Jobs Day, Markets, And Shinzo Abe (Podcast)

three seventy two thousand. It's better than the consensus of two and sixty five thousand, and it's a good news. Of bad news is it's less than uh the month before and several months before. Let let's break it down with Jay Brice, and he's a managing director and chief economists at Wells Fargo. I think he's also a multi time graduate of some small college or university in Chapel Hill, North Carolina, or something along those lines, but we'll bear

with that. Jay, Thanks for joining us. We really appreciate it. Would you make of the job's number here today? When kind of what's your take forward move? Yeah? So apaulogist, you know, go heels um uh, But yeah, so as as you just noted. So the good news is we created a lot of jobs in soon. You know, this is one of these good news is bad news sort of deals. I mean, I still kind of seals the case for the FED going in another seventy five UM at its meeting later this this week or later the

sponsor rather so. UM. And that's you know, kind of why markets are you know, the stock market is off right now. Suddenly you know, recession fears are back if the Fed, you know, it gets really aggressive. So do we expect the Fed to get really aggressive? Um? Are you in the seventy five or the fifty camp for July? Yeah? So before this, before this number prints today, we were seven D five And I think there's just reinforces um

to our belief that they're gonna go seventy five. I mean, I think the wheels would just have to come completely off between now and the end of the month. But I'm not to go seventy five, And then I think it's gonna be interesting where do they go from there?

You know, if they get if they goes seventy five, then you're at a fit funds rate roughly two and a quarter that's starting to move into the range where most people in the f O m C would say, we're quote at neutral at that point, and so that's what they seem to want to be getting to where policy isn't stimulating the economy anymore. Some of the jay, how do you measure that? By the way, I mean, I know that it's not an exact science, but where where do you do you use the tailor rule or

what do you do to what we do? Yeah, So what we do is we you know, we kind of say, so what do we think the uh, you know, the underlying real rate of the economy is, So that's probably somewhere where the real rate of the economy can kind of grow. That's probably somewhere around one and a half

to two percent. Now, you don't want to real Fed funds rate at that high because you know, the yield curve is kind of upward sloping, so generally, so you know, we would put it somewhere around you know, two and a half to maybe three would be in nominal terms that we would think the neutral rate would be. But you know, as you just know, it's not it's certainly not an exact sort of sort of science. I'm just trying to on my Bloomberg I have t a y l go at the Taylor rule and you've got to

plug in your own neutral rate. Um, no matter what I do, it seems like the estimate is way higher than anybody else's terminal rate expectation. Yeah, and you know the Taylor rule was, you know, John Taylor estimated that, you know, years ago, and the economy has has has changed over time, and so um, you know, I think it would be It's probably not as high as what you know, many people would would think it to be at this point. And terminal terminal rate, what do you

think we get we get to here? Because with eight percent inflation, a terminal rate of four wouldn't be out of this world, would it. Order. I think you're looking kind of around four. And I think what's going to happen as we go forward here is that the inflation, your all inflation rate in the space is the rate that it's going to plant. Next week for June is going to be another ugly print. But going forward you

should see the rates start to come down. You know what what are the you know, we're looking at commodity prices down pretty significantly. That will eventually feed into goods prices. You know, the wage number that we saw today average hourly earnings only zero point three percent, So we're getting some deceleration in terms of wages that will feed into

service sector sort of employment. So by the end of this year, if you have the terminal rates roughly around four percent and the inflation rate, it's still gonna be higher than that. But as we move into next year, you should start to see a positive real Fed funds rate. And with all the other tightening that you're seeing in financial markets, credit spreads widened, the dollar stronger, stock bar

stock indussees moving lower, that's all financial tightening. All those things put more headwinds on the economy, and we're afraid to lead to a modest sort of recession, you know, either late this year or early next year. So is that really the risk here, Ja, because we again, as you mentioned, we do have some inflation metrics to are in fact coming back down. So it appears that maybe that issue can be put on backburn. A little bit of a recession still on the table. I think I

think it is. I just think it's it's becoming less credible to expect the SAIED to be able to engineer a you know, a soft landing here. And I'm not saying that's not important, is that that's impossible. I mean

that certainly could happen. But whereas before we saw these nasty inflation prints starting, you know, about a month or two ago, you know, we would say the probability of recession or probability of a soft landing was, I think it's more like now, and so the probability of a modest recession next year is kind of like, you know, in the sixty sort of range. I think that's kind

of what we're looking at. Just you know, given the defends aggressive here, given the amount of financial type mean that we're seeing, and the slowdowns in the rest of the world, all those things pause. Um, you know, growth shers too slow significantly, And I think the turn you know, negative on on a on a you know a few quarter sort of basis alright, good stuff. More importantly, I think you're looking at negative um employment prints. All right, Jay,

good good stuff. You appreciate you taking the time on this job today. J Bryson, managing director and chief economist at Wells Fargo and a proud graduate of the University of North kind of former economist at Federal Reserve. Yeah, I know, these guys get around and then they got a strong resume. Does Yeah, very good. We love having him on. I don't know where you go in terms of,

you know, a nice uh down middle market investor. Stocks down over so far in the first half of the year, Bonds, double digit declines pretty much everywhere you look, including treasuries. What do you do from here? Are we at a near a bottom? David Katz, President and Chief investment Officer Matrix Asset Advisors, David, what are you telling your clients

here about where we go from here? Giving that brutal first half and both stocks and bonds after a miserable first half, we're pretty upbeat, surely in the stock market for the second half. Since nineteen thirty, there have been five periods where the market has opened down more than fifteen percent in the first six months, and five out of five the market was up in the following six months, and that was more than fifteen percent in most cases.

So we're feeling pretty good about stocks and when we can go into that in a little bit, because there are a lot of other indicators that are pretty bullish on the bond side, after a very poor start of the year. We're still cautious about intermediate and long term bonds because we think that rates can move higher still. But for the first time in a long time, we are very positive on six months to two and three year bonds because you're getting about a three percent return.

We don't think rates are going to move up that sharply. So you're finally getting rewarded, uh for we're owning bonds, whereas a year ago you were getting point two by the way. Uh So, today we had this good news on on the job at least better than expected news on the jobs front, and I guess the market then thinks the Fed can get more aggressive. Does that affect your outlook for stocks? I mean, if the Fed goes seventy five and then you know, fifty and fifty, does

that hurt your outlook for stocks? If the Fed has to keep raising its seventy five and fifties, and definitely absolutely, but we don't think that's going to be the case. We are starting to see signs that inflation is breaking. You just ran that story about San Francisco housing prices or apartments coming down. We're seeing lower labor pressure. What you saw today the walmarts and the targets of the world are discounting because they're overstocked in apparel and home goods.

So there you're starting to see some signs that inflation breaking. Commodity prices copper steel have sold off very significant. The we think if inflation comes down, it's going to allow the feed to be less aggressive in three For the moment, they've got to talk a very hawkish game, but we think they're going to be less hawkish next year. That's

bullish for stocks, all right. So if we want to start, you know, maybe dipping our toe into this market, if we think most of the bear market maybe behind us, what are some of the sectors that you and your team are are kind of looking at. So we like a lot of things that have been beaten up this year, but we wouldn't be buying stocks just because they're beating up.

But the sectors that we like most right now, or financials, consumer discretionary, we like select technology, communications services, medical technology and products, and some industrial, so pretty broad based. The one area that we're a little bit less enthusiastic has been consumers staples right now, and we've owned a lot

of consumer staples going into the year. As they have done their job, as they have gone up when the market has gone down a lot, we've been scaling back on them and we think that at this point they're all about fully priced. We'd be taking that consumer staple money off the tap able putting it into the areas

that I just highlighted. What about UM you know, the last couple of days and this is I guess this may be out of your universe, but we've seen Samsung UM beat on the revenue side, still margin pressure, t SMC beat on the revenue side, still margin pressure. Are we going to see that this earning season in the US texts as well? Well? You might continue to see some margin pressure, But the real key is going to be are they able to get their inputs and are

they able to produce their product? And is their demand and if you can get through this quarter with a reasonable demand outlook, we think a lot of semiconductors that have been battered over the last six months are poised to do a lot better. So we like Qualcom. They just rebounded about twelve dollars in the last few days, so I wouldn't chase it today, but we think that's not goes a lot higher. Same thing with Texas Instruments. We think it's a hundred and eighty to two hundred

dollar stock. You're getting a three percent yield. You're buying it at about a hundred and fifty so and we do like Cisco that that one has not moved yet, and we think it really is well positioned for the next twelve to eighteen months. It's a very inexpensive stock, has a good yield. We think management is very much on the ball in terms of maximizing shareholder value. And

we think they demand is pretty good. And as all of a sudden their input costs come under control, which we're expecting to happen in the next three to six months, and they get more product and they're gonna be able to ship out and meet that demand. Uh. And it's at a really inexpensive price at about fourteen times earnings. And David, you've gotten Meta on your list as well, formerly known as Facebook. So much noise around that name. How do you get comfortable with that? Well that that's

a great point. So we do not like Meta management. We don't think Ziggerberger is a particularly good guy. We don't like their uh ethics. However, it is one of the most powerful brands in the world. You know, half the population uses it every month. They have a great advertising model. They also have a lot of levers to control costs. Is advertising slows down this period and and this is you know, the most critical factor. It tells it about twelve times this year's earnings and that those

earnings that we think are understated. So powerful franchise, good long term prospects at a great price. Uh, and we're willing to put up with management that were a little bit less enamored with that's uh. That's certainly a call from some of the folks that are looking at that name. David Kat's president and chief investment officer of Matrix Asset

Advisers that joins us. Well, the world, at least in the Western world awoke to news of the horrific assassination of former Japanese Prime Minister Shinzo abe Um, and I think the market is trying to get a sense here of what, if any, are the implications for Japanese policies, politics and markets, and get some perspective there. We welcome Ben Emmons Medley Global Advisors, Managing Director of Global macro strategy. Ben, you're out with the note this morning after the news

became public. What are your thoughts there's relates to Japan and its policies and politics. Hey, Paul, thanks for having me. Uh, first of all, it's obviously an horrific event and it's something that you don't wishue anyone to happen. Right, So created Javan being in a major morning this today is is you know, really a shock for that nation that that that happens, because that doesn't as I actually had happened at all or rare this this sort of event.

But yeah, there are implications, um, you know in in Japanese politics, Abby was obviously significant influential of last decade. His three arrows policy was really trying to move the country out of the moon term slump of deflation with some success, you know, because they actually are out of deflation. But I think as as this unfortunate passing has happened, Um, you know, you could at least think that Kashia, the current Prime Minister, has more leeway within within this government

also towards the Little Democratic Party. What did they clash on, Ben? What what did which direction did Kashida want to go that Abbe was kind of hearing him away from Yeah, I think it was all about like pro growth policies and and versus redistribution of wealth. That that was the clashing. And most of all that of course you have really up lose mounetary and fiscal policy on the Abbe and

on the Koshibashi Kashida. That's say, could potentially be a different tone, a different shift there in terms of like direction, because there's a lot of disaffection now with with inflation

and the weekend in Japan. So will will she that could uh be successful now and you know moving to the Bank of Chipan and Ministry Finance into different directions that's to be seeing because they do have policy discretion, but that the influence will become greater now because you know that still had too much rely on Abby's political support for what he was doing. And that's I think clear.

So the end yesterday did rally on that that unfortunate news somewhat of in the small indication of yes, there's going to at some point a real policy effort here to get not let the end get so weak that it would lead to inspiring inflation in Japan. So what is the economic outlook ben for UM Japan we've seen just obviously you called out the weakness in the end that that we've all seen here. I mean, is there what are the growth prospects for the Japanese economy over

the next several years. It's it's not a good prospect because Japan is dealing with what we say in terms of trade shock, because of the energy situation and the weakness of the end. Right, you're getting important inflation plus high energy, and in addition to that within Japan there's a natural caution, right, and particularly prices start to rise. So I think it's it's a very modest outlook, if

not negative outlook. And therefore this and then if you're going towards the direction that you're going to restrain fiscal policy over time, then it's going to be a weak, weak growth outlook, which could lead to return of disflation in Japan. One of the key questions that investors probably have is will the Bank of Japan stick to zero point to five um? You know, because we've seen a lot of shorting of the yen and of jgbs to try and push the Bank of Japan. Maybe the betting

that they can't hold, what do you think. Yeah, so far they have been able to uh keep that twenty five basis points right where it is because of that unlimited operation that the market doesn't seem to be able to really conquer that Rsian. They can't fight as and not with enough fire power which as yet. But it comes down to Matt that that s c EN continues to weaken because they haven't drawn any red line at five and the en maybe not even a one forty

two to the yen two dollar. It could lead eventually that yen to the dollars. You really should change on the bank event policy that they're going to change yoko control or does it mean likely means the midpoint of that range will shift to a positive number and as a result, they're going to let that band maybe wide into and then you get that change. I don't expect that they will do what the Swiss Central Bank did

in twenty fifteen. Suddenly you know that that the your Swiss back the couple, right, It's not like that that they're more cautious. So it does take us to a weak again to altoly get a change in BUJ policy. It's just that this political change is maybe happening as a result of the horrific event good potentially influence that that path to to that change of the Bank of

Javan policy of Yoko control. And then let's switch gears to the US had some job numbers out today better than expected in non farm payrolls, although showing the client from the prior month. What's your takeaway and and what it might mean how the Federal Reserve might interpret these numbers? Yeah, this, this means all that the fact must go on, right, There's no reason to think of any pause or any downshifting and tightening whatsoever. Definitely not between now and September.

And if anything, the wage pressures in in this report are solid, right, and if it continues to be confirmed by employment costs in the action on the measures that they're off, then the possibility of even a larger hike in September is there, right, The market is carefully pricing that. Um. It also means that they, as they minute is outlined that they could move to even more restrictive stands if

it warranted. So having strong payballs allows them to do that. Right, We're not actually in the stagflation environment, so to speak. Like from the seventies, we're more in environment of yeah, economy cooling off and high inflation, but pay all strong, so not a session therefore enough room to putie with

these large rate highs of seven by base points. So the cements July seven by base points certainly fifty base points in September or perhaps more given that at you know, the momentum the label markets in Mainstrem, how far do you think they're gonna go? Ben and uh, you know, could they turn around and be headed back down by the end of next year. That's what the market tries to price. But I think that's actually a technical reason.

It's more like the markets actually priced in complete front loading of this fat policy that we're in right now, meaning we're bringing up the funds rate as fast as possible to three three and a half percent um, and therefore you seeing that mechanicals slide down in the EU at all the futures. So I think it's more that we have to get to three three and a half percent. That's what they have indicated a few is restrictive policy. From there, it would be that even more restrictive as

the minutes outline, would that be four percent? That's still a bit open question, but they're keeping that clearly on the table. So I think three three and a half per cent is your initial target, which maybe as early as September, right, if we're going to stay in this strong labor market. All right, Ben, great stuff. Really appreciate getting your perspective there. Ben Emmons Medally Global Advisors. He's

a managing director of a global macro strategy. All I want to get back to this news coming out of Japan, the assassination of Prime Minister Shinzo Abe. Andrew Monaghan, he's the Asia Credit Managing editor for Bloomberg News. He's based in Hong Kong. Andrew, thanks so much for taking the time to join us here. I just give us our listeners here in the US and around the world a sense of how profound this event is in Japan. Sure,

good morning there. I happened to be in Tokyo this week, and it's really a tragedy that's all the more striking because of the rarity of this kind of violence here. I think that's the first thing that stands out so much to so many people in Japan. Gun violence and political violence is exceedingly rare. There were no gun related injuries or deaths in Tokyo last year, which is really strike zero. I mean, that's that bears repeating. There were

no gun deaths in Tokyo last year. UM, And I don't know how it is nationwide, but I think you could still count them on one hand. And meanwhile, in this country, and obviously we have a history of um, you know, gun violence, but we're looking at something like

forty five thousand. Yeah, it's just really unbelievable. And there was no assassination attempt that killed the Japanese prime minister since World War Two as well, So all these things together made it really something that no one could What about whatever happened here? What about um the man himself, Andrew.

I mean, I know you're a credit guy, so you're not, you know, a political scientist, but this the Hobby family and his maternal grandfather I think was prime minister as well, they're just a dynasty in terms of politics and his his specifically Shinzo Abe's policy. Larry Summers said, we're going to be studying this for for years, um in terms of you know, just cutting edge, trying out something new, um, and the amazing effects that it had. Yeah, he really

had a vision that was singular. He was a a security hawk. But I think what he'll be remembered even more for is the fact that it was a fiscal dove. He had his policy Albonomics, which relied on massive fiscal spending and very cheap money that the micro Japan was was able to provide after the appointment of Colvoda, and you know, it just was a a real epic change

for Japan after two decades of stagnation economically. The Bank of Japan had been trying to achieve to percent inflation, which in the context of two sounds almost quaint in a sense, but it was so hard in Japan for so long because prices had been following it was the opposite problem, and they really wanted to have companies raise wages. That's something that even though he did achieve some measures of success stimulating the economy, the wage growth never was

quite there. But the you know, the lasting political influence itself that he has as the leader of the largest faction of the ruling LDP party meant that he continued to exert a lot of influence politically even after he stepped down. Do we expect or does the region expect any change in Japanese policies at an AMICA. Otherwise with

this event, it's hard to say. I think people are still digesting the tragedy first of all, but you know, as as traders are looking at what they're going to do next week and in the week at weeks ahead, there's a camp that seems to think that in the loss of this voice, it was such a huge supporter for the super easy monetary policy, could have some effect in an error in which inflation globally is such a serious problem in central banks are getting increasingly forced to

raise rates. The Bank of Japan has been a kind of hold out, and that's called the huge turbulence here in the financial markets in recent months, with a lot of traders betting that the Bank of Japan won't be able to hold out too much longer. And so one view is that with a sadly gone that the Bank of Japan could could say it's a little bit more pressure now. There is another view, though, and this assassination

came before the Upper House elections this weekend. He thought they was out campaigning for them, in fact, and that is that there could be a kind of sympathy vote for the party that already been expected to women the Upper House anyway, and if that should happen, then the view that that, you know, the Abanatics style of policy could continue particually as it pretends the monetary policy could

hold sway. Sure. I mean, look, after Kennedy was assassinated, LBJ pushed through the Civil Rights Act that was so important to JFK. And but we had yachm Fell's on earlier Andrew from from HIMCO and he said it wouldn't be. Uh, it is a possibility that the Central Bank, at least the b o J lets the they have a twenty five basis point cap and they let it rise to fifty. That wouldn't be I'm hearing from so many people today as sort of earth shattering as when the s n

B let their pegs slip. Do you agree that's right? Yeah? I think there has been a lot of sense among bond traders in particular in the past few months that this would be coming at some point. Um, so you know, the sequence of events I guess is is that you know, the market has kind of been preparing itself at least in pockets or something like this, or the possibility of it.

And if you you are as a view that the said turn of events, they could increase the chances that then you know, you may be expecting that the end would bounce back that the end has has fallen dramatically in recent months in this year, and for you know, for an expert driven economy, obviously that has a lot of consequences. All right, right now, let's appreciate it. Andrew Monahan, Asia, Credit Managing Editor, Bloomberg News journing us giving us the latest.

I want to kind of get back to this job number because again better than expected, although showing some some slowness since prior numbers. Joanie Bailey, chief workforce analyst at Employee Bridge Joint looks pretty good, still pretty good, let's be fair. I mean, if I type in, I usually do ECO US or type W E C O and just punch up the American flag. Um, we were looking at three seventy two thousand jobs added, Joanie. That's way better than the two sixty five and the survey and

the whisper number was even lower. But it's only a little bit off from the three ninety that we had in the previous month. UM, and that was revised up, so How does it look to you? I think this was a really strong report. You know, the labor market continues to be the right spot in the economy. That demand is so strong for workers. Um. You know, eleven point three million open jobs in the United States, so there's really like two jobs for every one person that's

out there looking. But we have a challenge. We have a big challenge that we can't get people back to work. UM, and I think that will flow us down. UM is the labor participation rate we continue to just cover at that sixty two. We're really not seeing much movement in that area, and that's a big challenge. How about that five point one percent wage year a year number? How did you What did you make of that? Yeah, you know, I think we've seen that kind of as a steady mark.

Uh in recent reports. You know that we're looking at five percent year every year. Uh. The challenges is that wages are still lagging, you know, consumer inflation. However, I don't think we're going to see much movement with wages. Companies are certainly focused on their earnings, even though they have job openings and they're trying to recruit talent. We're not seeing a lot of upward movement in wages right now.

So my prediction would be that we'll just continue to see wage growth kind of stay at these levels, um, just due to the uncertainty in the economic um, you know, conditions with the market and um, you know, just everything else that's going on even in our world. UM, that does create some uncertainty for employers. So I don't think we're going to see a lot more movement in that area. So not keeping up though with inflation, right, I mean, we we've seen decent gains five percent, but we're looking

at eight nine percent inflation right. Definitely not keeping up. And I think that's a real challenge for workers, UM is that they are feeling it, you know, at the gas pumps, at the grocery store, you know, going out to eat or grab something. Everything is costing more, so their dollar isn't going as far. And UM, I guess that leads me to the point of questioning why we're not seeing more people enter back into the workforce. I would think that that would be a trend to watch

for in future reports. If wages kind of stay the same but inflation continues to climb, I would expect that I would participate in the labor force and actually want to catch work. So that's something I'm going to be paying attention to in in future reports. But right now that remains a pretty big challenge for us. So we're gonna have a company earnings and started in earnest next week, Joy And I wonder if we're going to still hear CEOs lament the fact that they can't hire, attract, and

retain the workforce that they need. Is that still a big big issue for the companies you talk to? Yeah, definitely is UM. There is a strong demand really in all sectors UM. Though we have heard over the last thirty days. You know, certainly some rumblings about layoffs in the tech sector, UM or automotives, but I think those UM are unique and you know, unique circumstances across the board. The demand for workers is very strong and they're continued.

You know, employers are really continuing to have challenges with finding workers and retaining their current staff. You know that the actual quits rate is still at a pretty all time high. People realize there are a lot of jobs out there, thinking the grass might be greener, maybe they could go somewhere else, make a little bit more money. They're not afraid to quit their job because there's there's a lot of opportunity. But but there's still a disconnect

to with the skills gap in our country. Many of the jobs that exist today require specific education, skills training, UM, and that's something that we need to get workers, you know, up to speed with in order to meet that demand. UM, not only for today but certainly in the future. Johnny, where the biggest where the biggest holes when you look out there at UM what employers want and what employees

potential employees don't have. I mean I look for example, at UM you know, job sites, and see that coders are making four hundred, five hundred thousand dollars a year and they're not even bosses. UM. But obviously I can't code, but you could learn how to code. There's lots of opportunities, old chick up a new skill. Coding is a great field to get into. I I spend some of my time talking to high school students and college students and giving them advice on you know, what fields are going

to be good. Of course it needs to align with your interests. But voting UM anything really in the I T or the STEM field. My interests are getting paid for dollars a year for typing all day. That's an interest of mine. But but you might never have that job satisfaction if you don't love to do it. So you've got to find that combination right of both. Um, But there's a you know there are there isn't demand

in so many sectors. You know, truck drivers, they're making very good earnings and income, and we can't find enough truck drivers. UM, trade and transportation, that sector has two million open jobs. I mean truck truck driving literally aligns with my interests. But again it's not as easy as it sounds. I mean, getting a commercial driver's license is and driving a truck around with a big trailer is hard work. I can't even tew a lawnmower. Yes, it

might be challenging, but there are opportunities. There is training health care. Again you need specific training, education, experience. But such a great field to be in and obviously not going away. UM as we have an aging population. Um, you know, the construction jobs have been picking up. I was looking at the data on construction jobs and there are more construction jobs today than there were this time last year. So um, really it's all across the board.

The professional and business sector obviously has a tremendous amount of opportunity, but there are also jobs, you know, the hourly jobs and leisure and hospitality, retail. You're not going to make five hundred thousand a year in those roles, but there are opportunities out there that don't require a lot of skills and can get you back to work too, so um, you know, just tremendous opportunity. We really need the workers absolutely, all right, Jonny, thank you so much.

We really appreciated. Johny Vilely, chief workforce Analysts at employ Bridge, 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 at on Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.