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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. Let's turn to retail.
Lululemon up in its full year outlook thanks to strong sales in international markets. The company seeing flat sales in the United States last quarter, but a thirty nine percent rise in China. Sigurary to Gatalia Forrester, saying, athletic gear still seems to be strong. The affluent, fitness focus consumer is still spending sigury to join us now for more Sigurary to welcome to the program. What is Lulu get him right this time?
Well, I think a lot of this is just the entire sector is doing really, really well. When you look at the numbers for other companies that are selling similar products, whether it's on running or you're looking at Dick's boarding goods, they are doing incredibly well as well. So the shopper is just spending in this category. Lulu has been performing incredibly well for years, and this year it was more just because of some lower guidance that some of the
numbers are soft and it's been underperforming the market. But the story is that their overall top line has been strong and some of these international sales, as you point out, have been a big driver in its success, which is interesting because that is perhaps one of the areas where it may have some softness in the future if tariff's actually become more prevalent.
Well situated to It's interesting also because so many have struggled in international markets, particularly in China. What undepends success that that have a.
Yeah, it could a lot of it is likely just newness to the Chinese consumer. Chinese consumers, like many consumers around the world, are often interested in purchasing whatever is on trend, whatever is new there is influenced by social media as consumers anywhere in the world, and I think that Lulu has had a strong formula for success and that is that that has been an enormous driver in
the US. Some of it's interesting that some of these numbers were softer in Q three, but I expect in the next quarter, particularly as that will be the holiday numbers, it should be even stronger.
We'll see treated I might be revealing too much about my social media habits, but all over TikTok Instagram, I see all these influencers saying, hey, these pair of sweatpants from Lululemon, you can get the exact same thing on Amazon for a third of the costs. What is the bigger threat to Lulu? Is it the Alo Yoga, the Viory's, the high ends of the world, or is it Amazon in fast fashion?
Well, that's a.
Great question, because the biggest threat to Lulu is likely that competition where they could be become the new middle and that's absolutely where they don't want to be. They need to continue preserving their premium positioning. They need to be very very careful about promotions and discounting, because you're absolutely right, they're competitive threats that are at the high end and they're absolutely the knockoffs at the low end,
and you don't want to be either. You need to make sure that every part of the brand, the logo, all of those elements are preserved and protected, and that discounting doesn't become too prevalent in its business model.
How are they on that front on inventories and fighting off discounting suit tread Are they doing a good job there to fend off falling into the middle.
It seems at the moment that they are fairly strong. This is a company that seems to have pricing power and seems to be able to get away with minimal discounting. You don't necessarily see the huge, huge Cyber Week and Black Friday promotions that other brands and the deep discounts
that other brands are forced to reckon with. They did have an inventory situation earlier in the year, it seems like it has stabilized a bit, so it appears to have some They seem to be in a better position going in to Q four and I expect that that will also carry through twenty twenty five.
So true to when it comes to the international business analyst for noting that it was the legans category that was seen as strength for the first time in a while, But I thought the Lulu problem was the fact that they were leaning too much into tight fitting clothing and how to go into a more baggy look. Which one is it well.
A lot of this is also very dependent on regional preferences too, So the challenges are that that certainly that they're going to have to figure out from their merchandising standpoint, from their product development standpoint, what is appropriate in which markets, where, which colors, which styles are going to resonate more with shoppers. A lot of that is going to be influenced by social media, much of it is going to be influenced by even store associates in stores, So a lot of
this is going to fluctuate it. That is one of the challenges of being a fashion retailer. But also what Lulu has is the ability to actually shape what shoppers want by what it has in the store and what it's positioning as what is on trend at any given moment.
When you look at the US and also consumers around the world, which do you see right now in terms of who is the most picky, where's the pickiest consumer?
I will, oh, that's.
A great question, because consumers everywhere are pretty picky, and this is one of the things that we are certainly seeing is that certainly at the low end, consumers are incredibly fickle because they're the most economically distressed. But even at the high end, we see a lot of fickleness because those consumers, while they're still flush with cash, they have so much choice. And we see that in some
of those US numbers. And that's absolutely an issue that that every business that is trying to to attract higher end customers has to face.
To catch jump. As always sat there forrest the research. I want to cross to Tom post of page Jim. Tom joins us now for more. Tom, your first reaction today one what jumps out to you.
Yeah, it's so good to be with you all.
Look, I think at the end of the day, you know, this report is pretty consistent with what our you has been, which is to say, you know, the labor backdrops has slowed down quite a bit.
I think there are some cracks in the.
Labor backdrop, but if the floor is not falling out from beneath this year, I mean, if I look, we like to look at something called cyclical hiring, and so basically you just take private jobs, you strip out healthcare.
You know, we we gain one hundred and twenty one thousand jobs this month.
I mean, you know, even if we exclude the prime month, which was you know, impacted by all the things that we know at this point, Boeing and the hurricane, you're averaging about one hundred thousand jobs from a sickle go hiring perspective. So again, our view has been that continued economic expansion will roll into the coming year, but you know, you're going to do it with a labor backdrop that that has slowed down, and I think, you know, we'll kind of will remain soft.
Tom. Just to be clear, does this change anything when it comes to December to December cuts the rhetoric we've heard from FED officials.
No, Danny, I think I think you're quite right to ask this question. No, I don't think it changes anything. I think at the end of the day, I think that this is a kind of number that will support the FED cutting rates in December. I think that you know, looking for you know, two or three more cuts in
the coming year. I think is completely reasonable. But again, I think it's interesting, right because people were really looking for, you know, sort of that are hopeful that this report will really bounced back in a more notable way than what we've seen, and it didn't. And I think that really drives home that when you look at all this other labor market data, all those other labor data really
have really slowed down quite a bit. I mean, if you're waiting for the payroll report to crack, it's too late.
I mean, this is one of the most lagging of.
Economic indicators, and as I think we all appreciate now, is revised relentlessly. So I think when we look at some of the leading metrics, it does seem like things are slowing down.
Does that mean that the bigger risk for volatility in this market, for volatility of policy is next week CPI PPI import prices.
Yeah, Danie, And that's again one of the sort of the unfortunate realities, right. I mean, when you think about the things that really drive monetary policy decisions, a lot of them are lagging indicators like the payroll report, like CPI.
So I think you're again, I think you're right.
I think that we're probably going to be swung around by some of this data because while this report at twenty seven and it's pretty reasonable, I mean, you can't discount that next month you're gonna have a low one handle. I mean, that's how the data have been rolling. And then of course you then build.
In the revisions. It's like you're not just looking at the current month anymore.
You have to look at what the prior month did from a revisions perspective.
So yeah, I do. I think that things actually might have been pretty bolts on that regard.
If you are just joining us, welcome to the program. You just missed out on the job's number two twenty seven a small upside surprise. The media estimate was two twenty unemployment came at four point two percent. That is the wrong kind of upside surprise. We were looking for four point one percent. Way, just come again, just a little bit hotter than expected, in line with the previous
month at zero zero point four percent. Joining us now, Muhammad al Erman a, Queen's College, Chambridge, Mohammed, You've had about seven eight minutes to choose over these numbers. What stands out to you, sir?
Thank you? John. As Jim Bianco pointed out, the challenge for the market and for policy would have been a consistently strong report. This is a somewhat strong report, but not consistently strong. So it is strong on the earning side. It is is strong on the labor participation coming downside, let's supply, and is also strong on a small beat unemployment.
But the fact that the unemployment weight went up means that the FED will be comfortable cutting by twenty five basis points means that the market will increase the probability of this happening. So on the policy front, this did not complicate what would have been in messy situations for the reasons that Jim pointed out. On the economy side, join just a confirmation that the labor market remains solid and that US exceptionalism is set to continue.
But it makes a decision easy to cut twenty five. Maybe still got to wait for CPI next Wednesday. I wonder, though, if it's still just as hard to signal anything for twenty twenty five in the news conference, what is that exercise going to look like in two weeks time?
So it would be hard for this FED because this FED is so reactive, is so data dependent, that it will simply tell us that it will remain la data dependent. And I suspect that while their range is going to compress a little bit, he's still going to have quite a wide range in terms of the terminal rate. You know,
the FAT always has two options. The option it took in twenty twenty one and got completely wrong, which is to look forward, And now it's shied away from that and went to the option of being excessively data dependent. And I suspect they'll stay excessively data dependent. So we're not going to get any strong signals other than we will remain data dependent.
Tom, can I get your opinion on this? What it looks like in December with the summary of economic projections, looks like what they can project forward if at all?
Yeah, Look, I think Muhammad is quite right. I think, you know, prudence, I think is demanded right now. You know, Powell's in a he's in a slightly tricky spot, and I think he's laid the groundwork for that, right Like you think about his speech at the Deal Book the other day, you know, I think what he laid out there to me, I think made a lot of sort of practical sense. You know, they're just going to continue to wait and see how the data unfold from here.
They're not going to pre commit.
Him, and he's already sort of put He's already laid the groundwork for you know, sort of a skip after the December meeting. I mean he's been pretty clear and that not just that that the Deal Book meeting, but during the last press or two so so I think, you know, when I think about the sort of the step at large, I mean, look, I don't know that they have to make any wholesale changes here. I mean, you know, the economy is more or less evolving in a similar fashion to what they have there for.
Twenty twenty five.
So again, I think it would be in their best interest to not really make any wholesale changes.
This is a nipping and tucking outcome.
I think, Well, when it comes to the data, and we're still waiting on CPI next week, Muhammad, last time you were on for the job Suport, you said inflation is not dead. What kind of number could we see that could potentially change the fence of thinking at this upcoming meeting, Denry, and you.
Heard from from the chair saying that inflation has been more stubborn than he extended he and the FED expected. Look, we're going to see inflation stuck in the two and a half to three percent range for the Fed's preferred measure. The core measure, and the FED is going to have to make a decision. My gut feeling is that it will run with this number there, promising us two percent down the road, and I suspect we'll see seventy five basis points of cut still, but they're going to be
spread out like like you just heard. It's going to be cut, pause or skip and then cut, and then we're going to have a huge conversation. Was this a Hawkish skip? Was it a Dubs skip? So we're going to we're going to go to the third differential now because we don't we lack proper policy guidance.
Maham as you went there, So what kind of skip or cut? Are you expecting? A Davish cut, a Hawkish cut? What are you looking for?
Look, no one is going to predict this when when you know that the reaction function of the FED is backward looking because it will depend on the latest number.
Unfortunately, and CPI drops next Wednesday. Bon yolds right now are lower by about four basis points on a tenure, We're down by about two basis points. Equity futures still higher on a session on the S and P five hundred by close to two tens of one percent. The numbers topped about twelve minutes ago. I want to cross back over to Mi McKee for a little bit more. Mikey went through what was behind that uptick in unemployment,
the snap back that we didn't really get. I think a lot of people in the market were looking for a big snapback in payrolls. Where did we get some growth and where did we miss out?
Well, what's really interesting is we saw a decline in retail sales hiring minus twenty eight thousand in the month of November, when people are usually staffing up, which leads you to believe that there may be some seasonal effects to this. The seasonal adjustment factors may be holding down
the number of jobs created a little bit. Trade and transportation jobs also down twenty three thousand, and that's usually when we're seeing the additional ups and X drivers and that sort of thing, So a little bit of a surprise there. We did see manufacturing rebound with thirty four
thousand jobs, so good news there. Construction only ten thousand, and we're looking at the government hiring is one of the highest at thirty three thousand, but almost all that was state in local federal government lost two thousand jobs, and our old friend leisure in hospitality did rebound fifty three thousand jobs totally. About twenty eight thousand of those were in the restaurant business, so people getting jobs there.
And then I do want to point out the three digit unemployment rates four point two four to six for November, so basically just below a four point three percent reading would have gotten the Fed's attention if not worried them. Remember they forecast in September four point four percent by the end of the year.
Good catch, MI, because we can't get down to the open and bound in about forty six minutes time. You'll see the outperformance on a small caps the Rustle by something like eight tens of one percent at the moment on the screen, by point eighty one off the back of this move lower at the front end of the yield curve, with yields down something like four basis points. Jeff Rosenberg of Black Rock joins US now to get his input on the program. Jeff, Welcome to the program.
The panel is so far suggesting the door is still pretty much wide open for twenty five basis point reduction. It's not your sense of thing as well for two weeks time.
Yeah, I think that's the read. This is clearly just reiterating a gradual slowing in the labor markets. As Mike just pointed out to three digits that unemployment rate kind of helps the FED come in December to cut. The market was already pricing seventy percent of an outlook for that, and I think the bond market reaction, the initial reaction, is just kind of increasing that on the kind of gradual labor market slow down. So I think that's very
much the read. And as the panel was just discussing, we're going to pay to this, you know, pause skip
debate and what kind of message that means. But the big debate is over the degree to which cuts have to take place in twenty twenty five, and the disconnect between financial conditions which are going to be easier after today, and the degree of restrictiveness that you still see some of the committee members believe justifies that that number of cuts that they're forecasting into twenty twenty five.
Jeff, are you arguing then that you need to have a FED who starts paying attention more to these financial conditions. That conversation is kind of gone by the wayside. Are they going to have to rethink cuts because of what this market is doing?
You know, it's gone by the wayside.
But then there was a little bit of acknowledgment of it in Powell, kind of acknowledging, yeah, we cut fifty and then the data revised. You know, the whole issue is really about the strength of the economy. And as Muhammad rightly points out, this is a very very data dependent and reactive fed and the data that's key here on how restrictive policy is is really economic growth. And
you don't see economic growth well below potential. You see economic growth above potential, and that's telling you that monetary policy is not as restrictive as they think it is. Now, there's a little bit of a disconnect between whether you're looking at the growth measures, whether you're looking at the labor market. Take out about one hundred thousand from today's payroll print, that's hurricane and strike payback. The labor markets
are moderating, that's the best evidence of the restrictiveness. But outside of that, you really see the impact of financial conditions. Animal spirits is a very supportive financial conditions environment, and that's how monetary policy transmits so maybe you don't need to keep pushing into financial conditions easing by this degree of cuts that they've been signaling.
Well, Mohammad mentioned it earlier about now in the third degree, if the door's open for this cut and there's going to be a bias to twenty five basis points, then what is the tone and the rhetoric around that. Is it going to be a hawkish cut because they're going into twenty twenty five and there's going to be a lot of change of fiscal policy in Washington.
Well, it's hawkish in this relative to expectations. Right, So two weeks ago, four weeks ago, the market was expecting, you know, a very aggressive pace of FED cuts. Now we've priced that out from the markets, and so there's a little bit less of a disconnect between the Fed moderating the pace of cuts into twenty twenty five in market expectations. So that may read hawkish, but if it
confirms market expectations, not so problematic. If there's a even greater acknowledgment of that, I think that would be surprising and that would read hawkish.
I think when you get.
Into twenty twenty five, it is going to be about understanding this pace of cuts has to slow because the economy and the data doesn't support the amount of restrictiveness that the FED thinks.
They currently have another round of FED speed coming up today, and then obviously we're going get into the quid period. I think they've been quite consistent for the weeks so far. We've mentioned this quote from Governor Waller in a speech from him earlier this week, cuts or skip, this is what he has to sound the neutral rate. There is still some distance to go in reducing the policy rate to neutral, to post sudy over a PHM. I just want to give you a final word, just quickly, on
the neutral rate. They think they're a long way away from neutral. They think they've got space here, which means they can carry on cunning interest rates. How much distance do you think there is between where we are and where neutral might be.
It depends which Fed officially you ask, right. I mean, think about the dispersion.
In the estimates of what neutral is. I mean the low end is two and a quarter and the upper end is three seventy five.
Right per thelong term dot obviously nominal we're talking.
Here, there's one hundred and fifty basis points have spread, so depending that you ask it, could you could be really far away from it. I think, what's going to wind up happening, John, is this so if you look at the feeds twenty five dot, the.
Meeting is three point four percent.
I think what's going to wind up happening is that's going to shifre higher, right And I think, and I think to Jeff for a point, I think I think it'll wind up shifting higher to where the where the market is right. The market is percing here, I think three seventy right now by the end of the year.
So you take out.
One of those one of those four cuts that they have priced in for next year. I think it falls in line with what the market is thinking. And I don't think that has to be terribly disruptive.
Tom Post Sally pagm Tom, I appreciate your time, sir. Thank you, Muhammad. I want to come back to you on the same question. I think this is an important debate. How we reconcile our differences here between whether the market might believe neutral is and what this Federal Reserve is signaling. How do you think we close that gap?
I think we close it by fudging. A very key variable to all this is what is the inflation target? John. If your inflation target is two percent, then you should not cut in December. If your inflation target is somewhere between two and a half and three, which is justified by all the changes, all the structural long term changes going on the economy, then you cut and we are
fudging this. No one wants to talk about this. I don't know if you saw if your Fridays ago in the afternoon the feed put out what it's discussion of the monitored framework coming up and set explicitly we will not discuss the inflation target. But critical to all this
is what the facto inflation target. What they run with my own gut feeling, as I said, John, they're going to run with slightly higher and that means that ultimately they'll end up somewhere between three and three quarters and four.
Mohammad, what about the argument that they can't abandon what they have now is their inflation target, because it's important in setting expectations. It's important not to have people run away and think that we're going to have higher sustained inflation and therefore change consumer habits. Is there any credence to that argument.
I think there is, and I think you can. There's many ways to do it, and people have come up with different ways.
My concern is.
If they truly believe that two percent is somehow given to them, It's not an arbortuary number, and if they try to get there and stick to that inflation target, they will sacrifice the American exceptionalism. That's what I'm worried about. But then at the end of the day, I think they're going to fudge it by saying two percent down the road and it's just going to be a very long road.
Jeff, do you agree with Mohammad that two percent down the road is going to be very long?
You know?
I do, And I think this is a really important debate, and the VET has had this debate, and I agree with Mohammad. They're not going to announce a change to the inflation target. They're going to stick to the target, d Any, for the reasons you point out.
They agree as well.
It's very important to expectations, but there's a lot of room for interpretation. And so two two and a half, two point six, two point seven, and I agree with Mohammad that the cut in twenty in December of twenty five basis points is kind of telling you where they
lean on inflation versus growth. I think there are some long term consequences for that, because if the bond market wakes up to the fact that there's a tolerance for inflation, and the real test is as long as inflation is gradually moving lower, and even if it's moving sideways, they can kind of play this fudget game. The real test is what happens if the acceleration and growth, the impact
on financial conditions starts to press on inflation. And the one thing we didn't talk a lot about and you know, it's hard to see here whether the wage number today and the slight uptick is just a mix shift or not. But you haven't really seen the wage numbers kind of conforming two depends on productivity, the two percent inflation target. The real challenge is going to be what do they
do if inflation starts to go back up. Not predicting that, but that's where you kind of are going to put this two versus fudging to two and a half really to task.
That's the risk of twenty twenty five. Jeff Rosenberg of Blank Rock, Jeff thank you, sir, if you want just joining us once again, welcome to twenty seven is the number. It's an upside surprise against a two twenty estimate. Unemployment just creeping a little bit higher four point two and very close to four point three. The estimate was four point one percent. The takeaway for a lot of people
in this market. It leaves the door wide open for an interest rate reduction on December eighteenth, still one more data point still to go CPI next Wednesday. Muhammadal arians still with us for some final thoughts. Muhammad, we all notice that you published the ft column ahead of this conversation this time, and I noticed the content of that piece as well. It's not about whether the US will outperform.
It will, it's the extent to which it will diverge from the rest of the world you noted earlier this week, and I think it's a perfect time just to finish and think about the rest of the global economy as we get two twenty seven in America and start to complain about whether that's good enough. The rest of the world is struggling. You noted China and a potential japanification
of China's economy. We've noted Europe's inability to govern it south for the whole week so far in a tripolar world, Muhammad, what does twenty twenty five look like?
It's a world of dispurgon.
John.
You know I've been saying with you for the last few months, the good, the bad, and the ugly of the of the global economy or the follow The good is the US, the bad is China, the ugly is Europe. And we've had confirmation of that over the last few weeks. It is a world where there's going to be significant differences in the three systemically important economies, and that's going to play out in the currency market first and foremost. It's also is going to play out in yields, but
it will continue to suck capital into the US. And that's the good news for US markets that if you think of Tina, there is no alternative. There is right now no alternative to American exceptionalism in relative.
Terms, Muhammad. Just just to hang on the point of Europe. Robin Brooks of Brookings wrote a column yesterday basically saying Europe desperately needs a weaker euro and now should be the moment where the ECBD couples from the FED where they cut, and they cut aggressively because they need some sort of stimulus that's not coming through governments in Europe. Would you agree with that.
A weaker euro will be like pushing on a string. What Europe needs is fundamental structural reforms. The Drug Report sets out the fundamental problem they have with productivity, with competitiveness. A weaker euro stimulus doesn't address.
Or structural issues.
So, Danny, I think it's much deeper than that, and I think that Europe has to understand that unless it takes serious steps, it will fall further behind. Unfortunately, diminished is a further step. You need political leadership, and we know what the situation is like in France, we know what it's like in Germany, and there is no European policy without France and Germany leading right now.
There is very little leadership, that's for sure. Mohammed, We're lucky to get some time with you.
I'm apreciate it.
Mohammed el aerin there of Queen's Collors, Cambridge. This is the Bloomberg Sevenans podcast, bringing you the best in markets, economics, an gio politics. 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.
HM