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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. Michaelherson of twenty two

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Speaker 2: V Research Rights in this the trade and investment relationship

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Speaker 2: remains understrained, particularly on tech related issues. The intense geopolitical

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Speaker 2: rivalry and domestic politics in each country limit the room

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Speaker 2: for active cooperation. Michael and POLICEA say it's with us

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Speaker 2: now for more. Michael, let's get straight into it. What

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Speaker 2: is at the top of the agenda for Jannet Yellen

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Speaker 2: on this trip.

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Speaker 3: Well, I think for the US side, it's stuff only

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Speaker 3: this issue of excess capacity or really you know, China's

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Speaker 3: very aggressive focus on promoting advanced manufacturing, particularly in some

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Speaker 3: of the same strategic sectors that the Biden administration is

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Speaker 3: focused on, so electric vehicles, solar energy. That is top

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Speaker 3: of the US age, and it's a trade issue, but

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Speaker 3: it's also a macro issue for global growth. And I

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Speaker 3: think that's one reason why it's Janet Yellen delivering this message,

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Speaker 3: not necessarily US trade officials. That's definitely top of the

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Speaker 3: top of the priority list for the US.

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Speaker 4: Michael, when I was reading and listening to it, Jenny

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Speaker 4: Ellen had to say, I kept thinking, what's the distinction

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Speaker 4: and how big is the distinction between decoupling and enforcing

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Speaker 4: a level playing field.

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Speaker 3: I think for Treasury Secretary Yellen, there is a big

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Speaker 3: distinction in the sense that I honestly think you know

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Speaker 3: as a trained economist, that she believes that trade is

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Speaker 3: good and that she wants to deliver a message that

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Speaker 3: the US does not seek to couple. Now, that's kind

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Speaker 3: of a controversial view in the US, and I think

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Speaker 3: to some extent you've ben within the Biden administration, But

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Speaker 3: generally speaking, I think she is trying to say, we

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Speaker 3: want to have trade, but we need to address what

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Speaker 3: on the US side is considered these distortions coming from

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Speaker 3: China's manufacturing sector, a lot of.

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Speaker 4: The focus has been on green energy and the supplies

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Speaker 4: that are needed to really push forward the entire platform.

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Speaker 5: By the Abdan administration.

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Speaker 4: How much are the Biden's administration's hands tied in a

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Speaker 4: way because they are looking to shift toward certain types

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Speaker 4: of technologies that require metals and technologies that are dominated

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Speaker 4: by China.

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Speaker 3: It's a very difficult balancing act, and I think, you know,

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Speaker 3: it's somewhat depends on the sector. It's something like solar.

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Speaker 3: China's cost advantages are just so extreme at this point

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Speaker 3: that you know, it's very difficult to meaningfully, you know,

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Speaker 3: decouple from China or take really aggressive actions in the

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Speaker 3: solar sector, something like electric vehicles. You know, it's a

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Speaker 3: bit more nuanced. But I think that is the balance

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Speaker 3: that they have to face. And again it's one reason

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Speaker 3: why Jenny Yellen is out there. Instead of just slapping

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Speaker 3: additional tariffs on these items, really the solution for both

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Speaker 3: sides should be to try to work on some kind

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Speaker 3: of accommodation to address the concerns on each side.

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Speaker 6: She alluded to tariffs, though yesterday she said I wouldn't

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Speaker 6: want to rule out other possible ways in which we

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Speaker 6: would protect them talking about clean energy. Where does the

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Speaker 6: US stand right now? Where is that tariff review?

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Speaker 5: That's a good question.

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Speaker 3: There is a terrorf review that's been underway, and you know,

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Speaker 3: we've heard numerous times that you know it would be out,

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Speaker 3: for example, at the end of last year. I think, frankly,

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Speaker 3: it's unlikely that we're going to see any really aggressive moves,

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Speaker 3: certainly to lower tariffs. And it is possible that we're

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Speaker 3: going to see moves to increase some of those tariffs.

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Speaker 3: Perhaps we would lower them on some of the consumer

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Speaker 3: items that aren't strategic coming from China. But I think

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Speaker 3: tariffs are going to remain part of the toolkit, especially

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Speaker 3: on an area like logic vehicles. When you see this

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Speaker 3: expert surge that's showing up in Europe but not showing

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Speaker 3: up in the US, and I think trade officials in

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Speaker 3: the US are going to want to keep it that way.

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Speaker 2: That's the one we're looking for. Michael, Thank you, sir,

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Speaker 2: Michael Hurston.

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Speaker 7: There.

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Speaker 2: John Balvan of black Rock remaining bullish writing this. We

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Speaker 2: think upbeat risk appetite can broaden out beyond tech as

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Speaker 2: more sectors adopt AI more broadly, rising of volatile yields

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Speaker 2: have not disrupted the push hire and developed market equities.

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Speaker 2: That's consistent with our view the mega forces such as

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Speaker 2: AI are key drivers of returns. Now, John and police

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Speaker 2: to say, John, just now for more, John, we'll get

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Speaker 2: to the stock marketing just a moment. I just want

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Speaker 2: you to views on Chairman Powell yesterday. Given the economic

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Speaker 2: data we've seen so far, would you describe some of

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Speaker 2: those data points it just bumps in the road, and

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Speaker 2: the same way the Chairman has.

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Speaker 5: Well, I think this is this is a long road.

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Speaker 1: So if I look at the first stretch of that road,

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Speaker 1: I think it's a bump.

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Speaker 5: So we think inflation is.

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Speaker 1: Going to be showing progress towards two over the next

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Speaker 1: few months. The FED is data dependent, they're not forward looking,

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Speaker 1: so they're going to be lured into we've solved inflation.

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Speaker 5: That's going to be the story.

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Speaker 1: That's part of the reason why we're kind of constructive

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Speaker 1: on risk for now.

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Speaker 5: And I think I think that's gonna be the sort

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Speaker 5: of will cut.

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Speaker 1: This is a FED that is bucked himself in December

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Speaker 1: to be cut at some point this year, some point soon.

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Speaker 1: I think the bar not to do that is pretty high.

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Speaker 1: I mean, we can debate whether this is the right stance,

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Speaker 1: but it is a stand. So as a result, a

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Speaker 1: bit of forest inflation will cut the narrative for them

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Speaker 1: that there's bumps, and they'll they'll be in a position

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Speaker 1: to cut. So I think that's the story for the

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Speaker 1: next few months, and that's why risk assets are set

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Speaker 1: to will continue to perform.

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Speaker 2: Is on. The story we've had over the last few

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Speaker 2: days really is had to interpret the moves and bonds

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Speaker 2: in commodities with regards to equities. How are you interpreting

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Speaker 2: those moves?

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Speaker 1: Yeah, I think the well, the first point to make

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Speaker 1: is you we very much believe we're in a new regime,

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Speaker 1: right so we're pro risk right now. I think that's

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Speaker 1: has room to continue, room to run, but it's it's

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Speaker 1: a very different environment. The idea that we're going back

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Speaker 1: to through immaculate discinflation to the great moderation of pre pandemic,

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Speaker 1: I think is not happening. And I think when you

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Speaker 1: look at the bond vlatility that we're saying it continues.

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Speaker 1: That was clearly the case of twenty twenty three, but

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Speaker 1: like even this week, massive I think that's the biggest

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Speaker 1: evidence we have that this is.

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Speaker 5: Not, you know, back to the old regime. So I

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Speaker 5: think we're saying, you know, a lot of valet the

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Speaker 5: macro narrative.

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Speaker 1: It takes a little bit of infra data to come

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Speaker 1: in to lead to very significant reactions as we've seen.

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Speaker 1: And then lo and behold that we're at the same

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Speaker 1: point as we were like a week ago before the

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Speaker 1: PCEE in terms of FED expectations.

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Speaker 5: The only thing that has really changed is long term

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Speaker 5: rates that are set at a higher level now. So

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Speaker 5: I think it speaks to this environment where we can

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Speaker 5: very much.

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Speaker 1: See the FED starting to cut, but at the same

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Speaker 1: time don't expect long term rates to follow suit and

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Speaker 1: move down. I think we can very much see, you know,

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Speaker 1: a FED that starts to cut rates, we're going to

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Speaker 1: be only a couple anyway, and then we're going to

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Speaker 1: at the same time see rates that are stable, long

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Speaker 1: term rates that are stable or even go higher from here, which.

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Speaker 4: Is the reason why you've been focusing on the short

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Speaker 4: end of the yield curve. We had John Soface earlier

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Speaker 4: this morning on who said that that stocks could continue

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Speaker 4: to rally as long as ten youre treasure yields didn't

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Speaker 4: reach six percent. Do you agree with that that if

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Speaker 4: we had ten year treasure yields north of ten percent,

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Speaker 4: that would not be north of five percent. Excuse me

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Speaker 4: that that would not be a problem for equity evaluations.

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Speaker 1: No, I wish just the case, But I find it

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Speaker 1: hard to relax about this.

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Speaker 5: So I think if we were really of the view

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Speaker 5: that we're going.

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Speaker 1: To six in a short order, like over the next year,

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Speaker 1: six percent tenure very difficult to see equity that sailed

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Speaker 1: through this, and I think we've seen some evidence of

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Speaker 1: that right that go back to October of last twenty

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Speaker 1: twenty three. Last year we went down north of five percent,

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Speaker 1: and that was a very different narrative, felt very different.

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Speaker 1: So I mean, over a course of ten years we

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Speaker 1: might reset to a hier rate environment and realize that

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Speaker 1: we can live with that. But I think the journey

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Speaker 1: there will be one where equities will will feel more

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Speaker 1: than bumpy.

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Speaker 4: When people talk about a new regime, A lot of

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Speaker 4: guests who come on surveillance talk about their investments in

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Speaker 4: the energy sector as well as just commodities in general,

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Speaker 4: that any AI adoption has to come with hard infrastructure

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Speaker 4: investments that have not been fully accounted for. How much

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Speaker 4: is Blackrock kind of adhering to that and really overweighting

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Speaker 4: a host of commodities.

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Speaker 1: So there is a massive restructuring of the economy that

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Speaker 1: is happening. We think there's AI is one big piece

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Speaker 1: of it, but we see five big mega forces. Graphics

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Speaker 1: is going to lead to a big change in spending

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Speaker 1: pattern and developed economies. The rewarding of geopolitics means that

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Speaker 1: we have a different organization globally that requires adjustment. Infrastructure,

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Speaker 1: we have the transition, the transition, and we think finance

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Speaker 1: is restructuring itself as well. So big, big trends, all

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Speaker 1: of them require adjustment and need adjustment that they have

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Speaker 1: to involve some kind of very significant investment.

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Speaker 5: I mean, if you only take.

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Speaker 1: The transition, the energy transition, that's by itself, you know,

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Speaker 1: a huge amount of investment.

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Speaker 5: I think AI is in the middle and interacting with that.

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Speaker 1: So yeah, I think infrastructure is a huge part of

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Speaker 1: the year, the story of the year to come. Even

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Speaker 1: if you don't have like very you know, bullish growth expectations,

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Speaker 1: we still need a lot of investment.

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Speaker 5: And for such an investment, so and.

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Speaker 1: Yes, that's going to support commodities. I think it's harder

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Speaker 1: to draw a link to this need for investment and

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Speaker 1: what is going to mean for commodities. I think it's

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Speaker 1: a much more blex story, but there is ultimately we're

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Speaker 1: going to be drawing more in commodities as we as

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Speaker 1: we deliver on these investments.

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Speaker 6: You mentioned this changing geopolitical map. We have the Secretary

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Speaker 6: of the Treasury over in China and she's talking about

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Speaker 6: that they don't want to completely decouple from China. It's

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Speaker 6: just about diversifying.

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Speaker 5: Do you buy that?

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Speaker 6: And if it was to be a decouple, how does

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Speaker 6: that change your thesis?

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Speaker 1: Well, I think the coupling, complete decoupling is even if

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Speaker 1: that was.

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Speaker 5: The objective, is not realistic, right.

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Speaker 1: I mean, we're we're intertwined very fundamental ways globally, and

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Speaker 1: so you know fully decoupling will will not will.

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Speaker 5: Not even be on the table.

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Speaker 1: So I think I don't see necessarily a lot of

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Speaker 1: information in the comment like this, right, I mean, it's

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Speaker 1: it's kind of a straw man that is unachievable. But

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Speaker 1: there is a trend. I think the most important thing

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Speaker 1: for me is that we are fragmenting. There is a

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Speaker 1: there's a distansation that is happening. The question is how

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Speaker 1: is it going to be negatid But in the meantime,

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Speaker 1: aside from the politics and those trips, I think investors

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Speaker 1: are investors and companies globally are adjusting and making plans

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Speaker 1: that are accounting for the fact that the world will

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Speaker 1: be more fragmented than it was. And I think that's

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Speaker 1: a big that's one of the big mega forces that

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Speaker 1: is happening.

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Speaker 5: Uh. In his affecting decision even as we speak.

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Speaker 2: Is John inf that's the case? Do I want to

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Speaker 2: have a bus towards small caps away from multicamp multinational

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Speaker 2: big caps.

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Speaker 1: I mean you could, you could eventually see, uh, see that.

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Speaker 5: That logic playing out.

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Speaker 1: I think for now, we still think that, you know,

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Speaker 1: more from a tactical basis, uh, that you would need

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Speaker 1: to have a more conviction on on you know, a

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Speaker 1: growth spur that is lasting more than a few months

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Speaker 1: to start to broaden your views on small caps. I

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Speaker 1: think there's going to be more of a story about

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Speaker 1: the near term growth than it is about fermentation.

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Speaker 5: But if you think on a ten year basis, then

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Speaker 5: I can.

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Speaker 1: Very well see, uh, you know, a story where you

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Speaker 1: see more localized companies, smaller caps, small caps being beneficiaries

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Speaker 1: of this geo poltical mega force.

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Speaker 2: I just want to watch John, You're one of the best.

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Speaker 2: Thank you, Jean Bavan there of black Croft. Now to

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Speaker 2: discuss the labor market is Becky Frankowitz, the chief commercial

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Speaker 2: Officer and North America President Manpower Group. Becky, wonder FOROO

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Speaker 2: to catch up with you. One thing we love to

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Speaker 2: do with you is talk about what's happening with temp workers,

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Speaker 2: the shift between temp workers and permanent hires. Can you

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Speaker 2: talk us through how that's evolved as the year is progressed.

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Speaker 7: Yes, So normally coming out of a recovery or into

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Speaker 7: a recovery out of recession, you would see employers want

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Speaker 7: the flexibility of temp workers, so that's a measure called

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Speaker 7: temp penetration. We would see that increase. We have seen

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Speaker 7: that below two percent, which two percent is the average, consistently,

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Speaker 7: and we're starting to see even further declines in tent penetration. However,

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Speaker 7: the offset of that is we're seeing permanent hiring continue

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Speaker 7: to be strong, which definitely reinforces two things.

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Speaker 8: One employers are still hiring.

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Speaker 7: And two there's a bit of post pandemic hangover where

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Speaker 7: employers couldn't find the talent that they want, and so

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Speaker 7: they're scared not to grab them and make them permit employees,

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Speaker 7: and so that will be a number I'm watching tomorrow

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Speaker 7: what's happening in tent penetration, but perm will definitely be strong.

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Speaker 2: Becky, did that make it difficult to read into where

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Speaker 2: we are in the cycle? Those traditional indicator is broken

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Speaker 2: because of this approach post pandemic.

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Speaker 7: Yes, I would say the human behavior has now come

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Speaker 7: into the algorithms that everyone is using, and it's very

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Speaker 7: difficult to predict where we are in a cycle given that. However, again,

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Speaker 7: the resilience of this labor market, John is just amazing.

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Speaker 7: We continue to see strong numbers. If we see a

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Speaker 7: two thirteen or a two fifty tomorrow, I wouldn't be

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Speaker 7: surprised anywhere in between, which definitely demonstrates a very resilient

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Speaker 7: labor market.

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Speaker 4: It also highlights the sort of rolling recovery and rolling

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Speaker 4: recessions to the labor market as well as in the

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Speaker 4: broader economy. Where are you expecting the jobs to be added?

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Speaker 4: For a while, it was more focused in the services

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Speaker 4: sectors and the sort of people facing areas that had

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Speaker 4: gotten hardest hit during the pandemic. Are we seeing that

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Speaker 4: shift to some of the areas that have been left

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Speaker 4: behind of late, in particular middle managers and other types

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Speaker 4: of professionals.

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Speaker 8: Yeah, so bls the jobs numbers. Look in the rearview mirror.

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Speaker 7: We're looking at real time data every day in terms

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Speaker 7: of demand for jobs in the country, and we're seeing

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Speaker 7: increased demand in affordable experiences. I like to call it that.

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Speaker 7: Think hospitality and leisure is where it shows up. But

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Speaker 7: the biggest hires in the country today, The biggest employers

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Speaker 7: looking for labor are Walgreens, Family Dollar, grape Clips, the

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Speaker 7: Haircliff franchise. So consumers seeking affordable experiences and companies then

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Speaker 7: needing to hire. So that's one. Another is tech continues

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Speaker 7: to be strong. Software developers with a number two job

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Speaker 7: most in demand in the country, and AI machine learning,

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Speaker 7: which you spoke about a bit earlier on the show,

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Speaker 7: continues to set records week over week, month over month

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Speaker 7: in terms of demand, So big demand for AI machine

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Speaker 7: learning engineers specifically.

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Speaker 4: Becky, is there anything that you're see on the ground

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Speaker 4: that coheres with this idea of a sudden falloff in

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Speaker 4: demand for workers that could happen within the next six months.

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Speaker 7: Yeah, I don't think we're going to see a sudden

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Speaker 7: fall off. If anything, I think the word of the

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Speaker 7: year is stabilization. We're seeing a bit of rebalancing from

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Speaker 7: the post pandemic highs and lows. Employers are taking a

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Speaker 7: more measured approach in terms of who they're hiring again,

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Speaker 7: tending towards perm and employees are staying put. I mean,

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Speaker 7: we're seeing the quit rate really level off, and as

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Speaker 7: you alluded to in the jobless claims today, we're not

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Speaker 7: seeing layoff spike either.

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Speaker 8: And so people are staying put. Companies are holding.

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Speaker 7: Onto their workers for the most part, and we're starting

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Speaker 7: to see some evenness in terms of demand, some stabilization, I.

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Speaker 8: Would call it. I don't anticipate to drop off.

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Speaker 7: If anything, the PMI going above fifty, I'm hoping to

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Speaker 7: see some expansion, particularly in skilled trades in manufacturing.

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Speaker 6: I want to lean into that AI competition that you're

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Speaker 6: seeing in the labor market because Elon Musk, as we

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Speaker 6: said earlier, called it the craziest he's ever seen. How

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Speaker 6: difficult actually is to attract that talent that can fill

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Speaker 6: this industry that's fueling the stock market.

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Speaker 7: Well, I think First, the question is is the talent available.

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Speaker 7: So attracting the talent is incredibly difficult because we don't

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Speaker 7: have enough AI machine learning engineers. The population of skill

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Speaker 7: isn't large enough, so we have to upskill and reskill

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Speaker 7: people into those jobs. But it is a very, very

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Speaker 7: hot market. And let's just take a minute to define

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Speaker 7: what in the world is an AI machine learning engineer.

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Speaker 7: They're the people that write the algorithms. They do the

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Speaker 7: user interface so that we as users can log in

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Speaker 7: a chat GPT and it's a usable platform. So that's

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Speaker 7: the kind of skill we're looking for a lot of

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Speaker 7: data analytics, programming experience. That's what you need to have

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Speaker 7: adjacent skills to upskill into the AI machine learning engineers.

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Speaker 4: Becky, not to weigh into the political sphere, but I

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Speaker 4: am curious what you make of what jero and Powell

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Speaker 4: said yesterday about immigration and how much that has contributed

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Speaker 4: to a robust labor market without sort of commensurate inflation.

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Speaker 4: How much are you seeing that within your world in

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Speaker 4: terms of new immigrants, legal or not taking up jobs

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Speaker 4: that then really keep wages more reasonable, I guess for

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Speaker 4: the work for the employers and potentially not rising as

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Speaker 4: much for the workers.

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Speaker 7: Yeah, I thought it was a very provocative point of view.

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Speaker 7: I'm not sure we're you know, we're not seeing that.

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Speaker 7: We only hire people who you know, are are legal

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Speaker 7: able to work in the country. But we do believe

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Speaker 7: in immigration because we see that the structural economy has changed.

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Speaker 8: We don't have enough workers and so we don't enough

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Speaker 8: skilled workers.

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Speaker 7: But we don't have enough workers, and so that would

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Speaker 7: be our point of view is we would support you know,

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Speaker 7: anybody who can work.

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Speaker 8: We want to have them access to work.

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Speaker 7: But in terms of what is that got, you know,

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Speaker 7: hiding in the numbers, I think it goes back to

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Speaker 7: the old algorithms aren't holding in this recovery. And it's

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Speaker 7: one of the reasons that I would push on the

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Speaker 7: FED when we say they're waiting for the labor market

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Speaker 7: to decline in order to cut rates. The old algorithms

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Speaker 7: aren't holding, and I think we probably should explore that

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Speaker 7: a bit.

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Speaker 2: Hey, Becky, wonderful to explore it. Whether you thank you,

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Speaker 2: Becky Frankowitzlair of Manpower Group. This is the Bloomberg Surveillance podcast,

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Speaker 2: bringing you the best in markets, economics, and geopolitics. You

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Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business app.