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I Paulus pointing out earlier that we got some of that economic data. Factory orders lower for April. You also had Jolt job openings coming in better than expected. The quits rate also slightly better, although we are seeing more people getting fired or laid off, So I want to take that into account. With Ira Jersey, Boomberg Intelligence Senior US interest rate strategist, you're seeing a little bit of selling on that front end. Hey Iira, what's your.
Take on these numbers?
Yeah?
Yeah, I disagree with that take. Actually, the way that I look at quits being down a little bit and then layoffs being up a little bit is actually weak for the economy because if you're if you're not thinking you can find another job, that's the reason you don't. You don't quit your job because you need to stay where you are. And then obviously with layoffs up, that's not particularly positive. Either, but it's it's all very incremental.
This isn't These aren't huge moves, and certainly job openings being up a little bit in April, it's still.
Not back to February levels.
So again, like you know, we're talked about maybe you know, lower highs here in terms of the downtrend. But but some of the other data is also important to look at. So you think about factory orders, those missed to the downside, plus they were revised down as well the prior month. So so overall this is you know a little bit of a weak economy and you know the front end
selling off. So two year yields being a little bit higher here is a little bit surprising because yes, the data isn't terrible, but it's also not particularly good.
Kind of no matter how you slice it, IRA, it seems like this fetter reserve is not really getting any clear signals what to do next, which I guess for a lot of folks means let's do nothing here. How do you think they're going to interpret today data?
Yeah, well, well I think that they're going to not be pleased with today's data, but at the same time they're waiting for the next shoot to drop on inflation, right, so next to so next week's inflation print is going to be is going to be important as well as this Friday's payrolls report. But you know that the likelihood that the Federal Reserve does anything at the June meeting is near zero because you're waiting to see what the fallout is of all the tariffs. Will that increase prices?
Will how will that affect inflation and the inflation outlook. So all of those things probably mean that they sit on their hands. In fact, the minutes last week, according to our natural language processing model, suggested that they were as neutral as we want to be at the at.
The last meeting.
Yeah, you know, he does this thing and it's really cool. You put it in FED speak and then his model tells them whether they're on the bullish or the bearish side or I guess hawker dove side if we're putting it in FED terms. So walk me through what you're expecting then for Friday and how are positioned in the market, because honestly, it's it's been pretty calm the last two days.
Well, so one of the one of the things that we've noted, and I was talking to to our derivative strategist Tander Sandu that just this morning, and he noted that for the for long end, right, So we've had this lot of angst with what's going on in the thirty year debt and even then your debt because of the fiscal situation and the fact that we're not really removing paying down deficits very much. That that people are long puts, right, So people have gotten out of the
money puts on long bonds. So so therefore it might be more difficult for the long end to sell off just because people are appropriately hedged. But I do think that there's a lot of people who are, you know, kind of waiting and seeing what the economic outcome is
going to be. But you know that being said, there are people who are think are nibbling at the edges, particularly when you get up to that five percent level in thirty year bonds because liability driven investors, so insurance companies, pension funds and a few others, they're really interested in treashjuries at five percent. So I think that's another reason why you keep on seeing a bit every time we kind of get above that five percent level on the long bond.
Long ago Lisa Bronwitz taught me to look at the two tens spread there, and right now it's about fifty basis points of steepening. That feels kind of normal to me. Are kind of reasonable to me. How does it look to you?
Yeah, so, actually on a historical basis, is actually still kind of low. Normally, when you look at the twos tens curve, it's somewhere closer to one hundred basis points on average. We do think there's some structural reasons why. I'm not sure that we'll get up to where it has during other cycles, but I do think that steepening is still probably the trade. Whether it's bull steepening or bear steepening, We're more likely to see steepening than we
are significant flattening. I think over the next six months, you know the fiscal situation and will likely keep the long end where it is, or maybe even actually have that cheapened, so we yields go a little bit higher.
But as the economy slows, which is our base case scenario, over the course of this year, it will become more obvious that the FED is going to cut rates, and cut rates, maybe more aggressively than what's currently priced, and that will cause two year yields and the front end of the yield curve to rally and yields go lower, So that will steep in the yield curve. So we think that over the course of this year, one way or the other, whether it's buller Bear, we'll see more steepening of the guild.
Curve, right, buller Bear, Like, do you get it on the front end and that's why the curve goes up? Or do you get it on the back end and that's selling in the long end, and do we get that higher?
Ira?
Thanks a lot, Ira Jersey, Bloomberg Intelligence TFUs interest rate strategist. Joining us there.
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Today, the OECD, which is international trade orization based in Paris, they slashed its government economic forecast due to Donald Trump's trade policies, citing the impact of tariffs and uncertainty on confidence and investments. Maybe we're starting to really see some impacts there globally, Zoe Shay Shaney WECE joins this here Western Europe Economy team leader. She's based in Frankfurt. Zoe,
thanks so much for joining us here. Specifically, what is the OECD calling out for the US and for the global economy?
So overall, the OECD, as you just mentioned, just cut its forecasts across the board and look, for the world, they were predicting for this year three point one percent growth, now it's just two point nine. Similarly for the US more drastically, actually, for the US they're pre predicting two point two and now they's just say one point six. And they're also next year for the US just present predict one point five percent growth. So overall, these are
quite dramatic numbers and throughout the whole report. The reason they give for this is Trump tariffs and that this overall, this combative trade policy that's coming from the US just just hurting the world all over but the US here in particular.
But so I wonder what their baseline is for tariffs. Is it that ten percent? Are they taking into account the tariffs that are currently in place? Like what's the tariff scenario?
The tariff scenario is just general uncertainty. So they are very aware that because of the constant change and of Trump policy that he says one tariff one day and then changes again the next and then goes back and forth all the time, that they're just this inherent uncertainty here that will just hurt trade overall. If you look at the charts that's say, what trade would do if
you compared with what they thought in December. What they're saying now, the picture is just incredibly dramatic, and they say that as long as this is there, as long as this uncertainty and this constant what's it called there and back again kind of trade policy is going on, that this is something that will just hurt theonomy, almost irrespective of what the trade to a trade, what the tariffs are actually like, then just as uncertainty damages so much.
Zoe. You're based in Frankfort, you know, based upon my travel through EUROPEBA was considered Frankfurt to obviously be the you know, the corporate hub of Germany and certainly much of Europe here. What are you hearing from the German executives that you speak to about what we're seeing over the last several months.
So Germany is an interesting situation because we just had elections here in February and there then a coalition was formed quite quickly. And even before the coalition was formed, because the fringe parties on the left on the right one so much in parliament, they still in the lane duck, Parliament still passed an incredibly generous fiscal package and also
this huge defense package. So the defence package, we know, it's tricky how this will trickle through for the economy, but the fiscal package is really massive, and so just generally gave he gave executives here in Germany a whole boost of confidence because Germany, as we know, red tape here is it takes everything, takes agent's red tape is very prevalent. And the lad during the entire shorts with the time that Schorts was chancellor, the economy barely grew. There was
one quarter of contraction, one of growth. It just was really very very sad, and so the fact that the god that would be this huge fiscal package made everyone happy. This was February.
Then we got the Liberation.
Day from the US and that has made them more uncertain overall. Though given the uncertainty there where, this hurts investment, they hurts or that, but the fact that there was this huge fiscal commitment does make executives a lot more confident than they were.
All right, Zoey, thanks a lot, really appreciated. Zoe snay Wise Bloomberg Western European Economy team leader. She heads up all the stuff over there in Frankfort. So she's in Frankfort and Paul and I are here in a Maryland room.
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We are in Maryland right at the National Harbor at the Gaylord Convention Center, as we have a lot of financial advisors kind of coming together and discussing ideas and how to manage asset and wealth management for three days of learning experiences and networking solutions as well. Really been a fascinating time so far. Keeping an eye on some
of the equity moves. One is Meta and Constellation. Constellation Energy is up a little over half a percent, Metas down by five tens to one percent, but a Constellation Energy agree to sell power from an Illinois nuclear plant to Meta Platforms. Is a twenty year contract starting in
mid twenty twenty seven. So Constellation's going to boost its own investment into the Clinton plans output and maybe we'll actually build another reactor at the site I did the energy and go, let's at a take angle now with man Deep saying Bloomberg intelligence in your technology analyst. Okay, Man Deep, why does Meta need this?
Well, if they're raising their capex, which they did in their last earnings, that capex is going towards, you know, getting more AI chips, and you know, if you are putting more AI chips, you need more power. So clearly that is where the shortage is right now. And look, if this is an AI supercycle that we all believe it is going to be the case, and I think you will see a power supercycle as well. And in this case, all the hyperscalers will be looking to procure
power for their data centers. I mean, Meta serves over three billion monthly active users across their family of apps. Now, granted, those users right now are using more CPU compute, but if you're rolling out AI tools and LLM searches. You need more power for the AI chips, and I think that's the intent here.
And Mandy, let's be honest here. I mean, all you tech guys, you Silicon Valley guys, you always think you're the smartest guys in the room. But let's be honest. You guys don't know anything about the oil and gas business and the nuclear business. Why is Meta? And I'm guessing some others are going to kind of get more deeply and strategically involved in the energy side of their business. Is this a trend here?
I mean, just look at how far they have come in terms of you know, infrastructure, Like a company like Google. Not only are they designing their own data centers and you know, creating their own chips, and now they are you know, procuring power to they extend that. They want to make sure that these AI chips, which can have volatile power needs, are most optimized when it comes to
the efficiency of their infrastructure. And that's why these hyperscalar companies really have got so many different aspects to their mode. So it's not just about the search algorithm or in the case of Meta, you know, their social media knowledge graph. It is about the entirety of how they run their infrastructure, and that is what is a long term mode, because nobody else can operate at the scale at which these hyperscalers are operating right now.
This is a fun fact in the article by Will Raid from Bloomberg. So Meta first of all, has a global energy head.
They have a global energy head. Okay, all right, so they do.
They're really kind of ramping that out, and they were looking at proposals the announcing December. They were looking at proposals for as much as four gigawatts of new US reactors and received fifty proposals from a range of companies,
including Constellation. To that point, I'm also wondering Mande the significance of when they're building data centers and hyperscalers for lllm's a large language model and that training versus and they have to build stuff for inference which could be smaller and more co located, so closer to the cities, closer to our Paul and I have our phone. Does that tend to look different than in terms of their power needs?
Absolutely, And I think so far the market was concentrated towards training. Every year you would have a ten times larger model, which was more intelligent and it could do more in terms of you know, answering your queries. But with inferencing, you're right, I mean, the traffic patterns may vary depending on the population, and so if you're serving traffic in New York, it's very different from serving traffic
somewhere else that may not have the same concentration. And with that, I think the challenge these companies have had is the transmission lines can be upgraded. I mean you need, you know, a pretty lengthy review process and the whole thing may take years. So right now they are trying to procure power wherever they can to offset the increased consumption, and some of it may come at the expense of
power usage for some other purpose. Then you know why data center is being prioritized here, and that is what will be interesting because with inferencing, the power needs can be variable. I mean, one trend we have seen is with reasoning, you need more compute, so you know, the model is thinking a lot more at the time you are putting the prompt in, as opposed to training, where all of the training is happening in background over a
period of a few weeks. So reasoning is per query, and depending on how complex your query is, the model is doing more work and that's why it may need more power.
Another data point from this Bloomberg News article, Meta is contracting for more power after the company's total electricity consumption nearly tripled from twenty nineteen to twenty twenty three. So yeah, I guess they need some more energy. Mandy position the CAPEX numbers for Meta and for these other tech companies, they need to take those CAPEX numbers up even more. They're going to get deeper into the energy space.
I mean, all signs are the CAPEX numbers may continue to go up, but right now, the biggest component of the CAPEX is still the spend on the GPU chips. Obviously, the power needs will take some portion of the CAPEX, but it's still not as big as the chips. And
think of it this way. If you're getting you know, twenty thousand in Nvidia chips, the cost of keeping them idle or not being able to utilize them one hundred percent is way higher than anything you are spending in terms of you know, the energy deal that they had, So clearly they are focusing on utilizing the chips that they have already procured and that's why they are proactive with you know, these power deals.
All right, Mandy, thanks a lot, really appreciate and man deep saying joining us when we're intelligence senior Technology and.
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Happy Tuesday, everybody, Alex Stealer alongside Paul Sweeny IM You're live from B and Y Insight twenty twenty five. We are in National Harbor Meryl app National Harbor, Maryland at the Gaylord Convention Center for this tremendous of men. Over two thousand people are here. They talk about ideas, they exchange thoughts about the markets and wealth management and private wealth and alternatives.
It's a pretty exciting.
Dynamic place to be and joining us is one of our favorites. Phil Orlando, chief equity market strategist and head of client portfolio Management at FREEDERA to Hermes.
Phil, always good to see you, Alex.
Thank you so much for having me back.
It's a thrill.
You've been coming to these for a long time, right, So what's the different vibe here this year?
Is there?
One?
The vibe is very optimistic. Really, there is more of an emphasis on technology today and AI than there ever has been. But that probably it's not surprising given the evolution of the business. I've always found these conferences to be very cutting edge in terms of what are the key issues that are going to be driving us in the months and years forward, and so far I haven't been disappointed here today.
Phil, I'm just looking at the S and P five hundred. We've almost completely round trip peaked to trough back up to peak here. What do you make of that? I mean, that was a short period of time, you saw big moves in the marketplace. What do you do looking forward for the next six months? Oh more to go?
I mean remember our full year target for the S and P this year sixty five hundred. We've got a seven thousand next year. So yes, we've had a really nice bounce off of that support level. I think we're up about twenty three percent of the S and P five hundred. But again not surprising to us because that waterfall decline was largely a function of the uncertainty relating to the tariff situation, and to some degree, how is
the tax legislation going to work. We're starting to get some early resolution of exactly, at least directionally, how that's going to play out, and the market at that point should begin to think about, Okay, what are the underlying fundamentals, not the chaos associated with what caused the decline back in early April.
All right, let's pretend that we can put aside the kaas. Then for a second, does that mean that tech continues to lead or do we get the broadening out?
Well, yes, they can both be true.
So so our feeling going into the collapse was that Bill Rally did need to broaden out. We were de emphasizing sort of the technology and the Mag seven names because we felt that they were ahead of themselves. So the area of focus for us was the forgotten four ninety three, the value names, the international names, the smaller cap names. But as the market you came down twenty one percent, the Max seven names were down forty five
five percent. So as we started to put additional money to work, we increased our equity allocation to a five percent overweight near the bottom that incremental ad for US was in domestic large cap growth. So we recognized that forty five percent down was actually an attractive point to start to put some money back to work.
You know, with a little bit of hindsight, As we think back to that sell off in April, a couple of things kind of come to mind. Number One, we had people during the sell off telling us, you know, people aren't panicking out there. That's number one. And number two, retail is buying. What is that? What are those two things to kind of tell you that kind of I guess in hindsight I was said, boy, I should have
been buying there because the retail aganis are buying. I don't think I really saw one panic selling.
Yeah, you know, we've done some work looking at the performance of the market literally over.
The last half a century, okay.
And over that period of time there have been ten massive declines twenty percent or more twenty thirty, forty to fifty, and in every instance that was a great buying opernity that over the long cycle, the ingenuity and hard work of the American people stocks up into the right. So if you look at those big declines down and think you understand what the underlying fundamentals are that to us was a reasonably and an attractive buying point.
So how do you look in I will talk about this before, but how do you look at it the next six to eight months?
As you manage the.
Uncertainty, you just be really strategic. You have your buying list and you think of it that way and you kind of ignore the actual headlines.
Well, we take a longer term perspective that we're looking at six to twelve to eighteen to twenty four months, and as we look at that perspective, the noise and the nonsense and the chaos associated with the day to day we sort of screen out.
But some of those things could be structural.
They could be and if they were structural, we would change our view. But we've got a view that for example, our GDP forecast for next year is two point seven percent. All right, that doesn't sound like much, but consensus has one three. The highest estimate on the street other than us is two percent. So we think that things are going to work out over the course of the next eighteen months, and if we're right, we want to be buyers of stocks in that environment.
Do we still have earnings risk. I know earning testaments have come down, but do we still have earnings risk? Do you take out there because we still have tariffs that are going to be gradually rolling into the economy, there's always earnings risk.
But we just got through the first quarter and revenues ro up about five percent, earnings roup about twelve percent. Those numbers are better than expected. Uh, you know, we've sort of adjusted our full year numbers based upon the implementation of tariffs, but that trajectory is still positive.
All right, Phil, Really great to chat with you. Good to see you in person.
It's so weird but you just not ask me how fill Orlando was chief equity.
Thank you very much for having me on.
I bet a chief ecuty market strategist and head of client portfolio Management at Betra Hermes, joining us on the market.
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