05:56.839 and across all of the city. You know, at what 0:05:56.920 --> 0:05:59.480 point do we want to buy duration? And it's not 0:05:59.520 --> 0:06:01.280 just the level. It's how do you get to that 0:06:01.400 --> 0:06:04.680 level with the drivers of the of the that move 0:06:04.760 --> 0:06:07.080 to that level, and whether or not we feel it 0:06:07.240 --> 0:06:11.479 adequately compensates us, compensates us for the risk on the 0:06:11.480 --> 0:06:14.080 fiscal side, on the risk on the tax side. And 0:06:14.400 --> 0:06:17.400 you know, the truth is that growth is okay right now. 0:06:17.440 --> 0:06:20.039 It's not phenomenal, and we're not looking for kind of 0:06:20.040 --> 0:06:22.760 a three to four percent GDP world or for the 0:06:22.880 --> 0:06:26.280 US in the next couple of years, so it's pretty tough. 0:06:26.520 --> 0:06:29.279 It also raises questions about what drives that kind of 0:06:29.360 --> 0:06:32.599 desire to own long duration assets. Is it a good thing, 0:06:32.800 --> 0:06:37.440 the idea of fiscal responsibility or some sort of sense 0:06:37.520 --> 0:06:40.240 that maybe you can get compensated with this kind of yield, 0:06:40.680 --> 0:06:42.440 or is it the idea that we're really going to 0:06:42.480 --> 0:06:44.320 hit some sort of slow patch. And this is something 0:06:44.360 --> 0:06:46.320 that was introduced by Savida. At what point are we 0:06:46.320 --> 0:06:48.559 looking at bond yields going up as a positive thing, 0:06:48.880 --> 0:06:51.799 as a sign of risk on elsewhere because it's coming 0:06:51.800 --> 0:06:52.279 with growth. 0:06:52.279 --> 0:06:54.839 I mean, can you get your hands around that argument? 0:06:55.440 --> 0:06:57.400 You know, I'm not at a place where I think 0:06:57.440 --> 0:07:00.479 bond yields are reflecting better growth in the future right, 0:07:00.600 --> 0:07:03.960 and a lot would need to happen. By the way, 0:07:04.080 --> 0:07:07.000 I thought the economy was slowing even before the introduction 0:07:07.080 --> 0:07:09.600 of these tariffs, which I think are quite growth growth negative, 0:07:09.640 --> 0:07:12.640 Even if, as I was saying before, there reciprocal tariffs 0:07:12.640 --> 0:07:14.760 don't end up coming through and we're just talking about 0:07:14.760 --> 0:07:15.720 the sectoral tariffs. 0:07:15.720 --> 0:07:17.760 This is a headwind. We just need to acknowledge that. 0:07:18.720 --> 0:07:21.320 But the consumer and certain segments of the consumer were 0:07:21.400 --> 0:07:23.920 showing stress at the end of last year in the 0:07:23.920 --> 0:07:26.560 beginning of this year, even if the aggregate data looks 0:07:26.560 --> 0:07:29.680 pretty good, and we were starting to see more cautious 0:07:29.680 --> 0:07:33.080 spending from companies in general after it prolonged economic cycle. 0:07:33.360 --> 0:07:36.640 So all that was in place before this uncertainty. So 0:07:36.680 --> 0:07:38.680 I think it's really too soon for us to say 0:07:38.880 --> 0:07:41.280 we're going to be able to forecast at acceleration in 0:07:41.320 --> 0:07:44.440 the US economy, maybe based on tax cuts or based 0:07:44.480 --> 0:07:47.200 on consumption looking good, when there's so many other challenges. 0:07:47.480 --> 0:07:49.480 Just to sum up, would you sell this rally? 0:07:50.480 --> 0:07:53.640 I would not be adding a lot of equity risk 0:07:53.720 --> 0:07:55.960 to this rally. But again, I think large caps are 0:07:56.000 --> 0:07:58.880 going to be the better place within the US market. 0:08:09.000 --> 0:08:12.440 Wendy Schiller Brown University joins us. Now, Wendy, wonderful to 0:08:12.480 --> 0:08:14.160 see you. Thank you so much for being with us. 0:08:14.320 --> 0:08:16.400 I want to start with the idea of some of 0:08:16.400 --> 0:08:19.520 these trade negotiations as part of the three prong stool 0:08:19.800 --> 0:08:22.800 that President Trump's administration has put out there. What do 0:08:22.880 --> 0:08:25.960 you make of the progress being made both racing ahead 0:08:25.960 --> 0:08:27.920 when it comes to trade deals as well as the 0:08:27.920 --> 0:08:30.360 deficit discussion down in Washington, d C. 0:08:31.680 --> 0:08:33.600 Well, Lisa, I think that they are related in the 0:08:33.600 --> 0:08:36.320 sense that President Trump wants to shore up, particularly in 0:08:36.320 --> 0:08:39.839 the Senate now Republican support for his big, beautiful tax bill, 0:08:40.600 --> 0:08:44.800 and to settle the trade environment and not put inflationary 0:08:44.840 --> 0:08:47.960 pressures on the US economy and also sort of raise 0:08:48.000 --> 0:08:51.080 consumer fears about future price increases. 0:08:51.880 --> 0:08:53.480 That's really important not. 0:08:53.440 --> 0:08:56.360 Only for him, but also for members of Congress that 0:08:56.400 --> 0:08:59.000 have to go back to their town halls and hear 0:08:59.120 --> 0:09:01.040 all about people's concerns. 0:09:01.080 --> 0:09:02.920 First, it was dozed in the budget. 0:09:02.760 --> 0:09:07.720 And now will soon be inflation, deficit, spending, bonds, treasuries, 0:09:07.960 --> 0:09:11.440 all those sorts of indicators of economic health. So it's 0:09:11.440 --> 0:09:15.600 important for the President to inject I think more stability. 0:09:15.080 --> 0:09:18.200 Into his trade negotiation persona. 0:09:17.840 --> 0:09:22.000 Or platform because that will also affect Congresses, particularly the 0:09:22.000 --> 0:09:25.200 Senate's willingness to try to really pass this bill by 0:09:25.240 --> 0:09:27.080 July fourth, which was supposed to get passed as we 0:09:27.080 --> 0:09:29.880 would call bi Memorial Day, and that deadline came and went. 0:09:30.880 --> 0:09:33.760 When the China's lead negotiated with the United States, Hayloftings 0:09:33.800 --> 0:09:37.280 says that the nation is ready to discuss all major 0:09:37.400 --> 0:09:39.839 issues with the US. Does that include Taiwan? I mean, 0:09:39.840 --> 0:09:41.319 what sort of messaging do you take out of. 0:09:41.240 --> 0:09:43.120 That, Damie. 0:09:43.200 --> 0:09:46.200 I think it's a I think a treacherous path for 0:09:46.280 --> 0:09:49.000 the President and his staff to sort of conflate not 0:09:49.120 --> 0:09:53.720 sort of just conflate tariffs and economic policy with our 0:09:53.760 --> 0:09:57.360 military stances. He's got a complicated situation with Ukraine, a 0:09:57.360 --> 0:10:02.160 complicated situation obviously with Israel, Gaza, and the Taiwan issue 0:10:02.360 --> 0:10:04.480 is something that if it's loaded up onto the plate 0:10:04.840 --> 0:10:08.559 without really consistent US foreign policy right now, that will 0:10:08.600 --> 0:10:12.320 complicate as negotiations, not make them simple. And I think 0:10:12.360 --> 0:10:15.080 the President likes to cut deals, and he likes to 0:10:15.120 --> 0:10:19.160 cut relatively clear, straightforward deals where he can claim victory. 0:10:19.440 --> 0:10:20.280 Taiwan is going to. 0:10:20.200 --> 0:10:22.600 Be more complicated, and it puts the United States in 0:10:22.600 --> 0:10:26.040 a position that affects its military stances in other conflicts 0:10:26.080 --> 0:10:26.679 around the world. 0:10:26.920 --> 0:10:29.720 Why the Treasury Secretary vessins on the tape discussing global 0:10:29.760 --> 0:10:32.720 imbalances and points to China's inability to shift from an 0:10:32.720 --> 0:10:36.640 export oriented economy to one that's driven by consumption. I mean, 0:10:36.679 --> 0:10:38.679 this flies in the face of decades of conditioning as 0:10:38.760 --> 0:10:41.800 Chinese households propensity to save is grounded in overall lack 0:10:41.840 --> 0:10:44.840 of trust by a beaging themselves. So you know, what 0:10:44.920 --> 0:10:46.600 do we really hope to accomplish here? You know what 0:10:46.679 --> 0:10:48.800 comes next? What is a Treasury Besson really trying to 0:10:48.840 --> 0:10:49.480 accomplish here? 0:10:49.480 --> 0:10:52.800 In my just curious, I mean, I think JERGI Besson 0:10:52.880 --> 0:10:56.960 has seemed to, from what we can tell, exert influence 0:10:56.960 --> 0:10:59.640 on the president, right, stabilizing the president, getting to back 0:10:59.679 --> 0:11:04.040 off really huge tariffs, and trying to add more consistency 0:11:04.040 --> 0:11:06.280 and more justification with the tower policy. So I think 0:11:06.280 --> 0:11:09.360 his public remarks about China and saying, Okay, you've got 0:11:09.360 --> 0:11:12.960 an economy that really depends on the United States consumption tendencies, 0:11:13.160 --> 0:11:15.160 and we want to produce more of our own goods. 0:11:15.400 --> 0:11:17.800 Let's strike a balance so that we can do that. 0:11:18.080 --> 0:11:20.559 And you can still have US markets, but you've got 0:11:20.559 --> 0:11:23.200 to show up your own consumptive markets. I think that's 0:11:23.240 --> 0:11:27.600 a sensible public persona when you're trying to get China 0:11:27.640 --> 0:11:29.920 to come to the table. You know what that actually 0:11:29.960 --> 0:11:33.360 results in in terms of internal economics in China will 0:11:33.400 --> 0:11:35.480 have to see. But on the steel plants, you know, 0:11:35.520 --> 0:11:38.280 we've lost so hundreds of thousands of jobs in steel 0:11:38.280 --> 0:11:40.640 over the last thirty years, and we can't bring steel 0:11:40.640 --> 0:11:43.160 back completely at all. And it was interesting that the 0:11:43.160 --> 0:11:46.719 President's going to take credit for saving existing jobs that 0:11:46.760 --> 0:11:50.040 are in the United States and relatively small compared to 0:11:50.040 --> 0:11:52.960 the rest of the economy. So there are some imbalances 0:11:53.000 --> 0:11:55.560 we will not be able to fix, Wendy. 0:11:55.760 --> 0:11:56.680 You know, I'm curious. 0:11:56.760 --> 0:12:01.240 So we've been in an environment where demand for US assets, bonds, 0:12:01.320 --> 0:12:05.200 equities is sort of imperiled. Do you see Section eight 0:12:05.320 --> 0:12:08.600 ninety nine, which is this remedy against foreign you know, 0:12:08.720 --> 0:12:11.720 unfairness and foreign taxes. Do you see that as a 0:12:11.720 --> 0:12:14.319 big hit to demand for US assets? 0:12:15.200 --> 0:12:18.360 Well, and I think it produces me to it produces instability. 0:12:18.440 --> 0:12:18.959 I mean, as the. 0:12:18.920 --> 0:12:21.040 President could wake up in the morning or in the 0:12:21.120 --> 0:12:23.640 late early hours of the morning and decide Okay, I'm 0:12:23.679 --> 0:12:26.000 going to change the rules of the game today, and 0:12:26.000 --> 0:12:29.480 that just reeks havoc you know on markets, but also 0:12:29.520 --> 0:12:30.600 on small business people. 0:12:30.880 --> 0:12:32.319 And then you know, as they in. 0:12:32.280 --> 0:12:35.319 Their own communities get concerned and get worried and think 0:12:35.320 --> 0:12:37.920 about passing on cost to consumers, then those consumers in 0:12:37.960 --> 0:12:40.280 those communities start to worry about the economy. And we've 0:12:40.320 --> 0:12:43.240 seen some real dips in consumer confidence. So I think 0:12:43.440 --> 0:12:46.120 there are ripple effects to this sort of ping pong 0:12:46.280 --> 0:12:50.520 or yo yonis of the president's trade positions, and certainly 0:12:50.559 --> 0:12:52.679 we rely on the rest of the world and internally 0:12:53.280 --> 0:12:53.960 to buy. 0:12:53.760 --> 0:12:55.280 Our treasuries to float our debt. 0:12:55.520 --> 0:12:58.320 And that's where the really big debt ceiling increase comes in. 0:12:58.559 --> 0:13:01.640 And that's what Run Paul is complaining about. That it's 0:13:01.640 --> 0:13:03.559 not just deficit spending, it's. 0:13:03.400 --> 0:13:08.400 Also creating you know, unsustainable literally unsustainable debt, because sooner 0:13:08.480 --> 0:13:10.840 or later people will stop buying it. And if they 0:13:10.880 --> 0:13:13.160 stop buying it, you know, we have no way of 0:13:13.200 --> 0:13:14.400 floating our expenses. 0:13:14.720 --> 0:13:17.160 Wendy Schiller, Brown University, thank you so much for being 0:13:17.200 --> 0:13:29.160 with us. This is the latest the US thirty year 0:13:29.320 --> 0:13:33.320 underperforming short term debt year to date. As investors continue 0:13:33.320 --> 0:13:36.880 to monitor fiscal risk, leading to speculation the Treasury might 0:13:36.960 --> 0:13:40.280 scale back or even halt auctions of its long bond. 0:13:40.520 --> 0:13:43.160 Molly Brooks of T Security is writing this, rates have 0:13:43.240 --> 0:13:46.240 been very focused over the last weeks with passage of 0:13:46.440 --> 0:13:49.439 one big beautiful bill. However, if we see the macro 0:13:49.559 --> 0:13:53.079 data turning, the markets will react to recession risk. Mollie 0:13:53.160 --> 0:13:55.720 joins us Now for more, it's sort of a question of. 0:13:55.640 --> 0:13:58.760 What would you like to focus on today for every market. 0:13:58.800 --> 0:14:00.839 It seems like, Molly, I want to start with that 0:14:01.240 --> 0:14:04.720 this question of if we get negative economic data, do 0:14:04.760 --> 0:14:08.079 you believe in your core that thirty year yields will 0:14:08.120 --> 0:14:11.719 truly rally substantially and could even potentially outperform. 0:14:12.240 --> 0:14:15.880 I think that they would probably rally, however, not as 0:14:15.960 --> 0:14:18.960 much as the front end. In the last couple of weeks, 0:14:18.960 --> 0:14:21.360 we have seen kind of the correlation between the two 0:14:21.440 --> 0:14:24.960 year and the third year declining. So that's showing that 0:14:25.000 --> 0:14:27.400 the third year isn't being driven right now as much 0:14:27.440 --> 0:14:31.520 by FED cuts and macro risk. It's being driven more 0:14:31.680 --> 0:14:35.840 by deficit concerns and concerns of the quality of the 0:14:35.920 --> 0:14:36.560 long bond. 0:14:37.000 --> 0:14:38.000 So I do think. 0:14:37.840 --> 0:14:41.720 That while it'll rally on FED, you'll probably see the 0:14:41.720 --> 0:14:44.760 front end rally a little bit harder than the long end. 0:14:44.800 --> 0:14:47.080 There is there a risk though, at those two worlds 0:14:47.160 --> 0:14:49.520 kind of converging, meaning the concerns about what's going on 0:14:49.560 --> 0:14:52.200 with the deficit and obviously the macro read through. 0:14:52.720 --> 0:14:55.760 Yeah, I mean, at some point, if thirty year yields 0:14:55.880 --> 0:14:59.360 increase enough and they're high enough, then conditions are going 0:14:59.400 --> 0:15:02.640 to be tight enough that we might see that feed 0:15:02.680 --> 0:15:05.680 through to growth, and then that would therefore be feeding 0:15:05.680 --> 0:15:08.680 through to fed cuts as well. So it's kind of 0:15:08.680 --> 0:15:11.080 circular in that that you could see that the just 0:15:11.160 --> 0:15:14.760 the pure level of the long end bond is impacting 0:15:14.840 --> 0:15:15.600 growth concerns. 0:15:15.640 --> 0:15:17.600 Well, what becomes that light? I mean, because I mean 0:15:17.600 --> 0:15:19.200 we kind of already know what's in the bill. I mean, 0:15:19.240 --> 0:15:23.080 you can model out the increase in debt servicing costs 0:15:23.120 --> 0:15:25.840 based on what we know already. So what becomes that 0:15:25.920 --> 0:15:28.080 light that the market is going to look to as 0:15:28.160 --> 0:15:30.400 sort of okay, now we finally reach that rubicon? 0:15:30.600 --> 0:15:32.360 Is it the labor market? Is it? 0:15:32.600 --> 0:15:35.200 As you said, actual economic recession of some sort. 0:15:35.280 --> 0:15:38.520 What I would say, they don't really need a recession 0:15:38.600 --> 0:15:40.360 in order to begin this rally. 0:15:41.040 --> 0:15:42.760 Investors might need more of. 0:15:42.680 --> 0:15:46.360 A kind of catalyst that is more recessionary for them 0:15:46.360 --> 0:15:49.360 to actually be able to jump in into longs, just 0:15:49.400 --> 0:15:52.800 because we've been burnt a lot in recent weeks of 0:15:53.080 --> 0:15:56.360 just kind of sell offs here. But I do think 0:15:56.400 --> 0:15:58.880 that if we see any type of weakness in the 0:15:58.960 --> 0:16:03.520 labor market specific and on Friday specifically the unemployment rate, 0:16:04.280 --> 0:16:06.000 that's what the FED is going to be looking at. 0:16:06.040 --> 0:16:08.600 So if we're seeing the unemployment rate rising and rising 0:16:08.680 --> 0:16:11.480 quick enough, that's when markets are going to start get 0:16:11.520 --> 0:16:15.360 concerned and that they're going to react to the likelihood 0:16:15.360 --> 0:16:16.920 of FED cuts in the near term. 0:16:17.600 --> 0:16:19.360 Molly, I wanted to ask you because I've seen a 0:16:19.360 --> 0:16:22.280 lot of like ringing of hands and gnashing of teeth 0:16:22.320 --> 0:16:25.760 ahead of all these auctions in recent weeks. People have 0:16:25.760 --> 0:16:27.880 been really stressed about it, and of course they've gone 0:16:27.920 --> 0:16:30.840 really smoothly. You know, if it's not the auctions and 0:16:30.880 --> 0:16:33.920 they continue to get that bid, what should be watching 0:16:34.160 --> 0:16:36.440 to really kind of signal a meaningful change in the 0:16:36.440 --> 0:16:38.280 direction of yields, especially at the long end. 0:16:39.000 --> 0:16:42.120 Yeah, I think right now, I would say stay focused 0:16:42.120 --> 0:16:44.000 on the macro data. 0:16:44.040 --> 0:16:47.360 The FED has continued tables. Do you think or at 0:16:47.360 --> 0:16:47.840 this point. 0:16:47.960 --> 0:16:50.600 Yeah, I would say less of the headline, but we're 0:16:50.640 --> 0:16:53.520 looking more at the unemployment rate just given that it's 0:16:53.520 --> 0:16:56.520 a little bit more of a clear signal there. So 0:16:56.560 --> 0:16:59.560 if we see unemployment rate up to four four four five, 0:17:00.080 --> 0:17:02.480 that's when we think the federal get concerned, and that's 0:17:02.560 --> 0:17:06.200 probably when we'll see most investors more comfortable to step in. 0:17:06.960 --> 0:17:08.280 I'll turn that question back to you. 0:17:08.400 --> 0:17:10.240 I mean, how much do you expect this to really 0:17:10.280 --> 0:17:14.639 turn from supply concerns that have been on the peripheres 0:17:14.680 --> 0:17:17.000 but really aren't center stage. How much will that shift 0:17:17.040 --> 0:17:20.200 immediately the second we get some sort of pessimistic print 0:17:20.240 --> 0:17:20.760 in the data. 0:17:21.119 --> 0:17:23.280 Well, I think we have to be very careful around 0:17:23.280 --> 0:17:25.560 the labor market because this is a place where to 0:17:25.600 --> 0:17:28.240 this point it's been holding strong, and in fact, we've 0:17:28.240 --> 0:17:30.919 seen companies continue to hold onto their workforce to not 0:17:31.000 --> 0:17:33.000 really engage in widespread layoffs. 0:17:33.119 --> 0:17:34.680 But when you peel back the surface. 0:17:34.440 --> 0:17:36.560 Much like if you're peeling back the labor market report, 0:17:36.840 --> 0:17:39.439 you do find that there are pockets of companies that 0:17:39.480 --> 0:17:41.960 have been trimming on the margin or this is something 0:17:41.960 --> 0:17:45.080 else I've been watching really closely, have been have stopped 0:17:45.080 --> 0:17:48.760 filling their open requisitions you know, lots of job openings, 0:17:49.119 --> 0:17:51.600 but whether it's a CEO or the CFO or some 0:17:51.800 --> 0:17:54.720 HR manager saying you're going to hold off there, I 0:17:54.720 --> 0:17:59.200 mean that on balance shakes people's confidence in the labor 0:17:59.240 --> 0:18:02.360 market and their future earnings. And so if that then 0:18:02.720 --> 0:18:05.200 you know, feeds through into consumer spending and these I mean, 0:18:05.560 --> 0:18:10.000 there could be this sort of slow moving domino effect 0:18:10.440 --> 0:18:12.199 impacting growth in the second half of the year. 0:18:12.240 --> 0:18:13.720 And that's kind of what I'm watching and. 0:18:13.680 --> 0:18:15.159 That's just hard to wrap my head around. And I 0:18:15.200 --> 0:18:17.439 assume that has to just make your job, Molly, just 0:18:17.480 --> 0:18:18.520 a lot harder. 0:18:19.000 --> 0:18:22.400 Definitely makes it more interesting seeing how does this pass 0:18:22.400 --> 0:18:25.800 through pass through come through. We saw soft data versus 0:18:25.800 --> 0:18:28.320 hard data, the whole debate on does soft data turn 0:18:28.359 --> 0:18:32.080 into hard data. We're seeing kind of weakening in different 0:18:32.119 --> 0:18:34.720 areas of the labor market to your point, that are 0:18:34.760 --> 0:18:38.440 maybe not the traditional headline payrolls, and so it's when 0:18:38.480 --> 0:18:41.320 does this hit these big numbers that then kind of 0:18:41.520 --> 0:18:45.080 scares the market into rallying a little bit sharper and 0:18:45.119 --> 0:18:46.399 pricing and more fed cuts. 0:18:46.640 --> 0:18:49.000 Mollybrooks of TD Securities, thank you so much for being 0:18:49.000 --> 0:19:01.119 with us. Volliedbrooks down we give this hour with stocks 0:19:01.160 --> 0:19:03.919 hire after posting back to back gains. Jim Karen of 0:19:03.960 --> 0:19:08.600 Morgan Stanley writing this, we have rebalanced by increasing equity exposures, 0:19:08.680 --> 0:19:11.359 not just in the United States, but also Europe. Our 0:19:11.440 --> 0:19:14.840 highest conviction overweight. Jim joins us Now, Jim, thank you 0:19:14.840 --> 0:19:15.640 so much for being here. 0:19:15.680 --> 0:19:16.720