Stocks Rise Before Trump Speech

at Bloomberg dot com. This week we get J. Powell, the Chair of the Federal Reserve, speaking on Wednesday and Thursday testifying I should say, but that comes after today's speech by President Trump at the Economic Club of New York, which, according to our own Michael McKee may dictate what J. Powell will talk about. Here to join us, to give us some insight from the dept market perspective is our own Ira Jersey. He is chief US interestrate strategist for

Bloomberg Intelligence. So, Ira, how do you think J. Powell could potentially respond to something that President Trump says today? Hey, well, I guess it depends on what he says. I suppose if it's talking about trade aid um, you know, won't be much different than what Chair Powell said before, which is you know that trade is is something that they look at for what's going to be the direction of the economy and and therefore what they have to do

as far as monetary policy goes. UM. If you know he talks about if if President Trump talks about, you know, reducing the Fed's independence and you know, and and basically reiterating some of his his tweets, then you know, I think Chair Powell will want to reiterating again something that he said at almost every press conference during his tenure, and that's that you know, the FED is is independent and that the FED will do what it needs to do.

That Congress gave them the the authority to conduct monetary policy as the Committee sees fit and um, and they're not political. Um. You know, obviously what he hears, I think is going to give him some odditatave. But he has to say those types of non political you know, we're non political organization and say things like that. So

I at LEASA and I had this morning. We're talking about that Bank of America, a fund manager, a survey that came out and it's a you know, surprising I think to me at least quite optimistic in terms of the view of the markets in the economy. Do you think the FED views the world that way or they have maybe a higher level of caution. I think that they tend to be a little bit more risk averse. I think that's been one of the features of the Federal Reserve since the end of the h since the

financial crisis. Really it's that, you know, let's use caution first, because we don't have a lot of ammunition. We're not we don't want to have to do some more extraordinary measures in terms of monetary policy easing. So let's make sure that the economy is on stable footing before we

um before we hike interest rates meaningfully. So so I think at this environment, yeah, I agree with that kind of sentiment you just mentioned, Paul, is that I think the FED is a little bit more skeptical than maybe um that maybe some market participants are at the moment. And I think what's going on with a lot of market participants is it's not that things are particularly good,

it's that things aren't as bad as a feared. And I think that that's kind of the environment where you can have equities, you know, at or near highs, and and interest rates, you know, creeping a little bit higher. How much is this Europe actually doing a little bit better than it had been, Oh, quite a lot, I think.

I think at least that that's a very good point, because you know, Europe, Europe has really kind of been, um uh been a big big issue I think for developed markets in in in general, and the fact that that they're basically exporting a lot of deflation and disinflationary kind of impulses to the rest of the world has been an issue. So the fact that you might have some stabilization and some of their their survey measures, their

manufacturing seems to be lower. You're now getting some fiscal policy out of France, for example, that might actually help their economy a little bit. So when you get this incrementally, you know, kind of good news on the economic front, that's going to lift yields, you know, you know, you know, look at German tenure yields. They're still negative and there's still you know, negative twenty five basis points, but they're significantly off their loads of negative seventy basis points, right,

So that's a that's a pretty subsential move. I mean, that's as big a move in uh in German and yields, as you've seen in US yields over the past couple of weeks. I want to talk about a a research note you put out this morning. I thought it was pretty interesting. It talks about treasury auctions and actually how they occur. My understanding when I was back on the street was the dealers, treasury dealers on the street bought the US bonds and notes when they came out at auction.

Has that changed or how has that changed? Yeah? So, so prior to the crisis, you know, dealers bought a bulk of of debt and then wound up reselling it to UH to other investors. So you know, dealers didn't necessarily hold a lot of their debt. They just wind up having to buy it auction. So since the crisis, that shifted quite a lot. And actually, investment funds tend to participate in treasury auctions much more than they used to.

In fact, you know, if we're just looking at tenure treasuries for example, investment funds take between fifty and six of most treasure of most ten year treasury auctions. These days, dealers take the next most which is only about and then um and and then direct bidder so these people who uh so foreigners say, uh, they only take about

ten percent. So so there's this idea I think in the world that even though um uh, even though foreign holders of treasuries are still very large and about treasury debt right now is held by them, um, really auctions are being driven more by domestic investment funds. So these are you know, pension funds, annuities, uh, mutual funds and and the like. So it's really, you know, domestic investors really have a lot of um demand for for U

S treasuries. Um. Just going back to the Bank of America Marylynch Fund Managers Survey, another notable sort of shift that we saw was the expectation for yield curve steepening. And right now I'm looking at the gap between tenure and two year treasury yields reaching the highest since to lie nearly towards the highs of the year, just in about thirty seconds here, Ira, do you expect this to continue or do you think that the consensus has gotten

ahead of itself. Well, I think we's only eight basis points was the high of the year back in June, and I think you break that and and we'll keep on steepening a little bit. That's not that far of a call, right, yeah, exactually yeah exactly so. UM, but if you if you break above that, then I do think you can reach thirty five and kind of new

new highs. I think the reason for this is just the idea that, um, that the economy is not as bad as it was, and the Federal Reserve is not going to be hiking monetary policy anytime soon, so you're able to see the yield curve. Stepen just a little bit more from here our Jersey, Thank you so much. Ira is the chief US interest rate strategist for Bloomberg Intelligence.

Joining us on the phone. In a little bit more than an hour, President Trump taking the podium at the Economic Club of New York, expected to talk about the US economy and how well it's doing. He'll also potentially answer questions about China trade. Then tomorrow J Powell testifying, we'll be taking that live. You can listen to it. But all of this uh coming at a tenuous time, a lot of uncertainty about whether the economy is about to take off or whether perhaps people are over their

skis joining us now, Kevin Cummings. He is economist at net West Markets Securities, So, Kevin Cummins, I'd love to get your perspective on this sentiment shift that we've seen, which is somewhat dramatic now people being much more bullish rather than bearish. What data have we gotten to actually edify that view. Yeah, well, there's certainly good morning first off, but there's certainly optimism growing over a reduction and uncertainty should the U. S. And China sign some sort of

phase one trade agreement. UM. In our own view here in UTS markets were a little bit reluctant to kind of uh think that everything's going to turn out all of positive in two thousand and twenty if there is some sort of agreement reached UM, which seems that it's things seem to be moving in that direction, and perhaps you know, the market could potentially be UM if if Trump this afternoon uh does talk a little bit more hawk is shot on the outlook there, then UM markets

potentially could disappoint here. But UM, you know, as far as UM the overall economy, I think you know the data themselves that have been better obviously was the employment report at the start of the month. Um, you know,

the thousand jobs that were announced. There's nothing to necessarily write home about, but there were some positive signs of the trend is rising at a better pace than what was initially anticipated because it was a big upward revision to the prior months, and some of the other data within the report were fairly positive. So, Kevin, are you of the opinion that it's really really just talking about

the consumer here in this economy? We know the consumer economy, but it seems like the other thirty percent is is pretty weak, maybe even manufacturing recession. Is the consumer strong enough to keep this economy growing? Yeah, I mean, consumers spending certainly has been driving the growth in the economy lately. UM and as you mentioned, manufacturing, which is pretty much at the epicenter of the UH the trade war. Obviously, we've seen business investment and exports slow down as well,

so it's not only confined to the manufacturing sector. But you know, the consumer, as you mentioned, correctly, UH is definitely leading the charge with growth. But I think it's pretty obvious that the economy is in a slowing phase. And you know, at the start of the year where a three percent and the last couple of quarters we've been around two percent UM, which seems like a reasonable

estimate for the fourth quarter as well. We don't have too much data that go directly into adding up g DP just yet, but later this week we will get retail sales, which, um, you know, allow us to get some sense of least UH spending heading into the all important holiday shopping season. A lot of people, including President Trump, seemed to be increasingly conflating the performance of equity markets with the US economy. Uh. And I guess you know, even if we do have a slowing US economy, can

that support new record highs on the SMP. Yeah. Well, I mean it's a little bit out of my purview, and I'm not necessarily an equity strategy, but I do think that the equity market is a good, um at least um indicator of how things are currently UM. So it's more of a coincident indicator. There's very little economic data that actually do that good of a forward looking gauge about growth, But I do think the equity market

obviously is a very important one. So I definitely don't want to dismiss the positive tone in the equity market, uh, with regard to you know, the future growth in the US economy. UM, but I do think that some of the earlier strength we've seen in the consumer is probably exaggerated. And and uh, you know, even just last week, the your guys measure the Bloomberg Consumer Comfort and the index fell to a seven month low. So you know, it is only one week's worth of data, but I do

think we're at UM. You know, we are starting to see a downshift in in consumer spending, which kind of is aligns with the slowdown that we've seen in peril growth. Now at the top, we did mention that the employment report was very strong, UM, and all the upward visions to earlier months were positive. But I do think we're

starting to see some cracks in the consumer um. Not only consumer comfort index with the Bloomberg number coming down, but auto sales for October fell over three and a half percent or just about three and a half percent UM, which is likely to hold back over all retail sales on for day. UM. You know, these data are clearly aren't weak enough for the FED to reconsider any recent signal on rates, But in our view, the data don't necessarily support the high degree of confidence that the Fed

um and what Powell is likely to emphasize tomorrow. UM with regard to the consumer and the outlook, Kevin Hell, what's your view of the European economy. Some people are suggesting that perhaps it's kind of bottoming out. Do you share that you? Um, Well, the data there with regard to like the purchasing managers surveys have been um, definitely less weak than they were. I mean, they were collapsing for a while, and they at least showed signs of

stability there. Um. And obviously economies like Germany is is really getting bearing a lot of the bront from the China trade war, so you know, they are much more open and exposed to global situations than the US uh is directly, so you know, I focus more on the US, but we've we've seen less weakness. I think they're relative to the earlier really significant downward aumentum that we saw earlier. Kevin Cummins, thank you so much for being with us.

Kevin Cummins, economist with nat West Markets Securities. Today is a big day for the Walt Disney Company. They launched Disney Plus, their streaming service that is slated to go head to head with Netflix. Stock US up one point five percent today to walk us through kind of what it means for the company. We welcome Githa Rungan often she is senior media annalys for Bloomberg Intelligence, joining us on the phone. So, Keith, this is a big day for Disney. Tell us kind of what their strategy is

here with Disney Plus. Yeah. So absolutely, Paulso there's been a lot of excitement and anticipation building up for this service, which will really be the core of Disney's uh director consumer strategy. Um. So, they've been really building for this service for many many years now, acquiring the technology and then really making that transformative acquisition with Fox just to

get that extensive catalog of content. But really this is uh, you know, this is going to be the core of the company I think for for for the foreseeable future. Management has staked especially Bob Iger, has kind of staked his legacy on this on on the success of this product. So it is a make or break attempt by Disney to reposition the company for growth. I love how it's being assessed right now. The rollout, yes, there were technical glitches and crashes for some users, but social media people

seem to like it. Uh, you know how do we decide whether this was successful or not. So I think first day launch issues are typical in streaming. I mean, they did expect this. They had a test pilot whi uh they carried out in the Netherlands a few weeks ago. Um. Disney management said last week at the earnings called that that pilot actually was pretty successful. The glitches are scattered. I think it resolves itself in the course of the

next few hours or by the end of the day. Um. They did actually put a tweet out just a few minutes ago saying that consumer demand has exceeded expectations. Uh. And so at that point, yeah, absolutely positive. And um, come on, do we expect anything other than that. This is from Disney, right were they're gonna put a tweet up being like, guys, guys, where are you? I don't

know why you're not signing up faster? I mean, there were some Um, so there were some reports yesterday which just just to kind of give you a sense of the demand out there. So there were some reports suggesting that they were almost more than two million pre orders. But really, I mean, I think Disney's secret weapon here

will be it's it's marketing advantage. Right. They have millions and millions of touch points across the company, spanning their channels, their parks, their cruises, their their hotels, retail stores, so that that's an area that they're really going to have significant advantage. So Keita talked to us about the financials here, the economics of this business. It's not a cheap business. We see the you know, Netflix spending a good jillion

dollars every year on programming. What's how's Disney they do it? Yeah, it's it's really the same story for Disney as well. Um. The only I guess the main difference there is they own a lot of their library content. So at launch they have five hundred films, seven thousand, five hundred uh episodes TV episodes. They own all of that. Of course, it's still going to cost them because they are putting originals on their service as well. So they at launch

they have ten originals. By the fifth year, they're going to have almost sixty of those originals, and just with the cost of the originals, uh, as well as the last licensing revenue, they're gonna lose probably anywhere from about two to two and a half billion over the next few years. In each of the next few years, So the service is not going to be profitable till at least fourth. Do you have cable, I do? Yeah, what what what would it take for you to cut the cord?

So so I think the thing that's really keeping me glued to to cable right now, like everybody else, is sports. Um you know your um, well I have lots of them. Um yeah, but but you know, just just sports in general. And I think that's what's keeping people really glued to to to to their bundle right now. This this Disney plus thing. One could argue that maybe Disney and all these other folks are are late to the game. Um. I mean there's a lot of competition in the streaming business.

Talked to us about the competitive landscape. Yeah, I think that, you know, most people are really kind of expecting more of this two horse race between Netflix and Disney. Um. We do have some of the other services as well. You know, CBS, for instance, has the all access in the showtime service. But I think a lot of those

are are going to really see tremendous competitive pressure. I think when all is said and done, over the next three to four years, we're really going to see Netflix, Um, kind of consolidate its position, and Disney with its three services at Disney plus, Hulu and UM and ESPN plus have at least over well over a hundred million subscribers in the United States. Get the wrong enough and thank you so much. Well. The first major cold snap for

the Northeast is coming this week. That usually gets the attention of energy traders to get a sense of what's going on in the global energy markets. We welcome our good friends Stephen Short uh Short Group President Stephen, thanks so much for joining us so give us a sense of just kind of what we're seeing in the natural gas and maybe even other energy spaces as we get this cold blast of air coming across the U S. Well.

Absolutely in the natural gas market, which we are we are and continue to be in a structural long term bear market. We've had a significant rally over the last two weeks. This was created by in the oversold condition. That is to say, speculators on Wall Street had greatly oversold this market when we UH judge their risk ratio relative to the CFTC data. So you juxtapose that oversouled condition with the first major blast of cold air, and

that was quickly priced into the futures markets. So we've had a significant rally in the gas market leading up into the close of last week. We just got the new CFTC data out on this past Friday. The bears have been squeezed out of the market. The risk ratio is lower, so this the the bullish short squeeze in the market is now over. So you take that short

squeeze out of the market. And yes, we're getting hit with the cold right now, but keep in mind these are futures markets, so we're looking at, okay, what is the next shoot a drop. And although we're seeing very cold or about to see very cold attempts in some key gas fuel market areas over the next week, the forecast beyond one week out is much more moderate. So we had a significant sell off or a correction, that is to say, in the oil markets to start off

this week. Got it. And so in other words, it sounds like unless there's another cold spat uh, you think that probably things are going to go down or flat from here for that gas, absolutely, Lisa, I think we're sending up to the same scenario we saw last winter. Last winter when you you got some cold in in the forecast you got some cold winter, we saw a twenty cent rally in the market. You take that cold out of the market, then we saw correction and we

yow yowed all of last winter. And it wasn't until we got into the spring of last UH last year when the floor from underneath the market fell out and natural gas prices crashed. We're now going into the peak demand season, So yes, this is going to be a market that lives and dies with the weather forecast. All right, So that's natural gas. Let's turn to crude, and I've been seeing a number of stories about how shale producers are planning to reduce their spending next year UH, planning

a cut production. Further, we're hearing some about even the deep water drillers planning to potentially do the same. Do you think that this will change the dynamic with respect to what people had been talking about the oversupply within crude. Yeah. Absolutely. I think the market is is far too focused on demand. That is to say about the ongoing offgoing talks with China and the tariffs. No one's really the narrative really hasn't been on to supply, and I think that will

change in the new year. Lisa. As we go in and we look at for instance, uh rid counts, red counts are now at two plus year lows. But the problem there is we're much more efficient, We're better at producing with less, so we're still getting oil onto the market. The biggest, biggest concern for this market in twenties twenty is the in some odd forty billion dollars of debts

that is now coming due in the oil patch. Remember oil prices crashed at the end of Wall Street allowed the shell patch to kick the can down the road five years out with increased in the revolvers and their credit lines. Wall Street is no longer willing to do that. Wall Street wants to see the money. So you've got a hundred and forty billion dollars there and about coming do over the next two years twenty twenty throw two. So you're about to see, or we are on the

customer see a major contraction in the industry. That is to say, you're going to see a lot of small producers with a lot of debt on their books about to be gobbled up. And there's are only going to be producers with good acreage are gonna be gobbled up with the big guys with clean balance sheets. So we've got a little energy I p O deal coming down the pike, Saudi Aramco. So how does the market the energy markets, do you think? How did they perceive Saudi Aramco? Uh?

You know what, Saudia ramcoes ten years too late with this I p O. You have every major Western oil company, they're not even oil companies. They've rebranded themselves their natural gas companies, their power companies, their energy companies. They've taken the word oil out because clearly out to the future growth of oil the demand decay is there. The most optimistic UH forecast but by another researcher says demand decay or demand um what will peak in and and then

what will will get to be pulled back? I'm not as optimistic. I think the genie is out of the bottle. So with regard to that two trillion dollar valuation for for the small piece of that pie, A Ramco is willing or the the Saudis are willing to give up,

I'm not. I'm not hopeful. I'm that given about the whole structural change in the market away from an oil based a ectomy to at least a natural gas based economy in some other alternative fuel if certain presidential candidates have their way twelve months Hence, all right, Stephen, just we are looking ahead right now, looking at crew traded on the IMAX fifty six dollars and sixty seven dollars,

sixty fifty six dollars, seventies cents. I'm just wondering what you think it's going to be next year, what's the peak and the right right now, I think we're in that area where oil peaking in that low sixty two mid six dollar range. Once once we roll into the spring and we get ready for next summer, we demand peaks in We're we're we're pretty much I think in that range. And this is non mix w T. I. We're talking about right now where oil is fifty fifty

six dollars a barrel. For the industry to remain healthy, oil cannot go any lower than where we are right now. So in a healthy oil economy or market, we're looking at oil in that mid fifty to mid sixty dollar range. Through of course, if we see anything any pullback below that mid fifty to low fifty dollar range, that is a telltale of severe economic contraction. It's something to keep an eye on. But I'm not that concerned with regard to the quote unquote the R word, the recession word.

I don't think we're headed there. So I think oil in that in the market area, in the area where we are now in the NOMEX mid to low fifties, but not much higher than than the high sixties, going volts are relatively stable markets when we look in the aggregate. Stephen Short of the Short group, thank you so much for being with us. Thanks for listening to the Bloomberg PENL podcast. You can subscribe and listen to interviews at

Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney and Lisa bramwo It's I'm on Twitter at Lisa bramw wits one before the podcast, you can always catch us worldwide. I'm Bloomberg Radio