Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along with my co host of Bonnie Quinn. Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news. Find the Bloomberg Markets Podcast on Apple podcast or wherever you listen to podcasts, and on Bloomberg dot com. We are waiting for the Fed Chair J. Powell testimony that will begin after the
opening statements on Capitol Hill. The Fed Chair going to tell Congress really that it's a little bit uncertain the outlook, but of course we're getting in data day by day. Retail sales were up seventeen points seven percent, better than expected, but down six point one percent year over year. I think that's important to stress things like auto sales surge. I guess people are not going to be in public transportation as much these days, so that may account for
some of that. Let's see what the effect on the markets is of the data, but also of the feds moves yesterday, and bring in Dave Wilson, Bloomberg Stocks editor. I mean, those are all pieces of the puzzle. V You no question when you look at the apartment store chains, and you see Cole's, Macy's, and Nordstrom all up more
than ten percent of early trading. It tells you the retail sales figures are getting people's attention even beyond the economic data though, even beyond monetary policy, which Chairman pal is going to be talking about at length. You know, momentarily, you have to look at this story that we came out with overnight, uh, that the Trump administration is working
on a trillion dollar infrastructure proposal. Now something like this has been kicking around literally for years, but at a time when people are looking for more physical stimulus, UH, got to bolster the economy here. Uh, let's just say this report is getting people's attention. And whether you talk about makers of construction equipment, uh, construction materials, you know, the actual builders, the engineering firms, even a company like
United Rentals which rents construction equipment. All these stocks at the forefront of today's game. So you know, the idea that maybe there is in fact going to be an infrastructure program in the end getting people's attention. So there's a pretty broad based advance going on in stocks at this point, and those particular companies affected by the infrastructure
proposal are a big piece of it. Bloomberg Stocks editor, So, Dave Wilson, I'm thinking about here when we think about the retail sales number here, I guess one of the issues for a lot of folks is how much is this is real kind of just pent up demand, kind of call it natural demand, pent up demand versus you know, the the effects of the stimulus, which came pretty early, you know, on average, for for for some folks into
their checking account. How much is the market trying to figure out what's natural pent up demand and what's kind of fiscal stimulus. Well, for the moment, they're just happy, they're there's some kinds of demand. I mean, give what these retailers have been through the last couple of months, and there's no doubt there's going to be a lot of back and forth in terms of where did things
go from here. You have the extra unemployment benefits that are due to expire at the end of July, and there's focused on that piece of the puzzle in terms of what it may mean for consumers willingness to spend down the line. You know, those checks are certainly part of that, uh put it all together. You know, people
are happy enough. It would seem from the way the retail stocks are performing with what they saw in terms of the big picture, because like all the retailers in the SMP five hundred are higher at the moment, at least the ones that are in the retail index. So you know, take it and run with it and we
see what happens as things unfold from here. And Dave, yeah, as you mentioned, like nords From is up twelve percent, It's been a long time since norths From has scene that kind of a move, but also Norwegian clues Line, Carnival and so on United Rentals. Dave, what about the bond market? How much is that impacting things? Because the Fed did say it was going to buy old swath of corporate bonds yesterday. Well, that incentivize people to issue more,
and I mean that that is a real question. We are seeing a whole lot of companies UH moving to the bond market as a way to kind of shore up their finances. If you look at high yield debt specifically, I mean we had to report out that Americans talking about a high yield debt issue with City Group and it would be backed by things like their airport slots and gates, so they're trying whatever they can to raise
money and kind of keep things going. And when you look at the airlines, they're certainly UH having some pretty substantial gains. And today's trading American peven for example, of eight point three percent at the moment. So you know, the idea that the FED is going to be there to you know, backstop the investment grades side of the market, well,
at the very least it's being received. As you know, here comes some more support for markets from the Central Bank, and that that's tended to go over well the past several weeks. Block Citor Davilson, thank you so much for that. We appreciate that. On this strong opening to the market today, on the backs of the strong retail sales. We are waiting UH FED Chairman j Palen just moments with his uh comments and Dana in Washington get a little bit
of a preview. We welcome Ira Jersey, chief US interest rate strategist for Bloomberg Intelligence. So, Ira, we're seeing some of the headlines across the Bloomberg terminal here seems like status quo from Chairman pal Is that you read well, the status quo given that he only spoke to us last week after the meeting. He's reiterated a lot of the same things. Right, They're going to keep interest rates low for a very long time until the economy is
UH is on a good trajectory. They do think at this point that inflation is going to be well below their target for a long time. So until you wind up seeing that type of activity where you see inflation move a bit higher and growth on a steady trajectory. Yeah, I think the Fed at this point is going to
still remain pretty cautious in its outlook. Why did the Fed decide to buy corporate bonds across the board yesterday, Ira, Well, it's basically just making good on a promise that it made a couple of months ago, really when when the Care's Act was first um But when the Care's Act was first passed, the Treasury Department gave money to the Fed in order to UH in order to buy corporate bonds, and that was one of the things in their promise.
And if you recall Chair Powell said at the at the April meeting, at the very end of April that they would be buying and that one of the reasons why they thought, why why the FED thought that the corporate bond market had been doing so well and why corporate bond spreads a tighten so much was because of the implicit promise that the FED made so they would
be and be sure to enact that Now. I think one of the challenges that they've had is that they back then, had they been able to implement the program immediately, there would have been bonds that you could have considered cheap on certain measures or models that that you might have for where the debt should be versus say the survivability or or you know, making sure that this company
didn't go bankrupt or go out of business. Today, that's much harder because the corporate bond spreads are so tight that you can't do that. So they've created this new index that they've done internally. Um so they could basically maybe buy you know, huge swaths of the bond market in order to uh in order to fulfill their pledge, but at the same time nacho favoritism and also not buy things that are you know, inherently very very rich,
which is what some people are saying. Some of the investment grade debt certainly appears to be so Ira and your you know, you've been covering this stuff a long time. You've been following the Fed and the interest rate markets for a long time. It's just the most creative, slash aggressive that you've seen the Fed Reserve in terms of its market participation. Well, it is, but it's also you know, we've kind of blurred the lines a little bit. So
so in many ways. You know, when we talk about things like the main street lending program or the corporate bond buying program, the FED is implementing those programs, but in reality, it's not only a FED program. It's really a joint program between the Treasury Department and and the FED. So while the Fed is levering up some of the equity, the FED is not taking the first tranche of of
the fault risk. So let's say that the Federal Reserve does buy two fifty billion dollars in corporate bonds and you know, ten percent of them go um go bankrupts, right, and there's there's tempers and the losses in that portfolio. Well, ultimately the FED doesn't actually take that loss. The American taxpayer does through the money that the Treasury Department gave to the FED. So so we have to keep in mind this isn't a FED program, this is a government program.
It's a government program, but it can be levered ten times. Is there anything unsafe about any of this? Um? Well, is there anything unsafe? That's a good question. I think the answer is from the Fed's perspective, not really, because if the FED took a lot of losses in these portfolios, the Treasury Department would have to prop that up. Now, could we be saying the government be involved in buying
things from the corporate market. I think that's more of an existential question, and certainly one that is uh um, predicated on your own political beliefs. I mean, the tenet of central banking is to provide liquidity to markets, and this is going a little bit beyond that, I think, in my personal opinion. Um, But they also have to do it because they said that they would, right, So, so I think that's where they're going. Will they buy
two and fifty billion, I don't think so. I think that the ultimately they'll buy far less than that, may be closer to a hundred billion dollars in bombs, but um, it's still at something that I think they feel they need to do to fulfill that promise and not um potentially widen credit spreads if they were to say that we're not not buying any corporate bombs at all. So, boy,
the FED. It just from my perspective, I've been in this game for thirty years, and it just seems this FED has been I think the most aggressive and the most creative that I can remember. Um, are there's tools left in the toolbox for the FED that you think should we see a you know, a second wave and maybe even some lockdowns in the fall in the winter that this FETE has or is it kind of used most of its tools? Well, first, they could certainly expand
some of the tools that it's currently been using. But but I think that a lot of anything that they would they would do in a major way going forward when it comes to UM things like you know, help to the household sector that would have to come from another fiscal stimulus plan where maybe the Federal Reserve administers it or levers it up like they are the main
street lending program. Um. But but the other things that they can do is things like yield curve control, so they can say that if let's say, the Treasury Department issuing so many bonds that there is a buyer strike. The Federal Reserve could go out and say we're going to um, you know, cap five year bond yields at
seventy five bases points at zero point. If they were to do that, then they would wind up basically becoming the backstop buyer all the time for that part of the yield curve, and in doing so, they would definitely signal that they would are keeping interest rates low for a very long period of time. And you've heard a couple of FED speakers talk about that and how something like yields curve control might be implemented in the future, and I think probably it will be. It's just a
matter of when. All right, our thanks to our Jersey from Bloomberg Intelligence, Chief industrate Strategists. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio