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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hordernt. 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. Calsey Barrow of JP
Morgan Asset Management has this to say. While the Fed may have been uncomfortable with the lack of government data, our conclusion from the information that is available is that the labor market continues to gradually weaken. Calsei joins us now from More Cassie, good morning, Good morning, and looking forward to having you through the jobs number in about ten minutes time. Let's talk about that job's number. Is it stou? Does it make a difference to the debate on December.
Tenth, Well, if we look at it, it's been seventy six days since the last jobs report, So if anything was in my fridge for seventy six days, I would say, yeah, that's stale. Now, I think the most important thing that we've learned over the last twenty four hours as it relates to the rates market is the new BLS schedule. So the fact that the FED is not going to see the October or November jobs report until after the decision, and as a result, probabilities that the FED is going
to cut in December has come down. Now I'm going to go into a little bit of what the Fed could do or will do, versus should do. Now, what they will do, I think is probably skip the meeting unless we get a really poor payrolls report today because of the lack of data, because they are quote flying blind, but I don't really believe they're flying blind. You know, we've all been in planes. You go on a plane,
you fly through clouds, you fly through a fog. Right, If I'm not a pilot, but I'm pretty sure sure that when a pilot is slying a plane, they're not looking out the window.
Right.
They have all of these technical radars and instruments that they're using, and honestly, I think that there is enough data out there for them to assess the labor market, and as I said in that opening, to view it as generally weakening over time. And that's even if this
job's report today comes out a little stronger. And if we were to do a whisper number, which I know we don't have for today's number, I would say it feels like the market is prepared for a modestly stronger number relative to what's on the echo screen for consensus.
So let's say it is moderately stronger and you don't get a twenty five basis point rate cut next month, Does that mean that a fifty basis point rate cut in January is more likely?
I don't think so. I think that they feel moving gradually is appropriate, particularly when you're so close to neutral. So I think that if they do skip, we're still looking for twenty five basis point rate cut in January. The market has been very efficient in terms of its repricing, so the past few days you've seen the probability of
December go down. But all of those rate cuts have really just been pushed into twenty twenty six, and the terminal rate for the Fed Funds rate hasn't actually changed very much, so it's still around three point one percent approximately, So the market is really looking at this as a skip, not a pause, not a hold. And I think that the dot plot is also going to communicate that, meaning, even if they don't cut in December, the twenty twenty six dot is going to be below the current Fed funds rate.
I don't want to go back to this, but the idea of the expiration date of the food in your fridge, seventy six day oled wonderbread or canned beans are very different than seventy six day old strawberries, And I just wonder how useful it potentially could be. Even if fee maybe you don't want to eat it, you could eat it and not get sick. I mean, is there something in this job data that's going to be relevant how you see the trajectory for the Fed Reserve?
Yeah?
Absolutely, But what I would say is if you look at the NFPCHR, you pull it up on the Bloomberg terminal, you type in GP, what you're going to see is a saw tooth pattern. Right, The jobs numbers don't go in a straight line. You have a slightly hotter, you have a slightly weaker. You have to focus on the trend, and so that's what I'm going to be focused on. In a few minutes time, I'm going to be looking at what the three and six month moving averages are.
I'm also going to be looking at how much of the jobs are cyclical versus a cyclical So most of the hiring that we've been seeing really in the last six to twelve months has been a cyclical hiring, which is I think an indication of the fact that the labor market under the surface is a little bit more squishy. Why that matters for the Fed. It doesn't mean that they need to do emergency cuts, but it does mean that if they do continue to cut, it doesn't threaten
their inflation mandate. And that's really the question here is if they continue to cut, does that threaten their ability to get back to two percent on inflation? And we would say no, that we're not really seeing evidence in the cyclical sides of the economy that wages are reaccelerating or the labor market is retightening.
From your view, how political has December gotten.
I'm not sure it's gotten particularly political. I think this is actually more about the fact that we are getting close to estimates of neutral, and so every single decision from here on out just gets harder. And to be fair, it is harder for them without some of the data that they had, So I wouldn't necessarily say it's more political. I just think that it's a tougher part of the economic cycle to try to determine what's going on.
I'm really asked this question earlier on. I'd love your view, your opinion as a market participant, how you would react if they delayed the meeting until after the dates had dropped on December sixteenth. I'm not saying they're going to do that, just as a market participant, how would you respond to that? Is that a good thing?
I would be very surprised. I think the market would be very surprised.
I mean that's surprisingly in a negative way, though.
I mean I'm thinking through this as as you're laying it out your net worries, and I guess the market would probably view that as the risk that the data that they're going to receive is weaker, and so you know, the Fed wants to pause so that they don't miss an opportunity to cut and then have to wait all the way till January. But it seems like a pretty high hurdle. I mean, they put out those dates for the schedule years in advance.
In the number drop just moments ago. Payrolls came in at one nineteen. That's an upside surprise. The estimate was fifty one k. That's a big upside surprise, but a lot of nuance now swear a few of the data points that points out negative revisions. Unemployment climb into four point four percent from four point three The estimate was for that to stay at four point three percent, and some more timely data. If you're looking at continuing claims.
Continuing claims the wrong kind of upside surprise. So if you're out of work in America at the moment, it's getting harder and harder to get back into the labor force. And that's what you see from that number. Almost repeatedly over the last several months, they got the market reaction equity features stillness, session highs on the S and P five hundred and on the NASTAK supported by decent earnings
from Nvidia. Bond yields off the back of this initially lower, they stay lower, down by three basis points on a two year at three fifty five Calsie Barrow. If JP Morgan still with us, Calsie, You've had ten minutes to go over these numbers.
What jumps down to you?
Yeah, So, first of all, on the market reaction, clearly the market was somewhat prepared for a stronger number as it relates to September. But then what you had in the mix of it is a number of things that pointed to less strength than just the headline number alone. So to me, you know, the number of the things that stood out were the unemployment rate moving higher and on an unrounded basis that actually moved to four point four to four, so not far away from four point five,
So you know, that's a meaningful thing to me. Continuing claims also, new cycle high, as you mentioned, means it is harder to find a job. And then the third thing I would say is the concentration of job growth is still very high. So as I see it, fifty nine thousand jobs created in healthcare and education, which is an acyclical area of the economy, and that's more than half of the job gains. Where you have the cyclical areas like manufacturing, professional business services.
Negative ay Stein, there's a chance we might get a right cut next month.
Yeah, this really is an interesting development. I mean, our base case has been that you will see a December rate cut. We tempered our expectations because of the announcement from the BLS, but our general view is that the FED is going to maintain an easing bias, and that's ultimately what's important. What's most important for the FED is that the labor market is cooling, and as a result, it means they're able to cut rates without threatening their
inflation objective. We see wages continue to mind moderate, We see inflation outside of tariffs as fairly benign. The bond market tends to agree with us as it relates to you look at the inflation market itself, fairly benign pricing there. And so I think this is an interesting report that leaves December potentially still on the table, although it's going to remain a pretty close.
Call if they do. If they decide not to cut in December, do you get more conviction to go into long duration bonds the idea that this actually will cause the cracks to widen that we're seeing in the labor market.
So I think what we've experienced over the last few weeks are great examples of fixed income behaving the way that you would expect in periods when the market is trading risk off, serving as the ballast, serving as the diversifier within your portfolio, and that obviously comes down to having duration in your portfolio.
So that is.
Something that we have liked. We have a range for the tenure of three seventy five to four and a quarter. When we're at the top of that range, you have the opportunity to increase that position. When we move down to the bottom of that range, we need to be thinking about two things. Are we still in a soft landing or is the economy changing. If we're still in a soft landing, there's a limit to how much lower
yields can go. If we are concerned about a harder landing, then there's even more space for rates to rally from here.
Kelsey, you brought up a great point. We're a hair away from that line in the sand, really that Jay Powell's outlined four point five percent unemployment rate. We were almost just there. Isn't that going to give the impetus on the FED that they should be concerned with the labor market.
Quite possibly, But I do think that there are still two core groups that are going to not necessarily change their view as a result of this job support. I just don't think it's enough so that the people who wanted to stay on hold probably aren't going to look at this immediately and say I need to change my view, but they may be more likely to be less vocal
in terms of their descent. So it's kind of maybe a nuance there of they're less intensely against it because they are seeing that there are things happening on the other side. But you know, for those who are more concerned about inflation, that picture hasn't changed. We didn't get
any new data on inflation yet. Maybe a little bit on the wage side, but you know that's limited, and you know they can still say for four and a half percent, that was what was in our forecast, So not surprising us to the upside, and still a relatively low unemployment rate versus history.
Stay with US multile impag Savannah's coming up off to this iterprise on the headline number, but plenty of nuance beyond that. Slightly one key but another number that's interesting is eighty point two percent. Here's what's coming from the BLS. Today. The September estimates from the Establishment Survey include both data collected on our normal schedule prior to the shutdown and also September data that business is self reported electronically during
the shutdown. As a result, the Establishment Survey collection rate eighty point two percent for this initial release of September twenty five data is higher than usual, So a higher quality report, if we can call it that.
Yeah, so what does this leave us? Does this leave us with a good report or a bad report? And you talk about how it's going to be a roar shock test. That said, the fact that this is backward looking at seventy six day old data at the same time that you're seeing the ongoing continuing claims tick even higher does seem to indicate there could be some kind of shift on the FMC that leans toward where the market would like it to be.
Nida Richardson of ADP joins us now for more, Nila, welcome to the program. Some timely data, some not so timely data. How many things set up in the labor market from your vantage point?
The rule of my house is three days and it's out. That's why we have a weekly But I'm going to say that good news bad news, it's always good needs to see job gains. So I'm cheering this September number. I'm sharing the fact that seems to be stronger in terms of the response rate, But I have to go back to August because that's where the ADP numbers and the BLS numbers are almost in sync. We saw four thousand drop in August at ADP and that's very similar
to what the BLS saw as well. So going into September, there's strength there, but we note that in October that strength may have been mollified. September is an easy month for seasonal adjustment. There's not as much hiring, but when you go into that October November December period of seasonal workers, it's going to be a little bit more challenging to
offset the seasonal factors. And to note, the private sector was driving this jobs report, but it was the consumer facing private sector that really carried the water in this jobs reports. So so goes the consumer when it comes to healthcare, when it comes to leisure and hospitality, so goes the labor market. The connection between the consumer and the labor market has never been stronger.
When you look at this report.
Right now, Neila, given that backdrop, does this give you the justification in your head for the Federal Reserve to cut rates next month? If you could just sort of go there and get a sense. Is this a strong read or a weak read in your view?
The whole context of the FED view of the labor market is that labor demand and labor supply are falling in lockstep. I think this report challenges that notion because you see what you see is that the unemployment rate ticked up, and on the worker side, you also saw a bit of a rise in the labor force participation rate. To me, that suggests that more people came into this
market looking for work and didn't find it. And that's especially supported if you look at the continuing claims number that is continuing to edge up, telling us it's taking longer to get a job. This is a highly concentrated labor market. Only a few sectors are strongly producing jobs. It makes it challenging for workers with a general skill set to find employment. And I think that's what's going to challenge the Fed in December. It's not just a
strong jobs market. They have to look at the demand side. It's how the supply side is faring in a very concentrated labor market.
Does a FED rate cut change this picture? I guess that is the key question that everyone keeps start coming back to.
Well, if this data is backward looking, a FED policy move is very much forward looking, right. We won't immediately see if the effect of a rate cut on main street. It will take several months for that apparatus to trickle in, especially when you look at the key way that FED policy transitions into main street is through the borrowing markets,
through the credit markets. Our consumer's positioned right now for those big ticket purchases a house, a car, a refrigerator, that really drives the labor market forward.
In terms of new hires.
I think when you come to the holiday season, that's where the rubber meets the road. That's where the disconnect between the wealthy consumer and the low in consumer really matters. Because if that low end consumer, that low income consumer, can't purchase in the same way as they do over the holidays generally, then we won't get the growth factor
leading into the first quarter of the year. So a lot is going to be born on the shoulders of that low and can come consumer over the next three months, both when it comes to seasonal hiring and when it comes to seasonal spending.
Stay with US mult Bloomberg Surveillance coming up off to this. Looking ahead to the Federal Reserve meeting, Sarah manx b C Iowa moving writing December rate cut as a toss up, but three rate cuts are expected over the next twelve months as the Fed leans incrementally davish in the second half of twenty six. Sarah joins us now for more Sarah welcome. We've got to reflect on the data around
just moments ago. Something for absolutely everyone is it changed the debate for December tenth on the f WEBC.
But we got two new.
Data points today to help us determine whether we're going to get that rate cut in December. This is first of all economic data trickling in with this employment data and also technology.
And consumer earning.
So first of all, on the payils number for September, the number scale, so.
There's something for everybody in it.
While we beat on paerils, we have downward revisions and increasing unemployment rate, so I think that's mixed. In general, we saw the odds of a rate cut move up from thirty percent to forty percent on this number four December. Second, the good news is earnings, which has been the good news for the past few weeks, and video earning strong Walmart showing the consumer is still shopping. That's good for
earnings and good for large cat tech. The bubble that people were talking about in the markets was mostly in unprofitable tech and speculative tech. But I think from here, given in Vidia soothing the markets, tech will lead. We will get three rate cuts over the next twelve months, but December still a toss of We may approach close to fifty percent chances of a rate cut, but most of the FED has been leaning pockets recently. We heard that in the Fed Minutes yesterday.
So you said that tech will lead, and this is an important point. Will tech lead because the FED has been more reluctant to cut rates aggressively, or will it lead despite the fact that the FED is more reluctant to cut rates.
Tech leads for two reasons.
The first one is a moderately weakening economy we are seeing that in the payroll data, and second is a slower pace of rate cuts. The moderate growth is good
for tech because they have their own structural drivers. Artificial intelligence is alive and well debate when where we see the ROI on all of the dollars spent on AI, But we will see AI continue to increase productivity for companies and eventually boost their revenues out of That's the main structural driver for technology stocks, and I think they will continue to lead from here unless the economy shows significant signs of accelerating or the FED dramatically decreases rates.
Talk about timely. Speaking of the labor market, this from Verizon just moments ago. Today, we will begin reducing our workforce by more than thirteen thousand employees across the organization and significantly reduce our outsourced and other outside labor expenses. Sarah. Efficiency and operational efficiency? Is that going to be a big theme for next year?
The two themes will be for twenty twenty six.
First of all, is that efficiency because of artificial intelligence, every company seems to be talking about that. And also because of inflation, we're hearing more and more about affordability and actually some decreases in tariffs and areas like beef and coffee.
Is the economy still affordable for the consumer?
Hearing a lot out of walmart on that today those are two themes I think that are bubbling up and will continue through twenty twenty six as we talk about how are we going to incorporate the value of artificial intelligence into our business models?
Sarah, just before you go topics right now into the new year, what are they at the moment?
We love infrastructure infrastructures has tailwinds more building in the United States, shift to artificial intelligence and electrification of our economy. One stock, in particular, Ni Source in Indiana based utility, will be a nice play on this.
It's one of the fastest growing utilities in the region.
And we also like more conservative stocks that grow their dividends. Dividend growers also and nice Source is one that pays a three percent dividend yields.
Stay with us mul Bloomberg Surveillance coming up after this. Angelo Zino of CFRA writing this and videos data center revenue demonstrating sequential acceleration that validates sound thesis on sustained hyperscale of spending. Angelo joined us Now for more Angelo, these numbers, is it sufficient to restore the faith in this story? Once again?
So John, thanks for having me, and I'd say you know, for today, Yes, I mean, I think some of the concerns that are out there in the market continues to linger, you know, and we all know what that is. I mean, I think probably the biggest issue out there is on the you know, the concern about financing and you know, getting the necessary financing from a number of these customers, not necessarily the hyperscalers, which we all know over the
last three years have been absolute monsters, spending spenders. But as we look here kind of over the next three to five years and we get this broadening out trade within it the AI ecosystem, the likes of you know, the the Oracles, the core weaves of the world, open a eyes of the world, they're going to be bigger contributors in these forecasts that you have out there for in video, as well as the rest of the AI ecosystem.
And the question is, you know, clearly is the financing going to be there as we find the broadened out here.
Angela, I'm so pleased you've gone there, because we've been drained the distinction between the company and the way the company is perceived in the stock market as a stock because they're two very different stories and Angela. When it came to the earnings of video, Yes they're fantastic, Yes the guy is solid, But in many ways some of that was inevitable because we know what's happening Gusequare, their biggest customers are spending a lot of money and promising
to spend even more, Angela. What I'm trying to understand this morning is whether what they've unveiled overnight yesterday afternoon is sufficient to reshift the story around the way people are treating the stock because over the last several months, for a long long time, over the last several years, there was a view in this market that this story was built on the balance sheets of the hyperscalers, and this all made sense. It was strong. Now there's a
worry that this is built on something else. They're fueled financing, maybe very skinny revenues developing over open AI and a loss of confidence. Angelo, And this is what I want to keep going back to. Have they said anything in the last twenty four hours that gets the markets to reshift is thinking again about how it addresses this story in the stock market.
So not necessarily, but that being said, listen, I think when you kind of look out here over the next couple of years. I think the expectations out there, I think from most of the analyst community is not one where you know, we're necessarily expecting north of a trillion dollars and spent from open AI at least that's not in the forecast, in the consensus estimates at this top point in time.
So I think that's a good thing.
But when you kind of look at the you know, the broader investment community there, they're kind of looking at, hey, listen, there are these promises that are being made or commitments being made, and there's no way they're going to meet these commitments. What I would tell you is that they don't necessarily need to see those full commitments being made in many respects, and there are going to be many different ways that in video is going to continue to
see higher revenue and bringing out of their ecosystem. And I think it's also important to note that these hyperscalers will probably get much bigger in nature here over the next five to six years.
I mean, looking for Microsoft.
To see their revenue double here over the next six years, We're looking for Alpha Bit to see their revenue go up, you know, seventy hundred percent, So that cloud business for these hyperscalers are going to continue to get much bigger and bigger. We've seen the great momentum out of two three earning season from these hyperscalers, so we do think those companies will continue to pave the way, and then that broughting out trade is going to be the question mark.
But again, I think as long as it's incremental in nature and we see some sovereign AI opportunities like we just saw announced yesterday, I think that's going to help the overall narrative and get the sot hire here.
Angelo, that's a key key point there, the sovereign purchases. And we'll get to China in just one second. And how feasible that opening reopening could potentially be. I just wonder if you were satisfied by the response to having to finance some of your customers to continue buying your chips. So fear around circular financing and why in video feels the need to do that if there is so much ex ternal demand.
I think in some respects in video feels like it's an obligation of theirs, And you know, I would necessarily go as far as to say they're doing anything that isn't prudent in nature. I think this is one of those instances where it's extremely expensive to build a data center.
You're looking at it can gig a why you know.
Data center read about fifty billion dollars in nature, and in Vidia is essentially taking the line's share of the profits for the industry. So in many respects, what they are doing is reinvesting those profits into the eCos to help build the AI ecosystem. In some respects, I don't necessarily think that's a bad use of funding. I also think it helps to kind of improve the stickiness across
you know, where they are within the ecosystem. So overall, I'm not necessarily concerned about some of these circular financing issues however, and I'd actually expect to see more of this take place here over the next couple of years. So it is something that I think investors need to get somewhat comfortable with. But again, I mean if it gets to a level where it gets just out of control, I think that's what becomes problematic.
How much upside is they're doing video shares. If President Trump gets his way and the Congress is forced to drop some of the restrictions in terms of sales into places like China from Nvidia.
So i'd say in Video, I'd say China itself.
We're looking potentially at least at least twenty to thirty billion dollars in annual you know, sales added to in Video's revenue.
We think that would be conservative in nature.
And you know, again that would probably add let's call it about eight to ten percent to their to their revenue trajectory, and you know you'd see a likewise impact in terms of the stock price move. Let's call it a ten to fifteen percent initial boost we think from that approval. So you know, we'll see whether or not there's going to be upside if there's approval, and then you know to what extent those companies will spend on
in Video's ecosystem. But you know the good thing is it's at zero dollars at this point in time, and their significant upside potential if they're able to get into China.
When you think about the upside potential, I know the Commerce Department yesterday came out with the green light to sell chips to the UAE in Saudi Arabia. Is it big enough to fill that gap that exists right now, that whole when it comes to Beijing.
Probably not, I mean, and maybe over time it will be. And again, you know, the good.
Thing is it's zero dollars in revenue or essentially zero coming out of China. I would say this, China's got the second large, you know, the second largest ecosystem of hyperscalers out there, right you do want to sell into the Ali Baba's bydus ten cents of the world, and that would be an enormous positive if they can do that.
I'd also say, you know, when you kind of think about the developers that are out there, the developer community, it's something that Jensen has repeatedly said he wants he wants to make sure he's got access to and that they continue to build on in Video's ecosystem. That's not something you're going to get in any other area of the world.
So it's extremely important.
We think from that perspective that you know, in Vidia gets into China.
Given that what you just said about how he talks to Chinese developers, how difficult is this line to walk for Jensen Wang when it comes between Washington and Beijing.
I think if I think it's a difficult line, I think if there's anyone that can can successfully do it, it's it's Jensen. And you know, maybe you throw you know, Tim Cook in there in some respects, and how he's.
Handled, you know, kind of the China US relations.
I think there aren't many CEOs that can do a good job with that. The great thing with Jensen is it seems like he's got the ears of both nations at this point in time, and that that's a huge positive. He's got that power, and we think, and you know, in many respects, we'll see how all this plays out, but you know, it's it's taken longer than we've thought. To be honest with you, we thought at this point in time we probably would have seen in nvidio, you know,
back into China. But again, these geopolitical uncertainties and you never know how long they're going to drag out.
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