WEBVTT - Bloomberg Surveillance TV: June 26, 2024 0:00:02.440 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 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 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.840 Terminal and the Bloomberg Business app. 0:00:36.159 --> 0:00:39.400 Katrina Dudley of Franklin Templeton writing this, we continue to 0:00:39.400 --> 0:00:41.879 believe in a soft landing. Today's economy is better than 0:00:41.920 --> 0:00:43.360 it was at the beginning. 0:00:43.080 --> 0:00:43.440 Of the year. 0:00:43.520 --> 0:00:46.280 The one risk on the horizon is the impact of 0:00:46.320 --> 0:00:48.960 the presidential election. Katrina, I'm so pleased to say, joins 0:00:49.000 --> 0:00:51.479 us now, Katrina, Before we get to the presidential election, 0:00:51.760 --> 0:00:53.840 we have to go to the fact that we began 0:00:53.920 --> 0:00:56.040 the show saying that the runway to a soft landing 0:00:56.040 --> 0:00:58.279 skeet of narrower and narrow and you're basically coming out 0:00:58.280 --> 0:01:01.520 and saying, actually it's completely opposite, and people are getting 0:01:01.560 --> 0:01:05.120 more confident and we have complete conviction. Could you just 0:01:05.160 --> 0:01:06.920 sort of bring that together. 0:01:07.200 --> 0:01:09.319 Okay, So if we think about a soft landing and 0:01:09.319 --> 0:01:12.080 you're talking about that runway being narrower, that's just the 0:01:12.120 --> 0:01:15.200 impact of data coming into the market and informing our 0:01:15.200 --> 0:01:17.640 investment opinions. So, first of all, if we look at 0:01:17.680 --> 0:01:20.000 the beginning of the year and look at where we are. 0:01:20.160 --> 0:01:22.360 At the beginning of the year, the market was predicting 0:01:22.560 --> 0:01:25.000 six rate cuts. We were actually much lower in terms 0:01:25.040 --> 0:01:27.000 of the number of FED rate cuts, so we were 0:01:27.000 --> 0:01:30.600 actually slightly more optimistic. The market has come towards US. 0:01:30.920 --> 0:01:34.039 It's interesting though, because now soft landing is considered a 0:01:34.080 --> 0:01:37.800 bullish scenario, and I think that that really it just 0:01:37.920 --> 0:01:41.800 doesn't understand the resilience of the US economy. It doesn't 0:01:41.840 --> 0:01:45.160 also look at the fact that there are opportunities outside 0:01:45.200 --> 0:01:47.680 of the US market as well, so you look at 0:01:47.760 --> 0:01:51.120 valuations and everything. So when we look at this soft 0:01:51.200 --> 0:01:54.480 landing scenario, we're very positive. We go into the second 0:01:54.520 --> 0:01:58.000 half of the year. I think that we've got good 0:01:58.040 --> 0:02:02.000 earning support, we have a labor market that is not inflationary, 0:02:02.120 --> 0:02:04.680 and we do think that if I look at you 0:02:04.800 --> 0:02:08.520 the impact of AI and all of those things. We 0:02:08.600 --> 0:02:10.560 think it's positive for a lot of sectors. 0:02:10.639 --> 0:02:12.160 Do you think Mary Day is wrong of the San 0:02:12.160 --> 0:02:15.360 Francisco FED that this could be an inflection point and 0:02:15.360 --> 0:02:18.080 that often it's sort of nonlinear when you see some 0:02:18.200 --> 0:02:19.600 kind of weakening and a labor market. 0:02:20.360 --> 0:02:22.760 I think in terms of calling an inflection point is 0:02:22.960 --> 0:02:25.640 very very difficult because you're calling a kind of point 0:02:25.760 --> 0:02:28.000 estimate in time. And we look at the fact that 0:02:28.040 --> 0:02:31.600 you've got a FED, which we really do congratulate for 0:02:31.680 --> 0:02:35.160 the fact that they have been telegraphing so clearly what 0:02:35.200 --> 0:02:38.480 they're paying attention to. They're paying attention to inflation, and 0:02:38.520 --> 0:02:40.760 we've spent a lot of time talking about that because 0:02:40.800 --> 0:02:43.640 it's come from such high levels. They're also watching that 0:02:43.840 --> 0:02:49.080 unemployment number, but we're coming from historically low levels of unemployment, 0:02:49.280 --> 0:02:52.640 and so we can normalize unemployment and we can still 0:02:52.680 --> 0:02:53.800 have a supportive market. 0:02:54.280 --> 0:02:56.640 I want to ask about what supports that market. The 0:02:56.720 --> 0:02:59.120 environment is positive, but we're talking about a soft landing. 0:02:59.160 --> 0:03:01.640 We're not talking about some huge growth engine, or maybe 0:03:01.639 --> 0:03:04.120 correct me, maybe we are. But how do the cyclical 0:03:04.160 --> 0:03:07.440 stocks catch up if, again, it isn't this huge bout 0:03:07.440 --> 0:03:09.280 of growth, If it's just kind of this anemix off 0:03:09.400 --> 0:03:11.160 landing and anemic. 0:03:10.680 --> 0:03:12.919 Amount of growth is actually good for companies. You know, 0:03:13.040 --> 0:03:15.799 kind of a really aggressive amount of growth where you've 0:03:15.800 --> 0:03:18.880 got so many things happening, it's very difficult to plan 0:03:19.000 --> 0:03:21.799 for when you're sitting in that CEOC when you've kind 0:03:21.800 --> 0:03:25.239 of got teppered, but you've got predictable growth. I think 0:03:25.240 --> 0:03:28.200 it's much easier to plan and to forward forecast if 0:03:28.240 --> 0:03:30.240 I was to tell you that, you know, we know 0:03:30.360 --> 0:03:32.640 that things are only grow two to three percent, you 0:03:32.639 --> 0:03:35.080 can kind of get some productivity gains in order to 0:03:35.080 --> 0:03:37.200 be able to manage that, and so you can manage 0:03:37.200 --> 0:03:40.480 your cost in order to meet that revenue. When things 0:03:40.480 --> 0:03:44.120 are going your gangbusters and your market's growing ten or 0:03:44.160 --> 0:03:47.080 your revenues are growing ten fifteen percent, you're just adding 0:03:47.120 --> 0:03:50.119 bodies and you're adding cost and then you take care 0:03:50.160 --> 0:03:53.240 of the efficiency. So I do think that productivity is 0:03:53.280 --> 0:03:55.640 where we're actually going to see some upward surprises in 0:03:55.760 --> 0:03:57.680 terms of driving earnings going forward. 0:03:58.040 --> 0:04:00.240 Does this market make sense to you right now? I mean, 0:04:00.240 --> 0:04:01.920 maybe we want to strip out the n video to 0:04:01.960 --> 0:04:03.560 ask does it make sense? But okay, let's say we 0:04:03.560 --> 0:04:05.600 strip out you look at the rest of this market 0:04:05.600 --> 0:04:08.480 and market where over the past quarter it's been utilities 0:04:08.480 --> 0:04:10.200 and staples that have done well and the others have 0:04:10.280 --> 0:04:12.680 lad do you look at that and say, Okay, given 0:04:12.720 --> 0:04:14.880 we're trying to approach this landing, that all makes sense 0:04:14.960 --> 0:04:17.000 or it is something strange happening to you. 0:04:17.040 --> 0:04:20.120 So the concerns about the consumer are not new news 0:04:20.200 --> 0:04:22.640 in the last couple of weeks. I mean you talk 0:04:22.680 --> 0:04:26.200 about McDonald's for example, they were used three six months 0:04:26.200 --> 0:04:28.960 ago talking about the fact that we're seeing a shift 0:04:29.640 --> 0:04:32.680 in the consumer to being more cost conscious and what 0:04:32.720 --> 0:04:36.039 does that mean. When McDonald's sees the shift, they use data, 0:04:36.120 --> 0:04:38.280 They use a lot of technology in order to be 0:04:38.320 --> 0:04:40.840 able to forward project and they say, we are going 0:04:40.920 --> 0:04:44.480 to bring out more cost conscious offerings to meet the 0:04:44.480 --> 0:04:48.400 consumer where they're at. And that's a really key aspect 0:04:48.520 --> 0:04:50.800 of what a company needs to do. You need to 0:04:50.920 --> 0:04:53.920 understand what's going on. So we already have known that 0:04:54.080 --> 0:04:57.200 consumer has gotten more cost conscious. You're going over to 0:04:57.240 --> 0:04:59.960 the oil prices and looking at what's happening at the pump. 0:05:00.160 --> 0:05:03.040 We know that that's also starting to pressure the consumer. 0:05:03.400 --> 0:05:06.799 Interestingly enough, you know a lot of people are using 0:05:06.800 --> 0:05:10.880 the strong US dollar to travel internationally, so oil prices 0:05:10.880 --> 0:05:14.200 are actually not such a big component of the cost 0:05:14.240 --> 0:05:17.520 of travel in this you know, summer vacation series as 0:05:17.520 --> 0:05:20.000 they've been in the past. So I think that there's 0:05:20.040 --> 0:05:22.600 just a lot of dynamics going on in the market. 0:05:22.640 --> 0:05:24.640 But we look at it the fact that you've got 0:05:24.680 --> 0:05:28.240 a high end consumer supported by a strong stock market, 0:05:28.279 --> 0:05:31.760 and they're very much a driver. The middle income consumer 0:05:31.839 --> 0:05:33.960 has got a lot of good things going for them, 0:05:34.200 --> 0:05:37.200 and the lower end consumer we're paying attention to, but 0:05:37.279 --> 0:05:40.200 that strength in the job market is really positive for them. 0:05:40.240 --> 0:05:42.520 I'm glad you've got to travel because in the consumer 0:05:42.600 --> 0:05:45.880 confidence survey yesterday, one thing they did notice, even though 0:05:45.880 --> 0:05:49.560 we have seen some subdued sentiment, is that most respondents 0:05:49.600 --> 0:05:51.520 say they plan to take at least half We're saying 0:05:51.560 --> 0:05:54.600 they plan to take some sort of vacation the second half. 0:05:54.360 --> 0:05:54.800 Of the year. 0:05:55.160 --> 0:05:58.120 So does that still maintain this idea that Okay, we've 0:05:58.120 --> 0:06:00.480 seen disinflation, but services is going to be the. 0:06:00.360 --> 0:06:03.839 Most difficult services in terms of what the number involves. 0:06:03.839 --> 0:06:06.320 The biggest driver there is actually the housing market and 0:06:06.360 --> 0:06:09.040 what's happening on the rent side of things, and that's 0:06:09.080 --> 0:06:12.880 a very significant lagging indicator, and so I think that 0:06:12.960 --> 0:06:15.600 the indication there is that that number is going to 0:06:15.600 --> 0:06:17.800 come down. So we really need to pay attention to 0:06:17.839 --> 0:06:20.800 that second derivative impact. So we do think that there's 0:06:20.880 --> 0:06:24.880 less inflation there In terms of traveling abroad, it is 0:06:24.920 --> 0:06:28.640 the strength of the dollar that's really driving that. I mean, 0:06:28.920 --> 0:06:32.200 I'm heading over to London and to Portugal, and you 0:06:32.240 --> 0:06:34.360 look at the prices that we're going to be paying 0:06:34.400 --> 0:06:37.920 for accommodation, for trips and for travel, and it's significantly 0:06:38.120 --> 0:06:41.200 lower and that's a really big driver for a lot 0:06:41.240 --> 0:06:42.760 of these travel Before we let. 0:06:42.680 --> 0:06:44.159 You go, you said that the biggest risk is the 0:06:44.279 --> 0:06:47.480 election later this year. Is there are scenario in your 0:06:47.520 --> 0:06:51.240 mind about which presidential candidate could potentially be more disruptive 0:06:51.240 --> 0:06:51.840 to the market. 0:06:52.279 --> 0:06:54.560 I think the reason we talk about the fact that 0:06:54.600 --> 0:06:57.560 the presidential election is disruptive is the fact that there 0:06:57.640 --> 0:07:00.320 is no clear contender for the White House we can 0:07:00.400 --> 0:07:03.720 bank on, and you've had some data earlier to yesterday. 0:07:04.240 --> 0:07:06.520 So if I take a look at what we think 0:07:06.640 --> 0:07:09.640 is going to happen, each of them has a unique platform, 0:07:09.880 --> 0:07:11.920 and each of them has sectors of the market that 0:07:11.960 --> 0:07:14.920 will work if they're elected. And not work if they're not. 0:07:15.280 --> 0:07:18.040 And that's the uncertainty that we're talking about in terms 0:07:18.080 --> 0:07:20.680 of it's a difference in policy and the fact that 0:07:20.720 --> 0:07:24.280 you don't have a clear person that is going into 0:07:24.320 --> 0:07:27.080 the White House. As a result, what will happen is 0:07:27.080 --> 0:07:29.080 that all of the stocks will price in the fact 0:07:29.080 --> 0:07:30.960 that you're going to lose. Everyone likes to price in 0:07:31.000 --> 0:07:33.400 their downside. So we do think that once we get 0:07:33.440 --> 0:07:35.880 through the election, we'll have that kind of those games 0:07:35.880 --> 0:07:38.000 come back into the market that we see the risk. 0:07:38.240 --> 0:07:51.280 Katrina Dudley, thank you so much. Neil Dadda a macro 0:07:51.360 --> 0:07:54.880 renaissance research, a renaissance macro writing this, the Fed needs 0:07:54.880 --> 0:07:57.480 to get on with it. The rationale for cutting policy 0:07:57.560 --> 0:08:01.200 rates is quite strong. In short, unemployment is up, cor 0:08:01.240 --> 0:08:04.440 inflation is down. This is why a federal funds rate 0:08:04.560 --> 0:08:07.880 based on simple monetary policy rules that relate changes to 0:08:07.960 --> 0:08:11.920 unemployment and inflation to a policy rate, suggest cuts now, 0:08:12.080 --> 0:08:14.800 Neil joins is now, Neil, I love this idea that 0:08:14.840 --> 0:08:17.720 you're on the same page with Mike Wilson. After having 0:08:17.800 --> 0:08:20.080 quite a bit of divergence for a number of years. 0:08:20.400 --> 0:08:22.200 Why are you saying just get on with it, and 0:08:22.200 --> 0:08:24.360 why are you beating the drum right now saying as 0:08:24.400 --> 0:08:27.240 loud as you possibly can, you are making a mistake. 0:08:29.200 --> 0:08:31.640 Well, so I would say a couple of things. I mean, 0:08:31.720 --> 0:08:35.360 to me, it's just look at the realized data. You know, 0:08:35.440 --> 0:08:39.200 the unemployment rate is up. It's up about sixty basis 0:08:39.200 --> 0:08:42.640 points from it's low. It's so far it's been rising 0:08:42.679 --> 0:08:46.560 about thirty basis points every five months, which all LSEQL 0:08:46.559 --> 0:08:49.480 would imply that it would be around four point four 0:08:49.480 --> 0:08:51.480 percent per year end. That's higher than where the Fed 0:08:51.559 --> 0:08:54.120 currently thinks it's going to be. And if you look 0:08:54.120 --> 0:08:58.360 at core inflation, after some wobbling earlier this year, which 0:08:58.400 --> 0:09:01.880 I think the Fed is a little bit too concerned about, 0:09:03.200 --> 0:09:06.720 generally speaking, the trend in inflation is lower. Core PC 0:09:06.880 --> 0:09:09.080 inflation is likely to be around two and a half 0:09:09.120 --> 0:09:15.839 percent in May. And to me, it's thinking about which 0:09:15.960 --> 0:09:18.840 direction are both of these indicators going over the next 0:09:18.840 --> 0:09:22.080 six months. What's the risk for unemployment? Is it higher 0:09:22.200 --> 0:09:24.360 or lower from here? I mean, with initial job this 0:09:24.520 --> 0:09:28.480 claims rising and the hiring rate low, I think the 0:09:28.600 --> 0:09:31.079 risk is that the unemployment may rise a little bit, 0:09:31.160 --> 0:09:33.320 not a lot, but a little bit from here. And 0:09:33.400 --> 0:09:37.880 with respect to core inflation. There's still a significant amount 0:09:37.920 --> 0:09:40.720 of disinflation in the pipeline, and Powell's going around worrying 0:09:40.720 --> 0:09:44.199 about import prices. The dollars basically running it year today highs. 0:09:44.240 --> 0:09:47.200 That's going to put downward pressure on imported consumer good prices. 0:09:48.480 --> 0:09:51.360 We know that things like used car prices have more 0:09:51.440 --> 0:09:56.120 room to deflate over the summer. New car prices are 0:09:56.160 --> 0:10:00.240 already declining year over year, and auto adjacent service is 0:10:00.360 --> 0:10:04.080 like maintenance, repair, motor vehicle insurance, those will continue to 0:10:04.160 --> 0:10:04.640 come down. 0:10:05.000 --> 0:10:07.360 Well, I just want to break in. No, I just 0:10:07.400 --> 0:10:09.280 want to break in here because I understand all of 0:10:09.320 --> 0:10:10.959 these points, and I think that they're valid points, and 0:10:10.960 --> 0:10:13.840 I would love to talk extensively about each individual one, 0:10:13.960 --> 0:10:16.280 especially in light of the fact that inflation came in 0:10:16.320 --> 0:10:19.000 hotter than expected in Canada, came in hotter than expected 0:10:19.040 --> 0:10:22.240 in Australia, and some people are arguing that some of 0:10:22.280 --> 0:10:25.079 these indicators are going to reverse into next year, especially 0:10:25.120 --> 0:10:27.520 if rates come down. I'm thinking of housing in particular. 0:10:27.840 --> 0:10:30.560 How do you assuage those concerns, especially given the readings 0:10:30.559 --> 0:10:32.600 we got in Australia as well as Canada. 0:10:33.200 --> 0:10:35.440 Well, come on, Lisa, you're cherry picking some of the data. 0:10:35.440 --> 0:10:37.720 I mean this is after I mean Canada's cutting because 0:10:37.760 --> 0:10:40.080 the inflation numbers were coming in better than expected a 0:10:40.080 --> 0:10:42.319 few months ago, so we're going to I mean, look, 0:10:42.360 --> 0:10:44.080 I mean these numbers have in play. You have to 0:10:44.600 --> 0:10:47.520 you have to have a fundamental framework for why the 0:10:47.640 --> 0:10:49.960 data will move the way they do. You can't just 0:10:50.040 --> 0:10:52.480 be a slave to the high frequency numbers as they 0:10:52.520 --> 0:10:55.480 come in, because that's a recipe for making a mistake. 0:10:55.520 --> 0:10:58.000 You have to actually have a fundamental framework for how 0:10:58.040 --> 0:11:01.959 these things will operate. Where's the upward inflation surprise coming from. 0:11:02.240 --> 0:11:04.440 I mean, if the Fed's cutting, you know, it's interesting 0:11:04.480 --> 0:11:06.880 financial conditions people are making that argument, Well, if the 0:11:06.880 --> 0:11:10.199 fedies's financial conditions will ease, growth will pop and so forth. 0:11:10.360 --> 0:11:13.080 Look at mortgage purchase applications, Lisa, I mean, yeah, the 0:11:13.160 --> 0:11:16.040 fact that rates have been already coming down. If you 0:11:16.040 --> 0:11:18.720 look at ten year yeelds, they've generally been falling. What's 0:11:18.760 --> 0:11:21.360 that done for purchase applications? Well, not much of anything, 0:11:21.559 --> 0:11:22.480 not much of anything. 0:11:22.600 --> 0:11:24.080 The other thing is is that when you talk about 0:11:24.160 --> 0:11:26.960 cherry picking data, you could cherry pick data any which 0:11:27.000 --> 0:11:29.080 way and you could tell a different story. It's not 0:11:29.160 --> 0:11:32.320 as if there's one overarching narrative that dominates. So it 0:11:32.360 --> 0:11:35.400 seems like you've coalesced around one set of data that 0:11:35.520 --> 0:11:37.760 is more important to you than say, all of the 0:11:37.840 --> 0:11:41.480 perspectives that we're getting from say carnival with travel picking up, 0:11:41.559 --> 0:11:45.360 the idea of you know, certain, you know, retail sales 0:11:45.440 --> 0:11:46.080 picking up. 0:11:46.360 --> 0:11:51.559 Why only data that matters, Lisa is unemployment. You three unemployment, 0:11:52.280 --> 0:11:56.280 which is you know, in a wide body of FED 0:11:56.360 --> 0:11:59.880 research as these single best labor market statistics that we have. 0:12:00.400 --> 0:12:03.240 That was a comment from Janet Yellen back in twenty thirteen. 0:12:04.280 --> 0:12:10.160 Unemployment and core inflation, those are the indicators that are 0:12:10.160 --> 0:12:16.160 in the FEDS SCP. You want to talk about carnival, Okay, 0:12:16.280 --> 0:12:19.480 for every carnival there's a pool, Okay, a fewer home renovations. 0:12:19.480 --> 0:12:22.320 For every carnival there's a home depot. Okay. You know, 0:12:22.440 --> 0:12:25.000 So you know, it's sort of let's focus on what's 0:12:25.000 --> 0:12:27.840 in the Summary of Economic Projections. That's ultimately how you 0:12:27.880 --> 0:12:32.080 back out the Fed's reaction function in that In those 0:12:32.120 --> 0:12:36.679 projections are unemployment, core inflation. You know, you want to 0:12:36.720 --> 0:12:39.439 talk about economic growth, they look at real GDP as well. 0:12:39.840 --> 0:12:41.720 Tell me what is the I mean, the right tail 0:12:41.760 --> 0:12:44.559 for economic growth has basically been clipped. I don't really 0:12:44.559 --> 0:12:47.120 see much upside right now. I think growth is running 0:12:47.120 --> 0:12:49.440 at about two Maybe you can talk me into two 0:12:49.480 --> 0:12:51.520 and a half percent. I wouldn't be letting my hair 0:12:51.520 --> 0:12:54.360 on fire around recession, but there's not much upside risk. 0:12:54.559 --> 0:12:56.719 Well, they let me up into this because I think 0:12:56.760 --> 0:12:59.440 this discussion in itself just really hones in on the 0:12:59.480 --> 0:13:02.600 point that people can come away with different ideas. Whether 0:13:02.679 --> 0:13:04.000 or not you think it's the right one is a 0:13:04.000 --> 0:13:07.079 different discussion. But the FED is doing just that. Neil, 0:13:07.240 --> 0:13:09.040 I'm sure you would agree with Mary Daily about the 0:13:09.080 --> 0:13:12.960 inflection point of unemployment and of the labor market. But 0:13:13.200 --> 0:13:16.800 for every Daily there is a Bowman who says that 0:13:16.880 --> 0:13:20.000 inflation could go higher and that they could be hiking. So, 0:13:20.080 --> 0:13:22.200 in your view, if the FED is, for some of 0:13:22.200 --> 0:13:25.520 them setting rhetoric to yesterday's problem, when we do get cuts, 0:13:25.920 --> 0:13:27.079 how violent does it look? 0:13:28.920 --> 0:13:31.840 Well, I mean right now, if all we're doing is 0:13:31.880 --> 0:13:34.200 just waiting on a few more months of inflation data, 0:13:34.280 --> 0:13:36.400 then it won't look that violent at all. I mean, 0:13:36.440 --> 0:13:39.880 I think they could probably be talked into a cut 0:13:39.920 --> 0:13:43.440 in September. Someone like Bowman if the inflation data continue 0:13:43.480 --> 0:13:47.120 to sort of do what they did in May through 0:13:47.200 --> 0:13:49.959 the summer, then I think it'll be very difficult for 0:13:50.280 --> 0:13:52.480 even the hawks on the committee not to at least 0:13:52.960 --> 0:13:55.840 make a nod to cutting over the summer. And you know, 0:13:55.920 --> 0:13:58.640 folks like Governor Waller, I mean, all they're really doing, 0:13:58.760 --> 0:14:01.199 I think is just following last few months of data. 0:14:01.240 --> 0:14:04.280 That's kind of setting their tone. So if you know so, 0:14:04.320 --> 0:14:06.800 in other words, their rhetoric is somewhat conditional. So if 0:14:06.840 --> 0:14:11.040 the data changes and their rhetoric quickly changes, then I 0:14:11.080 --> 0:14:13.360 think things will be okay. Now, if that doesn't happen, 0:14:13.400 --> 0:14:16.520 it could be a problem. I will say that I 0:14:16.559 --> 0:14:19.760 do think that, you know, we'll get another soft June 0:14:20.320 --> 0:14:23.440 you know inflation report that'll be coming out I think 0:14:23.760 --> 0:14:26.880 in a couple of weeks time. And as that happens, 0:14:28.080 --> 0:14:29.880 you know, I think the doves on the committee are 0:14:29.920 --> 0:14:31.920 going to be fighting tooth and nail to make a 0:14:31.960 --> 0:14:34.680 more sort of meaningful signal at the July form CEA meeting. 0:14:34.760 --> 0:14:36.160 So that's kind of what I'm looking for. 0:14:36.560 --> 0:14:50.640 Neil Dota Vertisov's background Jason Drahe of UBS alongside Florini 0:14:50.800 --> 0:14:53.840 Rici of t RO Price Ballerina, I want to start 0:14:53.840 --> 0:14:56.440 with you. You had a call basically saying people are 0:14:56.520 --> 0:14:59.200 overly sanguine about how quickly the FED could cut rates. 0:14:59.280 --> 0:14:59.960 Why do you say that? 0:15:01.600 --> 0:15:03.920 Well, I think when I look at the US economy, 0:15:04.040 --> 0:15:06.400 I don't see a lot of reason for concern and 0:15:06.480 --> 0:15:10.360 for a sharp deceleration. And then on the inflation side, 0:15:10.800 --> 0:15:14.560 we have had some progress, but the FED chair has 0:15:14.640 --> 0:15:17.240 made it very clear that they have a different reaction 0:15:17.400 --> 0:15:20.680 function to say the ECB. For Powell, the first cut 0:15:20.760 --> 0:15:23.920 is consequential. They want to have confidence by the time 0:15:23.960 --> 0:15:27.120 they cut they will deliver a series of them rather 0:15:27.160 --> 0:15:30.160 than one and done and see how the economy plays out. 0:15:30.440 --> 0:15:33.560 So in this context, I don't see the rush. I 0:15:33.640 --> 0:15:37.800 see them as playing with this patient approach, getting more 0:15:37.840 --> 0:15:41.280 confidence on inflation and getting a clear signal that the 0:15:41.320 --> 0:15:44.160 economy is really decelerating, which I don't see right now 0:15:44.200 --> 0:15:44.920 in the data. 0:15:45.000 --> 0:15:46.080 Jason, do you agree? 0:15:46.720 --> 0:15:48.760 I would agree. I think the market's are pretty sanguine 0:15:48.760 --> 0:15:51.280 about it because the Fed's been able to wait because 0:15:51.320 --> 0:15:53.200 the economy is strong. You think about where we were 0:15:53.200 --> 0:15:55.800 in mid January. The market was pricing nearly seven cuts, 0:15:55.800 --> 0:15:58.080 including the first one in March. Now we are a 0:15:58.160 --> 0:16:01.120 little under two cuts for this year, first one maybe September, 0:16:01.200 --> 0:16:03.640 and the S andp's at fifteen percent, largely because growth 0:16:03.640 --> 0:16:06.680 expectations have improved. Earnings expectations have gone up. So if 0:16:06.680 --> 0:16:08.720 the Fed's waiting because growth is strong, that's not a 0:16:08.760 --> 0:16:10.640 bad thing for the markets. I think the path thereafter 0:16:10.720 --> 0:16:12.640 is kind of uncertain, But the timing I think is 0:16:12.680 --> 0:16:15.960 less relevant for the markets. If the economy is doing fine, the. 0:16:15.880 --> 0:16:18.520 Timing is less relevant for the markets. But what about 0:16:18.680 --> 0:16:21.120 the magnitude. We've been having this discussion really for the 0:16:21.160 --> 0:16:24.240 past week about a broadening out. What magnitude of cuts 0:16:24.240 --> 0:16:26.760 do you need for things like small caps for the 0:16:26.760 --> 0:16:29.480 more cyclical parts of the market to actually become attractive again. 0:16:29.720 --> 0:16:31.800 So it's interesting. I think the consensus views clearly among 0:16:31.880 --> 0:16:33.880 investors that we're going to have a soft landing. I 0:16:33.880 --> 0:16:36.000 think there's lower conviction that the soult flane's going to 0:16:36.000 --> 0:16:38.720 exist of solid growth, disinflation and if they can do 0:16:38.760 --> 0:16:42.600 insurance cuts. To think about what happened last November when 0:16:42.880 --> 0:16:45.000 inflation came lower. You had some FED officials out there 0:16:45.000 --> 0:16:48.120 talking about maybe we can proactively cut that's when small caps, 0:16:48.120 --> 0:16:50.520 that's when cyclicals really rally for about two months now, 0:16:50.520 --> 0:16:52.120 it's a little bit concerned, Well, maybe the Fed's going 0:16:52.160 --> 0:16:53.400 to come to the party a little too late and 0:16:53.440 --> 0:16:55.400 cut their rates. So I think the market needs to 0:16:55.400 --> 0:16:57.760 be comfortable that this whole sort of really benign macro 0:16:57.800 --> 0:16:59.760 conditions can play out to really want to rotate away 0:16:59.800 --> 0:17:02.360 from the quality growth tech talks that have done well 0:17:02.600 --> 0:17:04.320 and broad note and to look to these more cyclical 0:17:04.359 --> 0:17:06.240 parts of the market that probably will happened for a 0:17:06.280 --> 0:17:07.280 few months at this point. 0:17:07.080 --> 0:17:08.760 In time, Wene, I want to bring that idea to 0:17:08.800 --> 0:17:11.920 you that Jason mentioned, this idea that is the FED 0:17:12.280 --> 0:17:14.359 going to be late to the party, Because while for 0:17:14.480 --> 0:17:16.880 every dove like a daily that talks about the fact 0:17:16.880 --> 0:17:19.240 that the label market is termed, there is a bowman 0:17:19.280 --> 0:17:21.679 who talks about the fact that inflation could rear its 0:17:21.720 --> 0:17:25.360 head and that would mean potentially another hike. Is there 0:17:25.400 --> 0:17:27.520 a risk of a policy error at that point when 0:17:27.560 --> 0:17:30.000 you can still hear that type of language as there 0:17:30.000 --> 0:17:32.200 are other metrics that start to soften. 0:17:33.400 --> 0:17:37.840 I think this kind of language and talking about possibilities 0:17:37.840 --> 0:17:41.760 and risk scenarios is actually quite helpful. It does prepare 0:17:41.840 --> 0:17:46.280 investors to better understand the FED reaction function. I do 0:17:46.359 --> 0:17:49.760 think that the bar to say hiking interest rates again 0:17:49.880 --> 0:17:53.800 is pretty high. It doesn't it comes with accelerating inflation. 0:17:54.040 --> 0:17:57.880 But that would only happen is if the economy itself 0:17:58.280 --> 0:18:02.240 is resilient and growth is reactrating. We're having here persistent 0:18:02.280 --> 0:18:06.200 in inflation in the US economy because demand is resilient. 0:18:06.480 --> 0:18:09.440 I don't think we're seeing the kind of cost push 0:18:09.480 --> 0:18:13.600 wage inflation spiral. So I think this is important to understand. 0:18:13.840 --> 0:18:17.360 And then I hear a lot of talk about the 0:18:17.480 --> 0:18:21.040 unemployment rate and the recent increase. I would say that 0:18:21.119 --> 0:18:24.680 the unemployment rate is a very good summary statistic, it's 0:18:24.760 --> 0:18:28.119 very important, it's the FEDS target, and so on. But 0:18:28.240 --> 0:18:31.239 this debate, I think ignores the fact that there is 0:18:31.680 --> 0:18:36.520 some uncertainty about how reliable our household labor market data 0:18:36.640 --> 0:18:42.240 versus establishment data. Are we undercounting population growth and immigration 0:18:42.400 --> 0:18:45.040 growth in the US? And I think this will all 0:18:45.119 --> 0:18:49.000 feature into the Fed's reaction function and their decision making. 0:18:49.320 --> 0:18:51.600 You know, I think from both of you, you're hearing 0:18:51.680 --> 0:18:53.480 a lot of strength. You're looking at a lot of 0:18:53.520 --> 0:18:57.000 strength in the economy, And Jason, to that point, why 0:18:57.000 --> 0:19:00.239 aren't we seeing that conviction markets yes, we're seeing all 0:19:00.320 --> 0:19:03.280 time highs, but we've been talking about all week. It's 0:19:03.320 --> 0:19:05.119 really on the heels of a couple of names or 0:19:05.160 --> 0:19:08.840 one name. It's not any kind of convicted sort of 0:19:09.080 --> 0:19:10.240 under the hood rally. 0:19:10.480 --> 0:19:12.080 So I think if you look at market performance over 0:19:12.080 --> 0:19:14.320 the past say roughly six weeks, it's interesting because the 0:19:14.359 --> 0:19:16.760 tech sector is up for a lot, NASDAK is up 0:19:16.840 --> 0:19:18.600 as a result, S and P is up, but things 0:19:18.640 --> 0:19:21.200 like the small cap index, the Rustle one thousand value, 0:19:21.200 --> 0:19:23.280 they're actually flat lining a team. That's the signal that 0:19:23.440 --> 0:19:25.480 the market is kind of skeptical about the growth story, 0:19:25.640 --> 0:19:27.520 and as valuations go high, as the market kind of 0:19:27.520 --> 0:19:29.480 goes higher, there's an issue where like do you actually 0:19:29.480 --> 0:19:32.160 want to chase that performance because again, maybe the growth 0:19:32.200 --> 0:19:33.880 is low and we don't know. We've seen the data, 0:19:34.040 --> 0:19:36.200 especially for the past eight weeks economic data surprise to 0:19:36.280 --> 0:19:38.880 the downside. We don't know. Is this asimp toating sort 0:19:38.920 --> 0:19:40.359 of like kind of a self learning or is it 0:19:40.400 --> 0:19:42.119