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Terminal and the Bloomberg Business App. Premisserer of JP Morgan writing a print of one fifty or higher and the federal likely cut twenty five in November. Payrolls around one hundred k or below means fifty basis points, bad news on jobs, bad news for risk assets, and the curve should ball steepen. Pre it's with us around the table, Prey, good morning, going to see you. I've got one question in the bomb market, and then we can go broad
and we can talk about payrolls. Why is so much money, so much going into money market funds right now?
Great question as we hit another record yesterday, I would say one word valuations. You know the fact that you're still getting four and a half to five percent on money funds. The Eiger is still inverted. Every asset class is priced for a soft landing. So I think people are staying in cash, waiting for better levels and bonds, better levels. On stocks, I will say we're seeing significant inflows into bond funds, but people who are waiting for a while, I'll buy. When the tenure treasury is at
five percent, you're not getting that. You know, inflation's coming down. The Fed's telling you they're going to cut. We don't have to read between the lines on the Fed put they're telling you it's there. If things weaken, they're going to cut much faster. And I think people who've been sort of you know, there might be a melt up move because if you get a short period of volatility, we are absolutely going to be in there buying if
if there is a risk off. But I think, you know, there's a sense of everything is so well priced, everything's done well, let me just stay in cash. It's still giving me four and a half. Well, within a year it's going to give you two andough half or three percent, And you know that's when I think a lot of that money is going to start to move.
Out, although it comes at a time when people are taking a look at what's going on with the oil prices, They're taking a look at what's going on with the resilience and a number of different indicators. Yesterday we had ism services data that came in better than anyone expected
who is surveyed by Bloombird. And you have to wonder whether people are questioning this idea that the Fed is willing to go fifty basis points so quickly you hurt a sew of people lining up twenty five, twenty five, twenty five, and then Nil Tata saying no, why I stop it? Guys? How much do you see this as sort of a given? Even though you are seeing signs of strength in so many places.
So I think the data has really mixed. You can see signs of strength, then you can see signs of weakening. Look at that unemployment rate increase, look at labor differential in consumer confidence. I think this is where the earnings report, details of the job report. You've been talking about revisions. I think revisions look at dispersion within jobs. Is it really only two or three sectors that is creating all the job growth, what happens with margins? So I think
there is you know, a lot of uncertainty. The data is not giving a it's a clear picture, and every market's price for soft landing. So I think this is where I would push back. The reacceleration risk seems to be off the table. I think we've got really a
bimodal world. You've got these binary risks, and there's a lot between the election, between geopolitical risks, between payrolls frankly, or the entire jobs report, where either stay in soft landing, everything is priced in, but can rates fall some marshal can spread titan absolutely if we stay in soft lining, or we go much worse. And I think that's the world that we're sort of grappling with.
And that's the reason why I think good news is good news for risk assets, because ultimately you do think that that reacceleration is off the table. I want to pick up on that. Are you're basically saying that this headfake that we're saying in oil prices is a headfake and that any kind of take up in yields is a buying opportunity right now, because ultimately inflation is dead, I think so.
I mean oil price increased through supply related issues, which is what this is. That's actually at taxed on consumers. So I think if it's geopolitical related, I would not buy it. If there's massive fiscal easing in China or significant fiscal easing in the US which actually creates growth, then it's a different question. But I think oil prices is negative. Bonds are a diversifier for risk asses. We saw it the last two payroll reports. We had slightly
weaker numbers. You've got, you know, the market pricing in this higher chance of fifty rates fell and that's why I think, you know, if you get weak numbers, we're going to price in fifty. And the whole idea of why did the FED go fifty, all those reasons are still present today. Monetary policy is restrictive. What's one to fifty basis points really going to do? I think, well, exactly. I think for the housing market, you need mortgage rates
much lower. We're talking four percent, four and a half. We're not you know, at six percent, you're not going to have that happen. You're not going to create a big positive on the housing market. So when I think about reacceleration, I look at where are the drivers. It's not rates, you need much lower rates. It's not really fiscal so far. This is where the election, This is where China becomes important. So right now, I would say oil prices and that's resulted in this and rates. It's
absolutely a buying opportunity. If you've got risk on your portfolio anyway, and we do, we get a little nervous about all these binary risks. I think owning some hedges, be it steepeners, owning some duration, especially given this backup, it's an opportunity. Rayo. Let's talk about the election.
You went there. You say after the job's report, the market's going to be solely focused on the US election, And you say the market will move in any scenario, since it is not priced for any scenario. But if you have conviction that you think Harris is going to win with a sweep or Trump is going to win with a sweep, how should you be pricing that?
It's very hard. I mean, I would say your key point was the sweep. I think what happens if it's not a sweep. But I love that you bring up sweep because I think everyone focuses on the White House, not you all. I know y'all have talked about Congress. Congress is very very important. So what happens with the House, and this is where the House is at a knife edge, the presidency. Look at Poles. I mean, I'm not even sure we can trust Poles a whole lot, but the
Poles are very close. So and then look at all the policies we're talking about right from which actually doesn't need Congress as much. Fiscal policy absolutely needs Congress, immigration regulation. There is so much out there that we're going to have to see, you know, what's the maker? Will we know the result on election night? I hope for all our sakes that we do. But what if we don't know that, what if it's a divided government. Then we
have to see what is priority number one? And there's something on the campaign trail, and then there's actually what they talk about. So I think for the market pricing, we're going to move in either direction because there's so many unknowns around the makeup of Congress, around the presidency, and then what policies are their number one priority?
And what happens when the FOMC NEETs and we don't potentially have an election result.
I think they look at financial conditions and the economy. Clearly, if monetary policy is still restrictive, which is likely to be, we're going to be in the four handle. We can debate our star and say maybe neutral rate is not two and a half but three and a half. It's not four and a half or five. So I think they continue to cut. They're going to try and be as a political as they can. Look at the data,
the entirety of the data, inflation and growth. I think Governor Walla tells us inflation is also important, so we have to look at both and then look at financial conditions. In the scenario where we don't have an election result, financial conditions will tighten because markets don't like uncertainty. You don't want binary outcomes which you don't know how to price. In that scenario, I think they cut, and they tell us, well,
if financial conditions continue to tighten, we'll cut more. I think that's the message we'll want to hear.
So final message from you, I'm saying, in cash, like so many other people, what do I do? Where do I go?
I think you buy bonds? Okay, I mean I don't want to talk my book, but I think what I.
Had to say that you might turn around and say it might be the coll plus bond.
Bts if you're getting you know, investment rates, securitize, you know, high yield bonds, high quality height. I think high quality fixed income is sort of the best place to be in right now. Spreads are tied, but look at all in needs. You're getting five to five and a half percent higher than money market rates. So if you're in money funds, you're getting four and a half or you get five and a half, and it's going to be
a diversify, especially if one of these events. When we talk about October Surprise, we have multiple contenders for the October Surprise, any of them ban out, You've got that yield and you've.
Got that hedge, so massive month ahead prayer is going to say, as always, thank you prayers for of JP mort Let's get to the market view. Jeff Rosenberg of black Rock with us, Mohammed al Aaron of Queens College, Cambridge with us as well. Jeff, I want to come to you first, your thoughts on this and as a market participant, what do I do with this?
Yeah, I mean clearly it was just described, this is, you know, across the board, a very strong report. You know, if you look in the under components retail, professional services, education and health services, you know all significantly beat above their three month running average, and you know across the earnings and the household survey, you know, this is this is a very strong report. As was mentioned before, the revisions in terms of August was kind of expected. The
home based data and the alternative data. You had some people looking at that as well, maybe not to the extent you know Bloomberg and Analong did and emphasizing it, but you certainly saw, you know, some data points that were pointing towards you know, the potential here for a
stronger report. But this is stronger than anyone expected. And as Lisa said, and I think this will be the longer run debate, and it's something we've talked about on this on this program a lot that the debate about not only where kind of policy is, how restrictive it really is where you know, our star and neutral stands, but but something else that that has really been missing from this fed's conversation that was present in past cycles.
They've abandoned it, and that is the impact of financial conditions. Financial conditions say that this is a much easier monetary policy, and you look at where growth is and it's it's kind of a it's a concurrent signal. But growth is running well above potential, and that really tells you that this is not as tight of a Fed as the market, or really as the FED thinks it is. But today is maybe another data point kind of in support of that view.
Mark Rowan Apollo earlier this week. Financing is available, real estate prices are going up. It's not clear we need more right cuts to the extent we accelerate the economy and have to come in the other direction. That would not be a good day. Muhammed, I want your early views on this job's report and what on earth does the FED do with this one?
So thanks John. Four takeaways, including for the Fed. One on the labor market. This is not just a solid labor market, but if you take these numbers at face value, it's a strong labor market late in the cycle. Two for the economy, it speaks to US economic exceptionalism, something we've seen and something that's continuing. Three for the Fed, it means pushback much harder against pressure from the markets to put you in the single mandate box. Enough talk
about inflation is dead, inflation is not dead. Enough talk about the Fed should only be concerned about maximum employment. It should still be concerned about this dual mandate. And finally, for the markets, I think this is pushing back against what has been, in my view, and you've heard me say it over and over again, an overly aggressive expectation of weight cuts by the FED. I think this will will get the market closer to what's likely, and then we're going to have a debate on two things. One
is where's the neutral rate? And two is how do you think about this economy in terms of growth and employment and how are these two things coming together. So you know, at face value, this is a report that will cause a lot of both revision both in analysis and in market pricing. But I stress it is part of a much bigger picture of mixed data and that's where the complications arise.
John. As you know, Mohammad Emory nailed it when she started saying how much does this have to do with a fifty basis point rate cut? And it's somewhat tongue in cheek, of course, but at the same time, there is a real question how much have the easier financial conditions that have basically been manufactured by this Federal Reserve helped boost a market that wasn't maybe in need of such a big boost.
Look, you know my view. We've been living in a world of liquidity dominance. It has been all about liquidity. That world was reinforced by fifty basis points scut Let's also remember that the market didn't expect the fifty basis point cut based on data. It expected it based on a reporting on the Thursday before the FED Board meeting, So there was no economic conditions that would justify fifty basis points, but there was a leak to newspaper that
moved market expectations. I worry that we continue to feed this, this monster of liquidity dominance, and at some point we may regret it, either because inflation will not settle two percent and or because financial stability will result from excessive risk taking.
Muhammad, is there a chance that we can have a no landing scenario?
Sure, there's a chance that we can have a world in which we there are positive things happening on the supply side, and we can be quote bigger but not hotter. Yes, that is part of the distribution of potential outcome. I think a soft landing is still the fifty five percent probability.
Bigger but not hotter is fifteen percent. So add them to to up, you get seventy and then you have a thirty percent probability that either becomes up or because of weakness in low income households or because of FED policy mistake, we end up in a recession.
Looking at these numbers and Mohammad, thanks for being with us. You're going to stick with us. If you are just joining us, Welcome. It's about eight forty five Eastern time this morning here in New York, and about fifteen minutes ago we got to blum out Jobs Report two hundred and fifty four thousand. The median estimate our survey was one fifty. Lisa's talked about the revisions repeatedly. The revisions
were good, they were positive. If a look at the unemployment rate, we've dropped back to four point one percent from four point two, Mike McKee suggesting we came very very close to drop into four point zero. Wage growth was hot as well. A lot of this was very unexpected. We've said it repeatedly through this morning, the range of estimates stretching from anywhere between seventy at the low side and two twenty at the high end. Nowhere near this one.
I want to throw this one at you. There will be a lot of people in this country that don't believe these numbers. They will look at them, and some will say sarcastically, snarkily, they will say, if you're the Harris campaign, you can have written this Job's report any better,
even if you wanted to. There are others who look at this, perhaps a little bit more sophisticatedly, and say that even the chairman himself is mentally marking these numbers down by let's say fifty or sixty thousand, should we be doing the same thing this morning.
I think that's fair. And if it was a week report, that would have been the initial thing of okay, well, now if you subtract out the sixty eight thousand that we got from annual revisions last year, now we're in trouble. The initial reaction to this Job's print isn't necessarily that, but it should be. So perhaps the conclusion shouldn't be the economy's on fire or there's no landing. It's probably
that we're actually hitting the soft landing. If you take a straight three month average, you're a little above one hundred eighty six thousand. Then if you subtract the QCUW, then you're at a trend that's kind of normal. So I think the market reaction is probably going to be a bit extreme on the back of this. We should probably look through it a couple Last night, the concern was we're headed for a recession. Now the concern is no landing. It's probably somewhere in between.
Jeff Rosenberg, is good news good news.
Good news is good news here, and I think that key going back to what Mohammad said is the market had been very aggressive in terms of its pricing for the FED. You know, partly maybe that pushed them into the fifty. You had more than two twenty fives for the November and December priced in. That's obviously pricing out here.
And you know, next week when we get the CPI number, you know you may have As Muhammad was suggesting more of a debate as opposed to a one sided debate where we shifted completely away from inflation as the focus
back to growth. Having a little bit more balance here is going to make the outlook a little bit more challenging, and I think for the bond market, it's going to have to reassess its pricing in terms of how aggressive it has been pricing, as Muhammad pointed out, very aggressive from the get go here in terms of expecting, you know, the most extreme in terms of in terms of what the Fed was going to be able to deliver. Hard
to say whether next week you get that surprise. I don't think we're talking about here inflation going back up and an inflation scare.
That's not the point.
The point about no landing is that the last mile from two point six percent inflation down to two percent may be harder to achieve. And why it's harder to achieve is because growth and financial conditions are not as tight as the nominal rate suggests, and so you don't have to necessarily be as aggressive on securing the soft landing because the inflation side is pushing back. That's what
you're seeing here this morning in terms of pricing. It makes the front end here a bit more rational in terms of pricing in less than two fifties to the end of the year, and I think that's starting to be more of the story pricing out of the bond market.
Jeff, how off sides is this market? And we saw this being sort of sniffed out earlier this week, this idea that people were thinking, wait a second, maybe we overplayed just how many rate cuts there would be, just what kind of dollar weakness there would be.
How much does that trade.
The steepening curve all have to unwind as people reassess with this data.
Yeah, as you pointed out, it started earlier this week, you've had some better data. The labor market data hasn't been as one sided in terms of the fears. In terms of negativity, there's still a preponderance of the steepener view because when you're in a FED cutting cycle, and we're in the beginning of the FED cutting cycle, it's about how fast and how frontloaded it's going to be. It's also about the terminal rate and where it ends up.
But generally, when you're in that time period, the steepener market reaction is what you're going to get, and you're starting from a very flat point of the curve. The
problem for the steepener trade is timing. You need the pace of steepening to overcome the negative cost of carry, and fast levered players don't have a lot of patience for that negative carry, and so that can, as we're potentially seeing this morning, kind of exacerbate the moves on the headline, you know, going back to the birth death
model and what Bloomberg Economics has been highlighting. Yes, this may be overstated in terms of the headline impact, and therefore may be overstated in terms of the impact of the market move, But the overall message here is that this is still a normalizing labor market, but not necessarily normalizing to the point where the FED has to deliver consistent fifties to secure that.
Soft landing Muhammaded.
One thing that you've talked about is that this is an overly data dependent and data point dependent federal reserve. It seems like everyone expects this FED to still cut at least twenty five basis points. Do you think that they have moved to a framework that is less data dependent if the data actually suggests that the labor market is doing just fine.
Yes, I think that moving that way. It started with Chairman pals jackson whole speech, it continued in his press conference, and I think they are moving away from being overly data dependent to also trying to have a forward looking view of where the economy is going to settle.
Muhammad, does next week's CPI report matter to you at all?
Now?
It matters me to me and Marie and the one that's going to matter even more to one after that. Yes, it does matter to me. I think Jeff is absolutely right. This notion that the last mile was going to be easy, this notion that inflation is dead, this notion that we are mission accomplished, came way too early, and I think we're going to see from core inflation why certain parts we made sticky. Meanwhile, headline inflation is going to start moving up after a after not this month, but the
next month. So yes, these CPI points still matter, and of course they matter a great deal to the American people.
Mohammi talked to me about what kind of numbers do you think we have to get accustomed with. Are we talking about stabilizing at these levels for inflation or are we talking about the real risk of reacceleration given what's happening in the commodity market, what we've seen out of China and the easing has come from the Federal Reserve. But after a jobs report like this, some people are think it has come prematurely. How real is that reacceleration risk for inflation?
So to the extent we have an equilibrium rate of inflation for today's economy, it would be two and a half to three percent if the FED had the option, which it does not. If the FED had the option to set a new inflation target, that is where it would make sense. We will settle, I suspect somewhere towards the upper end of that, because, as Jeff said, financial conditions are extremely loose. There are two factories of credit, two factories of liquidity. You heard it in the interview
with Mark Rowan. There is not just the official factory which has produced a ton of this, but there's the private factory that's getting more and more efficient and producing more and more credit and leverage and looser conditions. And we are living in a world where these two factories are still operating at quite a high level. So there is a risk, John, that we will settle towards the higher end of that two and a half to three percent.
Stephanie, I'm struck by the fact that given this report, we've all been thinking about organized labor working on the dock workers straw strike with the Boeing strike as being sort of at the end of labor having the leverage. Is that a wrong way to look at this, especially given the fact that wages went up. Is it actually that employees have still the upper hand when it comes to demanding work and demanding to be paid.
I don't think that's an entirely fair way to look at it, in the sense that if you look at ECI for union versus non union workers, there's a clear lag from union to from non union to union, in that you get a big acceleration in non union wages and then unions tend to follow. I think this is really just a catchup, but a catchup from a really big acceleration in wages. So this is kind of a lagging indicator. The wage number, yes, it was point four, but it was if you look at the three digits,
it was point three sixty nine. So yeah, it was strong, but it you know, if you look at an average page, you're still running a little bit below four percent, in which case it's not really concerning.
Final question for you all, and I'm going to say it up front, So you all don't have to, and you can answer with just one word.
There's a lot that.
Can still change in the next month, but as things stand, your best guest for November seventh, for this federal Reserve, and these are the choices, fifty twenty five or no cut at all. First to you, Jeff Rosenberg.
I'm gonna go with twenty five.
Gentlemen, Mohammad twenty five, Stephanie twenty five. Let's see how much changes in the next month or so. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, angiot politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.