Bloomberg Surveillance TV: July 5, 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 Terminal and the Bloomberg Business App.

John Bieber of.

Your Rasier Group writing this that President Joe Biden's inability to team the story about his cognitive decline has prompted your Razor group to increase the odds that he will exit the race from fifteen percent to twenty five percent. John joins us. Now, John, good morning to you. You heard it there from Tyler. The strategy of Team Biden. Get him out there as much as you can. Put

Is it enough?

Yeah?

I'm concerned that twenty five percent odds might be low. I mean, Biden has not looked good for a while in public appearances. The debate was just one of many reports we're hearing about what happens behind the scenes at the G seven meeting, a meeting with congressional leaders. There's just a lot of signs that he's losing a step or three. And his appearance yesterday at the fourth July at the White House was fine, was competent, but didn't seem like a politician that was at the exactly at

John, good morning, What is this smart, political, graceful way out of this? Is this filler kill weekend? In terms of going head to head with Trump, there are the Post forty eight percent to Trump forty two percent to Biden is a smart, graceful way right now to try and find a graceful exit because he doesn't sign like a president that is ready to do that.

No one's pushing me out.

Well, every day he doesn't exit the race, the anger if and when he eventually does, at him is going.

To be higher and higher and higher.

So he should move quickly to preserve his legacy. If he's going to step aside, and you know it's possibly he blows us away tonight, the way he blew everyone away at the State of the Union, making this question go away at least for until the next incident happens. But if he does drop out, he's going to have to do it soon. The Democrats, you know, they're they're almost likely, almost certainly going to replace him with Kamala Harris,

In many ways. If he does choose to go or if he's forced to go, or if he's advised to go by his family. As you say, you think it's the family and the inner court of Biden that will drive him to make this decision to exit rather than the Democratic Party. How much of a poison chalice is that for anybody else who takes it a part from Kamala Harris. She gets the money, she gets the money transfer, she can get the black vote, the female vote. She is strong, she's strong as polling strongly.

She is the.

Obvious condidate because everybody else this is a poison chalice.

Yeah, I think that's right.

I mean, I don't think you're better off picking somebody with lower name recognition than Harris who has not been tested on the campaign trail. So for somebody like Gretchen Whitmer, who's got a really promising political career in front of her, or Gavin Newsom, who you know, this would have been his moment in to run in a normal cycle where Biden decided to drop out earlier. You know, these people

In twenty twenty eight.

So I think, for just thinking about the personal incentives of any of these people, Harris has the least to lose from being the dominiee.

John May I have only a minute here, but the strategy from Donald Trump has been stay quiet, will relatively quiet, and let the Democratic Party implode if Biden steps down and someone else takes the rain. Can Trump still afford to do that? Can he make this a referendum on a chaotic Democratic Party?

Yeah? Absolutely?

I think.

I mean Trump's drowning a very disciplined campaign so far. He hasn't really been drawing attention to himself the way he would even say twenty sixteen, and he's let Biden be the main character of the election.

Which is exactly what he needs to do to win.

Harris comes in he's going to have to quickly define her in the eyes of the American people as too progressive, as you know, a party to all the inflation they've been experiencing, and basically Biden part two. I don't think that's going to be terribly hard for him, but you'd expect to be him out there more vigorously trying to define her in that situation.

John, appreciate it. Enjoy your weekend. John Lieber of Eurasior Group.

Could you TD Securities is our guest this morning. Could you good to have you with us. I mean, here we are, we're looking at significant change about to hit the United Kingdom. For the moment, markets, the pine, the guilt markets, same steady on the feet.

Will that honeymoon endure?

Oh when it comes to I mean yes, as you said, Labored, right now, we are just done with the easy part of the election. It was pretty expected that Labor will get the win, and I think after a long time after Brexit, we are basically entering the phase where there'll be much more political stability that we have not seen. So yes, it's great for the market, but again, as we mentioned that, it's very Labor is ending has a

It certainly a sixty percent probability that the Bank of Pinioning goes in August that may well be ahead of the Fed. In terms of the guilt market. This is going to be critically important the fiscal plan that they lay. They have an autumn statement in the United Kingdom and then they have a budget later in the first quarter of twenty twenty five. You would say that the flow of money and this is what we've hired from Goldman Sachs. I want to understand from you, to flow from international

How supportive? Yes?

Now, totally this left is very different from the left. We are talking in France right now, so they do not want to actually do the trust thing. Again, I doubt they are going to change much in terms of their fiscal when we are head to the autumn's statement. More changes are likely to happen in the mark statement.

Here you do make a good point, poocha, And this is what are trying to manus about that it is not just France, it is election upsets throughout the globe, as it is a world that moves more right and potentially more protectionist and more isolated. What does it mean for the market to grapple with that, Because at the moment we've been trading this is just idiosyncratic stories between each individual and nation. It matters for the PAESO, it

That is definitely the scary part. That is a it impacts growth, it's also inflationary, and I think that is something that those are the effects we actually going to see going forward, and that especially the woods for Europe, because Europe has created this strong integration and that is definitely at risk risk as we head towards Sunday elections.

And as we head towards Sunday elections. Pouja again, this is a market that is treating this like a near myss. The spreads are still wider, but they have come in because you don't have Marine Lopenz Party the national rally securing as much as a majority, is it the all clear for you as well?

So I know, I mean, we are going to these elections a bit complacent at this stage. Markets are viewing a hung parliament as positive for OITIS, just given the fact that no decisions will be being made, just given the fact that they won't be any clear majority. But I do feel that it's not good for France growth

In terms of just stepping back from a moment Danny framed this I think very well early on, which is the discontent with the status quote in many democracies, not just the United king them, not just in France and in Germany. There is also discontent here in the United States of America with the status quo. We're seeing that in the polls at the moment between Biden and Trump.

And from France.

How might that play out on the stage of global investing? Do all roads ultimately then lead back to the United States of America.

I mean, I think there will be. There is already a shift of flows happening since COVID crisis, where all countries had to active were forced to be self dependent than actually being dependent on others, and that also happened during the Ukraine crisis. So I'm not thinking of a big majorship, but that's the way we are going into. I totally agree with your point, but I think I don't exp I mean, UK is still a market which is basically owned by non domestics, especially when I talk

Joining US now is black Rocks Jeff Rosenberg and former Fed Governor Randy Krosner is still with us. Jeff, let me start with you. What's your face first take on these figures.

My first take is was your first take that it's the revisions and a little bit the unemployment rate figure that the markets are most focused on here today. Like I think this is supportive to the story of slow down in the labor markets the powers looking for I think you see that in the bond market reaction, and I think this keeps September on the table.

The other story here and why the.

Market reactions to the revisions is there's a bigger story that there's more manas that it is a beautiful turn of phrase, the foothills of substantial revisions. I think there's a big story there in the market that there are revisions coming, that they're the established MINTS survey is overstated. You do get the benchmark revisions, and there's an expectation here that you're seeing an overstatement, and that is a little bit fed into the market narrative.

With the two month revision number that you highlighted.

Earlier, Randy, would you agree with that some slowness in these numbers, a slow down potentially confirmed.

I wouldn't say it's confirmed. I mean, obviously that was something that I'm looking for. I think, as we were describing before, you know, and Spike picked up on, we've got the different pieces of the Picasso and it's hard to put the image together right now.

And I think this is very much consistent.

With the fed's focus and Jay's focus on the labor market, watching it very carefully.

This is really consistent.

This is broadly consistent with kind of the slow cooling of the of the labor market that they want. But I think it's going to be difficult to just say, ah, we can stop the cooling whenever we want with just a with a couple of recuts. Because of the long and variable lags, it's going to be hard to do that just at the right time. And so I think, just as Jeff said, if that's not going to move at the at the end of this month, but September is live because we'll see how the labor market.

They'll get a couple more labor.

Market reports before that, before that meeting, and I think that'll be really a key thing. But the wage inflation has not come down. It's it's basically in the same range that they were expecting it to be.

So if that drops significantly.

That would give them the okay to go ahead.

Now they're going to be cautious.

Is it, Randy Goodmore into good to see?

Randie?

Is this going to come down to the part of the curve where the jobs are lost? In other words, forgive me for being so brutal, but the quality of jobs that are lost in this next unemployment cycle that's going to be critically important here, isn't it.

Well, let's certainly be looking at the types of jobs, because obviously, depending whether you lose jobs at the higher pay or lower pay, that's going to affect the average wage.

The so called composition effect. They'll be looking at that.

They'll be looking at potential pockets of weakness in certain areas that may be more interest rates sensitive, and so they will be looking not just at the overall numbers, but kind of digging deep into where they see monetary policy having an effect.

Well, when you look deep into those numbers, Jeff, let me bring you back into this because you mentioned this a wages growth.

Point three percent. There is still growth here.

You can even look at the week iom services number, so that we got earlier in the week and still prices paid are higher. If I want to to make an argument for why the Fed should hold, I could make an argument about this that, look, wages and prices are still high.

It is too soon to move. Is it an error to.

Air on that side to say, look, we need to continue to hold where things are until some of those factors start to come back in line.

You're pointing out the part of the labor markets that has been the least that has shown the least progress in terms of showing the normalization. So whether it's age wages that we're seeing today ECI, Atlanta FED Wage Tracker, our own private estimates through scraping jobs posting data, you know, they all point to a similar story, which is the pace of slow down and the pace of normalization hasn't

Basis point cuts and for those just joining us this morning, we just moments ago got the jobs figures. Two hundred and six thousand is where we landed. The estimate was for one ninety also a revision for April and May down by one hundred and eleven thousand. Unemployment rate goes from four percent to four point one percent. Mike McKee is still with us, digging through the numbers. Mike, what's some of the other takeaways you're seeing here.

Well, there's a lot in here that addresses the idea of how serious has slow down this is, and it might have a bearing on inflation as well. First of all, the unemployment rate, it goes up because we saw a large rise in the labor force two hundred and seventy seven thousand. Now what's interesting is that we have seen a decline in immigration. People have been giving immigration a lot of credit for the job's numbers, and in this case,

It was four point zero five four.

When you take it out to three digits. So just barely rounding up to four point one percent. And you look at the number of people who lost jobs and got jobs in the household survey employment and unemployment, they're almost exactly the same, one hundred and sixteen, one hundred and sixty eight thousand.

What really stands out is.

A very weak performance for service providing industries and manufacturing. Manufacturing lost eight thousand, construction gained twenty seven thousand, but for service industries only one hundred and seventeen thousand jobs created, and most of that was in the healthcare field that

And it also may.

Mean that the government the government hiring maybe a seasonal adjustment problem, and it could end up being revised lower. So at this point, it's definitely, as Randy said, kind of a picasso here. A lot of different things in here that tell you the economy has slowed.

But where we go from here is going to be the interesting question.

I think there's a couple of other numbers that are coming through on the tea love that various colleagues are pointed nine temporary help is done a massive forty eight nine hundred gene that is the most in twenty twenty one. And the time that it takes you to get a job, the median time that it takes to get a job has gone to nine point eight weeks, and that's up from eight point nine weeks now. Look, these are idiosyncratic

Going into this.

Well, temporary help is usually sort of thought of as a sort of Canarian the coal mine, because if you're going to be adding workers, you go to temporary workers first.

In this case, that doesn't seem to be the case.

The interesting counterpoint to that is average weekly hours didn't change, and you would expect that to start to go down if companies were seeing business slow.

So that's something to keep an eye on.

We did know, we did have a pretty good idea about taking longer to get a job because the continuing claims numbers have been going.

Up nine weeks.

Yeah, that's what it's been telling us. But it is interesting to see that maybe this Canary just sort of cheaping a little bit.

Here.

A slight tweet coming from the Canary. Jeff, I want to bring you back into the conversation.

Black Rocks.

Jeff Rosenberg is still with us. Jeff, I want to touch on what Mike was talking about of particularly the services sector being weak. This is the part of inflation that we had been worried about about service inflation not coming back in If you look at the contours of this report, does it give us more confidence?

Is it enough to cement September?

For the Fed?

Probably not quite enough to cement September. When you look at the services, it's what the conversation was just on. It's that big drop in tempell minus forty nine, you.

Know the three month average. It's just a little bit.

Below that.

So it is one of the highlights. You know, there's some other industry highlights there.

You got a kind of a big offset government that Mike talked about, So there's some cross currents there.

There's a pretty strong construction.

Number that could be seasonal, that could be weather affected, and the seasonals that Mike mentioned are particularly tricky, especially around the government data given the.

Education flows in and out, so there are.

Some cross currants that make it a little bit tricky, and I think when you're when you're looking at those details, it's hard to say that that cements it. I think what will cement September is really, you know, another round of data and more importantly, what we see in terms of the inflation data next week and what we see next month.

I think that's going to be the case.

As long as we're seeing trends towards slow down in top line, the unemployment rate, broader measures of labor markets normalizing, I think that'll be enough, not enough to say that today, but I think.

Once we get to September that that'll be there.

And obviously, as Powell said, you know, any surprise slow down acceleration, you know, the earliernversation around perhaps there is a bigger revisions and benchmark revision that tells us that establishment says this is a survey has been much more overstated.

Perhaps that that comes through.

That's you know, the cement in an environment where inflation is continuing to deliver this kind of pace towards two percent. The power and the FED have've talked about a little bit too early to say that that's the read today.

But as you can see and you got up on the screen, you know, the yield reactions are moving towards raising that probability of a move in September.

So Jeff tell me this.

We had premiss with us a little bit earlier on talking about the reinvigoration, the reincarnation of the FED put. That is certainly there when you look at the market reaction function today.

User lower again.

The bomb bulls have been handed, you know, a fig leaf to reinvigorate their bullishness because they've been slapped by politics in the previous week. Does it embolden you in regards to duration and does it cause you to be a little bit more anxious about credit?

So I would say on the kind of the FED put, it is a big deal. And you know, while we're talking about policy, what we haven't really spent a lot of time talking about, and we haven't really heard what I mean by that is the FMC and the FED and Powell is talking about the impact of financial conditions, and so the proposal the way in which the FED has been treating its response function to inflation. If inflation surprises a little bit stronger, the whole grates here. If

What perhaps Pria and you were talking about earlier.

Brings back a bit of the FED put that's led to much easier financial conditions.

And when you look at financial conditions relative.

To interest rates, which you see is a huge disconnect, that policy is much easier than what the interest rate would otherwise imply, Yes, that's good for risk taking.

Does it embolden duration?

I think you got to be careful when you talk about duration in a portfolio about where you hold that duration in terms of maturity.

You mentioned earlier this week we saw a big bear steepening.

We've got fiscal policy challenges in the back end, and so I think it emboldens the part of duration that the FED has its greatest influence over, and that's the front end of the curve, and maybe moving out into the front belly of the curve, kind of the two to.

Five year part of the curve.

But I think the back end of the curve, in that kind of traditional way in which people have thought about using the longest end of duration as its portfolio edge, I think we have to really rethink that in an environment of substantial changes to fiscal policy.

And that's substantial change in fiscal policy. Even if it is Biden or An or the Democrat in the White House, there will still be a continuation of some of the Trump tax cuts.

And if it is Trump on.

A Republican switep, then the coupon sizes are going to rise.

And the theory.

Of the policy that he espises at the moment is for some very inflationary. So is it next year that the bomb market is really tested in terms of its appetite to take inventory on?

Yeah, you know. Part of it is the is the pressure between kind of Treasury and the Fed.

How much Treasury has been able to hold the coupon issuance back from the bond market by keeping these bills issuance high, and so that time period of when that starts to really be impacted in the back end of the curve, you know, One, it's a function of the expected path of fiscal policy.

Two it's a function of the treasury issuance pattern.

And three it'll be a function of where the demand falls in terms of global investors and more importantly global private investors, because that's the other piece of what is substantially different here, exiting the era of QE into an era of QT.

Yes, I know we're.

Normalizing that as well, but there's more reliance on the private markets to fund those increasing debt and deficits. And I think when that starts to hit and we saw this last year a little bit in the quarterly refunding announcements, and when you get that change in that coupon issuance that we know under current trajectories is eventually going to.

Have to happen.

Okay, Well, a lot of nervousness going into next year as well, isn't it in terms of the size there. Jeff Rosenberg with a very latest on his first take on those jobs.

This is the Bloomberg Surveillance 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.