FOMC, Inflation, and the Economy

Jennifer Lee, Senior economist and Managing director BEMO Capital Markets joins is via the phone, and Daniel D. Martino, Boots, CEO and chief Strategists at Quick Intelligence Joints, is here in on our Bloomberg Interactive Broker Studio, and Jennifer, I'm gonna start with you. We had Christine Legard today, FED Chairman j Pal yesterday. Let's talk central banks. What's going

on at there with their central bankers globally? You tell me, we'll both be the You know, I think I think everyone it was funny with just Jimmy in on the FED for a second. You know, I thought there was a little bit of something for everyone in that press conference, but I was leading towards the view that he was more hawkish than I think. What the market was initially thinking, um, the big of England. I have no idea it was.

It was um. It was a bit mixed, but it sounds like they're towards the end of the red hikes and the c D was all in the hawki ish, so I was calling it was interesting how the entire governing Council seems to be on board this, this s S hawk Is ship. It has led by Christie Legard to Captain Legard um and I think you have to call her. There's an unwritten rule you don't call anybody else Mr or missus anything, but in her case it

has to be Madam. Okay, I don't like, but yeah, I can see another ray high coming up after March. But you guy, it's all good. Be data dependent. I don't know about you know, the ECB and the b o E. But in terms of the FED. You know, my wife always says, I don't care what you say. Your actions speak much louder than your words, and they only easily good for nothing. Twenty five basis points not

to mention the fact that um, they see disinflation. He admitted he waffled on the question Powell about whether or not anyone talked about a pause last time. He just said, no, point blank, end their data dependent. So what is the point of telling me what you plan to do maybe if the data goes your way, and then saying your data dependent, Danielle. So look, I think it's all very nuanced. We forget that the way the CPI is constructed is changing before our very eyes. Used car prizes which are

coming down hard, that weight's going to be reduced. New York rents which spiked after the entire rest of the country. That's eleven percent of shelter in the in in inflation that's going to feed through with a lag. There are many cases to be made for inflation being higher in the second half of the year than what the market is currently anticipating. What I think was the most devish

what I think turn markets around yesterday. The hardest was when he was specifically asked about the Jolts data, which was obviously stronger than what was That was that was why markets freaked out going into the FED yesterday, was Jolts was so strong north of eleven million openings again one point nine two per every for um for every opening um. Anyways, he did site that, but then he faded it. He's like, you know, when he faded, jolts markets turntail and went straight to the moon. Did I mean,

did I misunderstand, did I maybe miss here? Or did he say financial conditions were tightening? He said? And then I have to ask in what universe does exactly, because because financial conditions have given back everything all the way until February two, it's as if the Fed has not hiked up one basis point forget twenty five or unusually large seventy five times four plus fifty plus twenty five. But but he did say that he anticipated that in time,

ultimately financial conditions would reflect his restrictive stance of monetary policy. Again, yesterday was just wishy washy. Yeah, Jennifer, I want to get your opinion here. I mean, the markets have been saying, well, the FED officials and central bankers around the world have been saying, they've been talking tough, We're gonna keep rates higher, We're not going to turn tail. But the markets are saying not so fast. I mean, the market of pricing in rate decreases it the end of the year. How

do you think about that dichotomy? Uh, you know, in many ways this is all, you know, the communications, and it sounds like it's being muddled again. UM, just given it, you know, just everyone here on this of his call to UM. But you know, we have been always of the view that you know, the rate cuts would not be uh seen this year. UM. But I guess the scary part is that you know that you know, as they I was saying, we were talking about the old

data of the employment data. You know, he was saying that it's still you know that the job market is way too strong, and uh, it almost frightens me to think, you know, what are they willing to do to to cause the labor market to almost buckle? It seems, in order to bring inflation back down to two percent, and it sounds like they're going to keep it, you know, higher, for longer. Alright, I have a listener who's written in Okay, he sent me a chart of different countries inflation data.

I just showed it to Danielle because I don't really know what to do with it. But UM, he's saying and asking a question, what happens to Marcus if we become like in the nineteen se and d's we pause and then have to hike again and this I thought was a concern, but I guess their data dependence, so

they're willing to change the way they're going every single meeting. No, uh no, no, no, no, I'm going to push back on this because he was asked that question specifically yesterday and he said, I don't mind if we overtighten, because we cannot pull the genie back into the bottle if inflation gets re released. He's like, if we tighten too much, we've got tools to bring it back down. But he said, I will not stop until I'm convinced that we don't

have to go back in. So he again, there was so much that he said yesterday that was flat out ignored, and he was very articulate and emphatic in saying, I don't care if we go too far. Well, Jennifer, the market still clearly doesn't believe that the FED is going to raise rates past you know, five percent um at least that's not the pricing on w I RP GO shows me that the market doesn't buy that, and the market still is pricing in cuts this year in fact too.

So what does that mean to you at demo UM, that that that that that this FED doesn't have credibility or that the market thinks Pale is going to change his course. Why, Jennifer, I don't know if they're going to change their quarters. The market is thinking that. It sounds like they're almost ignoring everything he's saying. But you know, again for the way, what dinner I was just saying, I mean, he did see yesterday about history cautioning against

prematurely loosening policy, and and he said that before. Was it Jackson hole when you know when he first made that comment, and he's still standing by that. And I think it's it's it's better too, as they have said before, to tighten too much than and then they're not tightened enough. And again they have you know, they have the tools to back down on that. Even um regard this morning, she was saying, do not students that are in faulved

to bring in flash back down to target. And I think that's what again the same thing she's trying to make sure that they're indibility is intact um and it just just continue to talk. But of course, you know, the markets look seems like it's looking at the other way. All right, we are breaking this down. We have a FED round table here Jennifer Lee Sing your economists and managing director at Demo Capital Markets, and Daniel D. Martino Booth,

CEO of quill uh Intelligence. Uh, Danielle, I'm looking at my ECO screen. I got a lot of ECO data this morning, and I see a lot of some negative numbers. Here. I mean factory orders X transportation minus one. The consensus was positive zero point two percent, durable goods X transportation negative zero point two percent? Consensus was negative point one? Am I seeing a recession in my economy? Here? What

am I seeing with these negative numbers? You look, the National Beer of Economic Research follows um real disposable income ex. Government transfers. That's that's in the tank in dustphere Industrial production yuck. What we just got out feeds g d P. The data that you specifically sided the disappointed to the downside, especially on the on the shipments that feeds into g EP. Ben hers On is my favorite. Uh. He was at mcgar Advisors and I S Market bought them out then

s in P level. Anyways, he basically created the GDP model and right now he's at negative one point five pc after the day we just got out this morning. He's going to be taking that Q one number down below negative one. The answer, yes, we are in recession. Okay, Jennifer, what do you think, Um, we still have you know, we've always been penciled and we've always had that uh

two negative quarters by definition penciled into our into this year. Um. But you know, we continue to see you know, some sort of a bounce back or a little bit of recovery in the second half, but you know, averaging out to you know, still about almost like a lot years. So I think this year is almost going to be a write off still. Um. Of course, what happens next year is another story. But um, right now, I mean

it's like, here's another thing. I mean, we were talking about the data this morning, and we know how extremely volatile the factor order's data are. But you know, we at least we got that bounced back yesterday and auto sales. I mean, of course it was a big drop in December, so it's almost like a wash for the two tho for the two months. So I wouldn't completely discount um, um, you know, for example, the US consumer just yet. But obviously all these rate hypes are finally finally trying starting

to make make their mark on the economy Daniel. Let's talk about the labor market here again. We had an initial jobles claims print dight three thousand that was lower than expected. Another print below two hundred thousand, which you kind of tell me is is kind of important jobless non farm payrolls. Tomorrow we get that data. That consensus is a hundred ninety thousand added. Boy, this is a strong labor market. Is there anything that breaks this labor market?

It sure looks like it's a strong labor market on the surface, doesn't it. Yes, because this morning Challenger Gray and Christmas came out and said laoffs in January for the month of January that was the weakest January since two thousand and nine. They said that hiring announcements were cut in by between December and January. And by the way, the Department of Labor, the Beuer of Labor Statistics, they've already pretty clear that they're having trouble with seasonal adjustments

post pandemic. I've been tracking closely Google trends file for unemployment people searching for file for unemployment. It's tracking right alongside not seasonally adjusted continuing claims, which popped up again to one point nine million this week. They're up off their lows, not seasonally adjusted. Continuing under the surfaces. Under the surface, it's much weaker than it appears on the headline. But if we're talking about the Fed, J. Powell doesn't

appear to care. He's going to follow the headlines that suit him. I can tell you all the Sweeney offspring are employed. That's good gradulations. Well they should be, right if there are two jobs out there for every single person.

I mean, there's eleven million job openings. I thought. Again, the Boweing interview that guy Johnson did the other day was amazing, and the CEO Bowing said, look every time, basically said, I'm paraphrising every time Microsoft or Amazon lays off a smart engineer, we're gonna go scoop him up. So you do see some pink slips out there on the West coast, But that doesn't mean those people aren't getting jobs right away. Again, Yeah, I don't know. Bowe

never should have left Seattle. By the way, that's my number one call, um, Jennifer. When when you take a look at this economy here, what's your real call here for twenty three four? I mean, is this recession if so is it a shallow one? How what what level does the economy in North America bounce back if, in fact we do go into a recession. How do you

guys think about that? A female? Well, right now, everything's obviously fluid um as Again, as I said, you know, we're looking for a flat ish um um year for three decline the first half, better second half, and then you know, some sort of a recovery as as rate cuts start to take hold or start to kick in probably uh. You know again, this is all goes back to how it's how intentional the the set is going to be in keeping rates up at these restrictive levels

um for how long as well? And what I guess what is a little bit is puzzling to I think everyone is going to be like again the job market and the fact that we still have for ten million job openings out there. You know, at some point those ones are gonna be wants to be cut first. Um. It's almost like a lot of fat before you get

to the bone. Um. But we still expect, you know, unemployment to start rising the longer that the rates still you know, the fed stas um um um height with their with your conditions you know, and keep rates higher for longer. So if I could just jump in here on jolts, I think one of the reasons that the FED chair faded it yesterday's because joint research between the St. Louis FED and the Dallas FED showed that about of all job openings for the purpose of coaching your closest

competitors worker. That's what I was wondering about. Why is the JOLTS number so strong when a DP isn't, Because because you're you're trying to get your competitors worker and not have to pay to train them. Just like going said, all right, good stuff, good stuff FED round table, like

only Bloomberg Radio can do. Jennifer Lee, Senior commiss and Managing Director with BMO Capital Markets, joining us on the phone at Daniel D. Martino, Booth, CEO and Chief straps it just at Quill Intelligence, joining us live here in a Bloomberg Interactive Broker studio, breaking down the FED speak we've heard over the last twenty four hours. ECO data

lots going on a lot across winds for investors. I want to bring in right now Hugh Roberts at quant Insight to talk to us about what we saw yesterday, um, with the FED and what we're seeing today with the b o E and the e c B. Basically, all this big central bank action is moving markets pretty substantially. So, Hugh, uh, you were with us on television yesterday, and I'm glad you could join us on radio today we get a little bit more time. UM, let me first get your

reaction to what we saw yesterday. Was it more devish than you would have expected? Um? Well, I think the biggest takeaway is that Chair Powell and the broader Fed clearly think about financial conditions, um, in a different way to most of the mainstream market. Was that just a

slip up or two? I mean, so Powell was asked about financial conditions loosening and their looser by Bloomberg's measure, by Goldman Sachs measure, by Wall Street measures than they have your own, uh, your own measures, and they have been in like a year, right, So was it just a mistake that he made? Yeah? I mean I've seen

some conspiracy theories. I have to confess I've missed that he actually suffered from about the COVID, And I saw one conspiracy theory saying, you know, was it just a subpar performance because he's still suffering a little bit on the health front. I don't know about that. I mean, I think taking a step back, there's always a danger that we all start to over analyze and overthink certain things.

You know, we have had the most interesting bit of pushback in the last twenty four hours that I've seen is to fed unofficial press boatsman operating in a divorce. Street journal has today pointed us in the direction of a brain Ard speech from two weeks ago and which opens with a comment about overall financial conditions. And two things come out from that speech. One is just the

timeframe that they're looking almost a year on year. They're looking at a much longer history compared to the likes of ourselves, who say, well, look at the unwinding of the financial conditions we've seen in the last six months or so. And then secondly, if you look at the specific references in that speech, there is no eputy market com opponent and so no wealth effect component. It's sites will yield in particular, that's probably the most overweighted um variable.

But hang on you so um so. Brainerd also said financial conditions are tightening, and this is interesting because I was talking with you about this yesterday. If you take

out the stock market effects, aren't financial conditions still pretty loose? Yeah, So that's that would be the time scale point that we're looking at on our measure, and like your measure, I think the unwind of the easing has come in the last six months or so and the brain our speech and I think maybe there, whether it was a slip of the tongue or just whatever it was from

Powell yesterday, was actually a much longer horizon. They were saying over the duration of their tightening cycle from where we were a year ago, conditions are still tighter. So it's to a degree, it's where you stop the clock, if you see what I mean, Hugh. So there is a disconnected obviously, between what we're hearing from the central bankers, including Madame Leguard today, in terms of you know, talking

the talk and a tough fight. We're gonna keep rates higher for for longer, and the market is just not buying it. How unusual is that dichotomy in the marketplace. It's one of the more aggressive examples, I agreed, hopefully, I mean to see such a coordinated response. And there were the events we had this week between the third yesterday d CD in the Bank of England, and in each instance for the bond market to react the way there is the repricing we've seen at the front end.

I'm struggling off the top of my head to think of many examples where the market has so aggressively and so uniformly flown in the opposite action to the manta from central banks. I agree where we're in fairly unpaceded tempories and it does make you think that that we're coming to a rather severe pitch point at some stage. Either the markets pricing has to be vindicated um or we're just going to make this worse. And I guess that's part of the reasons, I guess to justify our actions.

In terms of us all trying to analyze the FED going into last night's meeting, I think one of the motivations everyone had in the back of their mind was that, you know, is the whole kind of stitching time type approach that you need to get in front of this. Otherwise, if you allow this kind of almost a rational exuberance, you could classify it as to get too far carried away that when the day of reckoning comes and if the FED and the ECB version of events is proved right,

then the repricing then become that much more severe. And the problem with that, it's not just from a financial market perspective, but the transmission through to the real economy. Does it then start to really really make what could have been a soft landing, that could they such defeat from the jaws of victory the soft landing, but the

repricing makes it a heart on me. So that's because the market is pricing in a couple of cuts this year, and you're saying that the FED just holds high, you know, after another rate rise or two at five and a quarter percent, and doesn't cut by the end of this year, even if the data shows they should. That's snatching defeat

from the jaws of victory. Yeah. That that and also, as I say, just the fact that if you have a too big a disconnect between what the central bank is trying to do and what financial markets are pricing, then at some point something has to give. That elastic can only go so far, I would argue, And then there comes a point where if the FED version of events proves true and the higher for longer scenario wins out.

The implication for that is quite an aggressive sell off and risky assets, and that hurts the real economy through the wealth effect for equities, corporate America's ability to finance itself, through why the credit spreads stronger. Dollar took sense. So h when you look at the market over the past two days, I mean yesterday a strong move, today, very strong move. We got the SMP up one point four percent, the NASDAK up, but two point nine just really significant moves.

Does that seem like an overreaction to you from this market or just more of the same. This is a market that's really much more optimistic or bullish than maybe central bankers are. Yeah, I mean we were inclined, um. I think up until the last twenty four hours, were inclined to think that there was a bit of positioning and sentiment dynamics at work. And I think sentiment and equity market has been poor, but positioning probably wasn't as bearish as everyone thought. I think there was an element

of a straight rotation. Winners have become twenty twenties lag ards and vice versa, um and on our modeling, although that proven like NASDAK or XLK or anything vaguely tech related, was modestly rich, it wasn't crazy extended. It's now starting to look a little bit more stretched, and there's lots sun to look like the move is moving further away from macro fundamentals. So um, I think up until now we would have said it's been a relatively orderly moved,

but this is beginning to raise eyebrows. All right, Hugh Key question your officers are based at right there in Liverpool Street, right in the city of London. How is the city of London today? Today's Thursday crowded? How's the two are people back in your office? What's gone on in the city. Yeah, it feels like I mean buying large things about to normal. I mean that the kind of PrePost COVID dynamics I think has largely worked through.

There's a lot of hybrid working models. But on the whole foot traffic is normal obviously, where the UK is a slant slight outliers of all the industrial actions which has just made things much worse. So you know, on any given day there's a tube or a trained strike, or if trape teachers are striking, then some people have to stay the home and do you know kind of our home schooling and childcare, so we haven't had an

uninterrupted period of normal what the normal might be. To give you a goods on the fight, alright, good stuff, Hugh Roberts. The offices are Liverpool Street, really close to Bloomberg's London headquarters at Queen Victoria Street, just as films throw there in the City of London by bank yep, right by bank, but they're there. Asses are right on the Liverpool Street station, which is an awesome train station, great tube stop. Kind of get pretty much everywhere from there.

Some good stuff. Hugh Roberts. He's head of analytics at quant Insights, based in the UK, giving us some thoughts on these markets. Let's do something insane right now. We'll rip up the script. I've never had a five person round table. Let's bring Carl Rickadonna without Jess Matten. You're gonna stay here. Bloomberg Equities reporters Katie Greifeld, Cross Asset, Maven and Carl Rickadonna joins us right now from BNP. Perry Boy he's chief US economist. UM, anyone feel free

to jump in. But Carl, let's throw this to you. What do you make of Jerome Powell, the Chair of the FED, who arguably has um easy access to the Bloomberg Terminal to everybody else's f con um index. Yesterday he said financial conditions are tighter. What on earth was he talking about? Well, Matt, I was as perplexed as everyone else sitting around the table. Good morning to you all.

But I also then quickly said, well, if if they're not looking at f CON on the Bloomberg Terminal, which I think is a great index, which I've worked with a lot in the past, they're probably looking at one of their own indices. And so I pulled up that Chicago Fed index and sure enough, it's a little bit less of a dramatic story than what f CON is showing. But if we look at that Bloomberg index, it's telling us financial conditions are easier now than they were at

the start of the FEDS tightening campaign last year. So, regardless of whatever Powell said during the press conference, UH, Bloomberg financial conditions, which has a high correlation with GDP. It's been cited in FED research papers because of its prowess as a predictive tool for a GDP growth economic activity. UH,

it is easy and it's telling you. Unless they fixed the narrative and financial markets to get the message, we could be looking at a re acceleration in the economy, which in turn would undermine all of their efforts to get the inflation genie back in the bottle. And we could be looking at, you know, a very difficult inflation landscape going forward, which is not what the Fed wants to be confronted. So, Carl, this is Katie Greyfeld. It

is thrilling to talk to you. I will say, my heart rate is sixty right now, pretty high for me. I'm really happy to hear that you also went to the Chicago Fed measure. Uh, and it does. I mean the absolute levels are a little bit different from the Bloomberg measure. By the Chicago Feds absolute level, they are tighter than they were at the start of the hiking cycle, but still they've been lostening. I want to talk about

why it matters. I mean, you mentioned that this could under mind the FEDS you know, inflation fighting campaign, but walk us through how that actually works. Because I feel like we talk about financial conditions all the time without actually defining them. Yes, so financial conditions, whether it's a Bloomberg metric or the Chicago Fans metric. The Bloomberg metric very efficient because it has just a narrow um a small number of inputs. I think it's probably about ten inputs.

Chicago FED has something like one dred inputs. But they both tell the same story. So even though the Chicago Fed index has been a little less dramatic in the signal at sending UH, these things matter because either index correlates well with GDP growth, and we know the Fed has to slow the economy down from that twelve and a half percent growth rate that we were registering in the middle of one and it has to hold the

economy at a below trend growth rate. Now, some folks like myself will say that means they have to cause a recession to create some dislocation in the labor market. Other folks, including Jerome Powell and a lot of SET officials including that I think Governor Waller as well, are saying, no, no, no, we we don't need to cause recession. We can just push growth below its trend rate and hold it there for an extended period of time. That will create slack

in the economy, ease labor pressures, and easy inflation. Pressures as well. Um, that's something that they've actually never done in the past. So that's why we're a bit skeptical that it won't ultimately tilt us into recession. If you push the economy to a slow enough growth rate, it becomes very sensitive to exogen the shocks and and resilience won't be the story. Fragility will be the story, and

then you get a recession anyways. But nonetheless, if you're not keeping the brake pedal on, and financial conditions tell us how well the FET is keeping their put on the brake pedal, then you're not going through that low growth regime that accomplishes your inflation goals. I think that's a real risk. That's where the tension is in the markets, which are still saying the FED will stop sooner and start easing sooner than what the Fed is saying. So just to put a full circle around it, I think

we've seen this drama play out before. It was last summer. In July, the Fed teas the idea that they may need that there would be some point where they would be willing to downshift the pace of tightening. The markets went haywire, went too far with that narrative. And then we go from the July A poem C meeting to the Jackson Hole Fed Policy Conference in late August uh, and Jerome pal comes in, rips up the script uh and delivers a very hawkish direct message saying, Okay, markets

are not listening, let's all get on the same page here. Uh. And he largely accomplished that goal. But then what kind of right right back to square one where they need to have a reprise, if you will, or a rerun of that Jackson Hole messaging campaign. Carl, this is jas. It's good to talk to you again. Something that I'm looking ahead too. We will get another update on cp I on Valentine's Day, and so this will be for

the month of January. And I am aware that the CPI there is going to be a rewaiting, and this does happen at times. But I have talked to certain economists who have argued that potentially this could push down cp I faster just given what's happening. If you're looking at the rewaiting, potentially there could be larger weights and

autos maybe notably rents potentially could fall. But then I've had other economists argue that you might actually see more of a boost in the first quarter towards core c p I, and so it's kind of been split when I've talked to economists, and so I was curious if that's something that you have been focusing on just yet and what your expectations are, if there is could be any sort of changes there as far as what that could mean when we are still looking very closely at

those inflation numbers. Yes, So to kind of summarize the landscape for the listeners, UH, they rewait the components in the CPI so that the waiting factors we give to the various components, UH, to the extent that in recent years has been more spending on goods, which was the story during the pandemic. We couldn't go to restaurants, we couldn't go on vacation, we bought lots of things on online and whatnot. We see it in the income and spending numbers, and it will be reflected in the CPI

numbers as well as those weighting factors change. So if goods inflation is running cooler and we're giving them a higher weighting factor, that could reset the c p I UH marginally or incrementally lower. It doesn't change the narrative though, So this is a little bit of dithering over the details. Uh, it won't happen in the CORE PC deflator or the FEDS PC deflator, the metric they like to track. Um. So so it's a it's a nuanced story, but it

doesn't change the inflation landscape. Is the cp I now different from what we had in the seventies? And by the way, Matt Miller here, Uh, I have a beard. Um do you do you think the comparisons to the seventies are fair because a lot of people are asked today, what if you know this devish fed has to turn hawk comes back. I remember elements of the seventies, Paul. And there was there was some great television programming in great,

great hunt, great music back then, Paul. Uh. But to Matt's point, so that the CPI does evolve over time. So of course the waiting factors are different than where we were in the seventies. So how much we spend on rent and housing versus goods or food or energy, that has evolved over time. Also, there have been methodological changes to the CPI, so the way they count housing costs and rents and shelter has changed a lot. So it's not your father's, or we'll say it's not Paul

Sweeney's c P i UM. But nonetheless it gives you a sense of the direction of price pressure in the economy. The other key difference I'll draw to the nineteen seventies, so we can say, sure, inflations running as hot as it was in the early nineteen eighties, it's a very

different landscape. So the inflation that Paul Vulker had to confront in the early nineteen eighties was really fifteen years in the making, right, It started in Lyndon Johnson's Great Society, and the spending on the Vietnam War, two oil crises that changed to foreign exchange policy globally, a lot of

shocks that had eroded the psychology. Uh, the problem that Jerome Palace confronting was really fifteen months in the making, So much more surgical solution, all right, Carl great stuff as always called ricka Donna chief US economists from BNP, Parry ba phoning it in. I will note, but Jess

metten he was here in the office yesterday, was he? Yeah? Okay, so we'll give him some credit there, Jess Met and Katie Gray felt there from Bloomberg News there in our Bloomberg Interactive Broker studio, they get the gold stars today. All right, kids, we all know the adage don't fight the Fed, but the market seems to be fighting the Fed to fetch talking tough of the markets just not buying it. Let's break down what's going on out there

in the market. We get the equity markets ripping again today, You've got yields coming down pretty substantially. Let's check in with Ben Emmets. He's a senior portfolio management had a fixed income at New Edge Wealth. He joins us here in our Bloomberg in our actor broker studios. So, Ben, we had the FED yesterday, the Bank of England, uh, the ECB today, a lot of people talking tough as it relates to holding the line on rates, but the

markets saying not so much. What do you make of it? Yeah, the tougher they sound and the more hawkish they sound, again not a reason for markets to rally. And I think it was really triggered by that where disinflation that Powell said yesterday. So the market is discounting and even faster disinflation for cpis was listening. That means CPI goes down even quicker faster than but the feeders forecasting, and

it's the Fed because he used to talk tough. Then the market says, okay, you're not only going to reach two percent for sure, you're going to reach it much faster. And it triggers this major valley because at the end, if you if you do get faster to percent inflation one, you don't have to hike anymore too. At some point, the Fed also may have to consider the couprights and playing into the market expectations. So I think especially their data dependent ben I mean, why uh, why try even

to talk tough in terms of your forward guidance. If you say in the same breath that your data dependent, you know, it's like I'm never gonna cut rates. I will cut rates of the data tells me too. Yeah, I totally agree. In fact, you know probably even yes. They said like so yeah, if the markets are right,

then yeah, we should factor it into our policy. Why would you then say that you're going to high grade So what's interesting math is that you know you could maybe next weeks he speakers come out if they started more and more leaning towards that idea. Yeah, and the market maybe right, that sounds more dovish, right, that market is getting a different sense. Okay, But as inflation story is not over at you getting them at some point two dovish speakers out there. That's the other side of that.

At this moment, it's about too hawkish and there for the market valley. So um, how far can this continue? It does look much like a source source squeeze to me. You know, the nastac popping really higher this way, that's where the biggest short positions are. So that's I think part of the reason why we have markets higher. Well, we had fed. I mean, I'm sorry ECB president of Madame Legard this morning. I don't know, she sounded pretty hawkish to me. Fifty basis points and there's more to come.

But you know, I'm looking at the German tenure. You know, it's it's down to two point zero seven percent of twenty one basis points today. So again that rhetor did not work. No, especially when she said we intend to hike intend Like you guys really touched that language and you intend to do something that means that you may or may not. And you know, I think that the German bude market, the entire periphery by the way, really

collapsing in yields. So they probaced out the access of hikes that were maybe through in the back back part of the three. And not forget that the ECB put in place a program to ensure that spreads stay relatively stable while they were hiking rates. So that too, I think is supporting market now. But that's their job keeping spread stable. He's learned. He learned from not saying we're not in the business to collapse preads yet you are.

What what do you think about? You know the four twenty or four five that we saw on the tenure um, was that the peak and rates? Yeah, you could say that now, yeah, because it's it's not going to be so easy to go back to that level unless this

China reopening, which we've talked about previously. That was October also right around the time we saw low inequities, low in equities, and right around the time that the first news out of China came came out that they were looking at zero COVID in a in a potentially different way. So that was probably the moment of at least the bottom. China plays big into um, you know, the markets moves here.

I mean, is China is the reopening? Are people optimistic about that because for a while we couldn't tell which they were reopening, but they were getting you millions of COVID cases every day, um. And also it's a different China than it was before they went into lockdown. Yeah. I do think it plays a big role because the impact has already seen through one money coming into China assets which by the way, for example, our e t F here listed on exchange and people buying them here

because the money has been put to work. That obviously spills over into Banaszak, into other markets. But it's really you know, you could tell from the p MY data this week just alone out of the lunar year. Immediately, the PM data recovered above fifty as one simple example, So this is reopening is real. They lost about two percent of output during the COVID lockdown, so they want

to get back to five. That's a big change. Lots of different estimates had to impact global GDP, but that could be up to a percent globally, and that's that's I think significant. The changes the outcomes on the recession that people were fearing. My view owner this that China reopening actually means the recession this year may not really happen, and it's that significant, and the commodity prices is very significant. Yeah,

that's very significant. And the Solar Guards interestingly did address China today and like Powell, he did not really and she did say you have to really take a close look at this and monitor because they understand just like anyone really has a I know they have a pronounced trade relationship with China. Think that's some of these big German industrial companies and you know, sending turbines over there,

that's a big deal for them. The belt in roads and they went straight up through Italy right exactly, so into the heart of Europe. So the collapse in these boondhields and and the Italian heels today, I've really about the ECB and maybe not hiking anymore after March. But if you think about the impact that China could have on those economies and thereby inflation, it's still really high in both of these economies. That's where the Guard was was hinting at, and the market is not listening to

that now. But that's something that will come back. I think at some points now nuance is not my strength. Um, you know, but to me, uh so this is optimistic. Right, China reopens, Um, maybe we don't get a recession in Europe. Um, these central banks are sounding devish because inflation is coming down pretty rapidly. Um, why isn't Why aren't we off to the races When it comes to commodities. You know, oil is still trading eighty dollars a barrel. Um, if if all that good news was it priced in? Is

this the good news eighty two dollars a barrel? Or do we still have to look forward to a hundred dollars for brand? So that that those are expectations out there that I think if we're gonna go back to huntred dollars a barrel, and that there has been I think in the oil price liquidation that took plicity end

of lash year, big positioning arch styles. And in addition to that, there was I think expectations in that market that as the OPAC doesn't really change output as much, caught it more, say, then the recession fears do hit that that part of the commodity market a bit harder because China's pent up de ment is really through the metals market and that part of the commodity markets we

outperformed energy and out of parts. In addition that wheat, for example, that has been also depressed because the Ukraine situation is slowly resolving the supply shortage even though the ongoing war. So I think it's the metal sector that's where it's called quick priced in and where it showed up first. The next stage will be that energy does pick up. And you know, but some estimates we will have again really low gasoline stock this summer as we

get into driving season. And my this is on this is is that the China effect is really the tourism issue. So recently the Japan's CPI numbers showed a big jump because of recreation. There's the first impact from China tourism that's coming on shortward hair. It's happening in Assolia too, will happen here. My say, not more out of things on this. We can just take a walk through a time score. That's that's my thing. When I walked the

Penn station. Now I'll give you a man on the on the ground view of what's happening and that Europeans are back big time. I have, but I haven't seen Chinese per se exactly. So that's that's just coming. We can imagine that the payroll I'm gonna get tomorrow, it may may go down a bit of the next few months because of all the layoffs but the shortages, but it really is in the leisure sector, and the leisure

sector has been the huge contributor to payroll growth. So if this wave of tourism is coming, I mean, the payroll numbers could actually start rising again at least driven by leisure bench just real quick, thirty seconds and I got the ten year treasury three thirty five here, just amazing off six basis points today. What are you telling your clients about the fixed income markets? Yeah, continue to have an emphasis on that batty yields are on the short end of the Yel curve, then on the long

end of the Yel curve. Really because the price sensitivity of those securities is still really high. It's called duration. And so no question So therefore sorry, that was that was our producer, Rich Truman in your ears. He was telling us, no more questions for you. He's a micro manager, he's like a helicopter mom because we need it. Basically, Yeah, that's not that's not unfair. So at the finish it,

you know, short maturity securities remain interesting. I mean, if the FETE stoles out with this radition, does look at this the case, then there's where you you pick up continues to be that ultimate. Those hiels will decline um as the FETE does move to a neutral stance. Alright, good stuff as always. Ben em And senior portfolio manager and he's head of the fixed income over there at New Edge Wealth. Joining us here in our Bloomberg Interactive

Broker Studio. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller V three, pt on Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio