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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. The optimism over a
US China trade deal pushing bond your tire. The move comes as investors price in another rate cut Later this week, Gray Pilisipgian fixed income right in the following near term dynamics remain challenging, policy sensitive and under fiscal stress, which may add pressure on ras. Great joins us now for more. Greig welcome back. Do you think supplier shoes might reassert themselves as a problem in the coming months.
I don't think supply is so much a problem in the coming months, but I think next year is a very different supply story. But I think the bigger issue is you know you saw it in the CPI release, is that you are seeing inflation pressures away from rents and oer right, and I expect that to continue into
next year. And what I really worry about is that investors are very much of the mind the Fed's going to continue to cut inflation is you know, a twenty twenty one story largely contented with and I think the risk is you're cutting into a higher growth, higher inflation environment, and the question is what does the bond market think about that?
Ultimately, So, Greg, your point is interesting because this market took comfort from what was happening with shelter, but you're taking anxiety from what happens everybody else, everywhere else. Great, do you think the market's going to come round to your point of view?
And why?
Well?
So, I think the shelter component has been an incredible disinflationary driver this year, and that's actually given kind of the broad CPI or disinflation numbers cover right. But as we go into next year, you'll have continued pressure around those goods, particularly those you know affected by Karras. And you know this is a story that's leaking out over time. This is not a one shot type of idea, and so next year you have shelter either flattening out or
even maybe moving higher. And that just changes the game, I think, and I think that is underappreciated.
Right now, I'm looking at break even rates that are at the lowest levels going back to earlier this year. I'm looking at inflation expectations over the longer term. It's just falling significantly over the past couple of months.
Why do you think that is?
I mean, why do you think the market so profoundly disagrees with this higher inflation, higher growth view, at least based on market measurements.
I don't know. That is something that really confounds me.
Honestly when I think about you know, next year, you know, that is the most central.
Figure that I look at. So what has a twofold effect? Number one?
Obviously it's a market measure around longer term inflation. But also, you know, there's lots of talk around the Fed. You know, what happens with the Lisa cookcase, what happens with the new FED shair, you know what happens to the kind of the path of rates. Are we really moving to this really easy type of environment? And if the market starts to get spooked around that that's going to manifest itself not only in the US dollar, but in five
or five year break even. So I look at that and I do scratch my head, and you know, for my money, that is something that I'm kind of looking the other way.
What I think it should be higher, not lower?
How much are you actually betting against some of these longer data bonds? I mean, right now we're looking at a corporate sector that's in pretty good shape. You can make the argument that you should get sprighter, tighter spreads. And at the same time, when you look at the government bond market, there's a sort of mystery wrapped in an enigma, and why is it being priced in more? How actively aggressively are you betting against where things are now?
Well, we'll mix it.
Incredibly tricky is just the the uncertainty component around not only caraffs. Right, we have a Supreme Case Court court case that's coming to you know what happens you know after that? Well, and then there's lots of worries I guess around changes and issuance changes and you know, buybacks, and so investors are a little leary to you know, lean too much into the curve steepner in the back end of the curve in particular, just because you can see that change in dynamics that could kind.
Of catch investors by surprise.
So I think there's a tentative nature around it, so I see it more.
Cleanly, you know, from twoes tens in that part of the curve.
As you go further out, you're you're more exposed to, you know, these certain vagaries.
Greg that's the treasury market. We've touched on the supply there, we'll get suns this week. Let's talk about the corporate supply. This is coming this week as well. And what is financing? Is this market still wide open for this kind of debt issuance to finance the campex stories that we've been talking about the media every single day.
It is for now. So there's just a tremendous amount you know. I started to scratch my head, you know, as you go out the curve, particularly on the unsecured side. So there's been some deals in the marketplace that really don't make a lot of sense to me necessarily, you know, but this is a tremendous build out.
There's a tremendous amount of circularity around it.
So this is, you know, something that I think makes sense today. But as we go through this cycle, I worry about the refinancing aspect and ultimately the AI you know, adoption and the return on investment that these companies need in order to make sense. And that's what starts to worry with me. But as of right now, Jonathan, the markets are open. Everyone's all in on the AI trade,
both sides of the debt and equity aisle. But at some point there has to be a return on that invested capital, and you know, we shall see.
Well, Greg, with that in mind, how closely does someone like you watch the earnings as they come in on Wednesday on Thursday?
Yeah, So I think earnings are incredibly important here. Uh, you know, we have these long term structural issues that we worry about, but honestly, from an investor standpoint, right you worry about the cash flows and the earnings in the here and now. So I think it's crucial to kind of keep this market afloat, you know, as long as you see you know, a pretty reasonably strong corporate environment and backdrop, I don't really see this full market changing,
you know, anytime soon. So it's about the near term data that's allowing investors to kind of look past maybe some of the longer term structural issues that we talked about, namely fed independence and you know some other areas.
Stay with us mobile impeck Savanda's coming up off to this. I got to talk about this market and the amount of M and A activity we've seen over the summer and into the end of the year. Over nine hundred billion dollars in deals completed so far this year, with another one point one trillion in the works, on pace for a fifty nine percent rise from a year ago. Vitas Paduto of RBC Capital Markets US writing the market tone has shifted from waiting for an optimal window to
moving into execution mode. More discussions of large deals, more preparation, mo momentum, Vita joint just now for more vitok.
And morning, good morning.
Good to be here.
But we spoke honey recently. Things picking up even more.
Yes, I mean, I just think about the past.
I was here at the beginning of the month and just the tone has just talked about has clearly shifted. We've gone from trying to time the right window, and we always talk to clients about the importance of being prepared to execute on your strategic initiatives and being prepared to access the window when it opens. Well, the window feels open, and I think we're into full execution mode of many of our clients.
Could you have this a sense of how much it's accelerating, I.
Mean, just to give you a sense.
In this past couple of weeks, the volume year to date, both from a global perspective and from a US perspective, has exceeded full year last year. So just to kind of you know, and we've also seen where total volume was up about twenty eight to thirty.
Percent globally and US wise at the.
End of the third quarter, we're now talking about up thirty five to thirty eight percent. We've seen some larger deals announced, especially across the technology space the healthcare space, but more importantly, we've also seen the tone of the dialogue out there has become more active. Clearly there's some larger companies talking about divestitures strategic initiatives, publicly announcing that they're considering alternatives, and so those are all, you know,
big signs. At the same time, I would still label it as a cautious environment. I'm not seeing clients cut corners. I'm not seeing them rush into something. I think boards are certainly checking, dotting every I, crossing every te They're making sure they've done their full diligence.
They're making sure that.
The financing they're going to use is buttoned up, especially as we're heading into an environment where maybe there's some concerns about some of the financial structures that have been used historically.
So this, to me is fascinating, the idea that you're seeing something and it speaks to what people talk about with AI. It looks frothy, but it's not a bubble yet.
I'm gona.
It looks like it's getting really heated, but it's not a bubble yet. It's not really problematic, And I just wonder what's the motivation behind this. Is it because you are seeing the expectation for FEDERI cuts. Is it because there's more policy certainties?
It's just catch up?
Yeah, I think it's a clearer environment in terms of being able to execute your strategical initiatives. From a government perspective, a regulatory review perspective, We're seeing clients consider transactions that maybe nine twelve months ago they would not have stepped into because they were concerned about would the government approved this transaction. And so I think there's been a more
constructive tone out of the agencies. We've seen them certainly accept remedies much more so in terms of you go into a transaction you say, well, this might be an issue, but I'll consider these divestitures to satiate the regulators. And I think that's become an environment where you can think about how to constructively do something.
Other particular industries that you're saying, we're both activities. It's the banking industry. Is this the tech sector in particular? What are the deregulatory areas that are getting produced by the current laws.
I mean, as we talked about last time, it's always a technology and healthcare. And you look at the Aligned Data Center's deal on ho Logic in the past month or a few weeks as two of the largest deals announced here today, and they highlight those two sectors that are always leading the pace. We're seeing some around energy. I think we're seeing a fair bit around financial services. We certainly saw a significant bank deal announced this morning.
I think there's more being talked about there and I think that's an area where if you look at what the regulators from that perspective are considering.
They're allowing more of those to come together.
When it comes to the government shutdown, has it been a pediment yet?
Not yet.
I think it's noise that's being monitored. On November fifth, it'll become the longest shutdown in history.
I think the we talked about it.
Last time, the poly markets now are you know, are betting. I think it's fifty two percent it's going to be November sixteenth or beyond. I think the vacuum of data is starting to cause some concerns because I think it's becoming more about expectation and estimates as we're seeing you.
Know, what's going on there. You know that we're going to hear a.
FED decision later this week, likely to be a rate cut again. And so I think part of it the longer it goes on, as soon as we start seeing you know, we joked earlier about you know, how many flights people are on and the fact that you're starting to see some delays, whether it's over the weekend and a lot of the business travel going on. You know, government employees are starting to miss paychecks. I think more and more of that happening, you're going to see it
impact things. And certainly, you know when you start getting longer, you're start impacting GDP going forward. Now there's always an argument that you recapture it at some point, but you know that starts to become a concern.
You mentioned the feder reserve. How relevant are those right reductions to the broadest story. I think acceleration that you've articulated, Yeah.
We talked about it last time. I mean, I think it's helpful.
I think it's a good signal, but I also think when you look at the overall environment and what people are thinking about. You know, there was a CEO confidence survey that just came out a couple of weeks ago from the Conference Board, and it was basically flat to the third quarter. It's sort there's a strong view going forward, but it's certainly cautious, and it's right at the mid planet about forty eight, where fifty is kind of a
neutral level. But when you look at what CEOs identified as their number one concerns, it's geopolitical instability at the top of the list.
Trade and tariffs was up there and it dropped to fifth.
The other ones that they are concerned about is the uptick and sort of innovations.
Around AI and how they impact their businesses. And so when you look at what.
CEOs are thinking about, even though they might not be impacted by geopolitical issues somewhere else, they're still thinking about it.
It's that noise externally.
The financial conditions just is not the complaint. Right now, credit spreads the signatent equity markets we've been talking about at omnig sky high.
Yeah, right now it seems like there's a window that's open even though you've got benchmark yields above four percent. If you look at the tenure, I mean, it just sort of goes to this question of what is it that could potentially style me some of this activity and does it suggest that maybe this is closer to neutral than anything else because companies are able to.
Adapt to this well.
I think the other thing is if start noticing what's the commentary is when earnings announcements are being made, you hear mention of the shutdown that you're not hearing about the significant impact on their businesses. I think you're hearing some caution and saying, well, maybe you know, quote unquote, are we in a bubble? Or you know, should we be careful what we're taking on. But they're still proceeding,
so they're thinking about it. And I think everybody has a lot of history here and doesn't want to be caught as the party that's jumping in at the last minute when things are going in a difficult direction.
Have you seen the leftage cycle start yet? Have you started to see that come into some of these days.
A little bit?
And I think the larger deals are are set up in an appropriate fashion because the largest players in the credits, in the credit cycle or the credit environment are participating in those transactions. I think when you're hearing some noise in places that have had issues from a financing structure perspective, it's really been some ancillary players that have been in those transactions and so it's been less of a concern.
But you know, Jonathan, I think the we're sitting here with corporate it's probably the healthiest that.
I've seen them in decades.
And again, you go through the financial crisis, you go through COVID. COVID demonstrated there was a resilience in balance sheets and also a resilience in business models. You learn to pivot quickly you learn not to just take one path going forward. You thought about multiple paths, and you were able to make decisions and move your business. You think about earlier this year and how quickly a lot of companies shifted and brought business, you know, back on shore.
And you don't hear of that that tone as much anymore.
Stay with us, Multilemberg, Savannah's coming up off to this, Terry Hines Sepanche Policy, John just Nafam, Terry Week four. What's the day circled on your Accountada? When this gets real?
Oh?
I think sometime right before Thanksgiving.
And I imagine you know I've been saying since before the shutdown start, that you know not only was this politically generated, but that Democrats had the ability to decide when it was when it was finished by merely by agreeing to continue to negotiate on the Obamacare subsidy temporary increase. And so they can do that, And meanwhile, the pain will continue to mount, as you all have talked about, and neither side ultimately is going to want to be
the primary blamed for all this. So I think you probably have a truce called some time before Thanksgiving, Terry.
Something interesting happened last week where you had the two Democratic senators from Georgia decide to vote with the Republicans and also a Senator Fetterman from Pennsylvania in paying essential workers like air traffic controllers. Are we going to see more of that?
Yeah?
I think so.
There's going to be a lot of kind of one shot bills with different constituencies that might not yet be getting paid and all aret all that. But you know, underneath that, what that shows is a kind of growing disquiet on the Democratic side with the shutdown strategy. Generally they're willing to give their leadership to be the benefit of the doubt, but that's also wearing kind of thin.
We also have elections up coming November fourth, a big one with the New York City mayor race and also governor elections and Prop fifty in California. Is that going to affect how certain Senators show up to vote? Maybe after the elections take place.
Well, I think it affects how the senators make known to their leadership the willingness to continue I've been telling people for a couple of weeks now. This was not a political opportunity Republicans sought, but it's one that they
now sees what they want. What they want on next week in November is to be able to say to the public, Look, the Democratic Party is now the party of Mamdani, the new New York City mayor, and you have being report publicans here, you have hokl and Jefferies and schum were all kind of bowing to him, and that, you know, that's the future of the Democratic Party. And then they also want to point out that the balloon likely gets let out of the Democratic Centrists in Virginia
and New Jersey. It's a little bit too much for them to hope that the Republicans win in either case. But what they will be able to say is, look, you know the uh these people barely squeak through in years where they should have done much better and they haven't.
So you know, the balloon of the ears out of that.
Particular balloon, and what you got is kind of the Mom Donnie Party. And I think folks, frankly in midtown Manhattan underestimate just how how powerful a message that is in the broader the broader public.
How much does the shutdown really play into local elections like that.
Not much at all, really, there is you know, more in Virginia than in New Jersey because you have a contingent in northern Virginia. I mean, the Virginia's turned a purple state, but it has turned into a tale of two states.
If you're in northern Virginia.
You're in heavy government employee territory, and outside of Northern Virginia you're not. But Northern Virginians are already by and large heavily Democratic and motivated to vote for the Democrat span Burger anyway, So I don't know that it makes a huge difference otherwise, although they're trying to try to pump up less so own New Jersey Terry.
I'm wondering what you think of Congress being shut down at the Congress hasn't come back to the table so far for another vote since I believe September nineteenth, And this has been a strategy for Majority House Speaker Mike Johnson, where he said, look, it's up to the Senate. The Senate needs to take action, then Congress can get behind what they do. Do you think that that has been a prudent strategy or one that has really diminished the executive branch of the House of Representatives.
Oh, it's a very prudent strategy.
You know, I know, I'm aware of the New York Times thinks it's not, but by and large it is. You know, he's you know, he's got to herd cats every day Johnson does. And you know, giving the cats a playpen in Washington well, with a lot of microphones and cameras around him is an opportunity for mischief. So
it's much better that he keep them out. It's also much better frankly for him that he defends kind of the institution of the House and what the House did on shutdown and frankly say it's up to the Senate to figure it out. You know, it makes it easier for him on those two levels. So I think it's probably a good, good idea.
It's Harry, what is the future of the Democratic Party? Can we just finish on that? Governor Hooko gets booed everywhere she goes establishment leaders down in Washington.
D C.
Reluctant to endorse the guys leading at the polls here in New York City. What's the future of this party?
They're going to have to have a you know, they're going to have to have a I'm just going to say cleansing, and that's obviously a bad thought. But the idea is that they've they've got to come through both generationally and in terms of ideas. They've got to reconnect with people and not just pretend to. They've got to try to figure out how to move people forward. We've had a generation here. I've indiciting both parties by saying, so, we've had a generation here where people have decided to
play politics instead of solving problems. The party that gets back to solving problems first and best wins. There's a high perception that the Democratic Party now is the party of rich people and has completely disconnected from its working roots.
And the Republicans have run in and have come into that whole.
Democrats have got to get back to the get back to that and get back to figuring out how things ought to run and what they are actually for. Or you know, kind of all the ball of Hollywood, this or that or the other isn't going to make a difference.
Stay with us more Bloomberg Surveillance coming up after this. The White House naming five finalists to replace Fetchair Japound, including Gamuna Chris Waller, with the FED widely expected account rates at Wednesday's meeting. Joining us now to discuss is Veronica, clark A City, Veronica and Mornick. Good morning, Ray Cut. Noil done for Wednesday. Caun't seem to find anyone who disagrees with that hash guidance? Can they provide beyond Wednesday's meeting?
Yeah, probably not a whole lot. We haven't had any data, of course. I think if anything in the day that we have had obviously CPI on Friday, should give them a bit more confidence. Yeah, inflation is slowing, labor market is weakening, but they probably can't give us a whole lot of guidance right now, we have no data.
How comfortable should we be with the data we have got, which is inflation at three percent?
Yeah?
Yeah, I mean it's not where the Fed obviously wants to be. But I do think they'll they'll find some encouraging details in that data that we got on Friday. We had particularly soft alter inflation. I think that will be an encouraging development. We haven't seen a ton of the terror related inflation. Maybe more of that is still coming, but I think this is slower details than you know, they should be comfortable with.
Yeah, I thought also the owner's equivalent rent was really interesting, the fact that it came down to the lowest going back to twenty twenty one. I was looking at this thinking, Okay, well I can buy this story, and then a couple of people message me and say, all right, you numskull. This is backward looking data that was done over the past year and is completely lagging, and when you look at current indicators they show something different.
What's your response, Yeah, I don't actually think the current indicators show anything that different. You know, it is a very lagging indicator, of course, But when you look at all the forward leading measures, you know Zillow New Rents, home prices, home prices has been falling for a lot of this year. It seems like that kind of trend can continue.
At the same time, you are seeing other points spike upward. In particular are some of the good sectors, and you see a lot of companies saying that they're still going to pass long additional price hikes. At what point do you start to look at this and say, it's not so clean. Even though we already knew it wasn't so clean, it's even more difficult to really discern what's going on.
Yeah, I mean relative to how we were forecasting the tariff pass through maybe six months ago, though I think for most people we have been surprised that we haven't seen more pass through it at this point. I think that, unfortunately, does speak to consumers just can't handle these big, one
time kind of price increases. It has to be spread out over many months, which could give the appearance that, yeah, inflation is maybe a bit sticky, but it's still that softer demand backdrop that means you can't pass on these big price increases.
All at once.
Doesn't It also mean that corporate America has been resilient in terms of mitigating some of the price hikes.
Yeah, so what does it mean for next year?
Do they start to maybe have to lay people off?
Yeah?
I do worry that, you know, the more you can't pass on the price increase to consumers, that is eating at profit margins for longer. We already know that businesses are trying to cut labor costs, and they've been doing that. They're not hiring anyone, But I would worry that you can only not hire people for so long before the next step is layoffs. We don't see the signs of that yet, but that is I think still a risk.
We're in this data desert with the twenty seventh day of a government shutdown. We had the inflation on Friday, but that was one and done according to the White House. How long could the FED continuously cut rates if we remain in a government shutdown and don't have data.
Yeah, it's getting tricky obviously, because you know there is the division among FED officials, a group of people who maybe don't want to cut anymore at all, and people who want to cut each meeting this year.
It is hard.
But I think the shutdown itself, if it really is lasting that long, that is a drag on growth in itself, except.
We won't see the data. That's where the risk management argument loses some oxygen. I think in the next meeting in December, if you don't have the data to convert the hawks on the committee, yeah, how are they going to vote?
They're going to forecast it to next year.
I mean, we'll have to deal with the data that we do have. Obviously, we'll have the surveys. Isms probably get more important. The FED will probably put more weight maybe than I would on something like ADP employment.
But Yeah, it is tricky.
Are you seeing sufficient deterioration and the other indicators.
It doesn't seem like we're getting that break yet. We fortunately, probably one of the best data points to have. We are getting claims. We are getting the weekly job as claims data. We just have to aggregate it ourselves. From the states. We have seen continuing claims starting to tick up again. Initial claims are still low, but that's going to be an important one.
Let us say on initial claims, do just thank gif you in the team pause that maybe the labor market is not as bad as you and some of the tubs on the committee thinks it is.
Yeah, it is tricky.
We're getting into the time of year which this happened last year. Also where there is this residual seasonality pattern in the data, where we had the weakness in summer twenty twenty four and then things seem to stabilize. I think that seasonal pattern comes from this lack of hiring. This is a time of year when you're not usually hiring a bunch of people, but you're not laying anyone
off either. The issue is when we saw that happen last year, it never got better, right, We just repeated it this summer.
How much does the QT plan really matter the balance sheet? And there was some flirting with that in some of the recent speaks, as speeches from Fed shir Jpwell that they were planning on stopping some of the shrinking of their balance sheet. Is that important to understand what the directionality is for them in terms of policy?
Yeah?
I think maybe my takeaway from it is just a lesson that the FED is extra cautious right when we started to maybe get to the point where maybe reserves are not so abundant, maybe they're just ample they're maybe talking about ending it earlier. I don't think they'll announce anything this week. It's maybe you end of this year into Q one, but they are extra cautious when it comes to everything.
What's the takeaway from you and Andrew That you've had an ultra dubvish FED for a long time, You've had inflationary shocks, you have an ongoing inflationary shock, and that the knee jerk response is to risk managed the downside in the labor market, regardless of which I was talking about that three.
Percent inflation rate.
How do you understand why the market isn't pricing at a greater degree of inflation longer term.
Yeah, I mean maybe speaks to some confidence in the FED. Right, we haven't seen the long run inflation expectations going higher. If we did see that, obviously that's a game changer. But I think the market is taking what we see in the labor market data, and that is not a scenario that creates inflation, right, a weaker labor market.
And a huge freecount about the erosion of institutional credibility. It's just when you look at market based indicators don't quite see the same.
Thing at all.
I mean, if you take a look at long term inflation expectations, they've come down in the ten years. The cleanest read on that, I just thought it was notable. In an interview in the Financial Times over the weekend, Scott Bessett talked about his strategy. What he said is we want the most America first policies that are possible
without incurring market wrath. And he was saying, unlike most of my predecessors, have a very healthy skepticism of elite institutions, but I have a healthy regard for the market and that is very much a focus of us.
As he goes through crafting policy, and.
He almost felt vindicated in that interview. Who's talking about where the hell is the market risk? He's looking at basically all time highs when it comes to the S and P. Five hundred. It's interesting when it comes to the Fed. The President told us we're getting a Christmas gift end of the year. We will have a name by the end of the year of what next year potentially policy path forward will look like.
Think the Treasury Secretary's done a good job of mind time on that issue, just stretching things out the land, things into your end. There was a feeling at one point in the summer you'd gain that decision maybe around September time.
It's been pushed down a number of months.
Remember that's when they were jaw boning mister tooleate J. Powell and the President had called him. Now that the Fed is cutting I think it's the FED that gave the Treasury time to make this process a little bit longer than they were expecting.
Just quickly, Veronica, of the names on the screen, you and a team's got to pick yet, No, don't want to go there, opinions.
Yeah, soon.
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