WEBVTT - Inflation Data Moves Markets 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.119 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:47.160 the Bloomberg Terminal, and the Bloomberg Business App. Long ago 0:00:47.200 --> 0:00:49.440 and far away, folks, a guy named Farrell was at 0:00:49.479 --> 0:00:52.440 Merrill Lynch with Rosenberg, and between the two of them 0:00:52.479 --> 0:00:55.560 it was two required reads every week. And with Rosenberg 0:00:56.040 --> 0:00:58.640 on page three or four, it was a vertical column 0:00:59.160 --> 0:01:04.160 slicing in inflation like no one down the street. Absolutely, 0:01:04.200 --> 0:01:08.240 no one did it or does it like David Rosenberg. David, 0:01:08.319 --> 0:01:11.640 what is the character the nature of our disinflation? 0:01:13.680 --> 0:01:17.800 Well, inflation like any other price, and of course inflation 0:01:17.959 --> 0:01:21.040 is a changing price. Is not the level always going 0:01:21.080 --> 0:01:24.400 to be dictated by the shape of the demand of 0:01:24.440 --> 0:01:28.199 supply curves in the economy and how those curves are moving. 0:01:29.200 --> 0:01:31.680 So you know, what we're seeing happening, and especially in 0:01:31.680 --> 0:01:35.000 the labor market, is those demand of supply curves are 0:01:35.040 --> 0:01:40.280 moving in a decisive disinflationary pattern. And so that's what 0:01:40.280 --> 0:01:43.800 I'm looking at right now, just how these demand supply 0:01:43.880 --> 0:01:48.240 curves are shifting and as I said, shifting way towards 0:01:48.240 --> 0:01:50.560 lower wage inflation and price inflation in general. 0:01:50.840 --> 0:01:53.680 Some people don't know where those curves are. Some people 0:01:53.760 --> 0:01:56.720 look at them at Little Marshall and Cross. What I'm 0:01:56.760 --> 0:02:00.320 going to suggest you is that's not true. But there 0:02:00.360 --> 0:02:05.200 are times where accelerative tendencies or convexity can move. Is 0:02:05.280 --> 0:02:08.760 supply moves or demand moves. Are we at a point 0:02:08.800 --> 0:02:12.080 where we get jump conditions in disinflation to a much 0:02:12.120 --> 0:02:12.880 lower set. 0:02:15.000 --> 0:02:18.200 Well, the best way I can answer that is almost 0:02:18.280 --> 0:02:24.680 a paraphrase what j Powell said at the podium after 0:02:24.840 --> 0:02:27.959 the lst FMC meeting. You know where he said that 0:02:28.040 --> 0:02:30.800 recession is not the FEDS base case scenario. He's not 0:02:30.840 --> 0:02:35.639 concerned about a collapsing economy. But he talked incessantly about 0:02:36.040 --> 0:02:38.519 the widening slack that we're seeing in the labor market. 0:02:39.919 --> 0:02:42.040 And that's ultimately going to be one of the key 0:02:42.120 --> 0:02:46.040 elements behind any inflation or disinflation. So it's very interesting 0:02:46.160 --> 0:02:49.000 that while he remained a bit of a cheerleader for 0:02:49.080 --> 0:02:52.520 the economy, he's noting that they're getting more comfortable, getting 0:02:52.560 --> 0:02:58.520 more confident over the disinflation. But the emphasis on slack 0:02:58.600 --> 0:03:02.840 emerging the labor market me was very key, and I 0:03:02.880 --> 0:03:05.600 think that what he's really signaling here is that we 0:03:05.720 --> 0:03:08.400 are saying, and whether it's because the productivity numbers have 0:03:08.520 --> 0:03:13.720 consistently come in other than expected and the immigration boom 0:03:13.760 --> 0:03:17.440 that supported population growth and the labor force participation rate, 0:03:18.520 --> 0:03:22.440 that we've had a shift in the supply curve even 0:03:22.480 --> 0:03:25.800 as demand is hung in. Now demand growth isn't what 0:03:25.840 --> 0:03:28.880 it was, say twelve twenty four to thirty six months ago, 0:03:29.000 --> 0:03:32.160 with all the stimulus, but demand growth is holding in. 0:03:32.639 --> 0:03:35.840 But we have a situation where perhaps demand growth is 0:03:35.880 --> 0:03:38.520 running at say two and a half percent on a trend, 0:03:39.520 --> 0:03:43.119 but what if that's bumping against a supply curve that's 0:03:43.160 --> 0:03:46.240 closer to four percent. So all of a sudden, what 0:03:46.280 --> 0:03:49.560 we view as real GDP growth, which is the proxy 0:03:49.600 --> 0:03:52.320 for agrid demand, what looks like two to two and 0:03:52.360 --> 0:03:55.920 a half percent today benchmarked against what the supply curve 0:03:56.000 --> 0:03:58.640 is doing in the economy is almost what zero was, 0:03:59.320 --> 0:04:02.000 say ten to one of your thirty years ago. So 0:04:02.040 --> 0:04:05.000 that's really what's important here, is every single widening gap 0:04:05.080 --> 0:04:10.400 between the growth in every command benchmarked against acurate supply. Right, 0:04:10.520 --> 0:04:14.320 that's on without a recession, you've had cornflation for all 0:04:14.360 --> 0:04:18.720 to talk about sticky, sticky, sticky cornflations come down by 0:04:19.000 --> 0:04:20.599 one hundred and fifty basis points. 0:04:20.680 --> 0:04:23.000 You know, David and Paul Sweeney were at seven o 0:04:23.120 --> 0:04:26.120 eight am at Wall Street time, and where our heads 0:04:26.120 --> 0:04:29.599 are breaking over price theory with David Rosenberg. But the 0:04:29.680 --> 0:04:32.279 answer is all of the Foreign Affairs article in China. 0:04:32.680 --> 0:04:34.760 There's a lot of supply out there. There's a lot 0:04:34.760 --> 0:04:36.680 of Maybe that's what's bringing prices down. 0:04:36.560 --> 0:04:39.200 A lot of supply out there. David, what did the 0:04:39.880 --> 0:04:42.720 what's the labor market telling us about this economy here? 0:04:42.760 --> 0:04:44.880 I mean the market really got freaked out a week 0:04:44.880 --> 0:04:48.120 ago Friday about some of those labor data. 0:04:50.600 --> 0:04:54.720 Well, I don't think that you know, the stock market 0:04:55.440 --> 0:04:58.120 as a stem alone number should have freaked out. I 0:04:58.360 --> 0:05:02.480 was not surprised by the reaction, and the treasury market 0:05:02.880 --> 0:05:05.960 was not surprised at ten year yields on that day 0:05:06.040 --> 0:05:09.200 closed just below four percent, and we were down about 0:05:09.839 --> 0:05:12.000 at least ten basis points that day. I mean, that 0:05:12.040 --> 0:05:16.440 didn't surprise me because we saw a headline number below 0:05:16.480 --> 0:05:21.160 expected downward revisions. The unemployment rate rose. Now you can 0:05:21.160 --> 0:05:23.480 debate us whether or not that's a weather report or not. 0:05:23.600 --> 0:05:27.560 The BLS said that the hurricane had just a marginal impact, 0:05:28.000 --> 0:05:30.480 but you had widening slack in the labor market and 0:05:30.600 --> 0:05:35.159 wage growth continued to recede. So this was just a 0:05:35.200 --> 0:05:38.320 schmorgas board, a very benevolent events as far as the 0:05:38.360 --> 0:05:43.360 treasure market was concerned. Was it a recessionary statistic, although 0:05:43.400 --> 0:05:47.360 I'm still in the recession camp. It's been a long wait. No, 0:05:47.560 --> 0:05:52.120 But it was certainly a disinflationary report, and that's what 0:05:52.160 --> 0:05:54.400 the bond market had to see. And you see, the 0:05:54.480 --> 0:05:58.240 thing is that the Non Farm and Household Survey came 0:05:58.240 --> 0:06:01.520 out exactly two days after the foi C meeting. Now, 0:06:01.600 --> 0:06:04.680 I would posit that if J. Powell didn't concentrate so 0:06:04.760 --> 0:06:07.200 much of his attention on the other part of the 0:06:07.279 --> 0:06:10.640 dual mandate, which is a labor market, where he talked 0:06:10.640 --> 0:06:14.440 about that incessantly from the podium. Then maybe the market 0:06:14.480 --> 0:06:18.320 reaction wouldn't have been so acute, especially in the bond market. 0:06:18.839 --> 0:06:23.200 But he told you where his attention is shifting, and 0:06:23.360 --> 0:06:27.080 so that's what made the employment number so much more important. 0:06:27.600 --> 0:06:31.320 But it really reinforced his message that even without the 0:06:31.360 --> 0:06:36.359 economy collapsing, we are seeing widening disinflationary slack converged in 0:06:36.360 --> 0:06:38.440 the labor market. And that's all you really have. 0:06:38.320 --> 0:06:41.120 To now, David folded into the stock market, which you 0:06:41.200 --> 0:06:43.520 do so well, and I want you to fold in. 0:06:43.560 --> 0:06:48.200 The idea of nominal GDP comes in because inflation comes 0:06:48.240 --> 0:06:52.719 in in a Rosenberg flash fashion. Maybe real GDP's QUI 0:06:52.920 --> 0:06:56.360 scenter solid or comes in and all of a sudden, 0:06:56.400 --> 0:07:00.919 corporations are struggling for revenue growth. Alohol Depot is that 0:07:01.000 --> 0:07:02.560 our twenty twenty. 0:07:02.200 --> 0:07:07.320 Five Well, it probably is, because what was important about 0:07:07.320 --> 0:07:11.600 home Depot wasn't what they said about their current sale, 0:07:11.640 --> 0:07:16.679 the very weak guidance that they provided that was really 0:07:16.720 --> 0:07:20.840 I think the source of disappointment today. And it's following 0:07:20.840 --> 0:07:26.640 a string of companies, primarily in the consumer space, which 0:07:26.720 --> 0:07:31.120 are really struggling, and all the eyes of course are 0:07:31.160 --> 0:07:36.400 on technology and the general of AI wave and technology 0:07:37.000 --> 0:07:40.680 call it over thirty percent of the stock market, a 0:07:40.760 --> 0:07:45.920 much lower share of the economy. And what's important, I 0:07:45.960 --> 0:07:49.760 think from I guess a macro perspective taking the queue 0:07:49.760 --> 0:07:53.560 from the stock market, is that the only sector among 0:07:53.600 --> 0:07:56.120 the eleven s and P five hundred sectors this year 0:07:56.160 --> 0:08:01.600 that's in the red is consumer discretionary, which may be 0:08:01.800 --> 0:08:05.800 less than ten percent of the stock market capitalization. It 0:08:05.840 --> 0:08:09.120 doesn't get that much attention because everybody is just focused 0:08:09.120 --> 0:08:15.240 on the sex that's provided by the technology sector. But 0:08:15.400 --> 0:08:19.960 discretionary consumer spending is forty percent of GDP. And so 0:08:20.000 --> 0:08:22.280 what the stock market is telling you for all the 0:08:22.360 --> 0:08:25.160 naysayers out there a both because the recession hasn't come, 0:08:25.320 --> 0:08:29.360 therefore it's never going to come. But you have a 0:08:29.360 --> 0:08:32.800 disconnect between the components of the stock market, their shares 0:08:33.000 --> 0:08:34.400 and the shares that actually are. 0:08:34.320 --> 0:08:35.599 In the economy. 0:08:35.760 --> 0:08:39.400 So the consumer discretionary space being the only sector down 0:08:39.880 --> 0:08:43.400 but the dominant force in domestic demand I think is 0:08:43.480 --> 0:08:46.480 a red flag as far as the economic goal look 0:08:46.559 --> 0:08:47.120 is concerned. 0:08:47.679 --> 0:08:50.520 So, David, how do you view the US consumer I mean, 0:08:50.559 --> 0:08:53.079 I guess it's hard to even say there is a 0:08:53.120 --> 0:08:55.600 common consumer out there. There seems to be many strata 0:08:55.840 --> 0:08:59.880 out there. How would you characterize consumer demand out there? 0:09:00.800 --> 0:09:03.360 Well, you know, everybody's talking about the K shaped economy, 0:09:03.800 --> 0:09:05.920 but you are even starting to see some of the 0:09:05.960 --> 0:09:09.600 strains emerge in the higher end. And the higher end 0:09:09.800 --> 0:09:12.680 has been held up because they're not as dead heavy 0:09:13.040 --> 0:09:15.559 as low and middle income households. They're not as dead heavy, 0:09:15.600 --> 0:09:19.080 therefore not as vulnerable to the interst rate shot of 0:09:19.120 --> 0:09:22.600 the past couple of years. And of course they've benefited 0:09:22.640 --> 0:09:25.439 from the wealth effect from what the stock market has 0:09:25.440 --> 0:09:28.120 given them, and now the stock market seems to be 0:09:28.160 --> 0:09:31.800 topping out. But in the end, recessions are caused by 0:09:32.120 --> 0:09:35.640 slight changes at the margin, and you're seeing those strains 0:09:35.679 --> 0:09:39.040 really emerge amongst low income households, which spend one hundred 0:09:39.040 --> 0:09:42.560 percent of their income. And I think, actually, you know, 0:09:42.600 --> 0:09:46.880 the biggest bombshell was what Brian moynihan said on Facination 0:09:47.040 --> 0:09:52.080 on Sunday, Because you know, these bank CEOs, let's face it, 0:09:52.080 --> 0:09:55.679 they're normally a pretty cheery bunch, but he's talking about 0:09:55.720 --> 0:09:59.600 their sample size, Oh, of only sixty million consumer accounts. 0:10:00.080 --> 0:10:03.440 Hillis Ergo the other consumer bank, and he didn't just 0:10:03.480 --> 0:10:06.600 say that consumer spending is slowing. He said, it's slowing sharply. 0:10:07.280 --> 0:10:09.160 And you have all these other economists and I know 0:10:09.200 --> 0:10:11.520 they show up on your show, is talking about oh well, 0:10:12.160 --> 0:10:15.200 traffic at airports and traffic at restaurants and traffic at 0:10:15.240 --> 0:10:18.560 theme parks. Everything's fine. And that was laid to rest 0:10:18.600 --> 0:10:21.679 by Brian Monahan, who said, oh, yes, for sure, traffic 0:10:21.760 --> 0:10:26.520 is strong. But here's the problem is that spending spending 0:10:26.800 --> 0:10:27.520 per person. 0:10:28.000 --> 0:10:29.360 Yeah, I'll take that down. 0:10:29.880 --> 0:10:33.160 Also, stop by the way, traffic doesn't go into GD right. 0:10:33.160 --> 0:10:36.160 But to put a bow on this, and I want 0:10:36.160 --> 0:10:38.120 to get your market conviction here of what you're doing 0:10:38.160 --> 0:10:41.439 if you're not all in cash. But to mister Moinianne's point, 0:10:41.760 --> 0:10:46.080 revenue is price dynamics in unit dynamics, and so in 0:10:46.120 --> 0:10:50.160 the airline business they're popping unit dynamics nicely. But the 0:10:50.200 --> 0:10:53.880 prediction here has to be a Rosenberg like price drifts away. 0:10:54.080 --> 0:10:55.400 There's no pricing power. 0:10:55.440 --> 0:10:59.760 Is there no pricing power? And you know, there's obviously 0:11:01.240 --> 0:11:03.120 a bit of a disconnect. I've got to say I'm 0:11:03.160 --> 0:11:07.440 not a conspiracy theorist, but the government data have been 0:11:07.559 --> 0:11:11.240 so far off. The more anecdotal survey data, and of 0:11:11.240 --> 0:11:14.920 course what corporate executives have been saying, and what about 0:11:14.960 --> 0:11:17.040 the Beige Book? And I was actually hardened by the 0:11:17.080 --> 0:11:19.640 fact that at least J Pebbell gave some lip service 0:11:19.679 --> 0:11:23.240 to the base Book, which is the most comprehensive, albeit 0:11:23.440 --> 0:11:26.520 non data assessment of the US economy that comes with 0:11:26.600 --> 0:11:27.400 every six weeks. 0:11:27.400 --> 0:11:28.280 And you're a hundred. 0:11:28.000 --> 0:11:31.320 Percent right, Tom, Every single basebook this year, even during 0:11:32.000 --> 0:11:35.679 that temporary inflation blift caused by insurance costs beginning of 0:11:35.720 --> 0:11:37.959 the year that caused the FED to sort of step back, 0:11:39.160 --> 0:11:43.319 every single bag book is talking about an ongoing loss. 0:11:43.080 --> 0:11:45.760 Of corporate pricing power. And of course you're not about 0:11:45.760 --> 0:11:46.400 pricing power. 0:11:46.679 --> 0:11:49.360 It's not about levels, and it's the bomb. Market does 0:11:49.400 --> 0:11:52.880 not respond to levels, the responds to change. And what's 0:11:52.920 --> 0:11:57.000 happening is that you see when the corporate sector, we're 0:11:57.080 --> 0:12:03.520 raising prices was nobody's business in twenty two, nobody cared. 0:12:03.840 --> 0:12:06.160 Everybody was willing to accept the price increases in the 0:12:06.160 --> 0:12:09.160 consumer sector because you were flush, right with that two 0:12:09.160 --> 0:12:12.160 tillion dollars the stimulus checks. They see all of a sudden, 0:12:12.520 --> 0:12:15.120 the stimulus checks are gone. The same is rate It 0:12:15.160 --> 0:12:17.320 barely more than three percent is a fraction of the 0:12:17.360 --> 0:12:20.280 pre COVID range of seven to eight percent, and all 0:12:20.280 --> 0:12:24.160 of a sudden, without the cash cushion, people see, look 0:12:24.200 --> 0:12:25.280 at these price levels. 0:12:25.720 --> 0:12:25.920 Now. 0:12:25.920 --> 0:12:27.959 The thing is that, and this is what I'm looking at, 0:12:28.160 --> 0:12:32.120 corporate profit margins are still in the top half of 0:12:32.200 --> 0:12:36.280 the historical range. So companies actually have the capacity to 0:12:36.480 --> 0:12:38.800 reduce their prices. I don't think we're going back to 0:12:38.840 --> 0:12:41.880 where you're worth two or three, but they have capacity 0:12:41.920 --> 0:12:45.000 to lower their prices in response to what was obviously 0:12:45.000 --> 0:12:48.120 a consumer revolt right now against these prices. And that, 0:12:48.200 --> 0:12:50.320 by the way, is when you build it to a 0:12:50.400 --> 0:12:56.000 deflace eight deflationary environment times steadfastly bullish all the treasury. 0:12:55.640 --> 0:12:58.440 Market, thank you, and we'll get the yield calls the 0:12:58.480 --> 0:13:00.120 next time around. A lot of people will all of 0:13:00.160 --> 0:13:01.600 a sudden looking. 0:13:01.240 --> 0:13:05.520 For Rosenberg like yields. David Rosenberg Rosenberg. 0:13:05.120 --> 0:13:18.679 Research can't say enough about his work. Seemshaw, who joins 0:13:18.720 --> 0:13:23.280 us right now. Seemashaw is with principal Grow were thrilled 0:13:23.320 --> 0:13:25.640 that she could join us this morning with a great 0:13:25.679 --> 0:13:30.560 perspective from London. I want to get to the flap 0:13:30.600 --> 0:13:32.520 at the moment, which is sort of the global wrap 0:13:32.559 --> 0:13:35.079 around the carry trade in Japan. But I want to 0:13:35.120 --> 0:13:39.079 bounce off what Lisa Matteo just said, which is people 0:13:39.120 --> 0:13:42.600 are considering layoffs. Are we just really setting ourselves up 0:13:43.200 --> 0:13:46.800 a la home depot alla, generous motors and others where 0:13:46.840 --> 0:13:49.800 companies are really going to start managing headcount? 0:13:50.120 --> 0:13:51.640 Is that what you feel in the air. 0:13:53.000 --> 0:13:55.800 Hey, tom So? I mean, look, that is really important news. 0:13:55.800 --> 0:13:58.880 If we start to hear more companies talking about layoffs 0:13:58.920 --> 0:14:01.000 and it really is a concern, I would say that 0:14:01.040 --> 0:14:02.880 at the moment though, I mean I think what we've 0:14:02.880 --> 0:14:07.959 been hearing on the street and across the board is, yes, 0:14:08.400 --> 0:14:12.240 companies are revisiting their labor costs. It makes sense. You know, 0:14:12.320 --> 0:14:15.160 they're looking at hire every financing costs, particularly with the 0:14:15.200 --> 0:14:18.080 funding wall coming up, and so as a result of that, 0:14:18.080 --> 0:14:20.400 they're looking at everything and they have to you know, 0:14:21.120 --> 0:14:23.800 balance off any additional cost somewhere else. And the thing 0:14:23.840 --> 0:14:26.680 that they are looking at is appraising where on the 0:14:26.920 --> 0:14:29.400 lob cost site that they can pull back on. We 0:14:29.480 --> 0:14:32.680 haven't as yet seen layoffs, but we have seen snipping 0:14:32.680 --> 0:14:36.200 around at the edges where they're produced hours, earnings, et cetera. 0:14:36.320 --> 0:14:39.080 But not quite the job layoffs at this point. 0:14:38.600 --> 0:14:41.480 What sector do we watch to see the trend? The 0:14:41.720 --> 0:14:44.640 easy answer for Global Wall Street it's a financial sector. 0:14:45.240 --> 0:14:47.360 But what sector would you pay attention to? 0:14:48.360 --> 0:14:50.520 It's a financial sector cently, but it's really the consumer 0:14:50.560 --> 0:14:54.280 discretionary because that remember that the consumer site has been 0:14:54.320 --> 0:14:57.880 the key driver for the broader, ye broader US economy. 0:14:58.280 --> 0:15:01.480 If you're starting to see pullback on that area, well 0:15:01.520 --> 0:15:04.960 then that really does start to question the strength the 0:15:05.000 --> 0:15:07.160 resilience of the US economy. So that's a bit I think, 0:15:07.160 --> 0:15:10.400 which would be the really concerning side, And suddenly any 0:15:10.400 --> 0:15:12.240 areas which are really interest rate sensitive the bit that 0:15:12.280 --> 0:15:14.360 would be more cyclical and would be I guess bit 0:15:14.400 --> 0:15:17.800 more of an advanced warning that there's economic pressures building. 0:15:18.760 --> 0:15:21.280 So Sam mcgiven that, I guess, you know, you think 0:15:21.280 --> 0:15:23.800 about a week ago Friday, with the job data really 0:15:23.880 --> 0:15:25.920 kind of spook the market, how do you think the 0:15:25.920 --> 0:15:28.480 Federal Reserve is kind of leaning at this point? 0:15:30.360 --> 0:15:32.280 So I think this is the big question that everyone 0:15:32.280 --> 0:15:35.440 is thinking through. So I think similar to I mean, 0:15:35.680 --> 0:15:37.320 the first thing to member is that you know, just 0:15:37.360 --> 0:15:39.680 as we are absorbing the ecomic data as it comes out, 0:15:39.720 --> 0:15:41.400 that is exactly what the feathers do that. I don't 0:15:41.400 --> 0:15:44.240 think they have any additional information on top of what 0:15:44.280 --> 0:15:46.760 we do. But what we can see in assuming that 0:15:46.800 --> 0:15:49.320 the inflation data today and tomorrow are fairly well behaved, 0:15:49.320 --> 0:15:52.640 it means that they can shift their focus points to 0:15:52.680 --> 0:15:55.680 the other side of their mandate. Now, we do think 0:15:55.720 --> 0:15:57.800 that they will have to err on the side of caution. 0:15:58.200 --> 0:16:00.960 You know, maybe think about front loading of those rate cuts, 0:16:01.480 --> 0:16:04.360 whether that's back to back twenty five bases point cuts. 0:16:04.560 --> 0:16:07.640 If you have a worse labor market report come the 0:16:07.680 --> 0:16:10.880 beginning of September than certainly a fifty bases point move 0:16:10.920 --> 0:16:12.560 starts to come on to board. But the thing that 0:16:12.600 --> 0:16:14.640 you're seeing already is that FRED speakers are not all 0:16:14.760 --> 0:16:17.720 unanimous in the idea that the labor market is slowing, 0:16:17.800 --> 0:16:19.920 that inflation is under control. So I think there's a 0:16:19.920 --> 0:16:21.840 bit of consensus building that still needs to go on 0:16:21.960 --> 0:16:22.760 behind the scenes. 0:16:24.320 --> 0:16:27.600 And Suman, we had some the manufacturing I know, this 0:16:27.640 --> 0:16:30.320 is a services driven economy here in the US seventy 0:16:30.320 --> 0:16:34.440 percent or so, but the manufacturing market, manufacturing economies week, 0:16:34.480 --> 0:16:39.040 we had some weak isms last week. What do you 0:16:39.040 --> 0:16:39.440 make of that? 0:16:41.520 --> 0:16:43.880 Well, it's concerning, I mean, I think with the isms 0:16:44.360 --> 0:16:46.040 for the last year or so, i'ld say that they 0:16:46.040 --> 0:16:48.480 haven't been the best indicative of what's actually going on 0:16:49.040 --> 0:16:51.760 selling the hard data, So we want to take that 0:16:51.840 --> 0:16:53.880 with a pinch of salt. But this is the thing 0:16:53.920 --> 0:16:55.320 with the US of commune. I don't think en was 0:16:55.320 --> 0:16:58.480 in denial about this. They're really our pockets a weakness. 0:16:58.880 --> 0:17:00.680 It's definitely not the point I don't end what's making 0:17:00.720 --> 0:17:03.840 the point that the whole US economy is looking really strong. 0:17:04.240 --> 0:17:07.199 So I were saying manufacturing segments of housing, they're the 0:17:07.280 --> 0:17:11.240 areas where you are seeing weakness. And to your point 0:17:11.280 --> 0:17:13.560 before you know, services is the main driver. So that's 0:17:13.560 --> 0:17:16.679 a bit that if that starts to turn and starts 0:17:16.680 --> 0:17:18.959 to topple, then actually the picture for the US economy 0:17:18.960 --> 0:17:24.280 starts to really really deteriorate. The manufacturing side is clearly slowing. 0:17:24.359 --> 0:17:26.200 I think that has come through in a number of 0:17:26.240 --> 0:17:27.119 bits of data. 0:17:27.280 --> 0:17:29.680 So where do you have nominal GDP. I mean, we're 0:17:29.680 --> 0:17:31.640 sitting here this morning in New York team we're looking 0:17:31.640 --> 0:17:36.240 at home depot with you know, not shocking that's the wrong. 0:17:36.000 --> 0:17:36.480 Word, but. 0:17:37.960 --> 0:17:42.640 Abruptly negative same store sales numbers. Is that just an 0:17:42.640 --> 0:17:47.000 indication that nominal GDP not only under five percent, but 0:17:47.119 --> 0:17:50.800 can begin to threaten a nominal GDP growth to three 0:17:50.840 --> 0:17:51.880 point nine percent. 0:17:53.600 --> 0:17:56.280 So what we're seeing in our podcast as we get 0:17:56.280 --> 0:17:58.040 through to the second half of the year is that 0:17:58.080 --> 0:18:02.240 you see GDP slowing down towards that trend level somewhere 0:18:02.280 --> 0:18:04.399 between the one point seventy to two point two percent 0:18:04.440 --> 0:18:08.439 on a real GDP basis. So I do think I mean, 0:18:08.480 --> 0:18:11.040 I think the home depot is a concern because we 0:18:11.080 --> 0:18:12.439 do typically look at that. It's a bit of a 0:18:12.440 --> 0:18:15.000 forward looking indicator of what is building up in terms 0:18:15.040 --> 0:18:17.720 of strains amongst consumers. So it's one thing that we 0:18:17.720 --> 0:18:20.560 do need to really focus on and take notice of 0:18:20.560 --> 0:18:22.639 that news story. But I think that we should be 0:18:22.640 --> 0:18:24.520 expecting that, look, the use of company isn't going to stay. 0:18:24.760 --> 0:18:27.080 It's not going to stay, not going to continue to accelerate. 0:18:27.080 --> 0:18:31.359 I would expect that atlantic GDP now tracker to be 0:18:31.359 --> 0:18:34.119 coming down as a month and the quarter progresses. But 0:18:34.200 --> 0:18:37.200 I think a trend level for GDP for the second 0:18:37.240 --> 0:18:39.639 half of this year makes sense, with maybe a further 0:18:39.680 --> 0:18:42.360 slowdown at the beginning of next year before the red 0:18:42.359 --> 0:18:44.879 cants start to really come in and second half of 0:18:44.960 --> 0:18:46.520 next year starts to look a little bit stronger. 0:18:46.600 --> 0:18:47.920 Look, so let me cut to the chase. 0:18:47.960 --> 0:18:51.040 What does a stock market do if I've got trending 0:18:51.680 --> 0:18:53.400 tepid sea mishaw like. 0:18:53.359 --> 0:18:54.560 We're going to get through the year. 0:18:55.600 --> 0:18:58.600 Is there a way that equities manage to be resilient 0:18:58.800 --> 0:19:01.280 or even in proven price. 0:19:02.800 --> 0:19:04.240 I think that they do. So I think that there's 0:19:04.240 --> 0:19:07.480 actually a window, actually a Frienny long window where equities 0:19:07.560 --> 0:19:10.880 can do okay. Now, for the first month or two, 0:19:10.920 --> 0:19:12.320 I think it is going to be challenging because the 0:19:12.359 --> 0:19:14.760 market is going to respond to every single bit of data, 0:19:15.200 --> 0:19:17.480 and ineptly across any bit of data, there's going to 0:19:17.480 --> 0:19:22.080 be pockets which you are weak, so that volatility uncertainty continues. 0:19:22.320 --> 0:19:23.880 But I think the key thing is this, in terms 0:19:23.920 --> 0:19:26.800 of a recession outlook, even if there is a genuine 0:19:26.840 --> 0:19:30.119 economic slowdown coming through, given the resilience and the balance 0:19:30.119 --> 0:19:33.320 sheet strength of households and corporates, is it likely that 0:19:33.400 --> 0:19:36.320 the Fed can't come to save the US economy with 0:19:36.400 --> 0:19:39.320 various red cuts. So I try to put the chance 0:19:39.359 --> 0:19:42.320 of recession fairly low, which means that after a bit 0:19:42.359 --> 0:19:45.320 of volatility and pullback, I think the equity market can 0:19:45.400 --> 0:19:47.520 still eke out some positive gains as we get through 0:19:47.880 --> 0:19:49.920 twenty twenty four into twenty twenty five. 0:19:50.119 --> 0:19:51.360 That's her first ball of a week. 0:19:51.480 --> 0:19:52.199 Yeah, there you go. 0:19:53.760 --> 0:19:54.080 Doing it. 0:19:54.880 --> 0:19:57.439 I mean, have we been talking about a recession for 0:19:57.480 --> 0:20:02.040 two maybe three years now? When when do we typically 0:20:02.080 --> 0:20:06.440 how often do recessions typically happen? And aren't we overdue? 0:20:08.160 --> 0:20:10.480 So look, it depends whichever indicator you're looking at. But 0:20:10.520 --> 0:20:12.960 I mean, if you're thinking about what happens post for 0:20:13.160 --> 0:20:16.480 tightening around now is when you're meant to be in recession. 0:20:17.040 --> 0:20:20.960 So certainly with the sum rule, with the jobs numbers, 0:20:21.000 --> 0:20:23.480 et cetera, maybe it'll kind of falls together nicely that 0:20:23.520 --> 0:20:25.280 this is the time that we should be in recession. 0:20:25.640 --> 0:20:27.600 But if you look across the broader environment, you know 0:20:27.600 --> 0:20:30.000 we're not really seeing signs of that. The concern, of course, 0:20:30.200 --> 0:20:33.520 is always that once you see some layoffs, it becomes 0:20:33.600 --> 0:20:36.800 something which is self reinforcing and it can unravel very 0:20:36.880 --> 0:20:40.119 very quickly, which is why these news stories around companies 0:20:40.160 --> 0:20:43.080 announcab layoups is really really important. But as I said, 0:20:43.119 --> 0:20:45.800 as long as you have strong household and corporate balance sheets, 0:20:46.000 --> 0:20:48.080 then actually a weakness in the labor market should not 0:20:48.119 --> 0:20:50.439 be able to mutate into that kind of hard landing. 0:20:50.800 --> 0:20:54.440 Sumer Sea, thank you so much. The Principal Assets Management, 0:20:54.440 --> 0:20:57.040 their chief Global Strategies greatly appreciate that. 0:21:07.800 --> 0:21:08.119 Folks. 0:21:08.160 --> 0:21:10.560 Actually, when we quote PPI, Paul and I have no 0:21:10.640 --> 0:21:11.800 idea what we're talking about. 0:21:11.880 --> 0:21:12.080 Now. 0:21:12.240 --> 0:21:15.040 Mcke's in my ear telling me what to do. But 0:21:15.080 --> 0:21:17.520 the reason we're doing it is to give Sarah House 0:21:18.240 --> 0:21:21.320 time to digest the numbers. Senior economist at Wells Fargo, 0:21:21.880 --> 0:21:25.120 an expert on this. Sarah House, does this PPI set 0:21:25.560 --> 0:21:27.879 confirm disinflation in place? 0:21:29.320 --> 0:21:32.400 I think it confirms that we are seeing that disinflationary 0:21:32.480 --> 0:21:36.320 trend still underway. So we did see I think some 0:21:36.440 --> 0:21:39.240 improvement in terms of the headline and the traditional core, 0:21:39.440 --> 0:21:42.320 although if you look at what we refer to as 0:21:42.359 --> 0:21:45.200 the core core in the PPI, so that strips out 0:21:45.200 --> 0:21:48.399 an addition to food and energy trade services, which are 0:21:48.440 --> 0:21:51.360 measured in margins. That did come in a little bit 0:21:51.400 --> 0:21:56.280 firmer than expected, which I think is consistent with slowing inflation, 0:21:56.640 --> 0:21:58.439