Biggest Risk Is Downside Jobs Surprise: JPM's Kennedy

least for now. So the question is what do investors do after that phenomenal first half of the year. To help us guide us for the second half, we welcome our good friend Tom Kennedy Thomas, Global head of Macro and fixed Income Strategy at JP Morgan Private Bank. They have lots of money under management. Uh. Tom joins us here on our Bloomberg Interactive Brokers studio. Trust me, they have lots of money, the tech tech tons good jillions Jullian.

So Tom, what do we do here? Again? A great first half of the year, Probably a tendency for a lot of investors is to protect act what they made. If that's what somebody comes to, what do you tell them, Yeah, come to me a lot to ask that. I think it's all right. Question you get. Protection can come in lots of shapes and sizes, right, I want to protect myself by still staying invested. I think adding longer maturity bonds UH is a great port portfolio hedge. Common pushback

eels are so low, Tom, why would I do that? Well, they could go lower and maybe we want to talk about that. The other pieces are gold. I think historically has been a great late cycle play and it protects you. My My only pushback there is it doesn't have any

yield to it, so it's a pure protection play. And then what we have seen most on the first half of the of the year was forward steep in their trades, the place where the spread between a two year treasury and a tenure treasury would would steep in a down down draft scenario, but the forward market was relatively flat, so we had people positioning to protect their portfolio for a world where the Fed had to cut aggressively and steep in the curve. They were using that as a

portfolio hedge could get lots of leverage in that trade. Um, that trade I think has largely played out. The forward market is steepening already, so I think this is still a good trade, but it's not going to protect your portfolio the same way we thought it would earlier in the year. So you're not recommending bitcoin, No, we're not. That's not part of our two kit at the moment. And I'll pause there alright, seem might become want to want to look for I do have to wonder what

you're expecting for Friday. We do get that payrolls number, and the market certainly is positioned for three basis point rate cuts by December. What do we need to see in order to maintain calm on Friday? Yeah, the calm number I think is north of to one fifty, roughly around consensus. Um. I think you see anything under a hundred, and I think you have to start to think, well, what does the Fed do in July? Is it? Do we have to start the price twenty five basis point

cut in July? This conversation, I think gets gets very myopically focused. What does the Fed do in July? The base case, I think at this point has to be that they cut twenty five basis points. Inflation expectations are low. Growth is rolling over. But most importantly, the Fed hasn't pushed back on this. They have not pushed back on financial market pricing, So that should tell us that they are relatively comfortable with the way the market is pricing

at this point. Um between now and then Power will speak one more time, and assuming Friday's job job report is okay, I think you'll have actually Powell lean into and say, you know, what is okay with fifty is unlikely? Okay? So what's the big risk on Friday? Oh? I think the risk is that we start to see a crack in the in the labor market. This has been the foundation of the argument that there's no emergency happening right now.

The Fed's gonna cut, but it's doing it because it's a recognition maybe that they hiked one or two times too many last year. They're gonna get get down towards a lower neutral rate. If the consumers cracks, which it tends to be the last piece to crack um that argument that they're they're they're only gonna hike sorry, excuse me, only gonna cut one or two times looks less likely, and it's more likely they'll have to cut aggressively. UM So I think that's the real risk scenario. All right,

that's a good, good some ready for the FED. Let's go across to Europe. We have a new ECB president, Christine the Guard. What does that mean for you and for markets? Do you think I think we just priced out a hawkish leadership from the e c B. That's got to be step number one recognition. Um. From what we can deduce from her is that she's likely to be supportive of accommodation for from the ECB going forward, given the limited impact we've we've seen in her past statements.

Kind Of an interesting fact if we remember before ECB instituted QUI the I m F report that year, six months before QUWEE came out, she suggested in there that que was warranted if inflation remained low for a long time. So she even favored unconventional tools back in. I don't see anything and what she said since then that would suggest otherwise. So that's definitely encouraging the doves over in Europe.

I do want to just bring me this headline at President Trump just tweeting that China and Europe are playing a big currency manipulation game. You are seeing the dollar move a bit on this UH weaketting a touch against its major peers. I'm wondering how the dollar plays in here. If the dollar does continue to weaken, is that supportive for US bonds or not? Considering the fact that a

lot of Japanese investors are coming in an unhedged basis. Yeah, this question gets tough that the monetary policy accommodation is globally competitive at this point. So I think you have to answer the where will currency go question with who has more ammunition? Who has more ability to ease financial conditions? Is it Japan? Probably not? In the developed world? Is it Europe? Probably not, It's probably the FED. So between your your timing, now, where does flight to quality come

into play? If you hit a downdrafting growth that's substantial versus a FED that's trying to ease financial conditions to prevent that from happening. So I think we're in a period now where the dollar is likely to be um biased to depreciate. But you're you're you're talking about a timing game now, I think, and to be very clear, my base case is not that we hit UH substantial downdrafting growth over the next six to twelve months, but

we do. We do place a one and three chance of that happening UH in the next six to twelve months. It's quite high. Tom Kennedy, You'll have to come back after July four holiday and elucidate more of your opinions, because I've got a lot more questions. Tom Kennedy, Global head of Macro and Fixing Strategy at JP Morgan Private Bank. Well, Christine Lagarde, head of the i m F, is poised to take the home of the European Central Bank after Mario dragging leaves in October with us to help us

break this down. As Irene Finelle Higman, she is an adjunct professor of International Affairs at Columbia University in New York City. I mean, thanks so much for having us to what extent was this announcement of miss Laguard a surprise? UM? I think it was, first of all, thank you for letting me come back on Bloomberg to discuss this. UM. I think that this was a surprise, But at the

same time, everyone thinks it's a very smart choice. It was a surprise because it was assumed that this would go to a more conventional or traditional high level economist or other head of a central bank. However, I want to make one point because one of the comments has centered that Madame Lagat would bring more political expertise rather

than economic central bank expertise. However, it's important to remember that following the sovereign debt crisis in Europe from two thousand ten to two thousand and fourteen, this was a very unique time where for the first time, the I m F under before that DSK and Lagoud, the e c B under Tricia and and Hagi and the EU Commission had to work extremely closely together for the famous Troika to try to bail out these countries, both on

the sovereign nation basis and on the banking sector. So the relationship and knowledge and connectivity between the I m F and the e c B is far deeper than it would have been in other circumstances. I mean, this is a really interesting point, and I have to wonder there have been a lot of comments about her nomination, about Christine Lagard's nomination saying in general, being the head of a central bank is becoming increasingly a political role

in less of an economics role. I'm wondering, given the backdrop that is unique to the European Union, do you think that is a leap too far and that this really is an ECB specific necessity for a political kind of figure rather than simply an economics one. I think it's a combination. Um. I think clearly the e c B right now has had marvelous leadership under Draggy, but even more important, the e c B has taken on a mandate and an expanded scope of functions far beyond

its original mandate pure price stability and monetary policy. Under the new banking Union in Europe. The ECB today is very much in the same position as the said on having both extensive and expansive supervisory and monitoring power over the major banks in the Eurozone area and in of

course all European banking sectors. So this already puts it in a different position where clearly inter relationship between governments and between the banks and the national central banks is much tighter, is much greater than it would have been. Whether this supplies more to the e c B uh than elsewhere, that may be the case because of the unique structure of the Eurozone, and also because a brand new new commission is now also coming into play post crisis.

So I think all of these factors played together that there is no longer a way to nicely compartmentalize the economic side on the political side. So, Professor, what do you think Madame Lagar's goals and strategy will be when she, assuming she assumes this position. I think she will probably follow very closely uh the Druggy both methodology and policy. Uh.

There seems to be very much a continuation UH. She herself has uh seems to have had an expansive you of the role of major both multilateral and central banks in helping UH to stabilize economies maintaining stability, taking a very cautious approach, not to assume that economies are, particularly in Europe, suddenly doing well enough for anything dramatic to occur. Yet at the same time, she will have to be very careful because they're not that many tools left in

a sense, uh for the ECB to play with. UH. So there I think she will need expert economic advice on the technical side, But what will be very important is to first of all established prestige and total credibility in the markets, particularly in Europe, which I think she has because of her contact, because of her connection with the different governments and what she accomplished at the I M. S. I think also she will be in a very interesting position along with the new heads at the EU Commission

and Council, of dealing with Brexit, because Brexit is not only the political set of issues, but it's very much also the set of issues or what policy will the Bank of England take, What will be the into relationship between the ECB and the Bank of England, what maybe the impact, So she will immediately be thrown much more into that, and it will also be a question of

basically very carefully and slowly monitoring growth in Europe. So I guess as you're talking about the need for the sort of political savvy, I'm struck by the counter argument to this, the idea the more political essential bankhead gets, the less economic focus it will become in the more frankly arbitrary policy will become more hinged on the popular sentiment of the time. And I'm just wondering, you know,

is that a concern of yours? Is there a historical precedent in terms of an increasingly political central bank that gives you comfort rather than pause. I'm not sure that the central bank or any central bank will necessarily respond to more popular sentiment. And in fact, if anything we've seen with the said with your own power really the ability to push back on sudden and acute political pressure.

So I think that if it's an issue of suddenly seeing the central Bank the e c B is functioning as an arm of German policy, I don't think that will be the case. Um. I think right now what it does show is a tighter German French partnership which clearly brilliantly orchestrated, bringing in a German woman now as a new Urslabander Lean as a new EU Commissioner president

and Christine Lagat at the ECB. That's one element, which yes, is more political, but fundamentally what we saw with Droggy, what we seem to have seen all along with the FED, they seem to be very cautious and more responding to in fact all of the economic facts, rather than responding more at hoc to any particular sentiment. Irene Finelnigman, thank you so much for joining us today. Irene finel Hanigman.

Is an adject professor of International Affairs at Columbia University in New York, talking about Christine Lagarde's nomination to head the ECB. Initially, when we talked about blockchain, it was a sort of sexy, unknown thing that was going to lead to the disruption of traditional currencies. Now it has actually got a little bit more on the back burner, and yet it has been increasingly adopted as a mainstay for a lot of industries, and here to talk about it.

I'm so glad to say, as Bridget of Redlagon, she is Senior vice president of Global Industries, Clients, Platforms and Blockchain for IBM. Bridget, thank you so much for being with us. Can you first just talk a little bit about the adoption of blockchain across a variety of industries so far? Yes, thanks Lisa for having me on the show. Stem so happy to talk about it. So Yes, there's been a lot of hype, as you said, around the crypto and elements on the currency elements of blockchain, but

the real aspect of blockchain allows is very complex. Um multi party processes or workflows between customers, competitors and industries can be safely stored and exchanged in a way that they can be shared between all participants and once something is put on a blockchain, it can't be changed. We could talk about it being immutable, which means that anything that needs to show provenance will actually work fantastically on

a blockchain. So um, we are working with many enterprise blockchains across diverse industries like shipping, which we've got some big news I'll talk to you about later, but also trust and provenance for food and food safety, diamonds and jewelry, commodities trading UM and energy trading off a grid, UM, carbon credits, plastic recycling. Um. So it's really in real life aspects for big, big industries like food and and shipping, but also small industries like microfinance in Kenya where we

actually have a microfinance blockchain. So particularly excited to see the real work, so particulous a sense of how blockchain is being used in the global shipping supply chain. Yes, so so that that that poll so so Actually, just yesterday we announced that our trade lanes are shipping blockchain for the shipping industry has An. We've announced that we have two new members, Huppuck Lloyd and O N. E. And this follows the news in May that CMA, CGM

and Mediterranean Shipping Company would be on the platform. We started this a couple of years ago with MIRSK and we are now in a situation where fifteen ocean carrier lines are on the blockchain called trade lens Are blockchain, and more than half of the world's ocean container cargo will be available on this block chain. So so with a users already, a hundred participants already. So why is

this important and what's the blockchain impact? Well, if you think about it, nine of everything we use every day is shipped over the oceans. It is the most primary area of transport. And there's an estimate that around twenty pc of the cost of shipping an item is in documents, um and time wasted because of poor documentation. So an average, an average simple shipment will have around two hundred documents exchange, around three hundred different people involved, all on paper, all

on different systems. And so what we are able to do is we've created an integrated, trusted blockchain platform where every participant in the shipping cycle to think about a freight forwarder, the person who's shipping the goods, the carriers the customs, the ports, the the carrier, the land carrier will all share that data on the block blockchain and be able to instantly and there's kind of like one

version of the truths. So what that allows you to do, right, is that anyone can quickly pinpoint where their cargo is located the state of its availability. That reduces portant terminal congestion, reduces time for truckers, reduces customs and inspections delays um and ultimately shortens the lead time. So then so we go ahead. I really wanted to just pick up on

one point. You said that twenty of shipping costs stem from the documentation process, and I'm just wondering if you could address how much you expect using the blockchain for

the shipping industry could reduce the cost. So so we we we We are using data actually supplied by the World Economic Forum, and the World Economic Forum believes that reducing barriers within the international supply chain, which means really the things I've talked about, you know, speeding speeding up, reducing documentation, improving lead times, reducing delays, using spoilage because

things are sitting there. There's a view that that could um increase GDP worldwide GDP by five and total trade volume by fifteen percent. So those are those are those are significant. Um if you think about economic impact factors, both in terms of reducing costs but also um increasing inclusion for people to be able to actually ship globally and to export um so so again, using the World Economic Forum, there's an estimate that improved these kinds of

improvements would improve by around fifteen percent. So we were were we are, we are, we are we are. One of the reasons I think that the whole industry is is really stepping up and getting involved in this blockchain is because it does benefit every participant in this ecosystem to solve a problem it couldn't be solved in another way. That is fascinating. I mean, the five percent GDP left would be uh, you know, monumental. What the see how that plays our Bridget Vancrology and think you so much.

Bridget is senior vice president of Global Industries, Clients, Platforms, and Blockchain for IBM. Broadcom tries again after the debacle with Qualcom. Broadcom now in advanced talks to buy cybersecurity from Symantec Corporation. Cybersecurity obviously a very hot field right now,

given how many threats there are from hackers. Joining us now to talk about the deal, Man Deep Sing, senior tech industry analyst for Bloomberg Intelligence, very much in the office and present and analyzing this deal onto this pre July four day in New York City. So, uh, Man Deep, what can you tell us about this deal that you find most interesting? Well, this steal is very similar to what Broadcom did with c A last year, and Water tells you is the company is trying to diversify from

hardware to software. It's fairly obvious this deal has the exact same characteristics. Four billion dollars in revenue from Semantic and the company Semantic has been, you know, under performing for the last three years. When you look at the cybersecurity market, which is extremely fragmented, Semantic hasn't been able to turn itself around. They have had four CEO changes and now you know they don't even have a permanent CEO. So it looks like it's right in the playbook of

hawkt Hand, the CEO of Broadcam. He really could execute on this one. And there are some synergies that obviously will come about when this deal gets announced or these Broadcom folks are really active on the M and A front. I mean, is Lisa mentioned Qualcom that deal was blocked by President Trump, but they bought ce A last year. Is the street backing up this management in this board in terms of this aggressive acquisition policy? They are and

Broadcom is a serial acquirer. You can see that. You know, It's something that I feel it's in the DNA of the company, and they execute very well. So if this anybody out there, you know, and when it comes to large tech that can really turn around Semantic and fix it, it's going to be Broadcom. And and so from that perspective, it makes a lot of sense when you talk about synergies what are they because I do think of Broadcom as being a hardware story and I think of Semantic

as being a software company. Sure, so what Broadcom has showed with CIA integration is obviously there are some revenue synergies because they cater to an enterprise customer base. So Semantex's revenue half of it comes from enterprise. So over there you could see now that Broadcom has a footprint and infrastructure software with CIA integration, they can really leverage

Semantic on the enterprise side. On the consumer side, which is Semantec's flagship Norton product and the Lifelog business, I'm not sure if there are any imminent synergies, especially on the revenue side. On the cost side, yes, there are some synergies that will come about simply because this company is too big. Their skills in marketing expenses are very high for Semantic, and you can see there are some cost synergies over there. So obviously this deal has not

been announced. Speculating that it will occur any senses to evaluation. I'm just looking at Broadcom stockdown about almost four percent today. Um, is there a risk here that they might overpay? Well, one thing is they're more likely to go for a stock deal simply because Broadcom trads at about five to six time sales. Semantech trads at about three to four time sales. So I can see, you know, why a

Broadcom may be interested in using their stock more. And we've seen that salesforce, you know, buying tablet with an all stock offer. So given the leverage situation with Broadcom, they're more likely to use some stock here. One thing I'm curious about is why is Broadcom so aggressive. Why is their playbook acquisitions to such a degree. Well, look at it this way. Broadcom's DNA at the company is

built around hardware. They're really trying to you know, uh and and hardware businesses have lower ebit dum margins operating margins, so I think what software gives them. In this case, Semantech has operating margins over thirty So now with c A and Semantech broadcomps operating margin profile goes up simply because software businesses are attractive. So are we going to see more M and A here in the security cybersecurity space? I mean, Lisa correctly pointed out that, boy, it's it's

a hot area. Do you think it's going to see more consolidation there? Absolutely? Cybersecurity is one area in the of the software market that's very fragmented. There are new attacks happening every day, there are new companies popping up every day that solve those attacks. And you know, the fragmentation is a nightmare for enterprises because they're just putting band aids, you know, putting one solution on top of another. And from an enterprise perspective, they want to see some

consolidation in the cybersecurity space. So if you've already seen the likes of Paul Altel and Fortnet, and you know the next gen firewall security companies being acquisitive, you're gonna see more of fit. I think with this deal, I feel like people just want to throw all the smart people in cybersecurity programming in a room and say, just go figure out what's next. I say, if I were a young engineer coming out of school, I'd be like,

I'm gonna be a forget the app thing. I'm gonna be a cybersecurity expert, because that's just like a growth second industry for I can't forever. Do you have time to have lunch with my son? Of course? Excellent men, Deep saying thank you so much. Mendep Has, senior tech industry annalyst for Bloomberg Intelligence. Thanks for listening to the Bloomberg P ANDL podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer.

Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa A. Bramwit's one before the podcast. You can always catch us worldwide I'm Bloomberg Radio