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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
Terminal and the Bloomberg Business app. We begin with our top story, start Sliding going into jobless claims at eight thirty Eastern times. Sema shaff Princeval Acid Management thinks it will take a lot to end this bout of volatility. Unfortunately for markets, the negativity of the current narrative implies it may take a combination of solid economic data, earnings, and reassuring fedspeak to settle nerves. Seema joins us. Now for more, Seema, Let's take it from the top then
and go for it point by point. The feder Reserve, the FED speak, the yearnings, and the data. Just where are we at the moment?
We haven't got that much, I'll wuldie there's not much Fed speak between now and Jacksonville. I'd expect a couple more speakers to be coming out to calm the market. The thing is is that, you know, just as we are all reacting to the to the economic data as it comes out, that is also the case for the Fed. So they can tell us that things don't look so bad. They can reassure us that the labor market doesn't. You know that the payrolls print of last week is just
one data point. But of course if you were to see a continued deterioration in the data, what the FED themselves are going to have to respond in kind?
What is driving things here?
Seema?
What's amazing about this shock of the last week, if we can call it? That is for many people that are still trying to diagnose the origins of it. Is this a growth scare board in America or the vicious some wind of the carry trade out of Tokyo, Japan. Where'd you place the greater emphasis?
Well, I would say they look for the last six weeks to two months, I have seen the number of client queries moving towards worrying about actually recession has been quite surprising. So we've moved away from wondering, you know, is the economy going to continue to accelerate? Is there an overheating to people really questioning how weak the economy is. So in a way, I do think this is a growth scal I don't actually buy into it, but I do think a lot of it is born of a
growth skit. And then it's been exacerbated by this very very low liquidity. I think the three of you are the only ones left in New York this week, so that hasn't helped. And then of course it's positioning the carriage trade. So it's been a bit of a perfect storm of events. But I think that the growth skin has actually been building up in people's concerns for a while.
See what does that mean for the data coming in not just this week? John went through the calendar PPI, CPI and retail sales next week. Are you worried?
I don't think I'm worried because I think when we look at the breadth of the data, we do believe that there's still a lot of resilience, particularly in household balancees and corporate balancees. And what that should mean is that if you were to see a deteriorating labor market, it shouldn't then new take into a hard landing. But we have to also be aware that job losses can be quite self reinforcing. Job losses lead to further job losses.
At this point that we're not seeing layoffs, and a lot of the surveys that we're looking at and just kind of watching companies and how they're reporting, you're not really hearing news of that. But of course the third has to be aware that the labor market deterioration, if it continues, well, then that could feed and create it down with spiral. I think that the CPI data, for the first time in ages, that's not the front and center.
It's really about the growth data, and in particular about the labor market.
See Michael, let me actually ask that question another way. Are you worried about the market reaction? Are you worried that this is a market that is putting too much weight on the negative data that's been coming in.
I think I don't know if it's necessarily putting too much weight. I think it's a market which is on edge, as exacerbated about the fact liquidity is so low. But I think that from here the direction is fairly unclear of the next through four weeks. It's going to respond to how that data comes out. If jobless claims moves further up today, then I think, of course you're going
to see a negative market reaction. If it falls back a bit, then the market is going to celebrate, and I expect that to be the pattern of market moves for the remainder of the month, once until you get into September and a certainly post Jackson hule. At that point maybe you can see some stabilization in a really clear direction for the market.
We also have the DNC next month, and I bring this up because Lri Calvacino is on with Manis and on Mondays you put our notes saying that the S and P five hunderd has now been positively correlated with Trump's betting market odds, which have been deteriorating. Now, Lag Harris, could politics be also one of those pillars, one of those reasons why we are seeing the market's whipsa and we sat that'd sell off on Monday.
So I think that the political picture actually played out maybe about three weeks ago, when you have that huge rotation. I do think that the rotation to a small cup is a little bit about the Trump trade. Things are settled at the moment. But you're right in saying that that election story it's coming back. It's not like it's disappeared. So come September, I think that it is probably going to be again near the front of the new story,
along with the FED. So we will see that add to the volatility and probably impact the market narrative too.
So of all this about September, should you know, Danny John and I the last three people left in New York?
Is all of this just noise?
Then in a way it's noise. So I mean the thing that we're inviting clients is I look away from the near tim headlines. It's fairly shocking. The moves are very very significant, but we have to have I think, those important things to have an idea of what your fundamental picture is. Now. It is still unfolding because you're at that cusp where you could be pointing to a stable economy. But then, as I said before, if job losses really start to mount, then it feeds further weakness.
So unfortunately the native isn't as clear as it would have been. Maybe six months ago. But the key one is focus on the fundamentals, because the technicals can really whipsaw you around, but it's the fundamentals which you're really going to create that clear longer term.
Trend the same, and that's the story. We've got to talk about the price of the story. And in certain parts of the market we've had quite a big set. We heard from Barclay's yesterday. They were talking about going overweight tech, overweight financials, looking at buying opportunities. Seem where do you see the opportunities at the moment? Where do you want to be?
So I think the key area is, look, we still see defensive quality. We know we're going into an economic slow down. We don't think it's going to be recession, but it does suggest that you need to have a slightly safer element to the portfolio. We do think that fixing commandment has really proved its work in the last few days with that active correlation returning between equities and bonds, and then within you know, we've maintained an over weight
to large cap tech. We're keeping it at some point, probably not yet, but at some point will be a buying opportunity as well.
You saying we're not in recession, but I have to say, in certain parts of this economy, it certainly feels like we are. If you're a low income consumer right now, it looks and sounds like recession. If you're a manufacturing based on the m we had, it looks and sounds like recession. Parts of this market firmly in recession.
So you're there are pockets of the economy which are struggling. And that makes sense because remember that the FED did hike a significant amount in a really really short space of time, So there will be pockets which will be struggling. Lower income households, the ones that really don't have the savings, that haven't benefited from that passive income the rise and emputy prices rise and house prices. They're the ones who were most leveraged to the interest roid environment, and that's
where the weakness is. But remember, for the US economy, the medium and higher income households are the ones that really carry growth. They account for about sixty percent of consumer spending. So as long as they are okay, and the lower income households and are not really struggling significantly with job layoffs, then I think the US economy, it's slowing,
but we're not heading towards recession. But you're right, there is a very very differentiated environment underneath the surface for the US economy.
Well, Siman, just given the noise that's been around this earning season, you would assume that it looks pretty bad that you've had all these companies from airlines to autos talking about how bad things are for the consumer. But Deutsche Bank speaking Charger points out that earnings are on track to rise the most in eight quarters, at ten percent quarter over quarter for this one.
Do you take comfort in that?
I mean, are we overlooking what is otherwise a strong earning season?
Yeah?
I was thinking exactly the same thing today, when when you think about the narrative, you'd suggest that maybe earning's picture has been horrendous this season. It really hasn't. But I think the thing is that we came into the earning season with people, as I said, really worried about what is happening with growth backdrop, but also looking at evaluations some of those big tech firms and starting to
wonder if they would deliver. So I think that that has almost encompassed the entire narrative and hidden the fact that actually under the bonnet it doesn't look that bad. There has been a broadening out of the stronger earnings performance and some other sectors, not just big tech and actually the opposite of big tech are really the ones who are performing well. And that is a really I think encouraging sign. For the remainder of the.
Year, it's going to catch up. As always, semis Shout, Principal Asset Management, talking about what's under the bonnet. The Harris Watz ticket is heading to Phoenix, Arizona for the next stump of their swing state tour. Jendie Vance shadowing the campaign with his own rallies to undercut recent momentum behind the Harris campaign. Tobin Marcus of Wolf Research rights this, we still think it's premature to consider Harris an outright favorite,
which still give a slight edge to Trump. Tober Marcus joins us now for more, tyb. Been great to catch up with you, sir, as always seen just a full full aircraft hanker and it just reminded me of like twenty sixteen and Donald Trump. They seem to be taking a leaf out of his playbook from eight years ago. Tobin, and it looks to be highly effective. They look like
they have some real momentum in the Harris campaign. Yet jd Vance is right, we haven't heard Harris answer any questions at all, with the exception of standing on the tarmac following a prisoner exchange and Tobin. I wonder if that's going to change at all anytime soon, whether actually it needs to.
So right now, I think they are trying not to mess with the good thing. It's been a very very very good two and a half week run for Harris, and she took over the top of the ticket, and I think that they are reveling in the momentum that they're seeing out there and sort of not feeling the need to take you any unprompted questions if they're getting their menswers to right, the point of the campaign is to deliver their message. They feel like they're doing that.
They're getting tons of earned media, most of it positive, but certainly there's no lack of attention, so I think they are not going to feel immediately compelled to change their media strategy, although you know, as the campaign goes on, I do think that we're going to have to see a little more kind of unprompted answering of questions. But I mean, frankly, both Harris and Trump are not taking
a sort of press conference forward approach. We're seeing a lot of appearances on alternative media, Trump going on I guess Kick was the streaming platform he was on the other week, which is sort of similarly as an unorthodox media strategy.
Right, But he also did just down with our colleagues at BusinessWeek to talk about a slew a number of policy something we haven't seen from Kamala Harris. At what point do you think they'll actually come up with an agenda for what their policy plans would be if they win the White House.
Well, they have to put out a platform for the Democratic National Convention, which is in two weeks, so we'll see something before too long that sort of purports to be the official agenda of the Democratic Party, and those platforms generally are not that informative about what anyone is planning to do. They're a little bit of an interest
group management exercise, particularly on the Democratic side. Trump took a more active role in setting the RNC agenda this year, and frankly, I think it would be wise for Harris to sort of similarly lay out something that's kind of streamlined and reflects what she personally wants to prioritize, rather than some incredibly detailed fourteen point plan on every single policy issue under the sun. So you know, before too long we should see her put out something. But you know,
it's a short campaign. But short of the campaign is the less I think she's going to have to answer all these tough questions about exactly what's your agenda on Peede family leaves you talk about that. I think probably she can just sort of state a priority for the issue that she wants to focus on and leave some of these details for after the election.
The short campaign works for her, and Washington Post had a story where the former president Don Trump apparently said to someone, I already beat Biden. Now I have to go out and prove myself against her. How should the Trump campaign be dealing with this? Because we just showed pictures of her rallies. She's getting a lot of people, and there's a lot of excitement around her and her new VP pick, Governor wald.
Well.
Their strategy, I think has always been to portray her as kind of dangerously liberal and out of stept The American people based on her as positions that she took in the twenty nineteen twenty primary. She committed to various different things that I think are problematic. One of the reasons why I don't yet consider her her favorite, even though the polling has looked very strong for her, along with that enthusiasm on the ground, is that we haven't really had a chance to see whether or not those
attacks are sticking yet. They have not been delivered in the most disciplined way, I would say from the Trump side. And I think the way that they're intending to tap walls onto that sort of attacking Nice Minnesota as a socialist healthscape seems a little bit challenging. But there is plenty of ammunition they have to go after Harris, and we've only started to see that that effort come together.
So and that's the content of what they're saying. I want to ask you about how they're saying it. We haven't seen Trump at a rally since Saturday when he was in Georgia. Instead, it's been Jade Vance who's been out throughout the Midwest. What do you make of that tactic that they're basically sending him out to appeal to these voters.
Well, look, I mean, Jade Vance is from the Midwest. His electoral track record is not particularly impressive in the Midwest, so I don't know how he's going to do as a voter. You know, in Ohio he ran behind Trump, and he ran way, way way behind the governor governor who is sort of potentially more popular figure. So he has some affinity I think, for that part of the electoral map, but it remains to be seen how effective
he is as a as a messenger. You know, Trump's not been running the most sort of vigorous campaign, more so than in Biden back when he was on the ticket. But I think on both sides we do have guys who are a little bit kind of probably past the peak of their powers in terms of their ability to just sort of run a really, really, really aggressive campaign
five days a week. So you know, if they want those to tax to stick, I think they are ultimately going to have to get Trump more out there rather than just posting about her untrue social so but.
It just feels like he's trying to be a man who's already beaten. He's still trying to beat Joe Biden, and so I wonder why he's finding it so difficult to pivot. We talked about these pivots in the campaign, cuding the Democratic ticket had to pivot. It's done a great job of doing so. You can see the enthusiasm in the Partsy can see that reflected in the polls. Why do you think this campaign is struggling so hard to pivot?
Yeah, so the campaign organization, I think is pivoting reasonably well. I think if you look at Trump's kind of campaign leadership, they're not feeling too wrong footed by the need to go after Harris. They feel like they have plenty to say about her, even though again that message has not yet come across, and time will tell whether or not they succeed in getting this sort of negative attempt to define her across. But Trump himself, Yeah, really does seem
to be struggling. I guess there's been a lot of intrigue in DC about what exactly is meant by this coma blah nickname that he.
Tries to be.
He seems to be trying to roll out. So it does feel like he personally is sort of throwing some things at the wall and seeing what will stick. Again, you have ninety days left in the campaign, so we have some time to see if he can make it happen, but for now not the most effective effort from him.
Time and this was great. It's going to hear from you, sir as always Tybermarcus therefore fresearch to look at the totality of the data. Joining us now is David Rosenberg of Rosenberg Research. David, we've been looking forward to catching up with you, sir. Let's just take a step back. Totality the data is a fed would like to say, what's your assessment of where we are, David at the moment, Well, I.
Still think that we're either intercession or about to confront one. And you know, I know everybody's on tenor books because of weekly jobas claims numbers which can quite often contain quite a bit of noise in coming off or could
have been a hurricane distortion from the previous week. However, I would say that what's tried, tested and true is the unemployment rate, and the unemployment rate is up nine tenths of a percentage point over the past fifteen months, and the data going back to nineteen forty eight show
that we had twelve recessions. And when you're up ninety bases points or more in the unemployment rate from the cyclow You go on a recession one hundred percent of the time, So I am definitely not one of those people that would say to you it's different this time. I don't think that it is. In today's job is Glam's numbers. We'll get a fresh patch a week today. Doesn't change my view.
David.
I'm going to push you on this, and I'm sure it's something that you have heard multiple times, So give you the opportunity to tell me why I am wrong. The argument of you being wrong goes something like this, that the uptrend is about immigration. Torson's lack of Apollo out with a note just moments ago saying that more visas are getting accepted, that there's been a COVID backlog, and that just adds again to the evidence that there's growth in the labor supply, hence the uptrend in unemployment.
Why is that argument not right?
Well, the argument is partially right, but the reality is just to go back, the unemployment comes from the household survey, not the payroll survey. But the reality is that there's been no growth in job creation in the household survey over the past twelve months. What the data show is that ninety six percent of those people, and I'm sure a lot of them are immigrants, ninety six percent of the people that entered the labor force in the past
year have not found a job. Now, I would pose the question back to you, does that sound like a buoyant labor market as far as you're concerned. This time last year, ninety six percent of labor force entrants we're finding a job. Only four percent now are finding a job. So it's not just about labor supply, and it's not just about firing your layoffs which remain very low. Companies
are still hoarding labor. But what are they doing. They're cutting the workweek and they're furloing workers from full time part time. Well, you get from full time to part time, it's not a job loss, so you don't you don't collect an unemployment insurance check. But there are decisive shifts taking place in the labor market right now. So there's been no growth in household employment. And in fact, if you look at household if you look at the full time picture, full time jobs are down on a year
of a year basis. The number of full time jobs are negative year on year, and that does not happen typically in an economy that's still expanding. That's my point.
We heard from Mary Daily recently and she said, firms are not laying off people to your point there, So why isn't this just normalization? How can we be a recession if firms are not laying off individuals?
Well, because employment is not just one number. It's the product of the two numbers firings and hirings. And what's happening and it's not contained in today's job is claim number. But you do see in the Jolt Stata agency in the Challenger data, which is that hiring activity is collapsing. Like I don't know what I'm missing. We just got
a few weeks ago the Joel Stata. The Joel Stata showed that the number of new hires in the economy, the number of new hires is running negative nine percent year of a year, and the level of hirings is back to where it was in April twenty twenty. So what's happening is that, yes, the firing rate is remaining very low for the reasons. As I said before, a lot of it is because companies have this horrible memory that is lingering about letting people go in twenty twenty
and then not finding them again. So they're holding on to their staff, they're cutting hours, repositioning staff to part time from full time, and that's giving this illusion that yes, fires are very low, but what's happening is that the hiring rate is collapsing. We've got the Challenger numbers just ahead of non farm last week, So in July the number of hiring announcements in the Challenger data was the weakest for any July back when the data started in
two thousand and four. The number of hires in the Challenger survey is negative seventy one percent year of a year. So you're just looking at one side of the ledger, which is firings. But the reason why employment growth is decilerating sharply even in the payroll survey is because hiring activity is collapsing even as the firing rate remains very low. That's the story beneath the story, David.
As you know, whether it's consensus right now, a lot of people believe the FED needs to get less restrictive. There's another element to this as well. I just wonder whether you think they need to get accommodative. And when we talk less about the path and whether they go twenty five or fifty in September, and talk more about the destination, where do you think they're going to end up here at the Federal Reserve?
Well, you know, I think that J. Powell gave us a ton of information at the podium last week at the press conference when he uttered the word normalization. Describe the labor market in the economy no fewer than eleven
times normalization. So things have normalized. You strip out the nonsense around owner's equivalent rent and the lag nature of the actual rents, and inflation is basically back to target, and the unemployment rate is actually higher now than it was before COVID, when the funds rate was one point seventy five. So he uttered the word normalization. The only
thing that's not normalized is the fit funds rate. And so what's normalized, Well, according to their own estimates, the neutral rate, the equilibrium rate, the rate that we should have in a balance to economy, which he said we're in is two point seventy five. And every tailor rule estimate shows that today the funds rate maximum should be four percent, we're still five and a quarter, five and a half, So they are ridiculously behind the curve no
matter what's happening with the equity market. And it wasn't about data that caused the markets to start thinking they're going to go inter meeting. It was are we going to continue to get thousand point down days in the Dow? That was just all about the stock market. But they are ridiculously behind the curve irrespective of what the capital margarets are doing. So he basically said things are normalized, and we do not have a funds rate that is
consistent with a normalized economy. So they have a long road to hoe.
David ros Rosenbuck Research, Dave, we quit to catch up set mat To Danny's point, we've both been talking about it. Are we're going to treat every single jobless climbs print every single week for the rest of the summer, the rest of this year.
This way, it's gonna be exciting. We're going to be watching for it. It's gonna be It's gonna because.
I think we should put this much weight on this print.
Yes, because that people want to talk to us about it, so I think we should. We absolutely shouldn't to your point, it's it's a very noisy number week to week. You gotta look at the trend. But more importantly, at the start of a recession, generally speaking, weekly in appointment claims are sort of three hundred and fifty to four hundred and fifty thousand, so we're still well off the number where we see companies firing and people are getting really
concerned about their financial condition. So we're not overly concerned about a recession right now. We're not calling for a recession. Certainly, the market implied recession as we're way too low a couple of weeks ago, and they're more getting to a place that's more normal. There's a higher risk of recession than zero. But it's still not a base case for us yet.
So what you make of the levels around right now in the bond market.
So for the bond market, as you know, bond guys like undertakers, we're only when everyone else is said, we've been listening for a year now, all these reasons why bonds don't work, why diverse vacation isn't going to work, why you should have commodities something else. Your portfolio last week was close the Blue Book. Put your pencils down and the exams over bonds did their job. We've been
saying this for a year. We've been counseling getting long duration four over a year now with real rates around that two percent level below that, now they can do a job of diverse sewing. Back in twenty twenty one when they were negative two percent real right when there were fifty base points two percent and ten years, yes, they weren't doing their job. Now they can do their job.
That was the most important thing we learned from the market that when there is an economic downturn, when there is real market volatility, treasuries, high quality, fix and click collateral will protect your portfolio.
I look at the past week, though, and I say, yeah, I did a job. They did their job, but in an extremely volatile way that you saw some big swings in this bond market does not dampen their ability to give you protection that if I have bonds in my portfolio that it could actually add to some of the volatility in it.
That's a very good question. So Mark Cabaner are head of race research at Bank for America Meryl. He does have learned about liquidity in the treasury market. You can flip that a little bit on its head, though there's no constitutionally guaranteed to right to be able to trade a yard to ten years in a millisecond. So when people realize that maybe the liquidity's not quite there right,
maybe they can't take as large positions. Maybe there will be an increase in risk premiums in the market for our clients who are liquity providers looking for money to work. Higher risk premiums potentially because of the bidass factors and the liquity you're talking about, is probably better for overall for investors on the whole, because that should lead to a higher term premium, should lead to higher credit spreads on average. They should get a little more compensation for
that lack of liquidity. So we are a little bit concerned about it, but from an investor who's providing liquity to the market, can actually be a benefit.
Just to that point, do you think this week would have played out differently if it wasn't the debta summer, if it wasn't August, if this was a couple months ago.
And all of this was happening, I definitely think that was a factor. A lot of traders on their two week vacations. Now August is a new September. It feels like, definitely there was more violatile than we would have expected. And again you start to say these things in the market, like six or seven federate cuts by January seem to overestimate economic weakness. It was more market technical sentiment driven.
So what do you do in a day like today when the markets are basically reacting to this claims like it's a non fum payrolls because it's a liquid it's August.
So one of the best things to do is just have your strategic plan in place and take opportunities like this as they give it to you. So we've been saying for a while that again we didn't expect a recession, but as we looked across the credit complex, we thought ig high yield, even muni's were a little bit expensive. So we're slightly underweight some of the credit sectors, but
we haven't moved to an underway position on equity. So actually, when we see volatility like this, we've been advising clients to take advantage of it, get back to their strategic targets, put a little bit of money to work, you kind of want this volatility. You want these drawdowns every once in a while to be able to add back to your portfolio.
When you get backups in Yeo's line, the ones we've got right now. Do you think these are going to get bored? Do you think the last week was a wake up call for the lazy money, if we can call it that, sitting in money market funds getting rewarded for doing nothing, and they've been sold repeatedly by individual after individual on Wall Street to lock in this yield, this reinvestment risk, that's been the phrase of this year. And then they've sat there and said, I don't know
what you're talking about it. You've been sending this for twelve months and we've had no rate cuts. Do you think this was the week where that money woke up a little bit?
I would like to think that's the case, but that's not going to be the case in my opinion. As you said, we've been counseling for a year or so that fixed incomes longer dated bonds. Cash is not fixed income, it's veriabile income. You just don't know how long are you're going to cash hield for. It's going to come down, But unfortunately, what it seems like until the fit actually cuts, people don't actually move out of money market funds. So
we're still going to counsel that. I do think this is somewhat of a wake up call again that if you were concerned that bonds couldn't diversify, I think that is taken off the table and now so that will hopefully encourage clients get back their strategic targets are fixing it.
Did you just give us a little snake peek of what client conversations were like this week. Yes, they're still reluctant to do this.
They've been reluctant to do this for some time, which is one of the reasons. You know, it's the right thing to do. When it's that hard to get people to do it, you know that's probably the right.
Well, why do you think this week wasn't enough for them? What did they say back to you? What did those conversations sound like?
So essentially, there's always some new concern why they wouldn't want to move it a cash whether it's higher deficits, whether it's the fact that they can still get five and a quarter percent even if they cut three or four times they can still get it. It's just it's very difficult to make the conversation. I try to tell folks, the yield curve tries to trick you, right when yields are that high in the shorten and lower and the
long and it's trying to trick you. Sort of don't fall for And again we don't need to be crazy long bonds. But getting clients from a two to three year average duration to a five or six year duration, God, is going to be better for the long term.
It's a big challenge still at the moment, Matt's going to say thank you, sir. Matt Days offair of Merrow and Bank of America Private Bank on the latest jobless claims print. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, an giet politics. You can watch the show live on Bloomberg TV weekday mornings from
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