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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.
We begin with our top story, the S and P five hundred, looking to build on three weeks of gains as investors prepare for a busy week of data. Peter Sheer of Academy Securities writing this, I think we are near the end of the lower yields fed put rally. That is, health stocks creep higher on anemic volumes last week. We argue that the market might quote gap from no landing to some form of bumpy landing. I'm pleased to say, joins us right now, it seems like we're some sort of precipice.
Of narrative shift.
Is that kind of how you.
See it, yeah, And I feel we kind of clung to this American exceptionalism too long. The data started turning a couple months ago. You've seen it in the City Economic Surprise Index, which you know encompasses a fair bit of data, and yet all you heard was American exceptionalism and American exceptionalism, American exceptionalism. I think that narrative has changed, and we're going to wake up one day and realize, whoa, whoa, things aren't as good as we thought they were.
And I think that's where we're at right now.
And Friday's consumer confidence was certainly a shock to anyone who thought everything's still rosy.
Well, this is the reason why some people are looking at this idea of maybe not goldilocks, but a landing which will at least break the prospect of FED rate cuts back on the table. Why do you see it as something more pernicious than that, that this weakness is maybe more entrenched.
One we've all been asking for the last year and a half. When does the consumer slow down? When does credit card debt all these things start, you know, intend, you know, stopping their spending. I think we're seeing some of that again. What I found really striking about consumer confidence on Friday is University of Michigan publishes both by Democrats and if those were affiliated with Republican Party, and the Democrat party side went down precipitously as well. It's
down below ninety. So that struck me. It's, you know, there's this party as we're heading to the election. People seem very depressed. On both sides. They're worried. I think that's kind of accelerates. We'll get a lot of information about sales. And the big thing to me is equities have already had this fed put rally, so I think we've priced in a lot of bed put ye narrative.
We're not going to get that many cuts, even if they cut.
We were speaking to Cameron Dawson of New Edge earlier this morning and she said she's actually more interested in retail sales than the CPI print, maybe because of what you're just talking about.
Would you agree with that?
Is that sort of how you view things?
Yeah, I think there's a decent chance CPI will come in lower than expected.
Just all the way the calculations are done.
We probably get a brief rally both on bonds and stocks, But it really comes down to what's going on with the retail, what's going on with consumption, what's going to happen. I think with trade tariffs, right, if we're going to put on more tariffs on China, how do they respond? And I think we have just started this trade war and it's accelerating, and what we're going to see as more and more margin pressure as Chinese brands try and
compete both in China but also across the globe. Not necessarily in the US, but I think that's where there's going to be margin pressure. There's going to be competition with these Chinese brands that's not yet priced in at all, and I think tariffs, if we announced this week, will make that more clear to people.
Hey, we've got to be aware of this, and it's.
Changing how the world global economy is behaving.
Well, I want to get to that one second. This has been your thesis for a long time that's been really prescient, which is basically, this is a glut of goods and the Chinese government is going to try to flood the rest of the world with stuff that they're overproducing because they structurally have to because their economy relies on it.
It's sort of the new.
Housing market is a new industrial overproduction. Before we get there, though, I want to just have you respond because you've see, in direct opposition to what ahspc's Max Kettner is saying, what he put out this morning, the dip in risk assets is increasingly in the rear view year as many
major equity indices and reapproach their unit date highs. Talking again about goldilocks that essentially some of these pressures that you're talking about are going to keep the FED cutting on some sort of trajectory that will allow things to keep tugging along. Why do you think that is going to end? At a time where earnings have come in stronger than people expected, and companies are displaying a good deal of pricing power and been able to shrug off some of the geopolitical headwinds.
Now, I think one big thing that's been helping the stock market is a huge record buyback. So we've seen record buybacks. That's only supporting stocks when you look at it right. In some of the past week, you saw a little bit of weakness and then it was overcome during the course of the day with what looked like a lot like just you know, corporate buying, So I think that's been supportive. I think the valuation questions are still real. How much is AI driven US? Where we
headed on AI? You know, are we getting the benefit all those things will start my out right, we get in video earnings next week, so that'll be an important part. So I think the valuations are creeping back high, setting people up for another disappointment. And that's why I think we dropped this five to ten percent. We got down about six percent. We never got to that ten percent level. I think we get there, you know, in the next
few weeks or months, as this realization sets in. There's still too much hopium out there.
Well, this raises a prospect of what's the catalyst. Is it going to be economic data pointing to a more material slowdown in the consumer? Is the consumer maybe not as significant as people previously thought, which is something that we heard in an interview that Dandy Berger did earlier
this morning. Or is this really going to come from the geopolitics at the moment of more tariffs, of widening pressures, of this question of whether companies can sell in China at a time where the gates are going up in the US.
So my base case is that this economic weakness has been helping yields lower, that's been helping stocks. We're going to hit a point in the coming days or weeks where we see more economic weakness and people realize, wow, maybe this isn't so good for the future of the market, and that's when you start rolling over in stocks. And then you've got the geopolitical risk you've got made by
China theory, You've got the tariffs. All of those things I think are almost quote unquote freebies if you're going to be short or underweight this market. I think any of those alone can knock this market down, and you potentially get multiple of those things occurring. So I think we're well set up if you want to be underweight to benefit from that.
I still like yields.
I think yields do go lower, but stocks are going to start giving up This whole narrative of lower yields is good for stocks, And say, yields are going lower because this economy is shaky and maybe even jobs aren't anywhere close to as good as the published data has been.
How much do you see a potential rally and government debt given some of the hangovers with inflation, given the fact that we are seeing terriffs being put in place, and given the fact that the deficit, which some people worry about some people shrug off, is continuing to climb.
Yeah, I think at the front end we should get to two cuts this year. Maybe you see price in three cuts. I don't think we can get any better than that. And on tens, I think we can go down to maybe four thirty. So I kind of have
this four thirty to four to fifty range. But as you say, you've got all these other issues, and I've got to admit, over the past couple of weeks, I'm increasing looking at the commodity market and getting more and more nervous that inflation is actually going to creep up through the commodity market.
And that was off my.
Radar, I would say, two three weeks ago. And as you look through the data you go back through look a lot of the ISM, a lot of the PMI, all prices paid were much higher. Well, the rest of the data was weaker. So you know, I don't want to say stat inflation. I don't think that's a realistic situation, but I can't dismiss it as easily now as I put a month ago.
Just real quick, which commodity, because oil prices haven't been really shooting higher.
What are you watching?
So Copper's up quite significantly. You've seen Goal, you know, the precious metals up, nickels up, a lot of the industrial metals are actually up. Oil has been fairly stable. Oil had a lot of priced in and it's kind of been calm again. It hasn't really retreated even as you've seen kind of the status co emerge in the Middle East.
So I think that's still susceptible for a shock.
But really, Copper's been one of the big keys that I've been looking at.
And with a five to ten percent decline in equities.
Peter, are you a buyer?
Is this a by the JIT moment? Yeah? I think so. I think it'll be a good opportunity again right now.
I like Warren stocks better than U S Stox, so I'm not completely burish on the global economy. I like Chinese stocks, Indian stocks much better than I like, you know, the NASZAC one hundred, and I am wanting to buy banks and some of the things that have lagged behind. So some of these low valuation, high debt companies I think they can rebound as you start getting through this. And we even started seeing in the past week or two right where some of the you know, the rust
of two thousands been doing a little bit better. So I think if we get that pullback, that's where I want to invest. I like the equal weighted indices better, but I am waiting for a pullback to get really committed.
Peter's share of Academy Securities, thank you as always really wonderful insights. Meanwhile, the Financial Times reporting the New York Stock Exchange surveying mark participants on round the clock trading. The survey, coming as a startup backed by Stephen Cohen's Point seventy two Ventures Fund, is seeking SEC approval to
launch the first round the clock exchange. Let's head to New York where Danny Berger is joined by the New York Sack Exchange President Lynn Martin to talk about why we all need twenty four to seven trading in our lives.
Danny, Hi, Lisa, that's right, because you know, we want to be wrangling the kids and have the ability to trade while we do. Say Hyland, thank you so much for joining us, Thanks for having me. So some others might have opinions about this. But overall the survey that you've gotten so far from what you've heard, I know you're still in the middle of it.
What have you heard so far?
What we've heard is there are a lot of things to consider, mainly on the infrastructure side, which is not really a surprise. It's why we sought out to get feedback before something like this was introduced by the SRO community. We wanted to understand all of the pieces of the ecosystem that would need to fit together if we're going to introduce this responsibly. So the feedbacks so far hasn't really surprised us. There's a lot of parts of the value chain to consider.
So realistically, if you did want to do something like this, how long would it take to actually set up that type of infrastructure.
There's a variety of things that would need to be considered. Most importantly, we would need to talk to our regulators about it. Not just us, our clearinghouse DTC would also need to consider that with the regulators to the extent that they would remain open for that twenty four hour trading.
It's interesting because if there does appear to be demand here. Lisa mentioned Steve Cohen's venture wants to do something like this. Do you have any sense of idea of where that demand is coming from the type of person that wants to be trading twenty four seven.
So I don't know that it's really twenty four hours a day. I think what has started most of demand, what's really triggered most of the demand has been the rise of the ETFs. And if you look at the basket in some of the ETFs, particularly the international ETFs, they're not just securities that are listed on domestic exchange. So from a risk management standpoint, it would make sense that you would want to manage your risk in the underlying baskets when those domestic markets are open.
Fair enough now, No, when it comes to IPOs, we started this year. You and many folks were excited for twenty twenty four that it would be a big year. So many people's hopes have been dashed. I think the volume is somewhere still near a decade's low when it comes to IPO volume, are you still hopeful for this year?
I absolutely am, and actually I'm incredibly optimistic given the amount of proceeds that have been raised so far in the markets fourteen billion so far has been raised in the US markets. Through last Friday, we've had about twenty five operating company IPOs on the New York Stock Exchange. That's two times the amount of proceeds raised year to date versus last year, and three times versus twenty twenty two.
So the markets are definitely opening up. And what I'm personally excited about is those companies we've welcome have not just gotten large deals done, many times, they have upsized their deals. They've priced either at the high end or above the range, and then they're seeing that pop, the twenty percent pop when their stock opens. So it's been a really exciting particularly Q two, really exciting time where we're seeing about two IPOs a week at NYSA.
Well, Reddit is a great example of a company about IPO, a lot of fanfare around it, but a company like Reddit, it's a mature company, it's a quality company investors.
Feel safe with.
It is the room for anything outside of that.
So you have seen some more growth oriented companies go. But importantly, as you mentioned, they've had a path to profitability. So I think that's really what is getting valued. It's why those companies that either are profitable or have a path to profitability are getting rewarded. You look at a company like Viking, which is a lot just IPO of the year, it's a household name. I had so many people say to me, I can't believe this company is in public already, given that many of us have enjoyed
their cruises, whatever the case may be. But then you've also got great companies emerging companies around cyber like Rubric who just iPod on us.
A couple of weeks ago, even with the uptick and demand, prequeent data came out that there's still three point trillion dollars of companies of money tied up in aging companies that haven't gone public. There still is this impetus to stay private for longer. Are you concerned with as companies stay private for longer that they found alternative paths to going public and just that norm that we used to sell, see it's not going to get back to that.
I'm not really concerned because there is no match for the US capital markets in terms of an efficient form of capital and attaining that capital that you really need to scale your business. Not just from that perspective, but also rewarding employees democratizing investment and a M and A is a big reason that I hear some of these companies go and they believe that there's a different M and A currency that you get with becoming a public
company versus staying private. So I continue to be incredibly optimistic. However, if people are going to be more thoughtful about when they go public, I don't think you're going to see a rush to the public markets like you saw in twenty twenty one for quite some time. But importantly, I think we're out of the twenty twenty two twenty twenty three closed IPO markets.
Is there a chance we get back to that rush and what needs to be in place for that to happen.
Well, it feels like, you know, we have the capacity to have a pretty normal year. If we've raised fourteen just over fourteen billion to date, in an average year you raise about forty five billion in the public markets, we're not too far off, and based on what we're seeing in our pipeline, I think this this could be a pretty close to normal year.
How much of that depends on the FED cutting is not necessary.
I don't think it's necessarily dependent on the FED cutting. I think people are getting used to this concept of there's a little bit of uncertainty in the markets. The big concern you had over the last two years was the hard landing versus soft landing. And I think people feel pretty good about our economy, so I don't know that it matters if the FED cuts once, not at all,
whatever the case may be. But I do think you'll probably see a little bit of a closure of the IPO markets around election time like you have any other election year.
Fair enough, And going back to some things you mentioned of why the American IPO market remains strong despite some of the wobbles, things like the liquidity, the investor base. It's made it a global destination. But there was this report that she in the Chinese fast fashion company wants to list in London instead of the US because of the regulatory environment. Is that global beacon that the US going to change with the US regulators that are more intent on cracking down in China.
I don't know about that. I mean, I can't really speak to the conversations that a prospect like Asians has had with our regulators. I do hope that they're able to enter the US markets, but it will be up to our regulators to determine how Okay.
Lynn, we're going to have to leave it there. Thank you so much for joining. Really great to see you. That is Lynn Martin of the Nice Sye Lisa. With that, I'll send it back to you.
Right now. With us here in DC, we have tourist and Slock, chief economist for Apollo, who's here for the same event that I'm here for, so I'm very glad to see you. I want to start with a question we've been asking all morning, which is which is more important the inflation data or the retail sales data.
Well, if if you're from the FEDS dual mandate, which is inflation at two percent and full employment, inflation is probably a little more important. And particularly it's important because for the last three months, we've seen the annualized change in supercoco up by eight percent. We've seen the annualized change and coin inflation go up by four percent. So the momentum in inflation in the last three four months has just been moving.
In the wrong direction.
So what's really important about Wednesday's number is whether that momentum continues or whether we're going to see Indeed, as Mike and Daniel was just talking about move low and inflation.
Why do you think from the Fed's reaction function, they care more about that CPI print, which a lot of people, including Austin Coolsby, have set as a lagging indicator versus real weakening in the consumer in a sense that growth is being challenged.
Well, I think the problem for them is that the momentum in inflation has just not been going down for the last several months, and if momentum has been building to the upside, we really need from a FED perspective, to see that momentum break and that's the risk with the numbers this week.
Shelter.
There's an argument about, well, on the one hand, maybe areas of occupancy rates are looking a bit better, which would argue for Shelter inflation to come down. On the other hand, case Shiller is now rising at six seven percent and the annual rates, so that means that we're seeing momentum actually building in home prices. So there's different
parts of the scale here that are weighing on. We just don't quite know what the shel See inflation data will do, and it has been coming down a lot slower than what anyone expected and that might still combine with auto insurance and combined with everything that's going on, and the subcomponents still continue to put some upward pressure on inflation.
So you still see no rate cuts this year.
We still see no rate cuts, and of course noway from C members are also beginning to talk about no rate coasts this year. So I do think that it's just becoming more and more difficult. If you put it together on a little spreadsheet, the growth rate that we've seen for the last thirty years, for the rest of this year, you will still have inflation at around three
percent by the end of the year. You need a really dramatic slowdown in inflation erupon one for every single month for the rest of the year to get core PC inflation backed to two percent by the end of the year. So the upward propressure on inflation is just really strong over the next several months.
What we heard from firdjer J. Powell a couple of weeks ago is real indication he wants to cut rates. He is concerned about the strength of the economy. There is clear deterioration there. It seems like the bias has
been more on strength than potentially that inflation. Read what makes you think that's going to change given the fact that we do see real pressure that's coming through with initial jobless claims, with consumer confidence, with the fact that people definitely are feeling something that's coming through in the numbers.
Oh absolutely, And that's why to resale sales it is also important. It's not that inflation is the only important indicator this week.
Retail sales too does play a role.
What's interesting is if you look at the Bank of America cut data both a debit CUD and credit cards, it actually showed, surprisingly where they show across the income distribution that there was actually a fairly significant bump higher in spending for both the low income billidon come andhig income.
Groups in the month of April.
So there's a number of different indicators that are pointing in different directions. We do see to your point, dealinguage, your rates go up in particular for low income house and households that are younger on auto loans and credit cards and student loans also have been seeing some pressure. But the bottom line still is that let's see what the data gives us, because overall, yes, the lad's not
van payrolls was a little bit weaker. There were two reasons why there was slightly weaker, but the conclusive still is this economy is not falling apart. It is still a fairly solid growth rate that we see over the next several quarters.
We've been talking about the flip flopping narrative. We had no landing for a lot of this year. It's been flipping and flopping depending on the day, sometimes in the same day. Then we got to goldilocks, and that seemed to be where everybody was at for about a couple of weeks, and then now people are talking about the potential for a hard landing due to economic weakness. It
sounds like you don't disagree. It's just later than people expect and it's not soon enough to keep the FED from holding rates where they are.
Is that correct? I think that is correct.
But I think at the tailwinds to the economy that are still behind us.
Two things naming.
We still have behind us a very strong tailwind that comes from easy financial conditions.
The stock market is.
Up nine trillion since November one AFMC meeting, when the FIT begins to talk about rate cuts instead of rate hikes. And on top of that, we also have a tailwind from fiscal spending. We still have strong spending in the pipeline from the Chipsack if lation reduction, in act.
The infrastr to act.
Those two things easy financial conditions and easy fiscal policy, which by the way, is very different from what's going on in Europe. But those things are likely to continue to give us fairly robust data at least for the next several months and most likely even all the way through the end of the year.
Siphos has put out commentary that seem to agree with what we heard from Peter's share of Academy Securities earlier. This is the next five hundred points for the S and p five hundred are going to be down, talking about a ten percent correction, similar to what we heard from Peter. Why do you disagree that there is enough ammunition for things to kind of hang in there and even creep higher even as people really do wake up to real risks that we're seeing with respect to spending.
Well, I think this is a really important question. So the risk from higher for longer is two things. Higher for long on his own means higher debt servicing costs for companies. That should argue for Starks going down and credit spreads widening. The problem is that the reason for higher valonga is that the economy is good, meaning earners are good. GDP has been strong, so as a result of that, we should expect starks to go up. We should have express to So there's a tug of war
between rates. Higher for longer is hurting, so to speak, in the cfo's office, when debt servicing costs are having a negative impact. But if that's happening because the economy is good, I would still expect the economies to do just find for the next several quarters as a result of the tailwind off the stock market going up, easy financial conditions, tight credit spreads, and also fiscal policy is still providing quite a tail wind.
Does that mean that there's going to be a bigger downside.
On the other side?
That does mean that when we look into twenty twenty five, I do think that we'll settle ourselves up because think about the following exactly as you're saying, Lisa. The fact that we have the linguagy rates going up on credit cards and order loans, even in an economy where everyone
has a job. The fact that you have highly leveled companies in venture capital, in tech, in growth enterprise software that are highly indebted and experiencing a lot of problems, that these problems are still here even in a good economy. That tells you once people do begin to lose their jobs, once the economy does begin to slow down, you already have a lot of distress, including a commercialy state. There's
a lot of office problems. Obviously, imagine what the problems will look like if you finally get on fine rate to move high. So therefore, the sensitivity next year is that we might actually get a risk of a harder landing coming back. But that's not the theme for the next level quarters.
Meanwhile, you keep mentioning the fiscal overhang and how much that's going to be funding things. It is the reason why we're here.
We're going to be.
Speaking on a panel talking about the fiscal debt and how much that's really going to be a problem at a time where Seeweisman came on and said, the only the death is of people. If it's worrying for the past thirty years and they've been wrong and wrong and wrong, why is it different this time.
Well, because all the literature and all the papers that look at financial crisis and dead crisis. They do so that if you eventually keep on growing your dead levels up up, and they just keep rising, and the CBO, the Congressional Budget Office forecast is that we basically go from one hundred percent of GDP dead levels to two hundred percent of GDP dead levels. Ultimately, it does try to stress the system more in terms of three things.
What's happening in treasury auctions, what's happening to ratings meaning sovereign ratings, and what's happening to the term premium.
So that's why in.
Financial markets we should be watching auctions, which we do every week.
We should be.
Watching what's happening from the rating agencies where we get another sovereign downgrade of the US from some of them. Moody still has trivial a fits has been downgrading in August, so that's really important. And the third thing is the term premium, which you can find on your Bloomberg screen here, has also been trending high in the last six nine months. So the stresses are slowly beginning to emerge. So far, most auctions are going fine, but investors should absolutely be
keeping an eye on this. This is something that's just a big and bigger risk.
In the background, you have some in credible statistics in terms of the amount of debt that's going to mature by the government eight point nine trillion dollars of the next year. You talk about an average twelve percent of government spending is currently composed comprised of debt servicing payments. And we're talking about a lot of people who are still dismissing this in terms of a major risk. What do you think could be the catalyst? At what point do you say to people you know you can dismiss
it until you can't. Is the election something you're watching?
Well, I would say that if you think about this from a corporate perspective, when dead levels go up for a long time, it doesn't matter in most cases, and certainly it doesn't matter. So the fear you can have exactly as you're highlighting that the rollover of existing debt is roughly around nine trillion. Then on top of that, the budget deficit in very round numbers is about a trillion for the next many years, So that brings us to ten trillion.
And then, by the way, if it is.
Still doing QT, which adds a few more hundred billions of dollars, so it brings you to more than ten trillion dollars that needs to be refinance in the next twelve months, So that's roughly a third of GDP. If we do continue to see more spending, and if we will continue to see budget deficits as far as the CEO continues to forecast, then I do think that investors need to watch very carefully what's going on again with auctions, what's going on with rating agencies, are they downgrading the US?
And finally, what's going on with the term premium because that's where these stresses in financial markets will first begin to show up.
So put you down as or the deficit one of those in that camp. Absolutely the Restan's block of Apollo. Thank you so much.
This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, a geopolitics. 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.