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Malex Steel alongside Paul Sweeney. Happy Friday. Everyone made it the end of the week. Yes, we did that. Lots to go through over the next couple hours. We want to kick off with more on that you mished sentiment. It is the final read for November, but I'm interested to see sort of what that brings in when it
comes to the election result. So Joe Anshu, University of Michigan Surveys of Consumer Director joins us sentiment coming in at about seventy three point nine, a little bit better current condition sixty four point four, also better expectations, also a touch better. Does this encapsulate the election?
Yes it does so.
Our preliminary read that we released two weeks ago did not encapsulate the election, but today's release includes two weeks, four and two weeks after the election. Essentially, what we saw was that after Trump was elected, sentiment lost about half of the gains that it had seen in the first two weeks of the month. But on net, we're still a little bit better than we were in October, and we are now at four straight months of incremental gains.
Johan, talk to us about inflation out look. I know you guys at Michigan take a look at that in your survey. How are people thinking about the inflation netlook?
In the short run, people are expecting inflation to continue stabilizing. We saw the year ahead inflation expectations edged down by one tenth of percent, likely supported by lower gas prices at this time of year. That being said, we actually saw long run inflation expectations go from three point zero to three point two. That's kind of on the high side of the range we've been seeing for the last
couple of years. Consumers are perceiving quite a bit of uncertainty over long run inflation, which is consistent with the fact that we don't really know exactly Trump's economic agenda is going to look like over the next four years, So that uncertainty seems quite reasonable.
All right, Joe, and thank you so much. We appreciate it. I appreciating a couple of minutes of your time joined shoe. She's at the University of Michigan Surveys of consumer She directs to that whole business here and again the you missurveyed numbers just a headline number. I'm gonna go with that. It came in at seventy one point eight contentius seventy three point nine and also is down a little bit from last period as well.
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Let's get to the other big news of the day, and that was European PMIS. They were terrible and you definitely then saw rerating in terms of cuts, maybe a fifty basis point cut from the ECB. So we wanted to break it down a little bit more for you with David Powell Senior. You're area economist for Bloomberg Economics. David was so bad about these numbers. What stood out to you, Well.
Actually they were bad all around, and that's really what stood out. There was no bright spots here, so the composite figure for the your area declined and the numbers for both the services and manufacturing sectors were weak. In addition to that, we get a national breakdown at the first release which shows the numbers for France and Germany, and it showed both of the your areas to largest economies experience weakness. So it's not something that's just isolated
to one country or one sector. It's this broad based weakness.
Again, it's interesting that we woke up to this data here in the States, David, and we kind of said we knew there was you know, it was softer in across Europe, but some of this data came in and just really, I think, surprise the markets here. What's the expectation for the next you know, six to twelve months as reached in European economic activity.
Well, I think the market is bracing for deterioration in the economic numbers coming out out of coming out of the EUR area, and that's because of the electoral victory
of Donald Trump. One of his campaign promises was to impose tariffs not only on China, but smaller tariffs on other trading partners and one country that really stands out in that list is Germany given its huge trade surplus with the United States, and it's a country that Donald Trump specifically referred to on many occasions during the campaign.
And we have run the numbers and our estimate is if those tariffs turn out to be as high as Trump promised during the campaign, that could knock in the short term about one percent off of GDP in the EU area. And we've also had estimates come from the Bundesbank Germany Central Bank, and they have a similar estimate for the German economy. And that's going to be a big shock to demand in the your era, which will require the ECB in all likelihood to respond the form
of lower interest rates. And that comes on top of what was already a weak economy before any of this happened.
Okay, so do you think fifty basis points coming up?
I don't think they'll cut by fifty basis points in December. It will certainly introduce that topic for discussion. I think the more likely outcome is you just see a longer period of twenty five basis point cuts. So we look for a cut of twenty five basis points in December, and we think the ECB will keep with these back to back cuts being cut at every meeting until until they reached neutral, which is about two percent. So we're going to have numerous cuts coming up throughout the start
of twenty twenty five. And like I said, more frequent cuts is more likely than larger cuts.
David, thank you so much for joining us. We appreciate getting a few minutes of your time. David Powell, he's a senior Euro Area economist for Bloomberg Economics. That joining us from via zoom thing.
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So and video is built as like the biggest event for the end of the year. And so my question over the last twenty four hours has been, Okay, well we're done with that, so then then what? And I keep getting notes in my inbox about how the rally is broadening out and then I hear, ooh, we might be topping out in tech. Go diversify. So let's get someone whose job is to actually understand all this. Grace Lee,
senior portfolio manager for Columbia thread Needle, joins us. Now, Grace, what is the right strategy now that we're done with Nvidia?
Now? What?
Well? I think we always have to pay attention to in video and I think what in videos earnings showed us this week is that the AI theme is still alive and well, and so I think we can't ignore that. That said, there are plenty of other sectors and I think we're starting to see DOT. You know, we've started to see it all year. You know, you've seen a
stealth rally in utilities and banks, especially post elections. You know, there has been definitely a people taking a second look at financials and other sectors that might have been a little bit more ignored during the year because of maybe regulatory concerns and things which have certainly eased post elections.
Grace, what did the election mean to you and your team when you woke up that Wednesday morning? Did it alter your outlook or how you're thinking about allocation or sectors? How did you think about that?
No, I think mostly it was a huge clearing event that it was decisive. It didn't take days or weeks to count the votes or anything, and then I think that it really is probably more of a positive I think for the for the markets. The one takeaway I would say is that at this point I probably don't
want to be more defensive. You know, I think I think business leaders, company managements that we've met with since the elections, they are more optimistic about what might happen under a Trump administration and with the Republican Congress.
What are your favorite top companies right now? Let's give me a couple that really float your boat.
Well, I think in terms of I would broaden it out to maybe some sectors I think, you know, I would say utilities is actually an interesting one. As much as I say, don't get more defensive, there are some some actual secular themes going on in in the utility sector. And by by utilities, I'm not talking certainly the power producers have done very well this year. But you know, when when you think of Plaine Vanilla regulated utilities, I would say that if there's ever a time to get
excited about about these companies, now is that time. And you know, these are companies like Excel Energy, Southern Company, the ones that maybe your you know, grandmother might have been clipping the dividends. But at this point, what we've seen is that we've had flat power demand for probably over twenty years, and that is now changing for the next several years where it's not just AI data centers,
it's just broader electrification, these crypto mining and resuring. That's going to drive a lot more power demand, which means that the regulated utilities will have to invest, and that means that their earnings growth takes up higher. And we've started seeing that in reality this quarter, where you've seen some really interesting stock reactions, you know, maybe even double digit price gains in a day off of just slightly
higher long term earnings outlooks. And I think that can continue within the c Hey grace.
As a former banker, when I woke up that Wednesday morning, I said, uh, oh, M and A. I think that could be back on the front burner here. The regulators have been really really tough on M and A or list several years. That might change. Does that factor into how you think about what sectors to get exposure to.
I think broadly M and A should pick up. People have been waiting for this for a long time. I think you know, financials are obviously front and center there. You know, we're we're certainly involved in some of the capital market stocks, some of the alternative investment managers which
we think we will will certainly see benefits there. But you know, I think broadly and possibly you know, we don't traffic in small caps a ton, but I think some of the smaller mid cap companies might might also be a little bit more interesting in this environment as potential targets.
Yeah, profitable small camp that's really been out performing. All right, thanks so much, Grace, really appreciate it. Grace Lee, Senior portfolio manager for Columbia Thread Needle. Joining us.
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Another story that we're following today concerns oil and JP Morgan and Iran. So apparently the US Treasury Department is examining JP Morgan's relationship with a hedge fund that is said to be part of a network that's overseen by Iranian oil trader hosting Chamkani. We want to understand sort of more on this. What might this violate in terms of sanctions or not. So we're here to break us down for us as Elliott Stein Bloomberg intelligence litigation analyst.
Can you just give us the facts first?
Yeah?
So, I mean the investigations early, the reporting is early. A lot of unknowns, both known and unknown at this point.
But it sounds like the Treasury Department is investigating JP Morgan in relation to its connection to this hedge fund that's based in London and Dubai and the hedge funds connection to an oil trader, And it sounds like the overall investigation is focused on the oil trader, but the Treasury departments also looking at JP Morgan to make sure that it followed its you know, due diligence and did its KYC and know your customer and AML compliance processes.
And I guess I'm just looking at the Bloomberg reporting. I guess folks there say JP Morgan feels like they don't need to do anything here because neither the Shimkhani guy nor the company appear in any sanctions list.
I guess, right, yeah, and this may be you know, this may be a nothing burger. There may be nothing there.
And you know, best case scenario, or one possible scenario where JP Morgan has no exposure, is that maybe it did all its due diligence and it was misled by you know, the the companies that was doing its due diligence on That's just one possibility. But worst case scenario, it didn't do it's due diligence or it ignored red flags and we've seen, you know, recently with TD Bank what that can amount to.
So if this oil trader did have a relationship with this individual from Iran, what does that potentially violate? What are the sanctions and the rules currently that would make that a problem, right, So, you.
Know, banks should not be doing business with companies that are under sanctions or on you know, special lists, you know, And so it's unclear what the connection is though to this oil trader.
Apparently he is the son of someone who was.
In the Ayatolla's like inner circle, so there may be some connections. But we've seen in the past that banks have paid billions of dollars for doing transactions with the Iranian government or other Iranian entities that are on sanctions lists.
So it can be very costly. But it's not clear that the investigation is even focused on that, and may be sort of just to make sure that JP Morgan was doing its due diligence.
And doing through that. The training here at Bloomberg about this type of issues, yeah, the type of training that the same thing we receive and I'm sure everybody across the industry, to various degrees receives about Hey, if you're doing business with somebody that may or may not be on a list, just stop, call your boss, call complaints, see what the gig is before you move forward.
Well, it sounds like this could be like a third derivative.
Exactly, And that's why there's a lot of unknowns here. The bank may have no exposure, but anytime you're talking about sanctions on Iran and you know banks doing transactions you know indirectly as well, you know, your eyebrows get raised and banks have paid.
A lot of money in the past for failures related to this.
Do we feel that sanctions could get more strenuous under President Trump? Like, what are you thinking about?
Certainly possible, right I mean, yeah, I would expect that.
I would expect it, all right, So I'm going to a JP Moore stocks up one percent today, up forty five percent year to date, so I'm assuming the market's discounting this is a non risk issue. How about other litigation that your work? What else are you working on? Because you do the litigation that companies have the deal with that can move stocks.
Absolutely and actually in this arena, there are several other banks that are under investigation for either AML violations or potentially sanctions violations. UBS is being investigated with in connection with clients that have took over from Credit Sue who may be in violation of sanctions on Russia. There's a swedest Sweat Bank that has been under investigation for AML violations for years now, so I'm waiting for a penalty there.
There's a Turkish bank, Hawkbank, that was indicted by the US government for violating sanctions on Irun.
So that's one area I'm looking at.
Another big area right now is all these rules and regulations that the SEC and other regulators have put into place under the Biden administration. There's a lot of lawsuits over them, and so we're waiting to see what is going to happen with the rules and with the lawsuits.
What else would a Trump victory mean for your world?
Right, So, in connection with these rules and regulations that the SEC has promulgated during the Biden administration and the CFPB as well, we're expecting a lot of the rules and regulations to maybe be paused in terms of enforcing them, and then the regulators will probably go back and revisit the rules, but that takes a while. I'm also you know, I'm attuned to the courts as well, and I'm particularly interested in seeing whether.
The two oldest justices on the Supreme Court.
Clarence Thomas and Sam Alito, retire, probably at some point during this next Trump administrator life, in which case he would name the replacements and you'll have a conservative majority for at least another generation on the Supreme Court.
Interesting.
Wow, because you started off fine going to Stanford, then you went to get a law degree. It all turns south Man. What were you thinking?
Have you marked your calendar for the Stanford Duke basketball game?
No, because we're now in the same conference, right, Yeah, when is that?
I don't have a car, but I think I think it's in January, maybe February.
I want to check it outre Stanford is in the Atlantic Coast Conference. That makes sense.
Yeah, big game this weekend.
My Duke Field hockey team had a little problem getting out to the Bay Area for their games against it because you have to Drham, you have to transfer and connect, and I'm like, why are my kids going out to San Francisco for It's just the whole thing's a mess. Elliot Stein Bloomberg Intelligence litigation analysts joining us here in our Bloomberg Interactive Brokers Studio.
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Happy for Friday. We made it to the end of the week. I'm Alex d alongside Paul swe Need. This is Bloomberg Intelligence Radio. We bring you all the top news and business, economics and finance through our lens of our Bloomberg Intelligence folks. We also tap an amazing network of resources outside of Bloomberg Intelligence, and we're going to tap one right now. Jessica Kriegel is chief strategy Officer of Workforce and Labor at Culture Partner. She joins US
now from Sacramento, California. So the headline from this week that we didn't really get to digest as much was Elon Musk and Vivek Ramaswami outlining a plan for large scale firings of the federal workforce, in part, guys, get your butt backs in the office five days a week. You don't want to do it, and then you're going to quit. Is this realistic? What's your take on something like this?
Well, they argue that it is absolutely realistic, and you've already seen a precedent set in the corporate world where people are forcing employees back into the office five days a week. What is a little bit different or maybe even refreshing, you could argue, is that they are being straightforward about the fact that they anticipate by forcing people back into the office five days a week, that people
will quit, and they welcome that. I think that's probably true for a lot of CEOs who make that decision because they know their workforce values flexibility, and yet they're forcing them to go back into the office. So they are being in some ways at least transparent that there is an alternative motivation for forcing people back into the office. It's not about quote unquote culture, it's not about quote
unquote collaboration. It's really about we want to reduce the workforce, and this is one of the many tools that we will use.
So I guess in the federal government again, Elon musk vivek Ramaswani, what do you think they could do?
Should do?
When you think about I don't know, waste inefficiency bureaucracy. Is there a preferred way to kind of go about this or you just take a you know, a clever and lop off ten percent?
Well, should do?
Can? I'll leave that up to the political analysts. But what I will say is they're arguing that the bureaucracy is wildly inefficient, and they're not wrong because if you look at accountability in bureaucracies as compared to the free markets, there is less accountability, right, There's less consequences for failure in a bureaucracy. There's less competition, and so accountability necessarily goes down. And they're saying we need to address that.
It's not necessarily a problem the size of the federal government. The federal government is the largest employer in America with three million employees. But size isn't in and of itself the problem, right Look at Amazon. Amazon has one point five million employees, and they could deliver a band book to your doorstep in the next eight hours. Right. The problem is the lack of accountability, and that is in
particular what they are wanting to address with. Yes, it sounds like a cleaver, Uh, how do they do that if?
Okay, so let's say that they didn't just do the clever. How do you transform culture and help productivity in a government agency.
Well, what we know from helping companies transform culture is that culture does not go down without a fight. So this is going to be incredibly disruptive. And here's the pros and cons of disruption. Innovation comes from disruption. You cannot have innovation without disruption. But disruption does not in and of itself create innovation, right, Disruption can simply be catastrophic to culture. And so what they are doing is they are creating an opportunity, but they are also creating
a potential massive headache. And I do believe from the federal workers and also from the public, there will be resistance to change. There's always resistance to massive change like this, And what we've also seen is the best things come from the organizations that embrace change. So the extent to which the federal workers and the public are able to embrace this change will probably have a lot to do with how well this is going to end up.
I feel like I have to ask us for a while there this was a big issue for me, but where is the US private sector economy in terms of work from home, hybrid that type of thing. Have we settled into a new normal or are the sands still shifting there?
They're still shifting, so we see various plateaus in what normal is year over year. I believe I'm coming out soon with an article on the workplace trends of twenty twenty five. The year twenty twenty five is going to be the year of forcing people back into the office five days a week. Usually what happens is there's a lot of press about one big deal CEO forcing people back into the office, which has already happened, and now it's happening again with this announcement from Bavek and elon.
And so next year that empowers other leaders who wish their employees were back in the office to get back into the office. And you're going to continue to see a push. We had plateaued it around three days a week, but it's going to go even more back into the office next year.
Okay that this means then that my commute in on Fridays and Mondays now will be more trafficked. I don't love that. I don't love that for me, Like we're already here five days a week, when I've been here five days a week since June and twenty twenty, so it's like, yeah, whatever, but don't make traffic back. That's a bummer. Exactly all right, We really appreciate it. Thank
you so much for all your insight on this. Jessica Kriegel as Chief Strategy Officer of Workforce and Labor for Culture Partners, joining us on that, speaking of I don't know nothing in culture.
But it's interesting, Like I talked to my twenty eight year old daughter who has only worked really during the started working kind of in a pandemic era. It's not even I guess they can reprogram, but for a while there. It wasn't even in her DNA to do that, to come in five days a week, I mean, she feels crazy. Yeah. So I think they're getting reprogrammed back because they're now in four days a week at her employer, which will
likely go to five. But for a while, it just wasn't in her DNA to think about that.
I mean, I understand having a flex day here and there, like, hey, my kids said, I got to work from home. Okay, great, but like that's that feels like an exceptions, right.
It does.
And I think Jessica was saying, it's slowly been going back to work from home, but I mean work from the office. But we'll see how that plays out. I still see a lot of vacant commercial space here in a city, oh my god.
Yeah, although across the street on Lex it looks like they're doing some construction on that massive retail space. Yes, anyway, that's just food for thought.
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All right, let's get back to the market here and sort of what's next. I'm getting all the research about twenty twenty five and what to expect. Christina Hooper, chief Global market strategist at Invesco, joins US now, I feel like every strategist is now sixty five hundred and sixty six hundred on the S ANDP for next year? Is this the right metric for us to be looking at right now? So, Alex, we.
Actually don't give a set target, but I do think directionally it's appropriate to assume that we see stocks go up next year. I think we shouldn't just be looking at the S and P five hundred. We should be looking at markets outside the US, and I think directionally they're likely to move higher as well. And I actually think we could see UK equities, for example, outperform US
equities next year. I think there are opportunities in emerging markets equities, so there is a lot more out there than just focusing on US large cap stocks.
I feel sacriligious, Christina, I thought it was the whole US exceptionalism kind of thing. Well, I don't know if.
It's necessarily US exceptionalism. We had a few things going in our favor over the last few years that made the US economy more resilient. Namely, I think first and foremost would be long term fixed rate mortgages. That meant the transmission mechanism for monetary policy wasn't as strong in the US. We just didn't have as negative an impact from aggressive tightening as some other Western developed economies, and
that certainly was helpful. The other key factor I think was the amount of fiscal stimulus thrown at the US economy by the federal government. A lot of governments put stimulus into their economies, but not at the level that the US did.
Christina, When you woke up two weeks ago Wednesday and we've got you know, we saw the new presidential election results and now we know that Congress is firmly in the hands of Republicans. Has that changed kind of how you guys at investco think about asset allocation, how much risk you want to take? Did the elections change anything for you guys?
Not very much, because we think it's far more important. The more important factor is who is sitting at the helm of the Fed than who was sitting in the White House. I think the reality is that monetary policy matters more for markets. Now that doesn't mean that policy coming out of the White House has no impact. We think of it as something akin to swing factors. We have to be concerned about tariffs that certainly the first time around created more volatility and created some selloffs for
the stock market. We also have to think about, for example, immigration policy and the potential for it to impact inflation. But those are really eclipsed by monetary policy and by all the factors that have gone into the US economy thus far that have enabled it to have essentially a soft landing and what I think prepares us for reacceleration next year.
When we take a look at the central bank cutting cycle, let's leave Japan out of it. Do you need to think about the areas where you might see more cuts? So I'm just looking at the data from Europe in terms of the pmis, they were terrible. Now we're talking about, oh, we're going to see a fifty basis point cut. Is that a good indication of kind of where to go by how much the bank can cut?
Well?
I certainly think that is one helpful factor to consider. I think it certainly matters in terms of currencies, and I do think that the more easing that comes, certainly that can be a powerful catalyst for economies. We also have to recognize that part of the equation for investing is how much negative sentiment is priced in, and so when we do have a scenario where there's some negative data coming out, there is the potential for positive surprise,
especially if we have significant easing. So I am excited about European equities. I also think the valuations are attractive. I think dividend yields are solid, So that's certainly. Those are all factors that I would consider that make for investors make a compelling case for investors to at least have some exposure to European equities fixed income space.
Christina, do I sit with my two year Treasury at four point three six percent or do I take some credit risk out there?
I think you need to take some credit risk. The US economy is in rather good shape and there's the potential for I think there's a very good likelihood that we see a reacceleration in the US economy next year. So in this environment, you want to take credit risk. You want to have exposure to high quality, high yield, investment grade bank loans. This is an environment where there are many attractive asset classes within the fixed income space.
What happens to all the money and money market funds? Do you think eventually that winds up taking on more risk? How long does that take?
So?
I think it absolutely eventually goes into both equities and fixed income. And I think that as we see continued easing by the FED, that's certainly a helpful catalyst. As well as the psychological impact of FOMO. I think we're likely to see stocks move higher from here, and not just stocks in the US elsewhere, and so I think those are all reasons why and drivers for money start to come out of cash.
I'm thinking about it, thinking about it, liad it. If I'm thinking about it, that means stuff. I definitely have some viewers that pin me all the time. You're like, what are you doing? Get into high yeld ETFs? Come on now, all right, Christina, thanks a lot, We really appreciate it. Christina Hooper joining us from Investco. She's the chief of Global market strategist over on that side.
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