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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordernt. 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. So here's the laces.
This morning, the Federal Reserve hitting pause on rad cards for the first time since July, pointing to a steadying labor market and improving economy. Cludiasalm of New Century Advisors, writing, there are reasons to be cautiously optimistic about the labor market, reduce rates, fiscal support, and solid consumer spending. Claudia joins us now for more, Claudia. It was the least anticipated FED meeting in quite a while. In that regard, Chairmen
Powd did not disappoint. It was an absolute snooze, Claudia. They seem to have this confidence in the outlook, a better route. Look, how much way should they put on recent day set?
Right?
Well, I think there was a cautious optimism.
Right there was a path forward where there's stabilization in the labor market that had been when it motivated the cuts before, concerns about the labor market.
So there are some signs.
Didn't want to overplay it, but some signs, and Powell did sketch out a path for inflation to start turning back down. But there wasn't full conviction, right, There wasn't you know, enough conviction in that outlook to actually see cuts.
They're still going to want to wait and.
See the data, but poll is painting the picture of further progress on inflation, further potential cuts in rates, just not yet.
Claudia, there was an element of that meme where there is someone sitting in a room saying everything is fine and there's burning all around them. This question of all the questions that he wouldn't answer going forward and kind of FED give forward guidance if there isn't a sense of who is going to be the next FED chair and what some of the response are to some of these pretty significant questions that were asked about Fed independence, about the dollar, about a lot of other issues that
were I have no comment. I've got nothing for you for that.
Right.
So, in terms of the questions about the investigation from Department of Justice, the Supreme Court hearing on Lisa Cook, like, those are questions the FED will be answering. So I think we should remember the press conference is really a window into the two days of deliberations about the monetary policy decision. He really needed to keep it to the
economics because that's what they talked about for two days. Soon, Pow will be going to Congress for his semi annual Humphrey Hawkins hearings, and that is absolutely appropriate place to be answering these questions about politics. Paw even gave a hint to it in very Fed speak where he said, you know, Congress is the window to democratic accountability for the FED. That's where the FED goes and has to answer those tough questions. So we're going to more on that.
Is just trying to get the timing right in the.
Forum, right.
Yes, it was really for him to speak for the committee on these deliberations, and I think he did a good job on that. But you know, the politics are there and they're going to have to address this more fully.
There was another issue, another aspect of this press conference, and frankly the decision more importantly, and that is one of the descents. There were two descents. One of them was Chris Waller, the FED governor who is in contention to be the next FED chair. Did you see this as a more political type of dissent or one that actually did come with consistency in terms of some of the rationale and previous decisions.
So I expect to hear from Governor Waller for his thinking on his descent, But it does fit a pattern. Waller was early to sound alarms about the labor market. He may be late to saying all's clear or signs are clear. I think it would be very consistent for him to still have concerns about, you know, how much stabilization really is there in the labor market and on that front, and also this piece about the inflation outlook. I mean, Waller is a forecaster to the core. He may have
more conviction that those tariffs. You know, we've seen the tarif rights that are there, We're going to have a textbook case of them rolling off. And he feels like it's an it's worth going ahead and pulling some more restriction out of the economy. So I think there's a clear economic case that is consistent with not just Waller of the past year when he has been in potential running for fedchair, but really Waller over his whole career.
So I would really be hesitant to jump to the politics in this moment.
This is consistent. But to the same time, he is in the running to be a FED chair and we immediately saw his chances spike up because of that. Do you think because he did dissent that actually his chances are in fact better today than they were twenty four hours ago.
I have no insights on who will be the next FED chair really.
Now I don't. I mean in the.
Market, the you know, prediction market response that makes a lot of sense. And yes, you know he's pushing for cuts, but you know it's the This has been a really complicated process. The President clearly has you know, struggled to kind of come up with the person that he wants to see in that FED chair position. I think, you know,
big picture, we should step back. Yesterday it was a ten to two vote in terms of pausing the FED chair is not the swing vote on the committee, right whoever goes into that position, there would have been a pause yesterday. So I think, you know, I understand the speculation, and maybe it did help Waller's odds yesterday, But I just we want to fed that's focused on the economic conditions and making its decisions and pulling the politics into it any more than is absolutely necessary.
It's just it's a really risky path for us to go down.
Stay with us. More Blomberg surveillance coming up after this, METSA, Microsoft reaffirming commitments to record AI spending, most Street rewarding one sech giant, punishing the APHA. Angela Zino of CFRA has a by rating on Meta and a strong buy on Microsoft. Angela joins us right now for more. Angela a lot of spending, two very very different looking price moves in the pre market. What explains the difference between Meta and Microsoft?
Yeah, John, So I would say, you know, first off, we're not surprised by the higher than expected spending from these companies. I think most anticipated that going into the print here.
I would say.
Meta's spending definitely more, even more than we anticipated. But that being said, you know, at this point in time, you're looking at a guidance of essentially thirty percent top line growth here for Q one, and that really is what explains it, right, This is a case where it seems like Wall Street is willing to bid your SOT higher if you're showing the top line growth. And it's really phenomenal in terms of the type of growth you
are seeing at Meta at disappoint in time. It really kind of demonstrates the fact that, hey, listen, maybe all these investments that Zuckerberg has made here over the last year.
Is starting to pay off.
I think Zuckerberg in many respects is treating his company like a startup, pumping a ton of money into it. You're looking at capital intensity ratio now closer about forty five to fifty percent in twenty twenty six, So we've.
Got some enormous fend going on here.
We'll see what the products look like as they trickle through twenty twenty six. But as we kind of look at the performance here at least for today, the street likes.
What they say at one point six twenty dollars startup, It's not bad, is it? Angelo. I want to talk about Microsoft. Sometimes sentiment is just shaken, and there's a dark cloud that hangs over a stock and an ecosystem software named at the moment, Angelo to your hires point struggling, what's behind it?
Yeah, yeah, I mean, and when you look at Microsoft, right they are the king of the you know, the enterprise king of software in many respects. But whether it be a service now that reported last night and SAP and others that are probably going to report this earning season, and just the numbers we've seeing over the last couple of weeks, this is a dark cloud over the SaaS space. And you know, as far as what we've seen from Microsoft posting the December quarter results the March quarter guide,
it was very solid in nature. And if there's a company that could navigate some of the uncertainties that are out there and where you know, the enterprise space should continue to buy their offerings, it should be on Microsoft side of things, right, So we do think that Microsoft is well positioned to navigate some of the uncertainties the low visibility across the SaaS space.
Here over the next couple of years.
But nonetheless, that's just the narrative that's going on right now. And you know, there are other negatives. I think from the print here in the December quarter, whether it be the higher open Ai concentration risk, whether it be the lower expected you know, a cloud gross margin guide for the March quarter. I think some of that also seeping into the negative reaction you're seeing from Microsoft.
Angela.
Let's dig into both of those things. This question around just to CLI computing growth and the pace seem to miss some of the more lofty estimates and the dependence on open Ai. There was one stat for the first time Microsoft disclosed that forty five percent of a six hundred and twenty five billion dollars book of future cloud contracts was from open Ai. How much of a concern is this to you, this concentration risk and the likes of Microsoft.
Yeah, I mean, I think it's something you've got to be mindful of. But you know, in the same respect, their non open Ai RPO is still growing at a fairly healthy clip.
I think, out of about.
Twenty eight percent or so in the quarter. It's going to be lumpy here over the next couple of years. I do think that forty five percent figure, you know, while large in nature, likely comes down here over the next couple of years. So yeah, I mean, on the surface, it's concerning. I don't think it's as concerning as you know, a oracle type of situation. You know, clearly the fact that you know, the Microsoft, if they don't get it from open ai here over the next couple of years,
should see it from other enterprise related vendors. But nonetheless, yes, I mean on the surface here, the narrative again is one where the street is very concerned about open Ai at this point in time. I do think that funding around will probably help the narrative in terms of the cohort of names tied to open Ai like a Microsoft.
So again, we'll we have to wait and say.
With respect to the Azure side of things in the cloud computing, how much is this an issue that Microsoft just can't meet the incredible demand as quickly as some.
People would have hoped.
And how much is this truly competition from Alphabet from the likes of Amazon that both report next week.
You know, I personally think it's more of the supply constraints. I mean, they did highlight the fact that, hey, listen, they could have grown their numbers in north of forty percent if they had the supply, So you know, so I do think it is more supply constraint in nature, but in the same respects, this is a company that's going to see also much more difficult comparisons on the Azure side of things over the next couple of quarters.
You know, two quarters from now, you're.
Going to have to lat numbers like thirty nine percent year of the year of growth. So I would expect the numbers to potentially even decelerate further, let's pull it into the mid thirties range as we kind.
Of progress through the year.
But nonetheless, I mean, these are still pretty phenomenal type of growth numbers from Azure, and in fact that actually ended up being beating our expectations.
Just taking a step back.
What caught my eye overnight was Jensen Wong talking about how we don't have the energy potentially there's going to be constraints in Taiwan when it comes to chip making into United States and into Europe. Are these CAPAX now numbers so big that actually the energy demand, the physicality of building it out doesn't actually work yet?
I mean, well, we've got to see.
I mean, at this point in time, you know, energy bottlenecks are clearly a risk out there. I mean, I'd say personally, at this point in time, the street is probably more concerned about some of the memory bottlenecks and to you know, to be honest, I mean, when you start thinking about the higher plants cap xpland it probably takes into account some of the higher boosts in memories
in memory prices as well. But as far as you know, the energy bottlenecks are concerned, it's going to get lumpy in nature here.
They're going to be more challenges and certainties.
I think that's going to be more of a twenty twenty second, second half of twenty twenty seven event and thereafter.
But nonetheless definitely something to be mindful.
Just as a market analyst and a market participant, Angela, you've witnessed markets for a long time. If you can get away from these names just for a moment, I think Lisa's doing a great job this morning. You're talking about the constraints in the physical world. Do you think that's to trade so far of the year that people are just chasing that story cross asset.
I mean, it seems to be you know, I definitely think there's you know, there's definitely something to be said about that. You know, you kind of look at really where the narrative is across the tech ecosystem, right, it continues to pile up in a number of these ship related type of names that would benefit from that physical AI world, as well as hardware related names as well.
So yeah, maybe not be as exposed to some of the constraine tie time memory, but nonetheless, I mean you kind of look at the play here at least across the tech ecosystem and it would support that thesis here and I don't know if it lets up here, you know,
in the near term you'll definitely get some choppiness. But over the next three to five years, you know, when you start thinking about the shift for an AI world, it is going to be dictated more on the physical AI opportunities, where there's also you know, greater uncertainties tied to this, you know, SaaS oriented trade. And we've kind of seen this accelerated shift away from chef sas to kind of the the more you know, chip making related names here, even over the last couple of weeks.
Stay with us Mulplinberg Savanas coming up off to this. Jeanette loves to take us rights in this any shutdown would likely be shortlived or shore lived.
Cham of Pale, I think please don't okay, right, that was a short lived issue.
Thank you pronunciation short lift, particularly if they Senate does not strip out the Humeland Security funding bill. Jeanette joined us now for more Jenet apologies to get en off track there, Let's get back on track going into the weekend. Is this shutdown avoidable?
Yeah, I mean it looks right now like we're going to again, as Tyler mentioned, have a short term shutdown over the weekend, which would be less impactful than obviously if it was lasting much longer than that. There is this issue about the fact that they are not going to do a separate legislative vehicle. As Tyler said, it does seem like they want to the Democrats want to use the funding bill as the vehicle for some of these changes on immigration enforcement, and so that's why we're probably.
Going to have to have this shutdown now.
Obviously, this could you know, we could have at least a continuing resolution to cover the Home Security bill once the House comes back in on Monday.
So this could be very short lived. It could last only three days.
But obviously depending on how this plays out, this could have good, big implications.
A shutdown would only be a partial shutdown.
Six appropriations bills were passed, but this is still about seventy five percent of the government funding and it includes important things. Depending on how this plays out, do they pass the defense spending bill, because we obviously are trying to threaten and ran with action right now, so that is not exactly good to have a shutdown when we're trying to have a very strong US national security strategy.
What happened to IRS funding.
We're in the middle of tax refund season, so that could have a really big impact. And then obviously labor as well, so if that's not taken care of, we could actually miss another jobs report at the end of next week. So I do think that Congress has been on a path to avoid a shutdown.
They will probably try.
To get these five bills passed immediately and get that taken care of, and then we'll be dealing with this Homeland security bill, and it would be a partial shutdown that may last, hopefully just a short amount of time.
And that is our overall.
Thinking, Well, let's deal with the Homeland security bill, because that's going to be where the huge debate is going to a lie. What is Senator Schumer actually asking the Republicans to amend in that bill?
Yes, I mean they want to obviously tack on some policy provisions as Tyler mentioned, where they want to make sure that there's no use of masks, there's the use of body cameras, there's a code of conduct to things of that nature. So obviously this would have to go back to the House. There are there was some options.
You know, you heard some Republicans saying that they were open to this, but then you've started to hear others start to say that there have a disagreements particular about the mask issue and things of that nature, and.
So this could be a little bit of a friction point.
But obviously the administration does know that something needs to be done in the wake of what has happened over the weekend with the shooting of a US citizen, they do realize that they need to make some changes here. I think they will ultimately push to get this bill done one way or another.
Jeanett, though, if the Republicans do decide to go along with these Democrats wants to pass that bill, are they basically acknowledging then that their strategy when it comes to DHS and ICE hasn't actually worked.
Not necessarily.
I mean, I think you've heard from a lot of Republicans the way they've framed the issue, that they can say that there's been less safety for everyone involved. There are ways that they can show that just the tactics have maybe become a little bit too strident and they need to make some changes.
So I think that they can do this in a.
Way that creates not a losing message for the Republicans.
Jenett, Is it a good strategy to hold government funding hostage to try to get some leverage? I mean, this seems like voters are not particularly pleased with that. The last time around, it didn't really work out for Democrats. There were a lot of concerns around air traffic, and we're chill still trying to work through the lack of data releases. I mean, is this something that's sort of running out of power in terms of the voter base.
Yeah.
I mean one of the things that obviously when we came into let's say, last Friday, there was an effort to have this bill done, have funding completely taken care of before the deadline tomorrow evening but what happened with the shooting was obviously a stark change. It created the need to find some sort of leverage to change tactics Otherwise, I think both parties were completely against having other shutdown. They felt the pain on both sides of that forty
three day shutdown that we had last fall. But there is the concern obviously that if they try to do a separate legislative bill, there's a worry that maybe it passes the Senate, but it never passes the House, and so there's also this fear that that ruins their own leverage on the Democratic side if they have to give up the option to try to hold the government funding hostage. Obviously, I don't think people would want a long term shutdown. I don't think the White House, the Republicans, or the
Democrats want a long term shutdown. I think they do want to find a solution here and hopefully this will just last a few days to get this over the finish line.
Jene you mentioned something else.
If the administration understands that something needs to be done, I just wonder if you expect other personnel decisions to be made from either the cabinet level or beyond to try to address some of the unrest.
You know.
I mean, it's obviously always an option. Can't necessarily say whether or not we see that happening at this time. Obviously, the one big move is to move Tom Holman into Minnesota. That was obviously a strategic decision to try to change the tactics that are being used in to do some de escalation. We'll see if other things come out of this. Obviously it's been just a week. We'll have to see how some of this plays out and see if there are other ramifications that happen down the line.
This is the Bloomberg Survendans podcast, bringing you the best in markets, economics, antient 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 opp
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