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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. With us around the
table Cities Veronica Clark Invesco's Rob Wildner. I am not going to bury the lead for Veronica. We're going straight to your cool July rate cut. I need to know how bad the number needs to be tomorrow to keep that in play.
Yeah, Honestly, I think the bar for bad labor market data for the fad to be cutting sooner than the marketers pricing is pretty low. Tomorrow, we think we're going to see one hundred and forty thousand perils, which is a further slowing obviously from the slowing we had in April. The level of job growth, you know, that's still a pretty healthy level. But it's the trend that's concerning. I think the unemployment rate can go to four point zero
percent tomorrow. That's the fads end of year forecast, and where we're hitting that sooner than they expected.
The favorite phrase of every constructive economist on Wall Street right now, rebounising normalization. You don't share it, you know, don't share it.
No. I think the issue is when you're going from a you know, a region where you're running too strong, and you're moving to a region where you're running too weak, you will have a moment where you look like you're in balance. It's the trend that's concerning, and I don't see any good reason why this cycle wouldn't follow previous cycles where you do get that slow weakening and you suddenly get an accelerated weakening.
So now for the cage fight. Rob Waldner, who has completely the opposite view. He doesn't think July is anywhere in the cards. You think September probably, I mean, how much do you disagree with that approach?
I think the big thing I disagree with is we think the growth will continue at a more steady pace than I think. Veronica, you laid out, which is, you know, we having a me with a lot of momentum to it, and so the growth on its own doesn't really justify a rate cut, and so the rate cut narrative of multiple rate cuts, I think is built on a growth narrative.
What justifies rate cut in September is kind of the way that banker Candida laid it out yesterday, which is, hey, the economy might be growing, but inflation is coming down. We're in there in continued disinflation, and we just don't need as much restriction as we used to have. So that's a different kind of narrative, and I think one where the Fed will be a little bit more cautious and will continue to be data dependent, which means, you know, they do one in September and then they watch to
see how things come in. You know, we think probably September and December maybe two cuts.
So pause. The difference between you both is not just a few months. You've got a completely different way of looking at this economy. How many cuts are you looking for in the next twelve months?
Two hundred basis points total, two hundred basis points touch twenty five.
Okay, you'll know where they're that, are.
You No, we're not on a base case. We're not looking for two hundred basis point.
Okay, so you can drive a truck to the two opinions around this type right now.
Which is a really well no rate hikes at the table.
Okay, well there you go. But rob to that point just to sort of elaborate the aspect that you disagree with that we're hearing from Veronica, this is going to be more like a normal cycle or once they embark, seeing that weakness is going to accelerate.
What in the data gives you confidence that's not the case?
Well, I think what in the data would point the other way. We don't see that in the data that would point to this weakness. I think there's a lot of concentration on this increase in the unemployment rate which you talked about, and looking at you know, pass cycles as rule other things like this which have pointed to
you know, recessions following and increase in unemployment. What we see in the labor market is that the stress has been removed from the labor market, right, That's that's what job openings and hires and quits are telling us.
But still a healthy labor market.
You know, look at the job as claims number today, So we don't see you know, we don't see a big.
Growing weakness there.
Veronica, I'm sure that you guys get a lot of pushback.
Yeah, no, absolutely, but yeah, I would would certainly disagree on the signs of weakness. I think we you know, in the labor market, what we've seen is you know, hiring rates that are at ten year lows, you know, part time employment, increasing hours work coming down. It feels like all the early signs of businesses looking to cut labor costs, and we heard that in the anecdotes of the ISM report yesterday. Well we don't see it are the layoffs, but that would really be the last step.
And we have had a worsening of you know, consumer sentiment around job prospects, around the labor market in the last couple of months, and we've seen that reflected in a pullback and spending. We've had real good spending declining three or four months of this year, restaurant spending declining. It can be that pullback and spending in activity that gets businesses finally to to you know, do that last step of cutting labor costs, which is layoffs.
Can we talk a little bit about communication. How do you think this sort of plays out on Wednesday?
Yeah, it's going to be tricky because we have two pretty important reports before then, obviously tomorrow, and then we're going to get CPI inflation in the morning of the meeting. I do think the report tomorrow, if it is, you know, showing like what we expect, slowing in job growth, rise in the unemployment rate, this is a FED that is going to leave all options on the table. We probably do see, you know, the dots come up, you know, twenty five basis points showing just fifty basis points of
cuts for this year. But I think it's really important for us to base our FED outlook on where we think the data are going, and not FED speak, which could sound stale in a couple of months.
It also depends rob on what the market kind of gives them, in the sense that we've already seen suddenly more rate cuts baked in. How do they respond to this idea that this is a market suddenly more biased to seeing weakness and continuing with the goldilocks trends that make their job easier to really signal that they're going to continue on the same path.
Well, you know, they've had a there's been a real challenge for the FED and for the market, which is the narrative has changed so much and what some pricing has changed so much over the last year.
If you just look at the volatility.
Of expected rate cuts in twenty twenty four, has been huge because it's responded to higher for longer than slower multiple cuts at the beginning of this year. And they've been very steady through the whole thing. You haven't seen them react to that. They've been we we think we're we're we're we have a chance at soft landing. We think we're in disinflation. They've been very, very steady, and so I think I don't think they're going to respond
to this change in market narratives. I think we're going to get power talking about disinflation continuing.
There's a lot of contension.
Around the inflation exact inflation numbers of what they're telling us.
I think we'll probably see quite a bit of.
Conversation around that, And you know, I don't know, I would be surprised if there's a lot of discussion around the labor market, but maybe there will be.
Let's have a conversation about the bond market, but a big move five days thirty basis points a lower on a ten year plus more than twenty basis points alow at the front end on a two year yield. Leash and I were talking about this a little bit earlier. We've had tons of conversations about how riscuskewed asymmetrically to lower yields going into data points because the FED won't
respond to strength. Given the move we've had over the last week or so, just what is the setup going into payrolls, going into CPI next week.
Well, because the curve is inverted, right, we have negative carry the further you go out in the curve, and so I think that limits the ability to rally too much from here. I mean, so if you get down closer to four percent, I think we would be going would be going underweight.
You know.
And I think that this both the rates market really is a range trade here. It has been for quite a long time, and we're getting towards the bottom of that of that range.
You don't think we're more sensitive to weak data but more sensitive to strong data tomorrow. Is that fair?
I think that's fair? Yeah, Okay, all right, let's.
Think about it.
Maybe it was the way I phrased it, Rob Wildner, Evan Vesca, thanks to appreciate it, produca clark A city, but quite a cool for July at Mills is whether it's around the table Edward Morning's he is, John, Let's start there with foreign policy? Where does that rank just in terms of voter concerns this year?
I think it's probably one of the biggest dreggs on Joe Biden's reelection. If you go back and you look at it right track, wrong track of the country, favorable unfavorable ratings. When you go to see where it shifted from Biden having a net favorable rating to a net unfavorable rating, it was back in the awful withdrawal from Afghanistan in August of twenty twenty one. He's not recovered since.
And when you look at Trump voters, one of the things that they're saying is that there wasn't the same level of geopolitical issues under Trump, and so you know, fear or not, that's driving support for Trump, and it is pulling down the pulling numbers for Biden, especially among key parts of Biden's base, younger voters.
Do you think his execution or ideology, because what we see from Biden is proud of it. He talks about alliances, allies, multilateralism. What you hear from the former president is a form of isolationism, and that's going right the way through some parts of Congress as well. Which one is it?
I think it's both.
I mean America first, which is Trump's saying, is something that's really popular with his space. It's a part of populism politics. That is a core part of kind of the ability to appear appeal to a broader swath of voters than Republicans have traditionally done.
There's a big bifurcation.
You look at the Senate, which is more senior, kind of been in DC longer, fully supportive of Ukraine and was overwhelming in their support for.
Their last aid package.
It was a house of representatives, the newer members to d C that are more aligned with President Trunk, more aligned with the MAGA movement, and those were the ones that really did not want to see kind of the funding that went to Ukraine and that got passed a couple months ago.
Tomorrow, President Bien is going to be in France. He's going to be there for the head of the G seven, and he's going to deliver a speech on the anniversary of D Day. I'm curious about this speech.
On democracy and freedom.
It will be music to the ears of a lot of the European leaders there. How will it be received, do you think in the United States?
So, I think it's important to remind the world of America's power. I think it's import to remind the world of the accomplishment that occurred eighty years ago. I'm also looking at the fact that we are going to commemorate and celebrate the seventy fifth anniversary of the NATO Alliance, and so in an American audience, I still think that American leadership is important. But there's also kind of it's the economy, it's the inflation, it's the day to day,
harder kind of existence. As voters that look at this more as a nice to have than a necessary because we have not had that same level of threat that we felt in the immediate aftermath of World War Two. One of the questions I get a lot at Raymond James is, you know, we're celebrating the seventy fifth anniversary of NATO. Are we going to celebrate an eightieth especially if there is a second Trump presidency.
What I tell them is that something.
That was under the radar in the Defense Authorization Bill last year was Congress try to future proof this. Congress is concerned about the NATO alliance and strip the president of the power of unilaterally withdrawing from NATO. So Congress here's about this, probably more so than the average voter.
But there isn't going to necessarily be a galvanizing kind of impetus from the idea of talking about democracy and freedom. And this is I think a big divergence from the last Trump Biden mix up, where basically you had the threat of losing democracy as somehow galvanizing voters to get to the voter booth. Is it going to have the same appeal this time around?
So I think there's probably going to depend on how much the Biden campaign tries to execute on this strategy.
And I'd also say how much Trump talks about.
It to the extent that he is tweeting out in raising kind of real awareness with January sixth, that was something that helped out Democrats in the lead up to the midterm elections. The Biden focus on democracy didn't rank high with voters, but on the margin, and this election
is going to be decided very very small margins. Biden is going to try to shift the attention to Trump, shift that attention to what we were talking about as it relates to the temperament during crisis leadership of the United States and saying for the next four years, who do you trust more? You might not really have liked the geopolitical risks that have existed over the last several years, but going into the future, the next crisis we hit, who do you want in the oval office?
Biden is going to make the case that it should be him.
Could we just tase out your thoughts on Night's just a little bit more if we've had the Dutch Prime Minister on this program with this Mark Ritza, and ritz has made the point that the former president was right, and I'd love your perspective on this. Do you think he undermined the Alliance so reinforced it?
John's a great question, because what Donald Trump's number one issue with the Alliance was the members of the Alliance not paying their fear share, And over the course of the last six plus years, you've seen a dramatic increase in the kind of other members besides the United States increasing their dollar amounts.
And so one of the questions going.
Forward is how much does a threat to the alliance really come down to a transactional discussion. And if you get up to that two percent and maybe look at kind of the two percent that was not spent over the last several decades, that shifting.
That dollar burden.
And it goes back to that conversation of a lot of Americans SUPPORTINATO. A lot of Americans want to be the world superpower. I just don't think they want to be the only ones paying for it.
A well said it's going to see you as always knows that as Raymond James. Let's get to Vassiliosakis of Aviva Investors, who joined just now. Vassilios, how can we have a statement that shows a right cut and at the same time inflation above target well into next year? Makes sense of it for us? O?
Thank he doesn't.
Actually so, I think what's happening here is that went into the previous meeting having a very very high degree of confidence, over confidence that the data.
Is going to cooperate.
It made all that noise about the importance of negotiated wages for Q one that they became available in May. In the end, pretty much all the data have surprise on the upside. Us so in the updated projections, which I thought there were actually more hawkys than I expected them.
We went for this year's growth rate from zero one six percent zero point nine percent and inflation from two point three to zero point five percent, and all that within the context of data dependence and conditional guidance, and yet we had an.
Interest rate cut being delivered today.
I think that was almost exclusively driven by the fact that it would have been far too embarrassing for the Governing Council to back pedle or on his previous pre commitment.
But I think going forward, I.
Hope in terms of credibility with the CBS going to maintain a very very neutral stance, and definitely going forward, I think the bar for gaining more confidence has.
Increased, which is interesting, especially at a time where you do see inflation expectations over the next five to ten years in Germany start to tick up just a bit on the heels of this report, I am curious what you make of this. Ian Shepherdson talking now before this, before this release, he expects the FED to end up cutting rates more than the ECB. That is counterintuitive against what a lot of people thought at the beginning of this year. Are you on that page now?
I think you're given where the data sound right now, it doesn't seem likely. That's not our house view. Equally, at the same time, we have to point out that where the FED stands right now, it's one hundred and fifty base points higher well, sorry, one hundred and seventy five points higher now compared to the FED. It would take a significant acceleration for the US economy and significant resilience,
ongoing resilience. Look, I think I've been on the camp that the Eurozone growth has been surprise on the upside. But nonetheless, in order for such a scenario, which for sees ICB cutting by less compared to the FED, you would need to see a significant two things happening.
Basically, you would need.
To see further fiscal expansion in the eurisone, which.
I don't think it's likely.
And you would need to see Chinese growth surprisingly materially on the upside, which again I don't think it's likely. So I wouldn't say that now we're actually in this comp that personally I am in this.
Car batch Roselipraci vassili Astnak Is there a avia investors responding to that?
Easy?
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