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Alex Steel and Paul Sweeney live here in our Bloomberg Interactive Broker Studio streaming live on YouTube. Sohead every to YouTube dot com search Bloomberg podcast now and that's where you'll find us. Geopolitical news coming out of Ukraine and Russia. Russia is willing to discuss a temporary Trucian truth in Ukraine, provided there is progress toward a final peace settlement. That's according to people familiar with the matter in Moscow. Let's
come more reporting on that. Ross Mathis and joins us Bloomberg News Director for Europe, the Middle East and Africa, Ros What do you make of this news coming from mister Putin?
How significant could it be?
Well, it is significant, As you were saying, we've had the exclusive information that Vladimir Putin has indicated is open to a short term truce on Ukraine with conditions, and that this offer has been in fact conveyed to the Americans. It was conveyed that meeting that was held in Saudi Arabia last month, and it comes before there's talks between the US and Ukraine also in Saudi Arabia early next week, and the possibility after that of a direct meeting perhaps
between the presidents of the US and Russia. So what this really indicates is that Vladimir Putin does is amenable at least.
To looking at a sea spa in Ukraine.
He just wants to understand how that fits into the broader trajectory towards a longer term piece in Ukraine. And so he's got some conditions there that we've reported in our story just out a short time ago.
So we just spoke quite a bit about potential peace in Ukraine with no mention of Zelenski. So where is Zelenski and Europe been on this potential seaspire.
Well, that's right.
Again, this may serve to feed concerns that Ukraine is really a recipient in this case in terms of being told this is what we're all talking about when it comes to their own country, and that's been a concern
for weeks for Ukraine. But also for many a leader in Europe, and the hope is that by having you know, Zelinsky express regret for how things went down in that recent Oval Office meeting with Donald Trump, that they can reset a bit, get towards that minerals deal that was supposed to be signed and wasn't signed, and then get Ukraine back in the room in the conversation about a ceasefire, because again the concern is, does this get driven very much by the US and Russia and then Ukraine essentially
gets told what the parameters of this are and that's got to be still a concern for Ukraine at this point.
Hi, Roz, thank you so much. We appreciate that.
Roz Matheson, Bloomberg News Director for Europe, the Middle East and Africa, on President Putin said to be ready to agree to a Ukraine truce with canitions want further reporting on that round.
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These markets are up there down and that's just in the morning and trading. We've got yields coming in here, the tenure Treasury four point two five percent yields are moving as well. So again another volatle day for a volatile week as the market tries to discount a lot of policy coming on.
Washington, DC. Emily Rowland, she.
Gets paid to do this stuff, co chief investment strategist at John Hancock Investment Management up there in Boston. Emily, how do you kind of put all these cross currents? How do you keep them straight and try to keep the eye on the prize, which is longer term performance for your funds.
Yeah, it's tough right now. The macro is really in the driver's seed and investors are largely ignoring the fundamental backdrop in particular of course, drivings a lot of the cross asset action.
So it can be tough, you know, right now.
Admittedly, the US is experiencing a bit of a soft patch economically speaking.
The data haven't been great.
But there have been some bright spots, certainly ism services on Wednesday coming in at fifty three and a half and the US Jobs report this morning coming in at one hundred and fifty one thousand, very modest provisions.
To the last couple of months, so for now, the labor.
Market is actually on pretty solid footing. Of course, the DOGE announcements around government layoffs haven't been factored into the data, so we might need to sort of enjoy it while we can, But the US labor market continues to be the bright spot here as it relates to the economy.
What's interesting though, is today we have the Treasury Secretary speaking on CNBC saying that there's going to be a detox period for the market, that the market, the economy has become hooked and we just got addicted to government spending and now we're going to detox it. If that indeed is the plan, right, we spending off of government spending, put it on the private sector, lower rates in order to incentivize spending, and then lower taxes as the kicker.
Do you need a transition for that.
Yeah, I mean it's a pretty remarkable shift from the relentless amount of fiscal spending that we've done over the past couple of years. So, Alex, the starting points is really high if you look at the jobs have been added. Nancy Lazar's got some great statistics on this from Piper Sandler about ninety five percent of the jobs that have been added over the past year have been in government and healthcare.
That's a massive amount.
So we're starting from a really tricky point here as we impose some of this fiscal austerity, and you're seeing it happen really across markets. Meanwhile, overseas, you've actually got policy makers in areas like Germany that are proposing.
Spending measures there.
So we're seeing a bit of an opposite day play out here in terms of less fiscal support in the US and more fiscal support and areas that have previously been very austere so Emily.
We had Gina Martin Adams from Bloomberg Intelligence on earlier talking about she's seeing some rotation from the US equity markets into Europe for just those reasons, concerns about growth here, maybe some better expectations for your How are you guys thinking about allocation geography geographically?
I mean, it is just remarkable to see some of the moves that we've seen and the huge capital shift to areas overseas. International markets just on a tear this year, the European you know, the euro surging, so it's quite notable we always don't look for a fundamental catalyst right now. I think a lot of these moves are based on
political developments that we talked about. They're based on momentum short covering potentially kind of sentiment and optimism driving those moves, And when we look underneath the surface, we're really not finding a meaningful shift in terms of the earning narrative. Analysts are penciling in about twelve percent earning growth in the United States this year. It's a little bit off fifteen percent that was penciled in a couple of months ago,
but it's still pretty darn good. Meanwhile, you look overseas at EFA and emerging market estimates, they're.
Not that great. They're in the low single digits.
So we're just not finding that catalyst from a fundamental standpoint. You know, European markets right now, we're pricing in just exceptional economic growth and exceptional earnings growth, and we just don't see things looking that exceptional.
So does that mean that the amount of spending that Germany is going to do you don't buy it or you just don't see it to be immediate?
I think some of both.
I mean, we always come into this with a little bit of skepticism, and its actual size of the spending is still much less than what we spend here in the United States, especially from a defense perspective. So we're going to need to see how this plays out. We're going to need to see if Germany can come out of the slump that it's been in for some time based on these measures once they get put into place.
But for now, we've got to focus on the fundamental trends, and they're better here in the United States, especially for US value stocks, where we're seeing meaningful acceleration in terms of earnings estimates into twenty twenty five.
All right, so back here in the US here, talk to us about opportunities and fixed income. I'm hearing more and more people say, boy, with this uncertainty out there, I'm just going to go clip a coupon, you know, and I'll come back in six or twelve months.
Yeah, we really like the income that's available in high quality bonds right now, with the aggregate bond index yielding about four and a half percent, it's really competitive versus equities. So you know, we're sitting at elevated valuations around twenty one and a half times forward earnings on the equity market, I mean, still not terrible, but not great. And meanwhile
you're getting a discount on bonds. We saw a pretty meaningful backup this week as bonds traded in sympathy with German boons, which just saw the big about a forty basis point increase over the course of the week, which is the biggest over twenty years.
But we would look at.
Those backups as opportunities to lean in if the economic data continue to disappoint at the margin, if this soft patch continues, we think US bonds here get a bid they can benefit. And listen, the dividend yield on the S and P five hundreds like one point three percent right now. So equity income ain't what it used to be as it relates to finding income and the equity market, we prefer to do that in bonds. We think there's more relative value there as we head into the remainder of the year.
All right, Emily, great to catch up. Thank you so much, Emily rolland Co, Chief investment strategist for John Hancock Investment Management.
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Also in studio on Fridays. This is getting It's not. We're seeing more and more people in on Fridays. I guess is what I'm trying to say, what you are seeding this?
It's but I think it's happening.
Okay, okay.
Catherine Dugherty Joint is a financial reporter Bloomberg News joints us again here in studio and a story that quite frankly concerns me. Nastak joins Exchange is seeking to offer around the clock trading.
I don't know, is it tell us about this, Paul, I.
Don't know if you need to be concerned right away. They made this announcement about their intention to extend their trading hour, so it.
Would tend to go on vacation at some point exactly. But let's take a step back to say that these plans are far out.
So Nasdaq gave some indication that they don't expect this to actually start happening until the second half of twenty twenty six, So this is not even a twenty twenty five story, but specifically for the exchanges, and the reason being the numbers that we're seeing right now, anything that is trading actively on any of the public exchanges, that data is all going to one feed, and feed cannot.
Accommodate overnight trading right now.
So in order for this to actually move forward in a meaningful way and for Nasdaq, Nicey, Cebo, any of the exchanges to offer overnight trading, that data feed needs to be updated and they need to work together to make sure that it can.
All all right, this is this, all right?
This is the way it works. When I was on the trading desk, you get in at seven, that's the bed is a little early, particularly you're out late the night or four with client.
Trading starts at nine point thirty.
Bell goes off at four o'clock four fifteen year at Faros across the street.
Sure, having a couple of cocktails. That's the way it's supposed to be. None of this like stay late in trade late kind of thing.
Right, So, okay, great point. So why do they want to even do this?
So they are saying that the demand for US stocks that they see, particularly abroad, is enough to start offering this to their clients. But when you talk about the actual demand and who it is that's actually behind these trades, a lot of it is coming from retail investors. It's not the big institutional block trades that are coming through
at four in the morning. Particularly for the instance that you're describing Paul of showing up, you're at your desk, those parameters are likely to stay in place, but you want to have some flexibility. If you're have an office that's in Asia, I think what's going to happen is that the staffing is what's going to change.
So you might not have the trader in New.
York that has to stay much past four o'clock like they normally do, but you might have to hire another trader in Asia. Maybe you're hiring a team in Europe to accommodate for the earlier hours in the US.
There's ways to do this.
That doesn't mean those of us in the US and particularly in New York, are going to have to stay stay late or wake up earlier.
Wow.
Okay, that's fine, but we can. But the funds they don't do this trading though, right It's like big funds like the CTAs of all controlled funds, like they don't trade, They wouldn't trade overnight right now they can't, But would they if usually just trade in the cash market.
That is the big question.
So once that would be something, Once Nasdaq and NICY and all them start to offer this, the question is who's going to take the advantage per se, who's going to actually be the ones that are trading overnight and who is a first because when one person starts and then they all have to go right right, and really what is the There's a lot of speculation that.
The retail trades that are being made there's not enough liquidity, so therefore the experience and the price that they're actually getting, the execution quality suffers because of that. But if there's more trading that happens, that could start to improve the quality, and thus there might be even more trading that starts to happen because of that would.
Just be like no closing bill at four o'clock. That's something that the industry needs to decide on.
It could because I think about it, think about it, if they're spiting opening or closing bell, you need to actually decide at what point are we into the next trading day?
Bitcoin doing blown. I don't know. I don't know how bitcoin.
It's a different market structure. But it's funny.
I saw a lot of posts on x today from the crypto community saying, oh, nice of you to join us equity exchanges.
We've been doing this and come along. The water is warm.
I don't know.
All right, well, we'll see it's progress. You can't stand in the way progress, Alex.
You need to shows the guy who doesn't want to do it anymore in the same way. All right, Thanks so much, Catherine, really appreciate Katherine already Bloomberg Finance reporter joining us, the nastak joining an offer to.
Go around the clock.
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Hey, Alex Deal Paul Swiney live here in our Bloomberg Inner broke the studio, streaming live on YouTube as well.
Ola Lou Aganga joins us. She is the US chief.
Investment officer for Mercer, joining us via zoom. Ola Lou John and I were just talking about this. Boy, things have changed in the last couple of months here in terms of the outlook here. When you see a trillion dollar market cap loss for a company like Nvidia, boy, that gets your attention, does it?
How do you feel about these markets?
So the concentration in the equity markets has been a problem for some time, and problem meaning like it's hard to be able to distinguish yourself when you have a benchmark that is moving in that positive direction. We're seeing a swing in the opposite way, right, but the concentration
is still the same. So when you have a key handful of stocks that are driving markets in either direction, you know, it does create challenges now, you know, with that said, we're in a situation now where we're kind of back to pre election type of markets. But with all of the macroeconomic data that's coming up, we're looking at it. As you all mentioned on your show, economic data was okay this morning, so no surprises from an employment standpoint, but it hasn't factored in the cuts yet.
So how do you manage the volatility at the end of the day. Is it defensive, is it offense?
Is it cash?
Is it treasuries?
So the a lot of flow and it all depends on the client portfolio objective, So or some of the longer data clients, the pension clients, they're heavier in fixed income anyway, they've always, you know, historically been, so this is a boon for them. We're seeing what four or five basis points decline and yields this week last week was a pretty dramatic move, especially in longer dated bonds, and if you think of the liabilities the pension clients have,
that is something to be to be mindful of. Then if you were talking about the shorter data aspect, so the yields on two year money mart like those have come down, so if you're trying to earn returns that may not necessarily be you know, the best with regards to that point. But there is a more defensive environment, yes, that has been created and some uncertainty around it. The facts are tariffs, no matter which way you look at them, are higher input costs, and input costs for corporations a
fact them in one of two ways. It's either lower margins so you have to either absorb that, so we'll see that play out in the next few earnings report maybe or if you pass it on to consumers, then you run the risk of potentially lower sales. So the drawback and the drawdowns that we're seeing in the market
is almost you know, by the rumor selby news. So it's proactively moving in that direction because of those two potential things that can happen as a result of higher input costs for corporations.
But we have to see it in the earnings.
Well, since the market started moving higher there in mid twenty twenty two, a lot of folks have said, boy, we just haven't seen that ten twelve, fifteen percent pullback in the market that oftentimes can be healthy for a longer term bull market. Do you think we're approaching that now or or is it maybe even something more problematic.
So, yes, we haven't seen a pretty big draw down in quite some time. But if you were to analyze post financial crisis, even when we have and if you of course we all remember the COVID period where were saw even bigger drawdowns, the rebound on that it was actually fairly dramatic and fairly swift. So the challenge with that, you know, really focusing on the draw downs is because you can't time the markets.
We can have it could happen Monday Tuesday, right, we.
Could very much see the potential of that occurring. But positive news that could occur could cause it to move very very swiftly. So for us as you are thinking of investing and not trading, right because there is day trading and you have to be able to move with the volatility cycle if you're day trading or moving that quickly. But if you are investing, the goal is to be able to cut through the noise and go through more sustained themes.
As we just talked about something like.
Corporate earnings, how will that play out if we see higher input costs? So that is what we're doing a lot of work around to make sure that we can look past today, tomorrow and go.
Through a quarter, two quarters, three quarters type of thing.
Where does this leave then corporate credit?
So she laughs at me as well, No, it's it's you know, the corporate credit just like equities, right, so two sides of the same coin, for for the corporate entity is not immune.
So there we've seen a tightening of corporate credit just you know recently, but now as as we're going through a period now we're starting to see some widening that's occurring in certain pockets with rates where they are, and we're just seeing the volatility. It is difficult with regards to issuance now. When rates were much higher, it's expensive for corporations to be able to fund.
So if you're issuing new debts, you're issuing them at higher and higher levels.
If we see a situation whereby the environment becomes a lower rate environment from here, then for corporations and corporate credit it's a tighter environment and that's good to some degree, but it means you're not necessarily earning the yield and
call it investment grade credit. So there's the potential for clients moving out their respectrum, but right now, not really right now, it's it's sort of weight, but lots of volatility in corporate credit, the similar thing that we're seeing even in treasuries.
All right, all well, thank you so much for joining us. Ololu Aganga, US chief investment officer at Mercer.
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