1 00:00:03,160 --> 00:00:06,519 Speaker 1: Global business news twenty four hours a day at Bloomberg 2 00:00:06,600 --> 00:00:09,680 Speaker 1: dot com, the radio, plus mobile, and on your radio. 3 00:00:09,960 --> 00:00:14,360 Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters. 4 00:00:14,480 --> 00:00:18,040 Speaker 1: I'm Charlie Pellett's stocks edging toward a record, advances in 5 00:00:18,160 --> 00:00:22,040 Speaker 1: government bonds pushing some yields to record lows, Emerging market 6 00:00:22,040 --> 00:00:24,800 Speaker 1: assets extending a rally. Right now. We have got the 7 00:00:24,880 --> 00:00:28,639 Speaker 1: SMP five hundred indecks up six points to eighteen. That 8 00:00:28,800 --> 00:00:31,400 Speaker 1: is a gain of three tenths of one percent. Nat 9 00:00:31,520 --> 00:00:34,440 Speaker 1: stack also advancing three tents of one percent, up twelve 10 00:00:34,479 --> 00:00:37,720 Speaker 1: points down. Industrials up forty nine, also a gain of 11 00:00:37,960 --> 00:00:41,559 Speaker 1: three tenths of one percent. The tenure of four thirty seconds. 12 00:00:41,600 --> 00:00:45,000 Speaker 1: That yield is one point seven oh percent. Gold up 13 00:00:45,040 --> 00:00:47,920 Speaker 1: sixteen dollars he ounds to twelve sixty three, a gain 14 00:00:48,000 --> 00:00:51,000 Speaker 1: of one point three percent, and crude oil trading above 15 00:00:51,080 --> 00:00:54,520 Speaker 1: fifty one dollars of barrel West Texas Intermediate fifty one 16 00:00:54,560 --> 00:00:57,040 Speaker 1: eleven right now of seventy five cents. That is a 17 00:00:57,080 --> 00:01:00,280 Speaker 1: gain of one and a half percent. I'm Charlie. Look, 18 00:01:00,360 --> 00:01:05,400 Speaker 1: that's a bloom Bird business flash. He's taking stock The 19 00:01:05,400 --> 00:01:12,120 Speaker 1: FED in focus on Bloombird Radio stimulative central banks around 20 00:01:12,160 --> 00:01:15,600 Speaker 1: the globe. This has put a nice solid floor under 21 00:01:15,600 --> 00:01:17,920 Speaker 1: the U S stock market is certainly helping to drive 22 00:01:17,959 --> 00:01:21,000 Speaker 1: not only the US bond market up in price down 23 00:01:21,000 --> 00:01:23,319 Speaker 1: in yeld at bond markets around the world. The ECB, 24 00:01:23,440 --> 00:01:27,000 Speaker 1: the European Central Bank starting its purchases of corporate bonds 25 00:01:27,040 --> 00:01:29,680 Speaker 1: today and this is just adding fuel to the fire. 26 00:01:29,959 --> 00:01:32,400 Speaker 1: Joining us now, Eric Stein, he's co director of Global 27 00:01:32,440 --> 00:01:36,400 Speaker 1: Income and portfolio manager at Eton Vance. He joins us 28 00:01:36,640 --> 00:01:39,480 Speaker 1: from Boston as we put the Fed and central banks 29 00:01:39,520 --> 00:01:42,440 Speaker 1: in focus here. Welcome to the show. Thanks for having me. 30 00:01:42,880 --> 00:01:46,039 Speaker 1: So um, I guess it's just another one of the 31 00:01:46,040 --> 00:01:49,320 Speaker 1: bazooka type weapons that Mario Dragging has promised. This The 32 00:01:49,400 --> 00:01:52,720 Speaker 1: question is how effective it will be in stimulating economy. Yes, 33 00:01:52,800 --> 00:01:55,040 Speaker 1: you know, I think what we're seeing today with the 34 00:01:55,080 --> 00:01:57,720 Speaker 1: first day of corporate bond purchases. This is announced, you know, 35 00:01:57,800 --> 00:01:59,840 Speaker 1: back in March, and it takes a little while for 36 00:01:59,880 --> 00:02:02,040 Speaker 1: the central friendI central bank in this case, the ECB 37 00:02:02,160 --> 00:02:04,680 Speaker 1: to kind of get their operational house and order and 38 00:02:04,760 --> 00:02:07,280 Speaker 1: now they're buying corporate You know, we have seen pretty 39 00:02:07,280 --> 00:02:10,720 Speaker 1: big rallies and corporate bond spreads both high yield and 40 00:02:10,760 --> 00:02:13,040 Speaker 1: investment grade in Europe since the announcement of the so 41 00:02:13,160 --> 00:02:15,440 Speaker 1: called announcement effects so it's not just on the day 42 00:02:15,440 --> 00:02:19,760 Speaker 1: of purchases, it's also when the announcement happens. Eric, is 43 00:02:19,800 --> 00:02:25,720 Speaker 1: there any evidence that this strategy works? So, you know, 44 00:02:25,760 --> 00:02:27,720 Speaker 1: I think to me, it's always you know, look at 45 00:02:27,720 --> 00:02:30,160 Speaker 1: the counter factual. If you weren't doing this with the 46 00:02:30,160 --> 00:02:33,720 Speaker 1: European economy be in a better situation, I'd argue not. 47 00:02:33,880 --> 00:02:36,720 Speaker 1: You know, certainly, you know, there's debates about the effectiveness 48 00:02:36,840 --> 00:02:39,040 Speaker 1: of you know, que when we when the FED was 49 00:02:39,080 --> 00:02:41,600 Speaker 1: doing it here in the US, and with Europe where 50 00:02:41,639 --> 00:02:44,320 Speaker 1: most of their you know, financing is bank let not 51 00:02:44,400 --> 00:02:46,720 Speaker 1: capital markets lad like we have in the US, it's 52 00:02:46,720 --> 00:02:50,160 Speaker 1: probably gonna be even harder, um for for the QI 53 00:02:50,240 --> 00:02:52,640 Speaker 1: to actually feed through the real economy. That being said, 54 00:02:52,680 --> 00:02:55,120 Speaker 1: they need to try, given that the European Central Bank 55 00:02:55,400 --> 00:02:58,120 Speaker 1: there's nowhere close to the two percent inflation there are 56 00:02:58,400 --> 00:03:00,239 Speaker 1: you know, maybe a little bit overblown, but I think 57 00:03:00,240 --> 00:03:02,680 Speaker 1: at least a couple of months ago some legitimate deflation 58 00:03:02,720 --> 00:03:06,200 Speaker 1: fears in Europe. Unemployment is still significantly significantly higher than 59 00:03:06,200 --> 00:03:08,240 Speaker 1: the US. They have to do something and so this 60 00:03:08,280 --> 00:03:10,560 Speaker 1: is really a way that Dragging and his colleagues at 61 00:03:10,560 --> 00:03:12,560 Speaker 1: the ECB can do the best they can to to 62 00:03:12,639 --> 00:03:16,720 Speaker 1: jump start the credit markets. Is the financial plumbing clogged 63 00:03:16,880 --> 00:03:20,960 Speaker 1: up within the banks? Though? Do the do Europe's banks 64 00:03:21,040 --> 00:03:23,320 Speaker 1: need to do some cleaning up of their balance sheets 65 00:03:23,320 --> 00:03:27,040 Speaker 1: before they're healthy enough to actually start lending more and 66 00:03:27,200 --> 00:03:30,960 Speaker 1: fire up the capital markets. I think it would certainly help. 67 00:03:31,000 --> 00:03:32,680 Speaker 1: I mean, I think if you look at you know, 68 00:03:32,720 --> 00:03:34,720 Speaker 1: what did US banks do in two thousand and eight 69 00:03:34,720 --> 00:03:36,760 Speaker 1: and two thousand nine. We have the stress tests. They 70 00:03:36,760 --> 00:03:39,960 Speaker 1: were much maligned at the time, but they ultimately worked. 71 00:03:40,000 --> 00:03:43,200 Speaker 1: The US banks raised capital, help cleanse the system and 72 00:03:43,560 --> 00:03:46,600 Speaker 1: really got things going. And as as as I said before, 73 00:03:46,760 --> 00:03:48,880 Speaker 1: US is more capital markets left well in Europe, where 74 00:03:48,880 --> 00:03:51,279 Speaker 1: the banks are even more important. It's about two thirds 75 00:03:51,480 --> 00:03:54,480 Speaker 1: of credit is bank led versus capital markets led. In Europe, 76 00:03:54,480 --> 00:03:57,600 Speaker 1: it's the opposite in the US. They haven't done that. Yes, 77 00:03:57,640 --> 00:03:59,720 Speaker 1: there have been some stress tests, Yes there's been some 78 00:04:00,000 --> 00:04:03,040 Speaker 1: opital raising um, but by and large, the European banks 79 00:04:03,040 --> 00:04:05,240 Speaker 1: to me are in you know, nowhere near is going 80 00:04:05,320 --> 00:04:07,480 Speaker 1: to shape as US banks. So I think that's part 81 00:04:07,480 --> 00:04:10,840 Speaker 1: of the problem. Longer term, certainly lots of regulators in 82 00:04:10,880 --> 00:04:13,880 Speaker 1: Europe one and more capital markets led credit system. It's 83 00:04:13,880 --> 00:04:16,039 Speaker 1: going to take some time to get there. Um, but 84 00:04:16,080 --> 00:04:17,919 Speaker 1: I certainly think you know the point of your question, 85 00:04:17,960 --> 00:04:21,120 Speaker 1: the problem with European banks is somewhat leading to some 86 00:04:21,200 --> 00:04:24,920 Speaker 1: issues in terms of credit intermediation. Eric, do you believe 87 00:04:24,960 --> 00:04:29,760 Speaker 1: that higher rates would encourage people in institutions to lend money? 88 00:04:29,760 --> 00:04:33,599 Speaker 1: Why lend money to anyone or anything if you're going 89 00:04:33,640 --> 00:04:36,800 Speaker 1: to get nothing in return? So, I look, I think 90 00:04:36,839 --> 00:04:39,040 Speaker 1: that's a very good question. I think you know, in 91 00:04:39,120 --> 00:04:41,320 Speaker 1: terms of I think it's still an open question when 92 00:04:41,400 --> 00:04:44,400 Speaker 1: when yields are as low as they are in negative 93 00:04:44,440 --> 00:04:46,800 Speaker 1: in in many countries in Europe and many parts of 94 00:04:46,800 --> 00:04:49,320 Speaker 1: the yield curve, I think a lot of the traditional 95 00:04:49,360 --> 00:04:51,839 Speaker 1: relationships that we think about in economics and with interest 96 00:04:51,920 --> 00:04:53,680 Speaker 1: rates and the lower rates are going to spur more 97 00:04:53,720 --> 00:04:56,560 Speaker 1: borrowing and more lending, uh, you know, may not be true. 98 00:04:56,600 --> 00:04:59,320 Speaker 1: I also think the flatness of the curves that we 99 00:04:59,360 --> 00:05:02,400 Speaker 1: see global is problematic. It's not good for banks. Help 100 00:05:02,480 --> 00:05:04,160 Speaker 1: to you, if you have a flatter curve, it's not 101 00:05:04,160 --> 00:05:07,520 Speaker 1: good for bank profitability. Means that the credit channel is 102 00:05:07,560 --> 00:05:10,400 Speaker 1: more stuck in European banks. I think it also sends 103 00:05:10,440 --> 00:05:13,520 Speaker 1: a lack of confidence signal um to have a flatter curve. 104 00:05:13,560 --> 00:05:15,560 Speaker 1: So I actually think central banks would be better off 105 00:05:15,600 --> 00:05:19,080 Speaker 1: having deeper curves the rate um. The rates that we 106 00:05:19,160 --> 00:05:21,760 Speaker 1: have are low enough. It's other things trying to get 107 00:05:21,760 --> 00:05:25,960 Speaker 1: the so called animal spirits out there, which is what 108 00:05:25,960 --> 00:05:28,719 Speaker 1: what is more needed than ever lower interest rates. And 109 00:05:28,720 --> 00:05:31,400 Speaker 1: of course I would argue that if you start raising rates, 110 00:05:31,640 --> 00:05:35,520 Speaker 1: the key rates, the FED funds, overnight type rates, you 111 00:05:35,560 --> 00:05:38,919 Speaker 1: would ultimately make spur the rally in the long and 112 00:05:39,120 --> 00:05:42,200 Speaker 1: more if people think that the Fed's tightening prematurely and 113 00:05:42,240 --> 00:05:45,240 Speaker 1: that's going to slow down the economy. But to that point, 114 00:05:45,720 --> 00:05:48,160 Speaker 1: this this rally seems to be heating up again. Is 115 00:05:48,200 --> 00:05:50,800 Speaker 1: it's going to continue down to one point seven zero? 116 00:05:50,920 --> 00:05:52,600 Speaker 1: It was trading just a little bit about one point 117 00:05:52,600 --> 00:05:56,040 Speaker 1: six nine on the benchmark US tenure note? Can that 118 00:05:56,279 --> 00:05:58,320 Speaker 1: head down to one point six? Can I head down 119 00:05:58,320 --> 00:06:00,840 Speaker 1: to one point five? Or is is it like it? 120 00:06:00,960 --> 00:06:03,279 Speaker 1: Certainly could, you know, in a in a world of 121 00:06:03,360 --> 00:06:05,680 Speaker 1: negative central bank yields and a lot of fear, it 122 00:06:05,760 --> 00:06:08,240 Speaker 1: certainly could. But keep in mind, you know, yields of 123 00:06:08,320 --> 00:06:10,120 Speaker 1: anything where we're kind of flat to going up a 124 00:06:10,120 --> 00:06:12,040 Speaker 1: little bit, and then we had the you know, far 125 00:06:12,120 --> 00:06:15,400 Speaker 1: weaker and expected payroll report on Friday. Some of the 126 00:06:15,480 --> 00:06:17,359 Speaker 1: data turns that could turn yields a little bit. I 127 00:06:17,400 --> 00:06:19,760 Speaker 1: also think the whole Brexit issue out there is a 128 00:06:19,800 --> 00:06:22,120 Speaker 1: lot of uncertainty weighing on the markets where a lot 129 00:06:22,120 --> 00:06:25,039 Speaker 1: of money is in very safe assets, and so you know, 130 00:06:25,160 --> 00:06:27,599 Speaker 1: right now the trend seems to be flat or lower 131 00:06:27,640 --> 00:06:29,440 Speaker 1: on these bond yields. I don't think it really takes 132 00:06:29,440 --> 00:06:32,320 Speaker 1: sense from a longer term perspective, especially given that you know, 133 00:06:32,360 --> 00:06:34,320 Speaker 1: inflation in the US, as much as no one wants 134 00:06:34,320 --> 00:06:36,200 Speaker 1: to talk about at wage, inflation is picking up a 135 00:06:36,200 --> 00:06:39,000 Speaker 1: little bit. Oil seems to go up in our fifty 136 00:06:39,080 --> 00:06:42,440 Speaker 1: cents a dollar every day. Um, the dollar you know, 137 00:06:42,520 --> 00:06:44,440 Speaker 1: had been weak most of this year, had a couple 138 00:06:44,480 --> 00:06:46,480 Speaker 1: of weeks of strength with some hawkish Fed talk as 139 00:06:46,520 --> 00:06:48,800 Speaker 1: wee can some this week or really since the Friday 140 00:06:48,800 --> 00:06:51,359 Speaker 1: payroll reports. So if that, if anything, leads to a 141 00:06:51,360 --> 00:06:53,720 Speaker 1: little more inflation. So if inflation starts to pick up, 142 00:06:53,760 --> 00:06:56,760 Speaker 1: where's really the value in bond yields? What I think 143 00:06:56,760 --> 00:06:59,440 Speaker 1: policymakers are going to ultimately do, And it's obviously very 144 00:06:59,480 --> 00:07:02,560 Speaker 1: country to end it. In the US, certainly something probably 145 00:07:02,600 --> 00:07:06,320 Speaker 1: after the election is fiscal stimulus. I think we've monetary policy. 146 00:07:06,480 --> 00:07:09,000 Speaker 1: If not being fully tapped out is close to tapped out, 147 00:07:09,040 --> 00:07:12,440 Speaker 1: there's probably fiscal room. And given the yields are so low, 148 00:07:12,800 --> 00:07:14,880 Speaker 1: you know, that's a signal that the country should be 149 00:07:15,080 --> 00:07:17,520 Speaker 1: at a minimum turning out their debt tolock in these 150 00:07:17,520 --> 00:07:19,920 Speaker 1: low rates. So or if not actually doing more and 151 00:07:19,960 --> 00:07:23,280 Speaker 1: more fiscal stimulus our thanks to Eric Stein. He is 152 00:07:23,360 --> 00:07:26,520 Speaker 1: co director of Global Income and a portfolio manager for 153 00:07:26,560 --> 00:07:30,000 Speaker 1: Eaton Vans joining us from Boston. He was just went 154 00:07:30,080 --> 00:07:32,280 Speaker 1: speaking about oil. Oil is up about one and a 155 00:07:32,320 --> 00:07:34,920 Speaker 1: half percent, fifty one dollars and nine cents for a 156 00:07:34,960 --> 00:07:37,800 Speaker 1: bart of West Texas And to media crew, We're broadcasting 157 00:07:37,840 --> 00:07:40,840 Speaker 1: live from Pershing's Inside six conference at the High End 158 00:07:40,840 --> 00:07:46,960 Speaker 1: Regency in Orlando, Florida. This is Bloomberg Radio. The unemployment 159 00:07:47,040 --> 00:07:50,600 Speaker 1: rates a four four point nine five percent lately, So 160 00:07:50,640 --> 00:07:53,440 Speaker 1: why is Janet Young still worried about the labor market? 161 00:07:54,040 --> 00:07:55,760 Speaker 1: As we put the federal Reserve in focus, we're going 162 00:07:55,800 --> 00:07:57,800 Speaker 1: to learn more about the brutal journey back to work 163 00:07:57,840 --> 00:07:59,120 Speaker 1: for millions of Americans.