Bloomberg Surveillance TV: April 4, 2024

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg

Well, I think for the US side, it's stuff only this issue of excess capacity or really you know, China's very aggressive focus on promoting advanced manufacturing, particularly in some of the same strategic sectors that the Biden administration is focused on, so electric vehicles, solar energy. That is top of the US age, and it's a trade issue, but it's also a macro issue for global growth. And I think that's one reason why it's Janet Yellen delivering this message,

Michael, when I was reading and listening to it, Jenny Ellen had to say, I kept thinking, what's the distinction and how big is the distinction between decoupling and enforcing a level playing field.

I think for Treasury Secretary Yellen, there is a big distinction in the sense that I honestly think you know as a trained economist, that she believes that trade is good and that she wants to deliver a message that

The focus has been on green energy and the supplies that are needed to really push forward the entire platform.

By the Abdan administration.

How much are the Biden's administration's hands tied in a way because they are looking to shift toward certain types of technologies that require metals and technologies that are dominated by China.

It's a very difficult balancing act, and I think, you know, it's somewhat depends on the sector. It's something like solar. China's cost advantages are just so extreme at this point that you know, it's very difficult to meaningfully, you know, decouple from China or take really aggressive actions in the solar sector, something like electric vehicles. You know, it's a bit more nuanced. But I think that is the balance that they have to face. And again it's one reason

She alluded to tariffs, though yesterday she said I wouldn't want to rule out other possible ways in which we would protect them talking about clean energy. Where does the US stand right now? Where is that tariff review?

That's a good question.

There is a terrorf review that's been underway, and you know, we've heard numerous times that you know it would be out, for example, at the end of last year. I think, frankly, it's unlikely that we're going to see any really aggressive moves, certainly to lower tariffs. And it is possible that we're going to see moves to increase some of those tariffs. Perhaps we would lower them on some of the consumer

That's the one we're looking for. Michael, Thank you, sir, Michael Hurston.

There.

John Balvan of black Rock remaining bullish writing this. We think upbeat risk appetite can broaden out beyond tech as more sectors adopt AI more broadly, rising of volatile yields have not disrupted the push hire and developed market equities. That's consistent with our view the mega forces such as AI are key drivers of returns. Now, John and police to say, John, just now for more, John, we'll get to the stock marketing just a moment. I just want

Well, I think this is this is a long road.

So if I look at the first stretch of that road, I think it's a bump.

So we think inflation is.

Going to be showing progress towards two over the next few months. The FED is data dependent, they're not forward looking, so they're going to be lured into we've solved inflation.

That's going to be the story.

That's part of the reason why we're kind of constructive on risk for now.

And I think I think that's gonna be the sort of will cut.

This is a FED that is bucked himself in December to be cut at some point this year, some point soon. I think the bar not to do that is pretty high. I mean, we can debate whether this is the right stance, but it is a stand. So as a result, a bit of forest inflation will cut the narrative for them that there's bumps, and they'll they'll be in a position to cut. So I think that's the story for the next few months, and that's why risk assets are set to will continue to perform.

Is on. The story we've had over the last few days really is had to interpret the moves and bonds in commodities with regards to equities. How are you interpreting those moves?

Yeah, I think the well, the first point to make is you we very much believe we're in a new regime, right so we're pro risk right now. I think that's has room to continue, room to run, but it's it's a very different environment. The idea that we're going back to through immaculate discinflation to the great moderation of pre pandemic, I think is not happening. And I think when you look at the bond vlatility that we're saying it continues.

Not, you know, back to the old regime. So I think we're saying, you know, a lot of valet the macro narrative.

It takes a little bit of infra data to come in to lead to very significant reactions as we've seen. And then lo and behold that we're at the same point as we were like a week ago before the PCEE in terms of FED expectations.

The only thing that has really changed is long term rates that are set at a higher level now. So I think it speaks to this environment where we can very much.

See the FED starting to cut, but at the same time don't expect long term rates to follow suit and move down. I think we can very much see, you know, a FED that starts to cut rates, we're going to be only a couple anyway, and then we're going to at the same time see rates that are stable, long term rates that are stable or even go higher from here, which.

Is the reason why you've been focusing on the short end of the yield curve. We had John Soface earlier this morning on who said that that stocks could continue to rally as long as ten youre treasure yields didn't reach six percent. Do you agree with that that if we had ten year treasure yields north of ten percent, that would not be north of five percent. Excuse me that that would not be a problem for equity evaluations.

No, I wish just the case, But I find it hard to relax about this.

So I think if we were really of the view that we're going.

To six in a short order, like over the next year, six percent tenure very difficult to see equity that sailed through this, and I think we've seen some evidence of that right that go back to October of last twenty twenty three. Last year we went down north of five percent, and that was a very different narrative, felt very different. So I mean, over a course of ten years we might reset to a hier rate environment and realize that

When people talk about a new regime, A lot of guests who come on surveillance talk about their investments in the energy sector as well as just commodities in general, that any AI adoption has to come with hard infrastructure investments that have not been fully accounted for. How much is Blackrock kind of adhering to that and really overweighting a host of commodities.

So there is a massive restructuring of the economy that is happening. We think there's AI is one big piece of it, but we see five big mega forces. Graphics is going to lead to a big change in spending pattern and developed economies. The rewarding of geopolitics means that we have a different organization globally that requires adjustment. Infrastructure, we have the transition, the transition, and we think finance

I mean, if you only take.

The transition, the energy transition, that's by itself, you know, a huge amount of investment.

I think AI is in the middle and interacting with that.

So yeah, I think infrastructure is a huge part of the year, the story of the year to come. Even if you don't have like very you know, bullish growth expectations, we still need a lot of investment.

And for such an investment, so and.

Yes, that's going to support commodities. I think it's harder to draw a link to this need for investment and what is going to mean for commodities. I think it's a much more blex story, but there is ultimately we're going to be drawing more in commodities as we as we deliver on these investments.

You mentioned this changing geopolitical map. We have the Secretary of the Treasury over in China and she's talking about that they don't want to completely decouple from China. It's just about diversifying.

Do you buy that?

And if it was to be a decouple, how does that change your thesis?

Well, I think the coupling, complete decoupling is even if that was.

The objective, is not realistic, right.

I mean, we're we're intertwined very fundamental ways globally, and so you know fully decoupling will will not will.

Not even be on the table.

So I think I don't see necessarily a lot of information in the comment like this, right, I mean, it's it's kind of a straw man that is unachievable. But there is a trend. I think the most important thing for me is that we are fragmenting. There is a

Uh. In his affecting decision even as we speak.

Is John inf that's the case? Do I want to have a bus towards small caps away from multicamp multinational big caps.

I mean you could, you could eventually see, uh, see that.

That logic playing out.

I think for now, we still think that, you know, more from a tactical basis, uh, that you would need to have a more conviction on on you know, a growth spur that is lasting more than a few months to start to broaden your views on small caps. I think there's going to be more of a story about the near term growth than it is about fermentation.

But if you think on a ten year basis, then I can.

Very well see, uh, you know, a story where you see more localized companies, smaller caps, small caps being beneficiaries of this geo poltical mega force.

I just want to watch John, You're one of the best. Thank you, Jean Bavan there of black Croft. Now to discuss the labor market is Becky Frankowitz, the chief commercial Officer and North America President Manpower Group. Becky, wonder FOROO to catch up with you. One thing we love to do with you is talk about what's happening with temp workers, the shift between temp workers and permanent hires. Can you talk us through how that's evolved as the year is progressed.

Yes, So normally coming out of a recovery or into a recovery out of recession, you would see employers want the flexibility of temp workers, so that's a measure called temp penetration. We would see that increase. We have seen that below two percent, which two percent is the average, consistently, and we're starting to see even further declines in tent penetration. However, the offset of that is we're seeing permanent hiring continue to be strong, which definitely reinforces two things.

One employers are still hiring.

And two there's a bit of post pandemic hangover where employers couldn't find the talent that they want, and so they're scared not to grab them and make them permit employees, and so that will be a number I'm watching tomorrow what's happening in tent penetration, but perm will definitely be strong.

Becky, did that make it difficult to read into where we are in the cycle? Those traditional indicator is broken because of this approach post pandemic.

Yes, I would say the human behavior has now come into the algorithms that everyone is using, and it's very difficult to predict where we are in a cycle given that. However, again, the resilience of this labor market, John is just amazing. We continue to see strong numbers. If we see a two thirteen or a two fifty tomorrow, I wouldn't be surprised anywhere in between, which definitely demonstrates a very resilient labor market.

It also highlights the sort of rolling recovery and rolling recessions to the labor market as well as in the broader economy. Where are you expecting the jobs to be added? For a while, it was more focused in the services sectors and the sort of people facing areas that had gotten hardest hit during the pandemic. Are we seeing that shift to some of the areas that have been left behind of late, in particular middle managers and other types of professionals.

Yeah, so bls the jobs numbers. Look in the rearview mirror.

We're looking at real time data every day in terms of demand for jobs in the country, and we're seeing increased demand in affordable experiences. I like to call it that. Think hospitality and leisure is where it shows up. But the biggest hires in the country today, The biggest employers looking for labor are Walgreens, Family Dollar, grape Clips, the Haircliff franchise. So consumers seeking affordable experiences and companies then needing to hire. So that's one. Another is tech continues

Becky, is there anything that you're see on the ground that coheres with this idea of a sudden falloff in demand for workers that could happen within the next six months.

Yeah, I don't think we're going to see a sudden fall off. If anything, I think the word of the year is stabilization. We're seeing a bit of rebalancing from the post pandemic highs and lows. Employers are taking a more measured approach in terms of who they're hiring again, tending towards perm and employees are staying put. I mean, we're seeing the quit rate really level off, and as you alluded to in the jobless claims today, we're not seeing layoff spike either.

And so people are staying put. Companies are holding.

Onto their workers for the most part, and we're starting to see some evenness in terms of demand, some stabilization, I.

Would call it. I don't anticipate to drop off.

If anything, the PMI going above fifty, I'm hoping to see some expansion, particularly in skilled trades in manufacturing.

I want to lean into that AI competition that you're seeing in the labor market because Elon Musk, as we said earlier, called it the craziest he's ever seen. How difficult actually is to attract that talent that can fill this industry that's fueling the stock market.

Well, I think First, the question is is the talent available. So attracting the talent is incredibly difficult because we don't have enough AI machine learning engineers. The population of skill isn't large enough, so we have to upskill and reskill people into those jobs. But it is a very, very hot market. And let's just take a minute to define what in the world is an AI machine learning engineer.

Becky, not to weigh into the political sphere, but I am curious what you make of what jero and Powell said yesterday about immigration and how much that has contributed to a robust labor market without sort of commensurate inflation. How much are you seeing that within your world in terms of new immigrants, legal or not taking up jobs that then really keep wages more reasonable, I guess for the work for the employers and potentially not rising as much for the workers.

Yeah, I thought it was a very provocative point of view. I'm not sure we're you know, we're not seeing that. We only hire people who you know, are are legal able to work in the country. But we do believe in immigration because we see that the structural economy has changed.

We don't have enough workers and so we don't enough skilled workers.

But we don't have enough workers, and so that would be our point of view is we would support you know, anybody who can work.

We want to have them access to work.

But in terms of what is that got, you know, hiding in the numbers, I think it goes back to the old algorithms aren't holding in this recovery. And it's one of the reasons that I would push on the FED when we say they're waiting for the labor market to decline in order to cut rates. The old algorithms aren't holding, and I think we probably should explore that a bit.

Hey, Becky, wonderful to explore it. Whether you thank you, Becky Frankowitzlair of Manpower Group. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.