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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Michaelherson of twenty two
Speaker 2: V Research Rights in this the trade and investment relationship
Speaker 2: remains understrained, particularly on tech related issues. The intense geopolitical
Speaker 2: rivalry and domestic politics in each country limit the room
Speaker 2: for active cooperation. Michael and POLICEA say it's with us
Speaker 2: now for more. Michael, let's get straight into it. What
Speaker 2: is at the top of the agenda for Jannet Yellen
Speaker 2: on this trip.
Speaker 3: Well, I think for the US side, it's stuff only
Speaker 3: this issue of excess capacity or really you know, China's
Speaker 3: very aggressive focus on promoting advanced manufacturing, particularly in some
Speaker 3: of the same strategic sectors that the Biden administration is
Speaker 3: focused on, so electric vehicles, solar energy. That is top
Speaker 3: of the US age, and it's a trade issue, but
Speaker 3: it's also a macro issue for global growth. And I
Speaker 3: think that's one reason why it's Janet Yellen delivering this message,
Speaker 3: not necessarily US trade officials. That's definitely top of the
Speaker 3: top of the priority list for the US.
Speaker 4: Michael, when I was reading and listening to it, Jenny
Speaker 4: Ellen had to say, I kept thinking, what's the distinction
Speaker 4: and how big is the distinction between decoupling and enforcing
Speaker 4: a level playing field.
Speaker 3: I think for Treasury Secretary Yellen, there is a big
Speaker 3: distinction in the sense that I honestly think you know
Speaker 3: as a trained economist, that she believes that trade is
Speaker 3: good and that she wants to deliver a message that
Speaker 3: the US does not seek to couple. Now, that's kind
Speaker 3: of a controversial view in the US, and I think
Speaker 3: to some extent you've ben within the Biden administration, But
Speaker 3: generally speaking, I think she is trying to say, we
Speaker 3: want to have trade, but we need to address what
Speaker 3: on the US side is considered these distortions coming from
Speaker 3: China's manufacturing sector, a lot of.
Speaker 4: The focus has been on green energy and the supplies
Speaker 4: that are needed to really push forward the entire platform.
Speaker 5: By the Abdan administration.
Speaker 4: How much are the Biden's administration's hands tied in a
Speaker 4: way because they are looking to shift toward certain types
Speaker 4: of technologies that require metals and technologies that are dominated
Speaker 4: by China.
Speaker 3: It's a very difficult balancing act, and I think, you know,
Speaker 3: it's somewhat depends on the sector. It's something like solar.
Speaker 3: China's cost advantages are just so extreme at this point
Speaker 3: that you know, it's very difficult to meaningfully, you know,
Speaker 3: decouple from China or take really aggressive actions in the
Speaker 3: solar sector, something like electric vehicles. You know, it's a
Speaker 3: bit more nuanced. But I think that is the balance
Speaker 3: that they have to face. And again it's one reason
Speaker 3: why Jenny Yellen is out there. Instead of just slapping
Speaker 3: additional tariffs on these items, really the solution for both
Speaker 3: sides should be to try to work on some kind
Speaker 3: of accommodation to address the concerns on each side.
Speaker 6: She alluded to tariffs, though yesterday she said I wouldn't
Speaker 6: want to rule out other possible ways in which we
Speaker 6: would protect them talking about clean energy. Where does the
Speaker 6: US stand right now? Where is that tariff review?
Speaker 5: That's a good question.
Speaker 3: There is a terrorf review that's been underway, and you know,
Speaker 3: we've heard numerous times that you know it would be out,
Speaker 3: for example, at the end of last year. I think, frankly,
Speaker 3: it's unlikely that we're going to see any really aggressive moves,
Speaker 3: certainly to lower tariffs. And it is possible that we're
Speaker 3: going to see moves to increase some of those tariffs.
Speaker 3: Perhaps we would lower them on some of the consumer
Speaker 3: items that aren't strategic coming from China. But I think
Speaker 3: tariffs are going to remain part of the toolkit, especially
Speaker 3: on an area like logic vehicles. When you see this
Speaker 3: expert surge that's showing up in Europe but not showing
Speaker 3: up in the US, and I think trade officials in
Speaker 3: the US are going to want to keep it that way.
Speaker 2: That's the one we're looking for. Michael, Thank you, sir,
Speaker 2: Michael Hurston.
Speaker 7: There.
Speaker 2: John Balvan of black Rock remaining bullish writing this. We
Speaker 2: think upbeat risk appetite can broaden out beyond tech as
Speaker 2: more sectors adopt AI more broadly, rising of volatile yields
Speaker 2: have not disrupted the push hire and developed market equities.
Speaker 2: That's consistent with our view the mega forces such as
Speaker 2: AI are key drivers of returns. Now, John and police
Speaker 2: to say, John, just now for more, John, we'll get
Speaker 2: to the stock marketing just a moment. I just want
Speaker 2: you to views on Chairman Powell yesterday. Given the economic
Speaker 2: data we've seen so far, would you describe some of
Speaker 2: those data points it just bumps in the road, and
Speaker 2: the same way the Chairman has.
Speaker 5: Well, I think this is this is a long road.
Speaker 1: So if I look at the first stretch of that road,
Speaker 1: I think it's a bump.
Speaker 5: So we think inflation is.
Speaker 1: Going to be showing progress towards two over the next
Speaker 1: few months. The FED is data dependent, they're not forward looking,
Speaker 1: so they're going to be lured into we've solved inflation.
Speaker 5: That's going to be the story.
Speaker 1: That's part of the reason why we're kind of constructive
Speaker 1: on risk for now.
Speaker 5: And I think I think that's gonna be the sort
Speaker 5: of will cut.
Speaker 1: This is a FED that is bucked himself in December
Speaker 1: to be cut at some point this year, some point soon.
Speaker 1: I think the bar not to do that is pretty high.
Speaker 1: I mean, we can debate whether this is the right stance,
Speaker 1: but it is a stand. So as a result, a
Speaker 1: bit of forest inflation will cut the narrative for them
Speaker 1: that there's bumps, and they'll they'll be in a position
Speaker 1: to cut. So I think that's the story for the
Speaker 1: next few months, and that's why risk assets are set
Speaker 1: to will continue to perform.
Speaker 2: Is on. The story we've had over the last few
Speaker 2: days really is had to interpret the moves and bonds
Speaker 2: in commodities with regards to equities. How are you interpreting
Speaker 2: those moves?
Speaker 1: Yeah, I think the well, the first point to make
Speaker 1: is you we very much believe we're in a new regime,
Speaker 1: right so we're pro risk right now. I think that's
Speaker 1: has room to continue, room to run, but it's it's
Speaker 1: a very different environment. The idea that we're going back
Speaker 1: to through immaculate discinflation to the great moderation of pre pandemic,
Speaker 1: I think is not happening. And I think when you
Speaker 1: look at the bond vlatility that we're saying it continues.
Speaker 1: That was clearly the case of twenty twenty three, but
Speaker 1: like even this week, massive I think that's the biggest
Speaker 1: evidence we have that this is.
Speaker 5: Not, you know, back to the old regime. So I
Speaker 5: think we're saying, you know, a lot of valet the
Speaker 5: macro narrative.
Speaker 1: It takes a little bit of infra data to come
Speaker 1: in to lead to very significant reactions as we've seen.
Speaker 1: And then lo and behold that we're at the same
Speaker 1: point as we were like a week ago before the
Speaker 1: PCEE in terms of FED expectations.
Speaker 5: The only thing that has really changed is long term
Speaker 5: rates that are set at a higher level now. So
Speaker 5: I think it speaks to this environment where we can
Speaker 5: very much.
Speaker 1: See the FED starting to cut, but at the same
Speaker 1: time don't expect long term rates to follow suit and
Speaker 1: move down. I think we can very much see, you know,
Speaker 1: a FED that starts to cut rates, we're going to
Speaker 1: be only a couple anyway, and then we're going to
Speaker 1: at the same time see rates that are stable, long
Speaker 1: term rates that are stable or even go higher from here, which.
Speaker 4: Is the reason why you've been focusing on the short
Speaker 4: end of the yield curve. We had John Soface earlier
Speaker 4: this morning on who said that that stocks could continue
Speaker 4: to rally as long as ten youre treasure yields didn't
Speaker 4: reach six percent. Do you agree with that that if
Speaker 4: we had ten year treasure yields north of ten percent,
Speaker 4: that would not be north of five percent. Excuse me
Speaker 4: that that would not be a problem for equity evaluations.
Speaker 1: No, I wish just the case, But I find it
Speaker 1: hard to relax about this.
Speaker 5: So I think if we were really of the view
Speaker 5: that we're going.
Speaker 1: To six in a short order, like over the next year,
Speaker 1: six percent tenure very difficult to see equity that sailed
Speaker 1: through this, and I think we've seen some evidence of
Speaker 1: that right that go back to October of last twenty
Speaker 1: twenty three. Last year we went down north of five percent,
Speaker 1: and that was a very different narrative, felt very different.
Speaker 1: So I mean, over a course of ten years we
Speaker 1: might reset to a hier rate environment and realize that
Speaker 1: we can live with that. But I think the journey
Speaker 1: there will be one where equities will will feel more
Speaker 1: than bumpy.
Speaker 4: When people talk about a new regime, A lot of
Speaker 4: guests who come on surveillance talk about their investments in
Speaker 4: the energy sector as well as just commodities in general,
Speaker 4: that any AI adoption has to come with hard infrastructure
Speaker 4: investments that have not been fully accounted for. How much
Speaker 4: is Blackrock kind of adhering to that and really overweighting
Speaker 4: a host of commodities.
Speaker 1: So there is a massive restructuring of the economy that
Speaker 1: is happening. We think there's AI is one big piece
Speaker 1: of it, but we see five big mega forces. Graphics
Speaker 1: is going to lead to a big change in spending
Speaker 1: pattern and developed economies. The rewarding of geopolitics means that
Speaker 1: we have a different organization globally that requires adjustment. Infrastructure,
Speaker 1: we have the transition, the transition, and we think finance
Speaker 1: is restructuring itself as well. So big, big trends, all
Speaker 1: of them require adjustment and need adjustment that they have
Speaker 1: to involve some kind of very significant investment.
Speaker 5: I mean, if you only take.
Speaker 1: The transition, the energy transition, that's by itself, you know,
Speaker 1: a huge amount of investment.
Speaker 5: I think AI is in the middle and interacting with that.
Speaker 1: So yeah, I think infrastructure is a huge part of
Speaker 1: the year, the story of the year to come. Even
Speaker 1: if you don't have like very you know, bullish growth expectations,
Speaker 1: we still need a lot of investment.
Speaker 5: And for such an investment, so and.
Speaker 1: Yes, that's going to support commodities. I think it's harder
Speaker 1: to draw a link to this need for investment and
Speaker 1: what is going to mean for commodities. I think it's
Speaker 1: a much more blex story, but there is ultimately we're
Speaker 1: going to be drawing more in commodities as we as
Speaker 1: we deliver on these investments.
Speaker 6: You mentioned this changing geopolitical map. We have the Secretary
Speaker 6: of the Treasury over in China and she's talking about
Speaker 6: that they don't want to completely decouple from China. It's
Speaker 6: just about diversifying.
Speaker 5: Do you buy that?
Speaker 6: And if it was to be a decouple, how does
Speaker 6: that change your thesis?
Speaker 1: Well, I think the coupling, complete decoupling is even if
Speaker 1: that was.
Speaker 5: The objective, is not realistic, right.
Speaker 1: I mean, we're we're intertwined very fundamental ways globally, and
Speaker 1: so you know fully decoupling will will not will.
Speaker 5: Not even be on the table.
Speaker 1: So I think I don't see necessarily a lot of
Speaker 1: information in the comment like this, right, I mean, it's
Speaker 1: it's kind of a straw man that is unachievable. But
Speaker 1: there is a trend. I think the most important thing
Speaker 1: for me is that we are fragmenting. There is a
Speaker 1: there's a distansation that is happening. The question is how
Speaker 1: is it going to be negatid But in the meantime,
Speaker 1: aside from the politics and those trips, I think investors
Speaker 1: are investors and companies globally are adjusting and making plans
Speaker 1: that are accounting for the fact that the world will
Speaker 1: be more fragmented than it was. And I think that's
Speaker 1: a big that's one of the big mega forces that
Speaker 1: is happening.
Speaker 5: Uh. In his affecting decision even as we speak.
Speaker 2: Is John inf that's the case? Do I want to
Speaker 2: have a bus towards small caps away from multicamp multinational
Speaker 2: big caps.
Speaker 1: I mean you could, you could eventually see, uh, see that.
Speaker 5: That logic playing out.
Speaker 1: I think for now, we still think that, you know,
Speaker 1: more from a tactical basis, uh, that you would need
Speaker 1: to have a more conviction on on you know, a
Speaker 1: growth spur that is lasting more than a few months
Speaker 1: to start to broaden your views on small caps. I
Speaker 1: think there's going to be more of a story about
Speaker 1: the near term growth than it is about fermentation.
Speaker 5: But if you think on a ten year basis, then
Speaker 5: I can.
Speaker 1: Very well see, uh, you know, a story where you
Speaker 1: see more localized companies, smaller caps, small caps being beneficiaries
Speaker 1: of this geo poltical mega force.
Speaker 2: I just want to watch John, You're one of the best.
Speaker 2: Thank you, Jean Bavan there of black Croft. Now to
Speaker 2: discuss the labor market is Becky Frankowitz, the chief commercial
Speaker 2: Officer and North America President Manpower Group. Becky, wonder FOROO
Speaker 2: to catch up with you. One thing we love to
Speaker 2: do with you is talk about what's happening with temp workers,
Speaker 2: the shift between temp workers and permanent hires. Can you
Speaker 2: talk us through how that's evolved as the year is progressed.
Speaker 7: Yes, So normally coming out of a recovery or into
Speaker 7: a recovery out of recession, you would see employers want
Speaker 7: the flexibility of temp workers, so that's a measure called
Speaker 7: temp penetration. We would see that increase. We have seen
Speaker 7: that below two percent, which two percent is the average, consistently,
Speaker 7: and we're starting to see even further declines in tent penetration. However,
Speaker 7: the offset of that is we're seeing permanent hiring continue
Speaker 7: to be strong, which definitely reinforces two things.
Speaker 8: One employers are still hiring.
Speaker 7: And two there's a bit of post pandemic hangover where
Speaker 7: employers couldn't find the talent that they want, and so
Speaker 7: they're scared not to grab them and make them permit employees,
Speaker 7: and so that will be a number I'm watching tomorrow
Speaker 7: what's happening in tent penetration, but perm will definitely be strong.
Speaker 2: Becky, did that make it difficult to read into where
Speaker 2: we are in the cycle? Those traditional indicator is broken
Speaker 2: because of this approach post pandemic.
Speaker 7: Yes, I would say the human behavior has now come
Speaker 7: into the algorithms that everyone is using, and it's very
Speaker 7: difficult to predict where we are in a cycle given that. However, again,
Speaker 7: the resilience of this labor market, John is just amazing.
Speaker 7: We continue to see strong numbers. If we see a
Speaker 7: two thirteen or a two fifty tomorrow, I wouldn't be
Speaker 7: surprised anywhere in between, which definitely demonstrates a very resilient
Speaker 7: labor market.
Speaker 4: It also highlights the sort of rolling recovery and rolling
Speaker 4: recessions to the labor market as well as in the
Speaker 4: broader economy. Where are you expecting the jobs to be added?
Speaker 4: For a while, it was more focused in the services
Speaker 4: sectors and the sort of people facing areas that had
Speaker 4: gotten hardest hit during the pandemic. Are we seeing that
Speaker 4: shift to some of the areas that have been left
Speaker 4: behind of late, in particular middle managers and other types
Speaker 4: of professionals.
Speaker 8: Yeah, so bls the jobs numbers. Look in the rearview mirror.
Speaker 7: We're looking at real time data every day in terms
Speaker 7: of demand for jobs in the country, and we're seeing
Speaker 7: increased demand in affordable experiences. I like to call it that.
Speaker 7: Think hospitality and leisure is where it shows up. But
Speaker 7: the biggest hires in the country today, The biggest employers
Speaker 7: looking for labor are Walgreens, Family Dollar, grape Clips, the
Speaker 7: Haircliff franchise. So consumers seeking affordable experiences and companies then
Speaker 7: needing to hire. So that's one. Another is tech continues
Speaker 7: to be strong. Software developers with a number two job
Speaker 7: most in demand in the country, and AI machine learning,
Speaker 7: which you spoke about a bit earlier on the show,
Speaker 7: continues to set records week over week, month over month
Speaker 7: in terms of demand, So big demand for AI machine
Speaker 7: learning engineers specifically.
Speaker 4: Becky, is there anything that you're see on the ground
Speaker 4: that coheres with this idea of a sudden falloff in
Speaker 4: demand for workers that could happen within the next six months.
Speaker 7: Yeah, I don't think we're going to see a sudden
Speaker 7: fall off. If anything, I think the word of the
Speaker 7: year is stabilization. We're seeing a bit of rebalancing from
Speaker 7: the post pandemic highs and lows. Employers are taking a
Speaker 7: more measured approach in terms of who they're hiring again,
Speaker 7: tending towards perm and employees are staying put. I mean,
Speaker 7: we're seeing the quit rate really level off, and as
Speaker 7: you alluded to in the jobless claims today, we're not
Speaker 7: seeing layoff spike either.
Speaker 8: And so people are staying put. Companies are holding.
Speaker 7: Onto their workers for the most part, and we're starting
Speaker 7: to see some evenness in terms of demand, some stabilization, I.
Speaker 8: Would call it. I don't anticipate to drop off.
Speaker 7: If anything, the PMI going above fifty, I'm hoping to
Speaker 7: see some expansion, particularly in skilled trades in manufacturing.
Speaker 6: I want to lean into that AI competition that you're
Speaker 6: seeing in the labor market because Elon Musk, as we
Speaker 6: said earlier, called it the craziest he's ever seen. How
Speaker 6: difficult actually is to attract that talent that can fill
Speaker 6: this industry that's fueling the stock market.
Speaker 7: Well, I think First, the question is is the talent available.
Speaker 7: So attracting the talent is incredibly difficult because we don't
Speaker 7: have enough AI machine learning engineers. The population of skill
Speaker 7: isn't large enough, so we have to upskill and reskill
Speaker 7: people into those jobs. But it is a very, very
Speaker 7: hot market. And let's just take a minute to define
Speaker 7: what in the world is an AI machine learning engineer.
Speaker 7: They're the people that write the algorithms. They do the
Speaker 7: user interface so that we as users can log in
Speaker 7: a chat GPT and it's a usable platform. So that's
Speaker 7: the kind of skill we're looking for a lot of
Speaker 7: data analytics, programming experience. That's what you need to have
Speaker 7: adjacent skills to upskill into the AI machine learning engineers.
Speaker 4: Becky, not to weigh into the political sphere, but I
Speaker 4: am curious what you make of what jero and Powell
Speaker 4: said yesterday about immigration and how much that has contributed
Speaker 4: to a robust labor market without sort of commensurate inflation.
Speaker 4: How much are you seeing that within your world in
Speaker 4: terms of new immigrants, legal or not taking up jobs
Speaker 4: that then really keep wages more reasonable, I guess for
Speaker 4: the work for the employers and potentially not rising as
Speaker 4: much for the workers.
Speaker 7: Yeah, I thought it was a very provocative point of view.
Speaker 7: I'm not sure we're you know, we're not seeing that.
Speaker 7: We only hire people who you know, are are legal
Speaker 7: able to work in the country. But we do believe
Speaker 7: in immigration because we see that the structural economy has changed.
Speaker 8: We don't have enough workers and so we don't enough
Speaker 8: skilled workers.
Speaker 7: But we don't have enough workers, and so that would
Speaker 7: be our point of view is we would support you know,
Speaker 7: anybody who can work.
Speaker 8: We want to have them access to work.
Speaker 7: But in terms of what is that got, you know,
Speaker 7: hiding in the numbers, I think it goes back to
Speaker 7: the old algorithms aren't holding in this recovery. And it's
Speaker 7: one of the reasons that I would push on the
Speaker 7: FED when we say they're waiting for the labor market
Speaker 7: to decline in order to cut rates. The old algorithms
Speaker 7: aren't holding, and I think we probably should explore that
Speaker 7: a bit.
Speaker 2: Hey, Becky, wonderful to explore it. Whether you thank you,
Speaker 2: Becky Frankowitzlair of Manpower Group. This is the Bloomberg Surveillance podcast,
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