Bloomberg Surveillance TV: July 2, 2024

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

Well, John, Post Thursday night, I was watching a dollar very carefully over in Asia and Europe, and really no sell off here related to any political unrest here in the United States or uncertainty. You know, you're just talking your lease about the dollar. It's what the dollar has strength. I'm surprised it's not stronger because what's behind the dollar is the great US economy, the private sector, the most

John. Let's talk about what would happen on a Trump win. I've got to go through a couple of steps here, but for the sake of scenario analysis, let's say he gets a win. Let's even go one step further. Let's say we get that red waves. I'm thinking back to twenty sixteen. A lot of people are thinking about the Trump playbook at that time, and this bond market was demanded bond issuance. In fact, the economic backdrop demanded fiscal stimulus.

I mean, the small caps are still in purgatory here. Good.

You could be right in the sense that if you've got to, if you've got an administration that's bent on doing things here in the United States terrors, anti immigration, we're going to have to raise the bar.

We're going to have.

To increase our production across the board, not just large gap small caps. So it could spread, but you know, to me, for all the wrong reasons, you know, nationalism, protectionism. So I think that trade is it could come back, but to me, it doesn't. It doesn't give me any comfort because I think we're small casts can come back on their own.

But if we suit.

Policy protectionism, that's a different animal.

Together.

I understand exactly where you're going in small caps will have their day. I think under a Republican suite.

Jo, I'm wondering how far out you can actually make some sort of prediction. We were talking earlier, John raised Lori Calvacina and talking about how there's just this no visibility around twenty twenty five. Do you feel the same way.

No, Actually I don't so I think twenty twenty five, yes, the policy backdrop becomes uncertain.

But when you step back, look at the AI.

Revolution, the productivity that's coming, look at the US economy in general relative to the rest of the world, look at the geopolitics, and there are places put money to work. There's a premium out of resources, the infrastructures build, it's going to continue. So there's policy fog, but I think there's opportunities put money to work in certain sectors that irregardless, it doesn't matter what's happening with politics, it's going to continue into the second half of this decade.

A lot of people were worried about valuations, particularly in the areas that you mentioned, AI in particular, looking at videos some kind of one hundred and forty percent gains so far this year, you're seeing it kind of trade range bound over the past few trading sessions do you agree that it is concerning where valuations are that there should be some sort of retlacement before you feel comfortable really doubling down on those names.

I think to it.

Agree, So, yes, we're getting well, you know, there's a lot of bullet sentiments in the market, so we're careful about that putting new money to work. But these companies are backing up these valuation with earnings growth and we see that continuing.

Is that going to continue in the twenty twenty five? Probably not.

Your your comps are going to come down, But we're still comfortable owning this market broadening out.

We like the cyclicals.

We still like energy, I like commodities, anything related to transportation and distribution, transmission.

We like that space as well. So we're very bullsh on defense spending, giving where we are. So, yes, there's parts of the market that could be allegedly overvalued.

This is backed up by a strong economy, good earnings, good consumption, and foreign demand.

Coming back to you for US securities.

Joe build on that energy defense. Is there some connection there between the two.

Absolutely, John, because what's the premium?

United States is energy independent relatively speaking, but certainly relative to Europe.

And Asia.

So you've got all the demand for AI the data centers. There's only one country really that can feed this beast, right, this AI beast in a relative way, and that's the United States. Because we're energy independent. People haven't made the connection. If you want to drive data, drive AI, you need energy.

Who has the energy?

The United States We're going to pull ahead because of our energy independence driving AI.

Artificial intelligence, We're going to pull ahead of the rest of the world.

And that's what the bet people are making when they buy the US relative to the rest of the world.

John Le's got one step. What am I buying then you say it's energy, Is that the oil produces energy services? Where am I going for that?

Right?

Our equity ailst like the whole spectrum, John, but also transmission distribution utilities and really across the spectrum. We like renewables as well. In this space the interconnection queue. People don't talk about that. We've got to get that better. We've got to be able to take all this renewable capacity and plug it in. It's that simple, and we're missing it. So I think that's coming down the pipeline.

I want to be at the Independence Day celebration at your house, Joe. It seems like it's going to be exciting. I do think that there is a question when you talk about energy, particularly on a day like today where you do see oil prices climbing to the highest levels going back to April. And this is on the heels of both the hurricane barrel that's going the first one on records going back to the eighteen hundreds that really

Well, listen, I would say to be short term the spike up in prices, because there's plenty of oil out there globally, not just stay here in the United States as well.

So yes, that's a concern. It could to me.

Longer term is everything we just talked about. It's the demand for electricity, EVS data centers. So we're watching the hurricane season in particularly when it comes to insurance companies. What does it mean to get insurance in for housing and these other businesses that we've been talking about.

That's a big issue buyers.

You know, the climate change, the climate mitigation is becoming broadening out for insurance companies. It's broadening out. It's going to affect more consumers. I think that's going to be a big issue in the second half of this decade.

They're going to be talking.

About Brent back in the high eighties, eighty seven, Joe, it's going to hear from your Joe quinnin of Mariland Banks for America Private Bank, Keith theme for Joe, preference for hard power, defend herd assets, commodities, hard hats, infrastructure, President Biden slamming a Supreme Court ruling that could allow Donald Trump to escape prosecution for his role in the

Yeah, good mornings. I mean, it's a great point.

One.

The big thing that we're seeing coming out of Thursday is that everyone's worried about Trump I mean sorry, Biden being at the top of the ticket and now potentially having that debate perform Mormans. That really did not change the election trajectory the way he wanted it to do. The bigger impact is what's going to happen in these

The top of the ticket.

But if you really start to see deterioration in the polls, deterioration and fundraising and deterioration and the polling for these down ballot states, that's going to pose a lot more trouble for the Democratic Party come November.

You mentioned three things there, polling, fundraising, down ballot Senate races. Can we talk about fund raising some of the numbers that I've been seeing Jeanette say, there's no problem here whatsoever. What the numbers that you're looking at.

But right now there is no problem.

So they have pretty good numbers over the weekend for the Democratic side, We'll have to see. I think right now they're definitely concerned that the Republicans are having really good fundraising and kind of eating into the fundraising advantage that Biden did have earlier this year. But right now there is kind of this rallying right around him. You had the President come out and speak last night about

So I think that we're going to be watching those numbers.

Right now, everything does seem to be okay, but I think the next couple of weeks are going to be really critical for this race.

There's some discussion of the DNCA Bloomberg reporting with Democratic National Convention is thinking committee is thinking of actually pulling forward the nomination of Joe Biden to try to throw a sense of support behind him. Is this the right idea given the facts that anger is still out there? Very much so. And there's a question of why the internal circle around Biden isn't necessarily being more transparent about this process, right.

And this is something that was actually kind of planned a little bit earlier. They were thinking about doing it before August seventh, just because there had been issues with the Ohio ballot, and so the party wanted to have him basically nominated early just so that there couldn't be any turmoil at the convention in August. If you have a contentious convention that generally doesn't vode very well for the party ahead of the actual election, and so that

But this is ultimately going to be for better or for worse.

This is down to Biden making the decision whether he wants to stay at the top of the ticket or if he wants to step down.

He can do that before the convention.

That could be very messy having a multiple delegates having votes to figure out who should be the next nominee. The committee can also do it after the convention as well, or we could see Biden's stay in the entire time. But I think this move to potentially have the nomination done in July is a way to try to squash any dissent. If Biden can keep his numbers up over the next couple of weeks, we don't see the great

But this is something definitely to be watching tonight.

Yesterday we had a series of guests talking about how Thursday night was a game changer for them in the market, that essentially they were looking at the higher likelihood, much higher likelihood of a Republican sweep, exactly going to your first point, which is essentially you need to watch down ballot and see how many people basically stay home, are not excited about the top of the ticket, don't feel

So I will agree.

I think the consensus is is that there is definitely a greater chance that we're going to have a Republicans sweep in this election. But I do think it is important to not assume that would be the case. Again, these down ballot races are quite important. What we have kind of seen is that it seems that there's much bigger problem with Biden and Harris at the top of the ticket. Rather than an overall problem with the Democratic brand. So you do see House races that have done quite well.

We want to see actual results. So we've been.

Watching the special elections that have occurred since January, and Democrats have been out performing by eleven percentage points versus what happened in those districts in the last election. So that does seem to indicate that there could be some tickets splitting this year. It could be that voters might think that they could vote for maybe Trump at the top of the ticket, but then Democrats and either in

Jane, you get the distinct sense right now that a lot of people in this country feel like they're being like to, like there's a division emerging between the campaign and the rest of this country. And I don't know what this campaign does about that. If I think about some of the stories over the weekend, we saw even CNN getting blamed for the makeup they used on Joe Biden,

So I mean, I think that this is Thursday's debate definitely reinforced voters concerns about Biden's age, about his fitness to continue to serve as a president, and the president really needs to try to change this race. It is currently a referendum on his first term in office. His approval rating is hovering around forty percent. That is not good if you're looking to get re elected.

So he really does need to change this into a choice.

There are some key factors to look for in the coming days. Obviously, with the Supreme Court decision yesterday, you saw Biden's statement to try to change this just try to say, Okay, that was the decision, but I'm going to try to frame this as more of a choice.

Between me and former President Trump.

You also have Trump's sentencing coming up next week, so that's going to be a important point. Things I'll stove to watch for us. Who is the vice presidential pick on the Republican ticket. So there are options for the Democratic Party to try to reframe the race to make it just more of a choice between Trump and Biden, But there already is kind of this baked in feeling that voters have been concerned about Biden's age that wasn't alleviated over the course of the last week.

And that's something that we're going to have to figure out how.

To deal with.

Jeanette, this was great. Janette low As Fatigas, thank you. Let's continue this conversation and gets to the panel. Joining us now is Point seventy two's Dean Macki alongside Femos in Linga. Gents, it's great to catch up with you both, and I'm going to come to you first. What is more important to this bond market right now? The economic data that we get this week or the debate that took place Thursday evening.

Well over the course of the last two training sessions, it has undoubtedly been the political tides in Washington and what it means for November. That being said, we have payrolls on Friday, but perhaps more importantly, next week, we get CPI again, and that will give the market some very good context for whether or not we'll see that September rate cut. That's the active debate that matters at the moment.

And there's still some banks out there suggesting that maybe payrolls this Friday is more important than CPI next week. Would you take the other side of that?

I would take the other side of it in a consensus print. But if there's a surprise, if you hit a four point two unemployment rate or a some one hundred thousand break four headline payrolls, and then all of a sudden, the dual mandate employment aspect becomes a lot more relevant than CPI.

Dean, how are you thinking about that trade off? If unemployment continues to creep hire this Friday, does it take some way away from the importance of CPI next Thursday.

I think at this point the fad really is focused on inflation. The FED needs to see inflation headed back toward the two percent target, and if that's the case, then we can have a strong payroll report and the FED will still about cutting. So I think the Fed's focus really is on the CPI next week.

Dean, how do you understand what some of the data has been saying in terms of slowing but not slow? There is this feeling right now, especially as you look more to the inflation print than you do the labor market. There has been this feeling that we're on the precipice of something that could be more punitive for the US economy.

Do you agree? And if not, why not? I don't agree.

I think there's been some mixshifts within the data that make some of the data look weaker than it really is. So, for example, consumers are shifting away from spending on goods and food services and towards other categories, but those other categories are not included in retail sales, So retail sales looks weaker than overall consumers spending, but markets tend to focus only on the retail sales report.

So that's part of what's.

Happening, is that consumers are shifting toward pre COVID norms, and that's not showing up in some of the data that people are focused on.

Do you agree in ian.

So, I would say that generally speaking on the consumption side, I agree, but I am a bit more concerned as it pertains to what's going on in the employment landscape. We do have higher claims. We have the Joel's quit rate at two point two percent, and there are signs that the FED has been effective in reintroducing balance to

This is the worry that Claudia sam has as well. We had her on the program with us a little bit earlier this morning. We quoted her before we went into some of her work. I just want to share this quote with you, jentlemen. A good labor market is not a reason to wait. The reasons is that inflation is down considerably. A good labor market is what it's

I guess I'm a little less worried about the labor market at this point than some people are. And one reason is that corporate profits corporate profit margins are close to the highest level since the nineteen sixties, and corporations are not inclined to do massive layoffs with profitability that strong. You know, payroll growth over the last three months is two hundred and fifty thousand per month. Childless claims are in the two thirties. This still looks like a pretty good labor market.

To me.

What I think has happened is the labor market has normalized rather than weak and sharply.

In This has big implications, consequences for the shape of a yield curve. We came into twenty twenty four. We were looking for steepness, but we thought it would be driven by a rat kin of cycle fueling a rally at the front end of the curve. Can you just put some meat on the bones of this best? Thepener of the last couple of days, and how sustainable you think this move actually is a disinverting yield curve driven by the long end.

So I think that we all know the story. It has to do with the potential Trump regaining the White House and some of the forward inflationary implications of that that steepened out the curve. Deficit spending implies greater issuance, So that's why we had a bear steep there.

Now.

Transitioning this to a bull steeper I think will require at least an initial bear flattening impulse as the economic data starts to deteriorate. But eventually what we'll see is when it becomes abundantly clear that the Fed is about to start normalizing yields or olicy rates lower, two year yields will drop and they'll price in an extended cycle

So Yan, do you kind of agree with John stolsis that this is essentially the market looking for attention from the Fed.

To a large extent, the bond market is I mean for the FED at a moment where the Fed is considering dialing it back. So I do think that to some extent, this is a reminder that loads and supplying demand do matter in the treasure market, but only within the context of the prevailing range. Keep in mind, ten year yields are still below four fifty, and it's in an environment where the real economy still appears to be on strong pooty, at least for the time being.

Dan, you've been in the market for decades trying to analyze the economics of the moment. I would love your insight into how realistic we can be about some of the potential scenarios that are being priced into the bond market, with really Thursday night being thought of as a watershed moment, really looking for the potential for a Republican sweep and the idea of some of the fiscal policies as well

I think we always want to be thinking about all of the various scenarios, and markets will try to price in what might happen. But ultimately, from my experience, markets don't really fully prace things in until the market is pretty sure it's going to happen, So we might see the scenario shift back and forth, back and forth multiple times in the next several months before it finally settles on what truly is.

Going to happen.

Hey, Gens, this was great. Dean mackiew points seventy two Iligan to bemo. This is the Bloomberg Savenants podcast, bringing you the best in markets, economics, angiopolitics. 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.