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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. If you are just
joining us, here are the numbers. Four you one's seventy five is the number the estimate was two forty. That's the headline payrolls print. Looking at unemployment, it comes in at three point nine percent previous number three point eight the estimate three point eight and wage growth month over month zero point two percent the estimate zero point three. To react, here's the lineup. Mohammad al Aeron of Queens College, Cambridge
alongside Black Rocks Jeff Rosen. Muhammed first, to you your reaction to this one?
You said it John, a goldilocks report that will please the Fed and please the markets. I'm not particularly surprised on the miss on job creation because we've been running at very high levels for the year and a monthly average of two fifty one thousand before this one. I'm a little bit surprised on the wage the zero point two, that's the one that surprises me. But overall it is a goldilocks.
Report, Muhammed, At first look, how would you explain that? How would you explain this continued strength and payrolls growth and this little weakness, touch of weakness, softness in wages.
I know how it will be explained.
It will be explained by new entrants into the labor force at much lower level, at a much lower lower level. I'm just surprised it has made that much of an impact. So that's something that one needs to look at much more closely.
Jeff Rosenberg, I love your take on this because right now the market is celebrating. Are you celebrating also? Do you think this is a reason to buy or do you view this as basically a lot of noise for people who are just looking for any direction at all.
Well, I think Jonathan said it. This couldn't have been scripted better. This report runs the tables for a good report. This is bad news. A little bit is good news, but it's really just about how bearish we got. Jonathan mentioned it, ECI. The rate moves the expectations in front of Wednesday's FOMC, So some of this is just positioning. You had a lot of bearishness, so people put shorts on.
There was a big momentum to higher rates. But this is a good report across the board for validating what we heard from Jay Powell on Wednesday that kind of what me worry about inflation. No, things are going to slow. Don't get over excited. And I think it's a little bit of that over excitement on the short side that's being rung out of the markets right now.
Mohamma, Does it concern you that we saw the unemployment rate take up to three point nine percent, the sort of incremental shift up about a half a percentage point for some of the recent lows.
Does it concern me? Yes, because people are losing their jobs. But let's not forget we've had twenty seventh straight months of the unemployment rate below four four percent. We haven't seen that since the sixties, So we have been an exceptional economy. And does it surprise me. No, But if the increase accelerates, that would really worry me. Remember, especially at the low income side, wage are key to consumption and key to economic growth. Pandemic savings have been run down,
credit card balances have been run up. So wage income is absolutely critical to the well being of this economy. So three point nine percent is still a really good unemployment rate, but I wouldn't want to see it get close to four and a half percent anytime soon.
This software print though, that we're seeing and digesting right now, Muhammad, is this enough for potentially people to start talking about cuts this summer?
Oh?
I suspect that what was pushed back to December got pushed you know, I don't know which way we go anywhere got pushed forward to November before this and after Chap How this will take us to September. You know, there is a bigger issue and others can speak to it much better than I.
Can, including drift.
Is this volatility that we're seeing in the indust rate structure, It is causing havoc elsewhere in the world when US waits swing as much as they do on a short on short term basis. So this volatility, which we are continuing to see in weights, risks. I'm afraid risks breaking something elsewhere, and that's what we've got to keep an eye on.
Well, let's get into that. So the next step for this conversation, for anyone who wants the calendar, May fifteenth is when we get the CPR report. So this can all change once again, as you will know, Jeff, Let's talk about that. How much expectations have swinged, how much the narrative has changed. I remember a conversation we had with Aberdeen, James Athey, he killed it. Narrative, table tennis, narrative, ping pong, just back and forth, back and forth. We've
gone from seven cuts to one. Arguably by the end of today we'll be talking about two again because of this job's print. Jeff, what do you make of that, just how quickly we've gone from one direction to the other in rate pricing.
Well, it's because the FED is abandoned forecast based monetary policy.
Right.
We basically have had a very bad experience with trying to forecast inflation. So we've abandoned forecasts and we react to the data. And we're reacting to the data because the FED reacts to the data, and that's basically what they tell us to do, and it's very hard print
to print to know where that data is going. We've had serial degrees of surprises and we're continuing to see those surprises, and so that's why there's this heightened degree of volatility because the FED is basically no longer willing to provide a forecast, to stick with its forecast, to give the market a clear trajectory, and so we're really forced to react change those expectations for timing December Novembers of Denber July based on every other data, every single data point.
Mohammad, You've said this a million times every time we've spoken on Payrose Friday, the lack of a strategic anchoring of the feder reserve contributing to this whip sawing that we've seen in rate pricing on every single data point. You've talked about the being hyper sensitive to incoming information in the Financial Times. I saw your recent article Chafouse Dutishness is right, not for the reasons that he believes. Can you talk to us a little bit more about that, Muhammad?
Yeah, and I want to thank Jeff. I wanted to reach out and hug him through my computer because he just said what I've been saying, which is, rather than provide a strategic anchor to markets, the FED got on the roller coaster of reacting to high frequency data. And therefore we have a very reactive FED. And what does that do. It amplifies the volatility in the market. So there is a concern that the FED is overly data dependent. I think that overly data dependent stance is what may
end up leading us into a FED policy mistake. I hope we don't get there, and that's why a strategic view is necessary. And I suspect if you were to take a strategic view, you would not have validated the markets over reaction from going from seven cuts all the way to one with some people even say you're going to get a hike. You would have said, no, this economy is slowing. It's slowing in a gradual fashion. Let's not push it into something more dramatic, and you would
stick to your two to three cuts this year. But this FED is data dependent, John, So I don't know where they're going to end up.
Jeff, was your take on that this idea that the fluctuations in and of themselves sort of whipsaw action and whipside arratives and markets is actually creating a potential headwind to how this all plays out and potentially to the FED actually achieving their soft landing.
Well, I mean, it is a headwinds, but we also have to see the other side of this that the equity market has been much more resilient to these shifts in the interest rate narrative. And when you think about financial conditions and the transmission of market volatility into the real economy, it's mostly going to happen from the equity side.
Not to say that interest rates and credit spreads don't matter, but we're talking about volatility around elevated rates of base rates of borrowing in an environment of very muted and
compressed credit spreads. So the marginal financial condition easing and tightening, it's coming from the equity side, and there the story has been much more about the numerator, much more about the secular growers, the tech story, the incredible earnings that we're seeing, and as long as the rate picture stays bounded unlike what we had over the last two years with these huge swings from FED policy inflation uncertainty, I think you can mitigate some of that transmission of the
volatility that we're talking about as a result of the fed's policy shift from forecast to data dependence into the real economy, because you're not really seeing it transmitted through the equity market.
But Jeff, do you think that there is sort of a challenge the broadening out trade to Mohammed's point that this actually could cause something to break outside of.
The United States at a time when.
A lot of people are saying the US is no longer so exceptional. The rest of the world is catching up. Does this challenge that?
I mean, there are certainly challenges. You know, Jonathan highlighted the yen reaction, the FX component of interest rate divergences. You always have those degrees. I think what we've seen, though, is a remarkable degree of resiliency in the global economy. I think we talked on Wednesday about the difference is in emerging market sensitivity to FED policy this time round really much more about a function of the change and the more traditional policy approach happening in emergen market central
banks much more credible policy dampening. Some of that passed through. So I think you have certainly the core interest rate volatility. You know, you look at the move index. It was once at fifty. Now it's between one hundred, one hundred and fifty two hundred, much higher degree of interest rate volatility,
and that has its problems. As Muhammad laid out, I think we're seeing a little bit less passed through though in some of these more traditional areas, and that can kind of mitigate some of this concern about the effect of the policy uncertainty from data dependence into the real economy. Not taking away what Mohammad said, though, I agree with his point that you still have the potential there for a policy mistake as a result of no longer anchoring to forecast based policy.
Let's reach fideli yen. Let's talk about that move, not just on the sension, but talk about it the week. It's been phenomenal. Moments ago, we had a one fifty one handle on dolly en. Right now just about holding onto one fifty two and one fifty two twenty four on the week, it's about four percentage points of yen strength. But go from the highs of Monday, Monday one sixty seventeen, from those highs to where we are, you've seen a move of more than five percentage points. Yen strength, Yen
strength big time. I've mentioned the time in Tokyo repeatedly. It's nine forty four pm going into the weekend in Tokyo. Raise a glass sort of, you know, walk away f a pretty good going into the weekend, Bramo, because that's the stronger Japanese yen. The Japanese authorities wanted they could.
Either walk away or they could lean in, do a little more intervention. Now when they're in a holiday and you're actually getting a tailwind from the US economic data and oh yeah, yeah, you want to be short us, you want to be speculative.
Good luck, Muhammad. I don't know if this move sticks, but I'm sure they wanted to. How happy do you think authorities are abroad after this number?
So certainly the Japanese authority are very happy. Between chair pals, more dubbish than expected press conference in today's number. A lot of the pressure has been relieved. And like you say, we were at one sixty on Monday, and we are at one sixty risking another disorderly move. I suspect that around the world people will feel some relief. You have emerging market economies that need to cut interest rates from a domestic side, but are afraid of the consequences for
that currency. Yes, Jeff is right, that have been resilient so far, but the degree of resilience has come down a lot, so we shouldn't test them too much. You have the ECB that wants to diverge from for good reasons for the ones that diverge from the FED, and keeps on telling us we're not fed dependent, but knows in the back of its mind that does a limit. You know, for the rest of the world, it's about
the movement in the US yield curve. It's about what US weights are doing for the US economy, I agree, which is about the equity market. But for the rest of the world because of exchange rates, it's about what you yields do.
Well, let's sit on the rest of the world, Muhammad, just for a beat. So the conversation has been dominated, as you know, over the last month, with words like exceptionalism. You've written about ITIP divergence. There will be some people getting excited about the prospect of convergence, that this was peak exceptionalism. When we're moving on beyond that, that maybe we've seen the peak and the US dollar a peak
in US yields. Do you think those conversations this morning, Muhammad after one job sprint are a little bit too premature?
Totally true, premature. There's three elements to this exceptional US behavior. One is its growth performance, Two is the manner in which it's investing in the future, and three it's its ability to get away with a fiscal stance that other countries cannot get away with. In order to get convergence, you would need convergence on all three, and we're not going to get convergence on all three. US is going
to remain exceptional. It's growth performance may not outpace others as much as it has, but it is the only major economy in the West that is seriously investing in tomorrow's engines of growth. And because of the role of the dollar, it can run an irresponsible fiscal policy for much longer than others.
Can they retain the privilege of venting recklessly maybe for a little bit longer. The photograph of New Street Research has a neutral rating and a one seventy five price target on shares of Apple. He joins US now for more perre I want to go straight to sales and then we'll get to financial engineering. Do you think the sales declines are behind us?
Yes, I think we are positively riching like a trophy and a stabilization. It doesn't look like we're going to see like a major correction in sales. So I would say, yes, the declines behind us. Things are stabilizing, but we we're not going to have like a significant reveum from where we are today.
But that's what I want to get into. So jp Mo're going to talk about a launch pad into the AI upgrade cycle. How much of a launch pad do you say in September?
Yes, I'd be very very careful about that. If you look at what people.
Tell me around on you know, the silicon of the iPhone, it doesn't look like this September product cycle is going to be a cycle where generatively is like a revolution in terms of hardware, and if it's not a revolution in terms of hardware, can be really like a revolution in terms of features and drive, really like an upgrade cycle.
So I've heard this argument.
A lot of people are asking more and more whether we could get into a very nice polect cycle.
I think it's too early to say, and I think it would be.
It wouldn't be problem to be overly optimistic. You know, generatively I is still in the making, and how you get that into an iPhone and create like a world factor that really gets people, that gets through the world people willing to accelerate the relasement of their pot.
We need to be convinced. I need to be convinced and see what the physical would look like.
We're not convinced what's going on in China Rise. There seems to be a disconnect between the guidance that we're getting from the company, what their talagus is happening on the ground, and what independent researchers are saying as well. What explains that spread that distance between the company and independent researchers.
It's a very it's very surprising. It's a major surprise. We didn't see that coming at all. We were clearly expecting Apple to create like a much lower point in China. So unfortunately, I don't have an explanation for you.
Join.
It's like it's something we'll have to better better understand.
In the next few days.
We're going to try and circle back with independent research providers to understand in their methodology where they could have been missing or how the disconnect could could be explained. So what we see is like some Chinese players coming back into the market, coming back into the higher end of the market, putting a risk, you know, the twenty million odds like units iPhone one the last three four years out of a lack.
Of competition in China. This is not materializing.
So does that menu this Chinese phone went into the channels, did well in early weeks, but actually didn't convince consumers. That would be one explanation, but we need more research to figure that out. As I said, a very very strong supprise, very significant supply YEA, and.
To build them out. The CFO of Apple saying the reality is different from maybe what you read at times about what we see in China. This rais is a question of how much Apple either needs to address vision, paying to promisey and kind of what the line is from authorities in terms of discouraging or encouraging people or allowing them to buy iPhones going forward in the region, or whether it really even matters. In other words, how much do you have to have clarity on this faith in the stack?
Well, because things have stabilized and normalized, you know, over a couple of years, you don't really have growth in iPhone set the positive aspect of it, that doesn't create that much of a downside rate, but also not that
much of an upside rate. So I think the iPhone is like vastly mostly like a deary standpoints, and so the only thing that could really created create a suffrice from here on the iPhone is like a significant product cycle, and of course if that happens, it would have to be related to generative that's like the new features the company is working on. So so that's really where we're standing, and not much is going to happen on the iPhone
front until we see this fire cycle. And my point is like building conviction on the product cycle for this September.
Is probably to early. You don't have enough of it of that coming.
Is it still a gross stock or is this a value stock delivering buybacks that count for basically more than the value both forward and GM put together.
That's a good question.
I would say it's I would struggle to call it a gross stock, but it's still a compounding stock if you add up you know, the kind of like still excellent pricing powers of franchise.
As which in the prices can go in the right direction in low single digit every every year.
The growth potentroling services and the excellent financial performance that translates into very good buybacks. It's still like a story that can compound earnings and take a flow in mid to high single digits. So that's a good compounder. And of course the quality of the stock is reflected in the price. It's trading at a fifty percent premium of a SMP name that has the same kind of growth potential growth out, So if it's an expensive single digit compounder,
I would say that. And that's the reason why we're very neutral on this. You know, we we don't see major issues with where valuation or where expectations are.
It's just that it compounds slowly.
Pr Services was a relative bright spot for Apple, but they're obviously.
Dealing with a lot of regulation around the world. Is there a ceiling on how much they could bring in from services?
A ceiling is actually the right way to think about it, more than downside risks. So Apple has a lot of pressure. So you can't imagine like an aggressive move with aggressive
and aggressive pricing and monetization strategy coming through in that environment. Now, what you see over the last two three years that the regulatory pressure, like the channel like I would say public opinion pressure that Apple has on like the very comfortable monetizations they can exercise on them on the on on the appisode, basically means that the take create is eroding very slowly over time.
But like now, like the risk of your calm down appears very very remote. So this is overall.
Growing, you know in low in loa tings with you know, revenues from Google for licensing continuing to grow, the app store continuing to grow in probably even if the tech rate is coming down, the volume or on the on the app store is still still growing. And then apples in house subscriptions, all these things that are like.
Nice healthy I would.
Say low latins growers, and like a reacceleration from the levels is very unlikely, but that grows is still very high quality.
IPI, you're one of the best. Let's got to hear from your PA of New Street. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, antio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine a m. Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business out
Mm hmm