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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie Hortenn. 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. Rob Casey of
Signum Global Advisors joins us now for more. Rob, we'd love your thoughts on this. Millions of people have already voted. Do we have any clarity whatsoever on how that vote has been breaking?
Yeah?
John, ten really good to be with you. I mean, we have clarity in the sense that we have really good data coming out of the early vote. A number of states report, you know, partisanship, gender race breakdown.
We can see it by county.
The thing is with in that data, even though it's good data, we haven't seen a lot of clear trends. So women are turning out more than men. That's a good sign for Harris, but they're turning out about where they were turning out in twenty twenty, So so not a clear better or worse than the Biden Trump matchups.
You know, Rob, just to jump in there.
NBC News Decision Desk has new female Democratic voters in Pennsylvania. They're seeing that in flux. But the flip side of this is what about the male vote, because they see new male Republican voters in Arizona, two critical swing states.
Yeah, Frankly, I think Arizona is where Harris is running weakest, and that's for two reasons. We're seeing her running weaker among Latino voters and much weaker among male voters, which is really a national trend in the blue Wall. Though Harris is less impacted by both of those, primarily because of the white women who David was just discussing.
White women turning out.
In droves for Harris at a higher percentage and with a better margin for Harris than in twenty twenty.
They're both going to be in Wisconsin today, Rob, how tight does that raise?
It's really tight, really tight.
At Sigmam, we feel good in our call that Harris will win the presidency. A lot of that is because we feel as though she's running clearly ahead in Michigan and Wisconsin, but across all of the swing states, you know, the point today doesn't show.
Clearly that they're tied. At every pole that we're seeing is within the four points, which.
Is the average margin of varia in presidential cycles between two thousand and today.
So all of these races are incredibly tight.
But I do think it's fair to say Harris is leading if anywhere in Wisconsin and Michigan.
Rob We keep talking about how tight these poles are, how it's really not connecting. Yet there seems to be a growing conviction in the investors who we speak with that it's not going to be a contested election, that it's not going to drag on for a significant amount of time. And you can see this in the options market or basically the volatility peaks a day after the election and then it peters off with this idea that we'll have some sort of clear outcome. Er sense, how is that correct?
Is that your base case?
Also?
It is our base case.
We think we get a very clear result in the first forty eight hours post election. It may not be that the Associated Press is calling the election within forty eight hours. But we do think that markets and most who are looking at the election most closely will have
a very good sense. As we did in twenty twenty, right betting markets moved to Biden about eighty percent as of Wednesday morning, So even though it took until Saturday for the Associated Press to call the twenty twenty election, markets essentially priced in the Biden wins starting on Wednesday. We expect to see a similar result. I mean, you have to remember in twenty sixteen and in twenty twenty, all of the swing states, essentially all of the swing states broke for one candidate or the other.
It was Trump and then it was Biden.
And we think very likely that there will be some polling air it will affect most of the swing states almost equally. And that's that most of the swing states will break for one candidate or the other. So even if there are outstanding legal challenges, et cetera, they're probably not going to be significant enough and the margin won't be tight enough for them to matter a whole lot.
Robbie said something there that was really important to me because I've heard it echoed by other people that there probably is a polling air. What could that polling air be because a lot of people have been saying it feels like maybe something is just off of these polls.
Yeah, Unfortunately, I don't have a very good answer in terms of direction, because we really feel as though there will be polling air. I mean, there always is polling air. Polling was very good in twenty twenty two. There was still some era two to four points. We have heard from clients as very strong belief that Poland will underestimate Trump because it underestimated him in twenty sixteen, it underestimated him in twenty twenty. I mean, we all remember that.
The thing is, we've seen posters make a number of changes both to their collection process and to their sampling process, and so we really think that, you know, we probably will see a polling air if we're lucky, two to four points. If we're unlucky, you know, four to eight points. But it's really hard at this point to predict in what direction that polling air is going to land.
Web I think of twenty sixteen in Michigan and how Hillary Clinton lost that vote by about ten thousand votes. So if the independent Jill Stein wasn't on the ballot, Hillary Clinton could have clinged Michigan. Is that what gives you confidence about Wisconsin and Michigan because OURFK is still on the battle in those two key states.
Yeah, the third party question is really interesting. Third party candidates did hurt Clinton in twenty sixteen. They came back and hurt Trump in twenty twenty. It is true that Joe Sign especially in Michigan, is probably going to run beyond polling it, and that's because she sort of serves as a proxy for Air American voters and progressive Democrats who are very unhappy with the Biden administration's handling of
the Middle East. Nonetheless anmiory to your point, I mean, RFK remains on the ballot in Michigan and Wisconsin.
As hard as he's tried to get.
Off of the ballot, he's pulling it between one and a half to three percentage points nationally still today. So I don't know who those people are who think they're still going to vote for RFK. They're certainly not paying attention to the newsfolk, given he's clearly dropped out and supported Trump even though he remains.
On the ballot.
I think It's also important to consider that the only third party candidate who is on the ballot in all seven of the swing states is chased all over the libertarians, so he's going to pull more votes from the right wing as well.
I don't want to overstate it. It's not a lot.
I think third party candidates are unlikely to make a huge impact in this race. But we're hearing a lot about Jill Stein, and I think it's important to look on the other side of the aisle on the ticket as well.
Rob.
Just quickly, a final word from you, sir on election night. If there's one thing to watch your election night guide was the one thing you'll look here.
Well, we're really hoping to get results from North Carolina early, most of the results from Georgia early.
But if there's sort of one other thing I.
Would look at, is Kamala Harris outperforming in urban areas among all voters, but primarily black and Latino voters and young voters. If she can outperform there as well as I perform among white women.
The election as hers.
Okay, the signal globifizis thank you. Let Mohammad into the conversation as well. Mohammad and Evan of Queen's College Camp which joins us. Now, Mohammed, we'd love your early reaction to this and just tell us is this noise? Is this weakness we can look through?
So my free takeaways and the first one speaks to is it noise? Is it signal? Three elements on noise, we should look through them pay rolls, labor force participation, and earnings. The fourth one unemployment. I agree with Jeff that has more information. Content two is if you want to make more of this data, then go beyond the big four headline numbers and go into the details. And you need to do that if you're going to derive
any economic and policy implications from this report. And then finally, the reaction of the bond market has to do with two things. One, as Mike noted, the Wisper number was even higher than the consensus on hundred thousand, and as you noted earlier, the balance of risk was on the
upside for the market. So what you're seeing is a repositioning that people were hedging a little bit because the one thing that would have really moved things is a much stronger number, not a much weaker number, and that's something that you noted earlier today, John.
Mohammed, I obstruck by the fact that we've gotten so many revisions and so many unclear numbers that we can't fully rely on. How much are you really taking more signal still from what corporate executives say and from the page book and some of that commentary, then some of the numbers that we've been getting out that show and really have led this expectation in markets that there should have been an upside surprise.
So, Lisa, this is a time when you've got to take a very holistic view and also have a pencil of salt added to all that because we have some major events coming up. Look on the whole, I think the data are consistent with an economy that's still robust, an inflation weight that is proving somewhat more sticky than you would like, and a major call for the FED to exit this notion of fine tuning and go into a world where it has a steady steer on interest rates.
It should be cutting by twenty five basis points for the next few meetings and then revisiting after that. It should not be looking to react like it had in July by not cutting like it did last time by cutting fifty to every basis points. It should just be steady because this data is going to be noisy, and that's what happens at inflection points.
Jeff to that point, and a number of different people who've come on the show today and in the past few weeks have pointed to this idea that maybe they Fed could frontload rate cuts because they are on sort of this steady steer right now that they do have room to make rates less restrictive in tangent with inflation coming down based on these numbers. Is that basically your base case too, that they're going to take this window to front load.
Yeah.
You know, if you look at where the market has been moving, it's not really been in the November and December expectation. The Fed's kind of done a pretty good job saying we're going to front load. There's a debate about whether fifty was a mistake or not. Okay, let's put that to the side. That's behind us. So it's really about the forward looking twenty twenty five twenty twenty
six path that's been repriced. And I think the story going into next year will be the FED talking about, hey, we've gotten off of we've gotten started here in terms of normalization, we don't have to go quite as fast because away from today's data, the economic data, yesterday's data, you know, is much stronger than the kind of fears
over a very restrictive FED policy would otherwise say. So they can kind of pull back, maybe they start to talk about every other meeting that's kind of in the price and so I think the Fed's got itself in a better place. We're going to get the front loaded cuts fifty last time, twenty five to twenty five, and then every other meeting that's kind of a ligne, and then we'll see where the data goes and where the debate on our star and how restrictive are we really.
The economic data is held up pretty well. Yes, this is a down side disappointment, but the broader message is labor markets have been normalizing. They're not collapsing, they're normalizing. They're still trying to stick the soft landing, and I think the soft landing is still the message.
If you are just joining us, welcome to the program. Just moments ago, twelve minutes ago, we've got a big downside surprise on a payrolls report came into twelve k. The media estimate was one hundred. I want to remind you of some words from a speech from Governor Waller in the middle of October ahead of this number. Governor Waller said this at a federal reserve, this report will most likely show a significant but temporary loss of jobs
from two recent hurricanes and a strike at Boeing. I expect these factors may reduce employment growth by more than one hundred thousand this month. He went up to say, since the job's report will come during the usual blackout period for policymakers commenting on the economy, you won't have any of us trying to put this low reading into perspective, though I hope others will. So let's do that right now, my McKee, we've got some more.
Yeah. Looking again at the hurricane impact. According to the BLS, the Establishment survey was affected for two reasons. They say one is that the hurricanes probably prevented people from answering, and also the survey period. The way they phrase it is it ended several days before the end of the month because of the timing of the month, and so they may not have gotten all the surveys in that even were answered, so we're going to have to look
at next month to do it. The survey, as Lisa points out, as the lower survey response rate lowis since nineteen ninety one, and when you look at what the weather is overall, it's understandable.
Now.
The other part of it is the household survey, and the BLS specifically says that was not affected by the storms. So the number you can trust is the four point one Jeff Rosenberg was pointing out, and the number you got a hold in abeyance is the twelve thousand.
In some ways, do you think this makes the fence life just a little bit easier next week? A stronger number have been the bigger problem in the news coming.
Oh, a very strong number would have been something that they would have to have talked around. Now they can say, well, this just we seem to be on the same path. And unemployment's not going up, and average hourly earnings on a year over year basis haven't changed, so we don't have a problem.
We can cut an employment's not going out. Bond yields down either. This morning they're down by nine basis points on a two year. On a ten year, we're down five just moments ago, fifteen minutes ago, we saw four thirty on tens, on twoes, we saw four twenty. Muhammad, I want to bring you into the conversation on fixed income because you wrote earlier this week in Bloomberg Opinion the importance of understanding what's behind this move, and we've heard a bunch of people give a bunch of reasons
as to what's behind it. It might be the data, it might be definicite concerns, it might be policy concerns going into next week. Have you decided on which one it is at the moment, Muhammad, what do you think the dominant factor is going into next week?
I have not gone. I don't think you can because there are at least four influencers and it's very difficult to determine the weight of each. Over the next few days, we're going to have some major developments. We're going to have the FED recalibrating again. We're going to have the results or at least we'll know how the vote went for the elections, so we're going to get some important
data point. I'm really glad you read out Chris Waller speech because he has emerged as the best FED policy maker in terms of not only assessing what has happened, but telling us what to look at. And I thought
what you read out was really interesting. Of course, we may always get a newspaper leak during the blackout period, but I think the FED right now is looking at this, and I agree with what was said is that they'll say, you know what, this is not going to influence what we're going to do, and we're going to We're going to cut by twenty five basis points next week.
Of course, yields are lower, so they might not need a particular person to weak anything out to the market to correct the impression. Jeff, what do you think in terms of the main drivers of the yield rise that we've seen over the past month, the fifty basis points increase across the curve.
Yeah, I'll agree with Muhammad. I mean, there's a lot of cross currents in there, but I would say a big one not to ignore. And it's hard because we're obviously, you know, very focused on the prospects of post election fiscal policy. Is that the economic data got much better, and you had a very negative, very extreme level of
FED expectations priced into the bond market. So it's a little bit of combination of the bond market kind of getting over as skis in terms of fifties and consecutive fifties, and the accelerating the expectations into pricing on the weakness, and then when you started to pull some of that weakness back in terms of the economic data that started to come in, then you had a reaction to that. So I think, you know, that's kind of probably the
main thrust. There's a lot of other stuff, as Muhammad's talking about in there, and Jonathan, yeah, absolutely, you know, I think this makes their life easier and harder if this was a big upside surprise. Certainly the number is overstated in terms of its weakness because of strikes and hurricanes, and I think everyone knows that it makes it easier for them to deliver on the twenty five cut, which they want, which they certainly want to do, and I think that's an important point to highlight.
There's also revisions to the downsign for the prior month, So Jeff, is there a possibility that fifties back on the table.
You know, I would say for November that's still a pretty high bar. The revisions are part of the noise and I think the signal is the establishment is the household survey, the four point one percent, the ECI number, the GDP numbers, although you know they have their own revision problems, but overall you have you have a K
shaped recovery. But in aggregate, despite the distributional differences, the aggregate is doing very well, and I think that's driven by the ease in financial conditions, the support for consumption.
What we saw in terms of the.
Revisions and GDI and savings rate, the consumption side is still an aggregate very well supported here and so that, more than the noise out of the payroll reports and the difficulty in measuring that on a month to month basis, is going to drive the outlook for FED policy going forward.
Well, Mohammad, when the Fed meets next week, Jonathan is right, this may actually help them and make their job easier. What might make their job very difficult is the presidential election. And already we are seeing this number be politicized. The Trump camp is coming out calling it quote brutal. What does the Harris camp need to come out and explain about this job's report to an electorate that says the economy is their number one concern.
And Marie, they need to explain that the numbers have been heavily influenced by one off effects, painful one off effects, especially with respect to the hurricanes, but they're one off effects for now, and also by the strikes, and they need to do that because they have not taken sufficient control of the narrative. We talk day after day of economic exceptionalism. That's not what the narrative is out there is,
you know. The narrative is out there is about the cost of living, about inflation, and people don't realize that this economy has been outperforming not just expectations, but has been outperforming to the rest of the world. And this is really important as to the FED. Look, it goes down to two numbers. One mentioned by Jeff Eci the point eight percent increase the quarterly increase in employment cost.
You look at that and you're relaxed. The other number is the PC inflated inflation, the monthly point three percent increase. You look at that, you're not so relaxed, and they're going to have to balance that. And I think if you balance that, you end up with a twenty five basis point cut. You certainly do not go to fifty.
Muhammed, November just feels like an easy decision for them if they don't have a result to the election. If you get the jettison markets is another reason to count buy twenty five basis points. December is where things get a little bit harder. A question we've gone back to
on the program a few times. We've had this succession with you two, and i'd love your thoughts going into the weekend whether you really believe next week's election has the real potential to redefine the economic bank drop, not just in America but worldwide, and whether by the time we get to December, the Federal Reserve will really have to think about the policy initiatives on the table, even if they are not yet reality.
In Washington, DC, John, I've been bemused by how confidence some people have been in predicting what will happen here, what will happen there. Look, you're trying to solve Think of it as a four plus by three plus two matrix about it. There are four potential outcomes in Congress.
There are two potential outcomes for who wins the presidential election and the third one, which is no one for a while, and then even when you solve for Congress and yourself for the president, you've got to solve for a third issue, which is how much of what is being said will actually be implemented. I remember what happened in twenty sixteen. I remember how the market turned on a dime when the winning candidate at that time came out with a completely different narrative than what was said
during the election campaign. So the Fed on Wednesday morning is not going to be able to solve for this four by three by two matrix. So I think what they're going to do is say, we put this aside, we will react based on what we know, and then we will revisit this issue.
Jeff, That's what it feels like, just to build up what Muhammad was saying. Phil'sit, we're an also pilot to the high estimate of neutral, which could be around four. So you get a few more cuts, you get closer to four, and the decision gets harder because I think for many people we are truly flying blind into twenty five and perhaps even beyond based on the outcome of next week. Can Jeff, I'd love you view on that, and whether you agree with that view.
Well, I think the key observation is we've gotten a little bit closer in terms of a more reasonable expectation of the level of FED cuts relative to the debate or the distribution around where is neutral? Whereas a month ago you were very much weighted to one side of that debate, which is we're very far away from neutral. We got to cut quite a bit. And what is the data that sort of pushes against that excessive amount
of cut the very low level of neutral economic growth? Right, we know what you don't know where neutral is, so you know where you see it and where you see it is in the data. And so the piece that has kind of been missing here for a while is where is the slow down? Yes, the payroll Yes, the labor markets are slowing, but they're not tightening and they're certainly not eroding to the level of degree that would screen, oh, we need to cut fifty basis points at each meeting
because this economy is hard landing. So it's really come back. It really comes back to this kind of basic fundamental, which is you see it in the economic growth data. There's lots of inputs to that. We can look at earnings, we can look at payrolls, we can look at layoffs, you can look at the leading indicators for the job market, and not much in their screams that this is excessively tight.
The only thing that screens that you're excessively tight is a historical comparison of the real rate relative to past real rates. Outside of that, the economic data says financial conditions are how monetary policy transmits. It's much easier than the rate or the real rate would imply, and so you don't need to cut as aggressive, and that's kind of recognized in the bond market. So there's less disagreement and so therefore less potential volatility from realizing that disagreement.
Mohammed, just before you go and find a word, please go and get the next week. How would you navigate next week?
John, I would wait, and mentally I would change the paradigm. For a very long time, we looked at the stage, the economic and policy stage, and we looked at the FED as the principal actor. Going forward, we should think of the FED as stepping back, and there'll be three other principal actors. One is fiscal policy, the second is tariffs, and the third is in the combination of reforms, the
regulation and industrial policy. So mentally, John, we're going to have to evolve, and it's really hard because we have been conditioned to look at the FED as the only game in town. But we're coming into a world, as Jeff said, where the FED is going to be going backward, going to the side, and allowing three other actors to determine where this.
Economy is going.
And we just need to change our mindset to make sure we allow for them to enter our mind and assess them better. And it's going to be hard, John.
I'm going to be kind to you both because that's hard enough. I'm not going to ask for election guesses. Mohammed, you can go. I appreciate your time, Sir Mohammed al Aeron of Quain's College, Cambridge, alongside Jeff Rosenberg of Black Rock. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and gio politics. You can watch the show live on Bloomberg TV weekday mornings from six am
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