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Speaker 1: Stocks and bonds rising. After an interim agreement between the
Speaker 1: US and iron was reached, the raid through coming ahead
Speaker 1: of fed'st June meeting, the first under new chair Kevin Walsh.
Speaker 1: Seth Carpenter of Morgan Stanley writing this, while the tariff
Speaker 1: impulse appears to be nearing completion, sustained disinflation ahead depends
Speaker 1: on the resolution of the conflict. We expect the FED
Speaker 1: to hold rates unchanged. Seth joins us now here in studio,
Speaker 1: which is a wonderful thing. Hey, good morning, So is
Speaker 1: this enough for you to think that the inflationary pressure
Speaker 1: is probably going to be on a downward trajectory or
Speaker 1: is there something else to play here?
Speaker 3: So probably how's that for an economist answer? Yes, Look,
Speaker 3: the path to a FED rate hike, in our view,
Speaker 3: was never going to be just about inflation, and absolutely
Speaker 3: not just about oil driven inflation. So historically in the
Speaker 3: US oil driven inflation it pushes up headline, but not
Speaker 3: that much typically passed through to core. This time could
Speaker 3: have been different. We'll still have to see how everything
Speaker 3: plays out. But we were thinking if the FED was
Speaker 3: going to hike, it would be a combination of inflation,
Speaker 3: especially core inflation staying sustained, staying above three percent or so,
Speaker 3: and the underlying momentum of the real side of the
Speaker 3: economy broadening out, firming up and keeping going. And if
Speaker 3: we look at say the last several jobs reports, something
Speaker 3: that we have been talking about so much, with oil
Speaker 3: prices being front and center, they've shown that the fall
Speaker 3: and hiring bottomed out, things are starting to pick up again.
Speaker 3: And so I think the real key here is going
Speaker 3: to be where is that underlying strength in the economy
Speaker 3: and is there more inflation momentum outside of oil prices.
Speaker 3: We know that the path through from tariffs has essentially
Speaker 3: run its course, that's going to be a disinflationary force.
Speaker 3: Is there actually that much more fundamental, broad based inflationary
Speaker 3: pressure to overcome that terraff Disinflation.
Speaker 1: On a certain level doesn't lower oil prices help the
Speaker 1: idea of broadening out and strength, they could potentially feed
Speaker 1: some of the other parts of inflation that can make
Speaker 1: the fed on easy.
Speaker 3: Well, I mean it is a bit of a double
Speaker 3: edged sword that way, because if consumers in general feel
Speaker 3: freer to spend, they have more disposable income to spend
Speaker 3: on everything but gasoline, then just maybe there's a bit
Speaker 3: more resilience than to that aggregate demand. So I think
Speaker 3: that's a real risk. We just have to see how
Speaker 3: all of this plays out. And I have to say
Speaker 3: that the agreement's been announced, we haven't seen things signed,
Speaker 3: we haven't seen the increase in the flow of oil
Speaker 3: actually happen. Yet, we haven't got to that critical point
Speaker 3: where there has to be an agreement on all the
Speaker 3: rest of the tricky details, as you were saying before.
Speaker 3: So I think it's too soon to have any conviction
Speaker 3: that we know exactly where things are going.
Speaker 4: What would it take for you to have conviction? What
Speaker 4: do you want to hear out of this agreement where
Speaker 4: the two sides agree.
Speaker 3: On Oh, well, I think there, I just want to
Speaker 3: see the actual flow of oil happen, and then I
Speaker 3: think there are a lot of questions that happen after that.
Speaker 3: What happens to the rebuilding of inventories around the world.
Speaker 3: If people were happy with their stock of inventories before
Speaker 3: this conflict started, are they going to look at that
Speaker 3: level and go in case this ever happens again, we
Speaker 3: need to have an even bigger inventory, in which case
Speaker 3: you can see a much greater surgeon demand once things
Speaker 3: start flowing. We'll be looking at a natural gas how
Speaker 3: long will it take for the flow of the supply
Speaker 3: of natural gas to filter out around the world. The
Speaker 3: rebuild of inventories in lots of places there that's pretty
Speaker 3: seasonal can be pushed off for a while. It can't
Speaker 3: be pushed off forever. And we know that there was
Speaker 3: some damage sustained to cuttery production, and so I think
Speaker 3: there is a question about where will the market settle
Speaker 3: out once we have a clearer idea of supply and
Speaker 3: demand coming together.
Speaker 4: How do you expect the new fetcher to talk about
Speaker 4: all of.
Speaker 3: This Very cautiously. I don't think there is a lot
Speaker 3: for Kevin worsh to get out of being overly definitive here.
Speaker 3: It is a very fluid situation, and so him acknowledging that,
Speaker 3: I think makes it easier. He's been clear that too
Speaker 3: much forward guidance is probably not a good thing, and
Speaker 3: if ever that statement was true, it is right now
Speaker 3: watching all the different paths come together. Coming into this year,
Speaker 3: we were pretty constructive on the underlying momentum of the economy,
Speaker 3: and then everything, the whole discussion was overtaken by what
Speaker 3: was going on with oil markets. I think we really
Speaker 3: do need to have some really close focus on that
Speaker 3: underlying momentum before they can decide is policy really in
Speaker 3: the right place.
Speaker 1: It is Monday, which means it's marger Monday, and it
Speaker 1: comes at a time or despite some of the uncertain too,
Speaker 1: we've seen capital markets incredibly robust. Fox The latest news
Speaker 1: Fox is playing to buy Roku for one hundred and
Speaker 1: sixty dollars to share in a cash and stock deal.
Speaker 1: Goes on to say that Fox expects the deal to
Speaker 1: close the first half of twenty twenty seven, and Fox
Speaker 1: will re chain and believe about a seventy three percent
Speaker 1: control of the combined company. It comes after the SPACEXIPO,
Speaker 1: It comes ahead of a whole host of deals that
Speaker 1: people are expecting. You see bankers incredibly enthusiastic talking about
Speaker 1: how this might be a record year, a banner year
Speaker 1: in all sorts of different areas. How much does that
Speaker 1: potentially affect the feasual reserve in how they look at Marcus,
Speaker 1: how they look at financial conditions, how they look at
Speaker 1: whether they truly are restrictive.
Speaker 3: I mean, I think that's a great question, and this
Speaker 3: could be part of the shift in personnel and thinking.
Speaker 3: With Kevin Warsh as chair, you know, I would say
Speaker 3: in standard academically trained economists, somebody like Ben BERNANKI would
Speaker 3: look at everything that's going on with mergers and see
Speaker 3: that as a result of the economy and other things
Speaker 3: going on in the economy. You know, Kevin spent a
Speaker 3: lot of time talking to investors, talking to people in markets,
Speaker 3: and so could think of that overall sentiment, that the
Speaker 3: wave of M and A and that sort of thing
Speaker 3: as part of the sentiment that's going on that might
Speaker 3: be driving some of the momentum in the economy. I
Speaker 3: don't think it's going to be a watershed where it's
Speaker 3: sort of going to be all in one direction or
Speaker 3: the other. But it does come down to at times
Speaker 3: like this where you're trying to get the signal tease out,
Speaker 3: the signal of where the economy is going. Do you
Speaker 3: lean a little bit more on some data, do you
Speaker 3: lean a little bit more on other data. I think
Speaker 3: that's part of what we need to learn as we
Speaker 3: see this turnover in leadership at the FED.
Speaker 1: How much just AI driving some of the inflationary impulse,
Speaker 1: given that they are able to raise trillions of dollars
Speaker 1: of capital and invest it in assets that seem to
Speaker 1: be endlessly increasing in prices.
Speaker 3: I mean, I think there we're seeing lots of measurement
Speaker 3: questions coming up. There's this discussion of so called chipflation,
Speaker 3: but even within that, the question has the BLS always
Speaker 3: got things right between software chips in terms of the
Speaker 3: price indexes. I think the real key here for the
Speaker 3: inflationary side of things is more that overall momentum in
Speaker 3: the economy, it is undeniable how much capex spending there
Speaker 3: is going on from AI, and I think that's leading
Speaker 3: to things like more construction that's leading to a lot
Speaker 3: of imports for the chips and things like that, but
Speaker 3: it is helping to sustain the momentum of the economy.
Speaker 3: And for me, the real staying power for the inflation
Speaker 3: isn't going to be our chips price is going up.
Speaker 3: It is going to be is that momentum in the
Speaker 3: economy with a fairly low unemployment rate. Is that thing
Speaker 3: that's going to sort of keep inflation core inflation at
Speaker 3: three percent or higher.
Speaker 1: Something I was thinking about this weekend, especially as a
Speaker 1: number of the tie ups start coming to the foreign
Speaker 1: companies get bigger and bigger. Are more consolidated companies. Bigger
Speaker 1: companies good for the inflationary backdrop or bad for the
Speaker 1: inflationary path drop? Do they have greater pricing power or
Speaker 1: do they have greater efficiencies of scale they could potentially
Speaker 1: lower prices for consumer.
Speaker 3: Yeah, I think all of the above could be true
Speaker 3: and at different points of a business cycle. Right now,
Speaker 3: our sense is that we have we're getting back to
Speaker 3: a point where there's going to be a little bit
Speaker 3: more discipline with respect to the ability with all of
Speaker 3: those sorts of things pricing power, and so I think
Speaker 3: we are looking for some disinflationary paths through over time,
Speaker 3: primarily as tariffs have run their course. But we think
Speaker 3: overall we're going to settle back down to a little
Speaker 3: bit more stable inflation.
Speaker 2: Stay with us multiple imberg surveillance coming up after this.
Speaker 1: Hanata Treys of Beta Partners writing, the sixty day extension
Speaker 1: of the ceasefire with Iran is the last best chance
Speaker 1: for quote stimulus from Washington before the election. Henrita joins
Speaker 1: us now a more skeptical take, but this is what
Speaker 1: a lot of people are looking at in terms of
Speaker 1: the political backdrop and how that's influencing when this decision
Speaker 1: was being made. Why do you say the last chance
Speaker 1: at stimulus.
Speaker 5: Yeah, First of all, investors are really looking for the
Speaker 5: president to do something to use the consumer before the election.
Speaker 5: I get that question. A lot people are thinking outside
Speaker 5: the back. So we're going to get a payroll tax holiday,
Speaker 5: we're going to get gas tax suspension. And Congress left
Speaker 5: town last week and they're not coming back until the
Speaker 5: twenty third. There are, by my count, sixteen legislative days
Speaker 5: between now and the August recess, and effectively we're then
Speaker 5: in the end of September. So if there's anything that's
Speaker 5: going to happen. We've run out of time for a
Speaker 5: reconciliation bill. There is no bipartisanship to be had, as
Speaker 5: I'm sure y'all are very aware, and so if you
Speaker 5: were going to do any kind of stimulus, it needed
Speaker 5: to be in a third reconciliation bill, and Senator McConnell
Speaker 5: and Senator Collins kicked that to the curb last.
Speaker 2: Week as well.
Speaker 5: So this is as good as it gets. You know,
Speaker 5: if crude stays down in the eighty dollars range, that's great,
Speaker 5: but this is the most relief that the consumers are
Speaker 5: going to see. Pre election.
Speaker 4: Speaker Mike Johnson also called them Republicans to act on
Speaker 4: social security reform before the midterms. What is going to
Speaker 4: do the midterm election for the Republicans, They's not exactly
Speaker 4: going to work.
Speaker 5: No, that is not even remotely going to work. And
Speaker 5: also you can't touch the Social security via reconciliation, so
Speaker 5: you need to get bipartisanship. And when I talk to
Speaker 5: either Democratic staff on ways and Means or Republican staff
Speaker 5: and Senate Finance, they are actually unified in the view
Speaker 5: that nothing is going to happen. Whether that's housing, whether
Speaker 5: that's crypto Social Security and other reconciliation bill, We've got
Speaker 5: what we're going to get.
Speaker 4: When it comes to the Iran deal, potentially Congress would
Speaker 4: have to okay some of the lifting of these sanctions.
Speaker 4: And this goes back to what happened with the Obama
Speaker 4: era and the JCPOA. Do you see Congress giving a
Speaker 4: green light if this administration were to lift sanctions on Iran?
Speaker 5: That's such a fascinating dynamic. Lindsay Graham is very adamant
Speaker 5: that Congress needs to approve whatever this deal is, but
Speaker 5: all I think of is the USMCA. There's also a
Speaker 5: very adamant view amongst Senator widen Bringing, member of Senate
Speaker 5: Finance that the President needs to go through Congress in
Speaker 5: order to reaffirm the USMCA or even to withdraw, and
Speaker 5: the administration totally disagrees. So when you speak with the
Speaker 5: trade negotiators in Canada or the trade negotiators in Mexico,
Speaker 5: they'll tell you that there's a disagreement between who they
Speaker 5: talked to on the Hill and the White House. And
Speaker 5: I think the takeaway from the last eighteen months or
Speaker 5: whatever is the President is going to do what he
Speaker 5: wants to do, and he's not going to ask Congress
Speaker 5: for their approval of this deal. Yes, you will need
Speaker 5: it for sanctions relief, but they have other ways to
Speaker 5: get around it. You've seen them go to foreign nations
Speaker 5: and say, well, unfree some assets that they're held overseas.
Speaker 5: They'll find a workaround. I do not expect Congress to
Speaker 5: get to yes on any deal.
Speaker 1: This is the reason why I find the attendance of
Speaker 1: the G seven meetings so interesting this year. It isn't
Speaker 1: just the G seven leaders, it is also Middle Eastern
Speaker 1: leaders that want to have influence over this deal in
Speaker 1: certain capacities. And it's also the leaders of technology companies,
Speaker 1: including Anthropic, that are discussing some of these issues that
Speaker 1: have been circulating to the four With all of the
Speaker 1: leaders who are going to be in those rooms, what
Speaker 1: do you make of the recent crackdown on Anthropic in
Speaker 1: particular over in the UK on social media and the
Speaker 1: fact that these leaders are going to be in that
Speaker 1: room over in France.
Speaker 5: Well, it's just another opportunity for US, the EU, and
Speaker 5: NATO nations to have a completely different view of how
Speaker 5: to tax United States tech companies, how to regulate United
Speaker 5: States tech companies what they can have access to or not.
Speaker 5: And I think it kind of gets to the point
Speaker 5: you were making earlier Amory, which is they get a
Speaker 5: say here, you're not doing this in a vacuum. The
Speaker 5: EU nations, NATO nations, they don't want to communicate with
Speaker 5: Iran and have the straight be closed and have to
Speaker 5: coordinate to get to the strait of hormus. And that
Speaker 5: is what the United States has created. And with anthropic
Speaker 5: and tech issues as well, these are parts of all
Speaker 5: the trade agreements as well, whether there's taxation possibilities and
Speaker 5: that puts tariffs back front and center, and of course
Speaker 5: un July twenty third, we need to have that whole
Speaker 5: conversation all over again.
Speaker 1: Specifically with anthropic Do you think this is the first
Speaker 1: salvo in a true crackdown or a true enforcement push
Speaker 1: when it comes to the AI build out from President
Speaker 1: Trump in this administration.
Speaker 5: Yeah, I think we're just at the very start of
Speaker 5: AI regulation right now. The way I think about it
Speaker 5: is pre election and post going between now and November three,
Speaker 5: the United States public and therefore the political parties are
Speaker 5: just going to talk about affordability immediately. Thereafter all the
Speaker 5: new surge of lawmakers, of which there are sixty three.
Speaker 5: I think they are AI focused. They are regulation focused.
Speaker 5: They're going to start with the consumer and children and
Speaker 5: use that to carry a much heavier regulatory weight that
Speaker 5: I think will be the topic of the twenty twenty
Speaker 5: eight election.
Speaker 4: Were you surprised on the export controls on anthropic that
Speaker 4: we had over the weekend, Given the fact that this administration,
Speaker 4: for the most part, wanted to let AI companies have
Speaker 4: intense competition and really let the sector rip.
Speaker 5: It seems very extreme. I know that the industry is
Speaker 5: treating it's very extreme. When you have those late night,
Speaker 5: very muted details and no leaks, that's how you know.
Speaker 5: I think that something very serious is going on. But
Speaker 5: Congress is going to want a way in there. They
Speaker 5: will not at all this summer in pre election, but
Speaker 5: I think as soon as we get to November fourth,
Speaker 5: they're going to want all the information there.
Speaker 2: Stay with us. Multilemberg Savannah's coming up off to this.
Speaker 1: Liz Thomas is so far writing this. We are still
Speaker 1: in a bull market. Investors are still hungry for growth opportunities,
Speaker 1: and companies are still willing to spend to create it.
Speaker 1: Rotations can be healthy, but they are rarely smooth. Liz
Speaker 1: joins us. Now for more, Liz, great to see you,
Speaker 1: Thank you for being with us. Let's start with the
Speaker 1: concept of lower oil prices and whether that portends some
Speaker 1: sort of rotation into the areas that haven't been gaining
Speaker 1: i e. Everything other than tech, or whether this really
Speaker 1: just causes people to double down on the AI trade.
Speaker 6: Well, I think it supports the rotation that we started
Speaker 6: to see on or around June second, when we started
Speaker 6: to see the pullback in many of those big tech sectors,
Speaker 6: semiconductors in particular, and a lot of the stocks that
Speaker 6: had done so well in the three to four weeks
Speaker 6: leading up to that point. So I think lower oil
Speaker 6: prices and lower inflation expectations with emphasis on the wordecations,
Speaker 6: is going to fuel hopefully more of a rotation into
Speaker 6: some other places. That being said, obviously, the SpaceX IPO
Speaker 6: and the excitement that we saw around at, the hype
Speaker 6: that we saw around it, and frankly the success of
Speaker 6: it on Friday is driving a lot of a rebound
Speaker 6: in tech stocks today and what we'll probably see for
Speaker 6: the remainder of the week, barring any big surprises from
Speaker 6: the Federal Reserve.
Speaker 1: Lis, are you surprised that we aren't seeing a greater
Speaker 1: rally on the heels of the truce that was announced
Speaker 1: between Aroun in the US.
Speaker 6: Well, I don't think we've really had a chance yet.
Speaker 6: So it's possible that once the market opens today and
Speaker 6: if we get confirmation that this will actually reopen, the
Speaker 6: strait of horror moves because we still have to wait
Speaker 6: a few days to see that that's going to happen.
Speaker 6: I think towards the end of this week and even
Speaker 6: leading up to it, if things continue to fall in place,
Speaker 6: we will see relief in certain areas that have been
Speaker 6: struck by inflation fears, and we'll probably start to hear
Speaker 6: commentary about businesses being less concerned about inflation. But I
Speaker 6: want to make a point that I alluded to in
Speaker 6: the first statement, is that the Federal Reserve is concerned
Speaker 6: with inflation expectations. Yes, of course they look at the
Speaker 6: data as it's reported, which is backward looking, but they
Speaker 6: are also very concerned with expectations and making sure that
Speaker 6: those expectations remain anchored. So oil prices coming down certainly
Speaker 6: helps that cause and makes Kevin Worsh's job on Wednesday,
Speaker 6: slightly easier than it was without this piece deal.
Speaker 4: Yeah, it brings down the temperature just a little bit.
Speaker 4: At the same time, MRSK is saying at this stage
Speaker 4: no change is to their operations. Then the announced agreement
Speaker 4: is welcome, but they need to wait before they start
Speaker 4: moving some of these vessels through. What is going to
Speaker 4: be for you, the most important aspect of this deal
Speaker 4: to learn and you think potentially could be very bullish
Speaker 4: for the market.
Speaker 6: Well, when you look at what's most important, I think
Speaker 6: the obvious answer here is that the Strait is reopened,
Speaker 6: that oil starts to move closer to a volume that
Speaker 6: it was pre war. Yes, there have been some more
Speaker 6: barrels moving through the strait, but not nearly what the
Speaker 6: world needs. And there have been now fifteen weeks of
Speaker 6: an oil supplied disruption. It doesn't necessarily start flowing and
Speaker 6: reach its final destination very quickly. So that's why I'm
Speaker 6: sort of hedging the commentary because it's going to take
Speaker 6: a while for that supply to come back online, and
Speaker 6: there will still undoubtedly be some disruption in prices, some
Speaker 6: disruption in operations for certain businesses. MRSK being an example
Speaker 6: of a business that might be disrupted by that, at
Speaker 6: least in a short term period. So I think companies
Speaker 6: are being careful to hedge their commentary as well and
Speaker 6: make sure that they're allowing for what still could last
Speaker 6: as a price disruption for a couple months to come.
Speaker 4: As the market though, starts to put this behind behind us,
Speaker 4: and they almost have been for a few weeks now,
Speaker 4: what's kind of the biggest risk for you going to
Speaker 4: your end?
Speaker 6: The biggest risk here is that we hear some sort
Speaker 6: of commentary from tech companies that they're slowing down capex.
Speaker 6: I don't see that coming as a likely scenario. But
Speaker 6: regardless of a rotation in the market and cyclicality that
Speaker 6: might return, this market is still very dependent on the
Speaker 6: AI trade, and particularly now at this phase, on the
Speaker 6: AI trade proving productivity, proving earnings, and proving that it
Speaker 6: can start to reach into other sectors and increase productivity there.
Speaker 6: So not just benefiting the tech sector, and that's one
Speaker 6: of the reasons I've been talking about healthcare this still
Speaker 6: being a good entry point. Healthcare has seen decent return
Speaker 6: since that June second time that I talked about where
Speaker 6: technology started to pull back, But I do think healthcare
Speaker 6: can do well through the end of the year looking
Speaker 6: forward to that productivity gain, and it serves as a
Speaker 6: defensive growth sector, particularly in a time when midterm elections
Speaker 6: are coming up.
Speaker 1: Liz, how concerned would you be if there was a
Speaker 1: hawk as shift at the Fed this week on Wednesday,
Speaker 1: despite the expectation that Kevin Warrish will try to take
Speaker 1: the most devish approach to maybe each dropping the easing bias.
Speaker 6: Well, with one hike already priced into the market, I
Speaker 6: don't think that there would be too much of an
Speaker 6: overreaction in the market. I think that the Fed will
Speaker 6: do what they can to leave flexibility in the statements,
Speaker 6: much like Jerome Powell did on different occasions, trying to
Speaker 6: leave the door open to we will react however we
Speaker 6: need to given the data. I think there's actually a
Speaker 6: higher chance that Kevin Walsh has already been expected to
Speaker 6: say something hawkish, but he comes out and actually says
Speaker 6: a few things that are more dubvish. The other thing
Speaker 6: that I would be listening for on Wednesday is for
Speaker 6: him to make note of the fact that it's not
Speaker 6: just interest rate policy that they plan to affect. He
Speaker 6: has been very clear that he wants the FED balance
Speaker 6: sheet to be lower, and there is a chance that
Speaker 6: maybe they use some of those tools rather than interest
Speaker 6: rates to affect the market, So that may even be
Speaker 6: seen as a dubvish comment. If people start to price
Speaker 6: out the idea of a rate hike.
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