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Terminal and the Bloomberg Business app. We begin this hour Stops pulling back following the biggest one day rally since May. Cameron Dawson of neweged Wealth, writing, for now, we see recent market volatility as a positioning evaluation recalibration, not a growth scare. Cameron joins us now for more camera. Good morning. It did not feel like a positioning recalibration through much of last week. All that volatility, and we were down
just zero zero point one percent on the SMP. What was last week?
Well, at the beginning of every bout of market volatility, we always ask ourselves, did anything happen that would cause EPs or GDP estimates to get revised lower. If the answer is no, it shortens shallow. If the answer is yes, it's typically deeper and more protracted. And so as we looked at the outlook over the course of last week, we thought that the answer to that growth question was no. And the way that we got to that is looking
at something like highield spreads not blowing out. Highild spreads are at three hundred and forty eight basis points.
This is not a bond.
Market that is freaking out about growth. You also look at market leadership. You've had really strong leadership out of industrials, energy, materials, financials, all areas of the market that would not be rallying if we were really concerned about growth. So the net of everything is that it seems to be more about positioning, valuation, and sentiment recalibration, not a deeper growth scare Well's.
Stay on valuation. Could it have a damping of FANCTOM valuations through the year ahead.
Yeah, I think that that is probably the biggest risk. If we all sit back and think about all the justifications as to why the US equity market should trade it twenty two times forward or thirty eight times on the cape ratio.
The argument went that because.
The components of the S and P five hundred are that much more quality than they used to be, because of the higher weighting in tech, you have things like higher free cash flow margins, higher return on invested capital.
But if we're starting to ding.
The outlook for free cash flow margins for the big hyper scalers, lower potentially return on invested capital for the software names, given AI uncertainty, it raises the question of is that justification forever higher valuations something that we should push back on.
Well, and this is the reason why, and we'll get to the fundamentals in just a minute. People are saying it feels more than just a violent shift in positioning that can really revert back. There has been a change in the way people view tech companies, how cash rich they are, how much they can keep giving dividends, and how much they can keep doing share bad buybacks, which
have been a huge tailwind to this stock market. At what point do you see the technicals really turning against the US equity market?
Yeah, I think think it's first important to note that at the peak of the growth trade back in November of last year, you had max positioning and megacap growth and max underweight positioning and cyclical so there has been a big, huge positioning recalibration. I think your questions are really important because the whole notion is that these are very capital late businesses that don't need a lot of
incremental investment. And if you look at that over the past, what you saw is that all of these companies are able to grow earnings by double digits without having to spend any money.
That was incredible.
But now they're growing earnings by double digits, but they're having to spend hundreds of billions of dollars to.
Do so well.
This raises the issue of the fundamentals, right, And we've seen this broadening out trade and you think that it might might have legs.
We see the equal Weight reaching all time.
Highs even amid the carnage that we're seeing in the SaaS coppolps.
I think I said that correctly.
Going forward, how much is that broadening out and frankly, the entire index going high or crimped by the story that's taking place with a fundamental shift in the way that tech companies are being valued in front are performing and existing in this world.
Yeah, I think It's.
Such a fascinating point because if you think about the driver of all of this growth within tech spending, which is also leading into growth within value sectors, how much of this is dependent on some of these software names continuing to make investments that would be demand of AI.
So I think some of this is all just a circular reference.
If we start questioning the KAPEX growth going forward, does that also question some of these value rallies that we have seen lead the market since November?
You also talk about how these software companies are the ones that are going to be the ones to lead when it comes to AI and are the ones that have the most to gain. So would this be a moment to step in and get.
Some of those stocks after the accompli.
Of potentially the most to gain, they have the most to lose. But I think if applied properly, they actually have a lot to gain given the fact that they typically have high headcount, they typically have very strong customer relationships. But if they don't move quickly on AI, then they have a lot to lose. I think it's important with the software names to take a step back and think about the technicals because they are very, very oversold. If you look at them on a daily, they're oversold. On
a weekly they're oversold. If you look at them, they're now trading at the two hundred week moving average that would support back in twenty twenty five, back in twenty twenty two, So that would suggest that you have some kind of bounce. I think the big question is can
software regain its leadership coming out of this bounce. I think that's a lot more in question, just simply because there's all these doubts of things that effectively software companies can't disprove at this point, because it's ai risks that could be out one, two, three, four years in the future.
Look at where the leadership's coming from right now. Regional bank stocks up every single day through last week on the week, up by seven percent, and it wasn't just the small names bank for America City JP Morgano somewhere between five to six percent through last week.
What do you think that speaks to deregulation.
I think it speaks to this question if banks would be allowed to grow their balance sheets further, if they're allowed to take on more leverage. I think it's fascinating that for the banks they have been growing earnings over the course of the last two years at a faster pace than even prior to the Great Financial Crisis, which just suggests that banks have been in an extraordinary period of operating leverage as they cut costs and still see
really strong top line growth. But it also, i think is a reflection of this cyclical optimism, because just as you saw the regional banks rallying hard, you also saw
things like transportation stocks rallying hard. And if you look at everything within the transportation side of things, you're seeing better shipping rates, you're seeing better rejection rates coming out of the truckers, You're seeing a demand start to really cause a capacity tightening, which all suggests that there's cyclical underpinning of a little bit of a fire being lit in that part of the market.
The question, of course, is can it continue.
Well, let's talk more about that at the index level. This is something Jim Reid of Deutsche Bank has raised many other people upon during the same question. At the moment, can you have the kind of vicious rotation we're having over a prolonged period without index level stress.
If you think of times like twenty twenty two or going back to two th thousand to two thousand and two, the answer would be no. If the largest weights in the market are continuing to come under significant pressure and really leading the market lower, then it's really hard for names that are a much smaller portion of the market
to drag the overall index higher. So you could be in an environment where index level returns are kind of shoulder shrugging and ho hum, but you have very strong returns and pockets of the market that are much smaller. I think it's an important point as well that you're effectively moving liquidity out of very deep liquid parts of the market in tech and into much shallower, smaller parts of the market in these cyclicals, which can help explain some of the magnitude of these upside moves.
Cameron Dawson of New h Weeth joins us. Now for more, Cameron, let's continue this conversation. The sull America trade, you actually sing in the data because we're seeing it in the headlines.
Yeah, definitely not.
If you look at last year, we saw record numbers of influence into treasuries as well as equities, So we ended twenty twenty five with record foreign holdings in both.
Treasuries and equities.
You saw five hundred billion dollars worth of treasury increase in the overall holding. So sell America was definitely the narrative last year. It did not play out in practice. But it is good to remember that prices are set at the margin and there's a great Bloomberg screen that's debt go and what you can see is the treasury holdings of different countries.
And for the last thirteen.
Years, China has effectively cut its treasury holdings in half.
So this is not a news story.
The question is do you see less treasury buying from China? Do you also see less treasury buying potentially from Japan because home yields are higher, and potentially less treasury buying from Europe. You've seen a huge increase, a threefold increase in treasury holdings from the UK, for example. So could you see that at the margin start to come down and put pressure up on long term yields?
Have we already seen that priced in? I mean, I'm asking this with respect to how much the Bank of Japan and frankly Takaichi is putting pressure on us tenure yields.
Yeah, I think you have potentially seen some of the fiscal worries get priced in early on within Japan, because you're seeing the response this morning is not nearly as violent. The selloff in bonds is not nearly as violent as what we're seeing as the rise in equities. I do still think that there's a very little direction within the
tenure Treasury. It's at four point two percent. All of its moving averages are just kind of coalesced in one tight area, which says that there's really no conviction within the tenure treasury yield.
If the tenure.
Treasury believed the equity market and the cyclical rebound, I don't think that we would be seeing ten years at four point two percent. They'd likely be closer to four point six percent.
Which is the reason why people are looking at Kevin worsh the potentially a new incoming Fed SHAIRT should he get confirmed or even heard. Secretary Bust had some really interesting things to say over the weekend about how it was probably going to take about a year or more in order to really start to wind down the balance sheet in any significant way, and he made some other comments. At a time when we're looking at something of a
Fed Treasury accord or something like that. Do you have a sense of what that could look like.
Yeah, well, we've been joking that they should rebrand quantitative easing on a dative freedom in order to be able to navigate this balance sheet runoff. I think it's a really big question because we know that Treasury wants yields to move lower, not just on the front end, in order to reduce treasury borrowing costs, which interest expense is over one trillion dollars.
It's larger than defence spending.
So this is something that they want the front end to come down, but they also want the back end to come down. They want to have relief within the housing market with mortgage rates coming lower, cyclical areas of
the market getting stimulated by lower long term yields. It's really hard to do that in a very pro growth, pro stimulus kind of backdrop, which means that it suggests in order to accomplish three percent growth and three percent treasury yields, you need some kind of treasury market intervention.
It can't do it alone. So what would that look like?
And I'm glad you bring this up because just a few hours ago, the President actually put on truth Social a Bloomberg story talking about a Barclay's note about how this president wants to see mortgage rates drop to five percent this year.
Can they actually get to that?
Well, some of the things are within their control. We saw the mortgage buying that was that was pushed through back a couple of months ago, and then there's of course things that are out of their control. And the best way to think about the yield curve is that the surer you are in the yield curve, the ward's controlled by the FED. As you move longer and longer out,
it's controlled by supply and demand. The supply side of the course is what's going on within the fiscal side of things, and the demand side is demand from not just domestic owners, but foreign orders. And I think that that's one of the big questions that everybody's wrestling with.
This morning.
Found a word on Torston slock of Apollo. You saw the quote, I'm sure you read it over the weekend, right hikes at the end of the athink. That's the conversation.
Well, if you look at the warp screen, they actually have a slight probability of rate heights starting in twenty twenty seven. I don't think that This is something that worsh will necessarily want to push through, but it is a committee vote.
And think of us going forward in just June.
If we have this kind of of strong economy where we see some reacceleration, are we in an environment where the chairs were the.
Only one blas coming up?
What about.
That's turn to the metals market. Some major moves in the last week in both gold and in silver the Treasury Secretary scale best and also pointing the finger over the wild swings in precious metals.
The gold move things have gotten a little unruly in China. They're having to tighten margin requirements. So the gold looks to me kind of like a classical specut in below.
All gold hovering around five k after a stretch of historic volatility. Amy, Gareth, Mork and Stanley seeing more upside ahead with a bullcase of fifty seven hundred for the second half of the year. Amy joins us now for more, Amy going to see you. Welcome to New York. Great here, wild wild swings not just in gold, but silver too, And if we can bring up the silver chart here today. The silver chart is one of the most ridiculous things
I've ever seen. Covering financial markets, a runny of sixty percent, and then a complete round trip on what Yeah, Look.
I think silver you do always expect more volatility. It has generally lower liquidity, there's smaller trading volumes going through.
I think we could say.
Look, the setup was reasonably supportive in terms of we'd eroded a lot of the inventory, and so when somebody needs metal immediately and that metal is not available, it sort of goes to the highest bidder and the price can accelerate very rapidly. And clearly there was an element
of momentum here as well. And then of course when we had that turnaround in both gold and silver, with potentially the nomination of wash coming through and some of that momentum coming off, you know, it's not surprising we've pulled back a long way. I think what we've been struggling with is what is the right valuation for silver here? And especially when you see, you know, a fifty dollars trading range for something that only started the year at
seventy five dollars. That's quite difficult to do.
And the Treasury Secretary was porn in the finger at China with regards to gold. He said things were getting a little unruly in China. Can you translate what does it mean by that?
So I think.
Definitely there's been an element of momentum and high volumes going through and we've seen this across the metals, very very high trading volumes in China, and so we've seen some sort of controls from the exchanges and position limits trying to cab things back into place. We might also be seeing a bit of positioning taken off ahead of Luna New Year, because things will generally be slowing down there. So I think partly that's probably been having a hand here.
But I think also unsurprising when you get sort of a straight line up in metals to have a bit of consolidation take a pause, that's not unusual.
So it seemed like Scott Bessett was talking about the hat he's currently blaming this one trader who had an incredible slew of losses in China and then fled the country. I mean, it just raises the question of how financialized some of these metals markets have gotten. The idea that suddenly people are turning to precious metals as an alternative to things like treasuries, which are a very deep liquid market.
How comfortable is the gold market? Is this silver market with this moniker of an alternative as an attorney to be treated as an alternative to full faith and credit in the Unitedity's government.
So I think gold has kind of always had this role as a safe hay and traditional so you have had yes, financial flows, but also real physical buying from central banks, from ETFs, and kind of we're used to this sort of flowing gold. I think for silver, because it's also got that industrial metal hat, probably this is where it's a little more difficult because there are real
end users who also need silver. So when people are suddenly trying to buy quite large volumes for financial reasons and then you still have the physical buyers, that's where things get a little tense. So gold, I would say, should be okay with this silver obviously a lot of volatility as we're seeing.
Then you overlay the fundamentals, which is that every country in the world is trying to build up as strategic reserves of some metals as well as try to build out their infrastructure. We still heard about the vault from President Trunk that he wants to stackpile certain metals. Do you have a sense of how much there could really skew valuations.
Is that already prosed in.
Yeah, So I think the stockpiling theme is super interesting. So we have as you say, Project Vault launched in the US, which is looking for any critical minerals. Now, the US critical minerals list is about sixty different metals. Some of these are very very small market, some of these are much bigger, and so I think we need to see what ultimately is going to be top priority
in terms of stockpiling. I can think, you know, it's probably you know, it could be any of those metals, but it's the larger ones could be more easily able to absorb that stockpiling. You could say for copper, actually, already the US has already built quite a large stockpile. Last year, the US imported probably two thirds again what it would normally need, and most of that is just
sat in the warehouse system. So actually you could say the US may have an incentive to try and keep that in the country rather than letting that be exported.
I was going to ask you about copper too, because really this matters with demand in China. How weak is the demand is so off the demand right now for copper and China.
Yeah, I think it's remarkable how strong copper has been considering what we're seeing in the Chinese demand. And this is not a new story. This is something that started back in September October time Q four. We saw Chinese apparent consumption down around twelve percent year on year. Is that really weighing on the sort of total full year twenty twenty five demand number. We're going into lunar New year,
which is where activity typically slows down. So often you see the semi fabricators slowing down their activity, but yet copper has proved remarkably resilient, which I think tells you there's broader macro factors at play. There's this theme around the AI trade, stockpiling, scarcity, supply chains, and then also these macro overlays of rake cuts still coming through demand for real assets from investors.
WESA mentioned Project Vault.
What about the fact this administration also has tariffs on some of these metals.
Yeah, so at the moment, you've got your steel and aluminium tariffs in place, and what it looks like, if anything, is actually the US has been importing less aliminum than it needs at the moment, so that would imply actually the stocking rather than stocking and copper. We only have tariffs on things like copper wire, not on copper itself. But we are due to here.
Whether those MICROWA twenty twenty seven they're going to.
Do it, it's a tricky one to call. I'd say the US is probably more reliant on imports of aluminium than copper, so arguably if they can do it on aluminium, could do it on copper. The market is not really pricing that that is going to happen at the moment. There's very little premium for US metal at this point.
But the other thing they could do is, of course, just kick the can down the road and say, look, let's see again in six months from now, and that is more likely to keep the metal on shore, but without really having too much impact on domestic US copper price.
Well, just how tight is the copper market at the moment, So we.
Do have a lot of inventory.
We've had this big infantry build in the US, but I would almost disregard that for now because it's sort of locked in the US. If you think of that as a strategic reserve, then you'd say the copper market's pretty tight, London inventtry is low. Chinese infantry, yes, is building, which we think is this demand weakness, but we always get built around this time of year. To me, the big signal for us is going to be as we come out of Lunar New Year, what happens in China.
Does activity pick up or not? And that's going to really tell us, you know, is China just pausing because prices have moved a lot, or is this China actually stepping away from the market. Normally they pause, they kind of get used to the new price levels and they come back in.
Can we finish on supply Back in the day, give a minor a dollar. They've dig a hole. Are they still digging holes?
Not so much.
So.
We are now ten years on from the twenty fifteen to sixteen metals price downturn, which is where mining companies largely cut their budgets, and we're really starting to fill the effects of that. And the challenge is this long lead time, so we can't give you a big list of new minds that are coming on in the next few years.
And even now where.
Copper prices are really high, you'd argue probably most copper projects in the world would make sense. Here, we're still seeing companies trying to buy each other or buy assets rather than building from scratch. So really what we're then hoping for is a bit of scrap, a bit of brown field expansion, but nothing major stay with us.
More Bloomberg surveillance coming up after this. So here's the list this morning, the Federal Reserve of waiting delayed reports on both employment and inflation, US payrolls. Do you want to Whennesday? Followed by CPI on Friday. Dania Peterson of the Conference Board Right in the next five days will be a blockbuster week to look ahead to that. Dana joins us now for more, Danna, good morning. Let's talk
about confidence first. The CEOs that we speak to sound confident, and the CEOs you hear from bullish about hiring, because that seems to be the story in the data at the moment.
Not really, they're still waiting on the sidelines, and we're seeing that in the actual data. Payrolls have been pretty small, but that's also consistent with on labor market that's still healthy, very close to maximum employment.
Is it a supply side factor? Then if it's a labor market that's still healthy because at the moment we're looking back to olf months and we could see jobs growth at zero nothing. Data that doesn't sound healthy.
Well, it's about levels, not the deltas right. So right, if you look at the data, either the establishment payrolls or the household survey in levels, most people are still working and those levels have returned to the path that we had before the pandemic with a delta, and that delta is really the advancement of people retiring. Other than that, most people are still working if they want to data in.
The Conference Board's own survey, a number of respondents, the greatest number of respondents going back to twenty twenty one, say that jobs are hard to get. You see an increasing amount of concern about the availability of work. And I'm just wondering how much of a forward leading indicator this tends to be in prior readings.
Well, I think this time it's a little bit different. Yes, it is pointing to the fact that the unemployment rate could rise because people, some people especially in industries like finance and tech, are being let go and it's very difficult for them to find new jobs. And so that's accurate. The survey is saying, yeah, it's tough to get a
job out there if you don't already have one. But when you look at the JULS data and even the unemployment rate, most people, most companies are not letting anyone go. So we're kind of still in this low, higher low fire place. And again it's about the level the number of people who are actually working is very high.
That said data, we have seen jobless claims start to tick up, and there is some concern that this particular reading that we get on Wednesday of non farm payrolls is going to be really skewed to the downside from the revisions, the benchmark revisions that are going to come out.
I'm just wondering what you're looking for to determine whether you're starting to see a shift from low high or low fire dynamic to something slightly different, a little bit more pernicious, a little bit more protracted to the downside.
Sure, so I'll be looking at two things. Yes, you can look at payrolls in terms of the change, but again, when you're close to full employment, you don't need much change at all because most people are working. So I would look at the level of that and certainly with the unemployment rate, I would deep beneath the surface and take a look at who's driving it. Is it people who who are newly let go or is it people
who are still looking for jobs. You have to look at those details to understand what's going on in the labor market.
And then, of course Friday we're going to get CPI. So as you say, blockbuster week for economic data, what are you focused on when it comes to inflation report?
Absolutely, I'm looking at again underneath the surface, first, looking at goods, especially those that are most likely to be imported. Are we still seeing prices increase for those items? And we've seen that in the data over the last few months. So the tariff effect is coming in. However, it's being offset mightily by slowing shelter costs, and that's that's a good thing. So I'll be looking at the shelter costs to make sure that's still putting downward pressure on overall inflation.
But I'll also be looking at any services that are indirectly affected by tariffs, and also things like hell insurance and car insurance, which we know have been rising.
When it comes to when you said earlier about CEOs, they're waiting on the sidelines. What exactly do CEOs want to hear in order for them to get back in and start hiring again.
Well, I think for a lot of them, any of them that are exposed in some form or fashion to supply chains, are waiting for the trade deals to be completed. There's still some major trade deals that have not been affected.
And also usmcaight renegotiations start this summer, and if you are an auto company or a lumber company, you're curious to know whether or not you're going to have to pay different rates of tariffs, whether a product is moving from Canada to the US, from Mexico to the US, and so I think they really want to know what that looks like for them.
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