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Terminal and the Bloomberg Business app. Stephanie Roth of Wolf for Research anticipated one hundred and seventy five thousand jobs were added last month and for unemployment to come in line at four point two percent. Definitely, I'm pleased to say is back with u. Stephanie. First of all, welcome back. Second of all, congratulations on your little baby girl. We're looking forward to more conversations with you in the future. So thanks for racing back for payrolls Friday. We appreciate it.
Let's talk about payrolls first, Stephanie, Let's get to it. On Friday, the matin estimate our survey around one hundred and sixty five thousand. We've already heard from the feed Share chairman poull In Jackson Hole that he does not welcome any further deterioration in this job's market. What is further calling further deterioration in this job's market?
How would we define that? On Friday?
I think that.
Would be another payrolls print that's sub one hundred and fifty thousand. I think that would be the unemployment rate potentially rising up to four.
Point four percent.
Again, not our call, but if we continue to just see more signs of softness, our base case is that a lot of the softness that we saw in the month of July was driven by Hurricane Barrel, and we'll see a thirty seven thousand rebound from the month from the state of Texas, in which case our payrolls print will be above one hundred fifty thousand, which we kind of view as trend. So if we see a number closer to one hundred thousand this month, and we'll have
to reassess our view on the labor market. But our base case is the print should come in pretty solid.
Even if we get one fifty given the revisions we saw over the previous year. Why shouldn't I just chop off sixty seventy thousand of that number on Friday?
Well, I think the revisions might be a little bit overstated, right, So we initially had the numbers that came in and then it was revised down because of unemployment insurance records, and it's actually possible the revisions won't be quite as large ones we get the final numbers because immigration has been playing a role here and it's possible that's not necessarily getting counted in the unemployment insurance So basically it's a lot of noise to say I wouldn't necessarily chop
off sixty to seventy thousand.
Maybe you can chop off thirty to forty thousand.
But then you're still looking at a label market that's still growing jobs and an economy that's doing okay. And by the way, consumer spending is growing about three percent in reil.
Chirvice slowing, so not slow. I'd also love to get your take on what happened yesterday with the ism manufacturing. We just had Andrew Hollandhorse published and report saying a fifth consecutive sub fifty ISM reading shows the manufacturing sector is in a sustained contraction. Do you foresee that through the end of the year.
The ism has.
Been weak for a long time. It hasn't been a great measure of what's happening in terms of the broad economy. And by the way, measures of sentiment, which is effectively what a PMI is, it's asking you, purchasing managers, how are conditions this month versus last month? Same as consumer confidence, that would have told you we were in a recession for all of last year. So I wouldn't necessarily take that as an indication of where actual broad growth is for the economy.
That said, the manufacturing sector has.
Been hurt by elevated rates, and we've seen a cyclical slowdown in a lot of parts of rate sensitive aspects of the economy. We might see that for the next quarter or so, but now that rates have come down, we should start to see a rebound in the manufacturing sector.
I wouldn't necessarily anticipate that in Q three, I think Q four, and heading into next year, especially as we get certainty from a political perspective, I think there might be and they mentioned this in the report yesterday, there might be some hesitation to invest just because we don't know what the political landscape will be, especially from a tax perspective, but our base.
Case is Q four and to Q one you'll start to.
See a rebound in the manufacturing sector and the cyclical parts of the economy won will start to pick up.
So basically our parts of the economy just on hold until after November fifth.
I think that's fair well, at least on the cycle go side.
On the business investment side, there have been some questions about whether the consumers are.
Waiting to see the results of the election. I don't think so.
I think the consumer and we certainly saw that with Q two GDP consumer is continuing to spend in real terms. Certainly, good spending has picked up a little bit. Services spending has been fairly solid, albeit a little slower, but it's yeah,
I think it's fair to say. On the capital spending side, there are a lot of companies that are just in hold mode, and then once they see the results of the election realistically, probably either way, they'll be able to start investing in investing again and they'll have a greater sense in terms of what the investing lines gap will be next year.
Stephanie, we've gott to leave it that it's going to have you back. The Brittian and Stephanie Roth of Wolf Research on the light system the jumps market looking ahead to Friday. But this is around a table amount of a line of flack oral command in mornings.
It's going to thank you for having me.
Let's get to this credit market. How sensitive has this credit market been to the growth scare of the last four weeks.
It's been incredibly sensitive, and I think you can see it both in the widening that happened in the during the early part of August and the very swift snap back. And I think what that shows you is that the credit market is sensitive to the growth backdrop, especially high heeled and leverage loan issuers in the credit market, not just the cost of capital and the interest rate environment. Starting trading yesterday morning, we had retraced the entirety of
the early August widening. We saw almost a record day of new issues supply yesterday in the corporate credit market. So spreads have gapped out a little bit wider than that, but we're still in this kind of narrow range. We're seeing widening get bought by investors. I think the key for credit investors, is that one, yes, the forward path of monetary policy matters, but the reasons behind that rate cut really matter. And then two, we don't need really
strong growth in credit to remain resilient. We just kind of just need trend or slightly above trend. And I think there's really a wide chasm between a recessionary outcome and the current pace of above trend or slightly above trend growth, and that we live in that space in between.
United the recent round trip, how symmetrical was the widening versus the tightening beneath the surface?
What led and what lacks?
So actually a kind of higher beta cyclical sectors led the tightening, but it wasn't uniform. For example, triple c's are still underperforming the overall broader index tightening. But this has been almost a low quality rally in that high yield and leverage loans have been outperforming their investment grade peers over the past few months. That's continued the year
to date trend. And so for all of them talk about concerns about downside risks, I think investors are making the calculus that are saying, Okay, I'm entering at pretty attractive all in yields. Growth is slowing, but it's not slow, and therefore the outcome for corporate credit investors can be quite resilient in.
That BACKDROPD what are you personally advocating for?
Yeah, so, I think there have been a couple act allocation shifts that have been super relevant. The first and foremost has been the trade off between high ode and leverage loans. For most of this year, that equation was very clearly in favor of leverage loans because of the rate backdrop. I think it's now shifted more neutral between hyold and leverage zones. That's one. Two, the recent volatility
has showed us how quickly the market can change. That's especially true for the barrowers that may have found that they were locked out of the market, even just for a short period of time. So I think we've seen more interest from investors on kind of private capital, something that's not at the whim of the public market volatility. And Then three, I still like moving down in quality
within the investment grade spectrum. I think one of the key developments since the pandemic is that that cliff between downgraded from IG to high yield isn't as severe as maybe we would have thought several months ago. And so if you can own triple B rated firms that have a strong incentive to stay investment grade, and even if they do fall to highyield, will likely be supported and bought.
I actually like that, So.
I think within IG moving down in quality makes a lot of sense. Within high yield, I would not go all the way down in quality to that triple C cohort because they've likegged when you say the corporate credit reaction to the cuts is more important aka normalization or easiness, they're.
Actually seeing the deterioration in the economy. That scenario is not reflected right now in valuations. What would it take for that scenario.
To be reflected? You're exactly right.
I think three sixteen is where we're on the Hyaled index. That's nowhere near even the post financial crisis average. So what we are baking in at the moment is truly a pretty benign outcome for credit. I think, as Stephanie mentioned, you would need to see deterioration in the labor market, the growth backdrop that is consistent with the weakness that we saw in July, such that it kind of spooks credit investors that growth is not even at trend, but
actually meaningfully below. That's really the critical factor. But again, so long as we have trend growth, companies have shown that they've had an ability to navigate this cost of capital environment, and so really it's an extreme downside risk to growth now. I think the important thing for investors, though, is there is a lot of room for spreads to widen in such a scenario where we're kind of nearing
kind of not recessionary levels, but a sharp slowdown. I think you could see spreads five fifty six hundred from three to sixteen. So there's a lot of room to wipe.
You've got your finger in the pulse of this market. I think an interesting question for Friday would be how sensitive this market would be too stronger than expected dates versus weaker than expected dates. What would generate the launcher move.
I think weaker than expected data because it feels to me like stronger than expected data is almost priced in at the moment I realized that GDP can be revised in third quarters tracking at two percent, so I would say that's not extremely above trend. But we've had resilient growth all year, and I think the consumer has surprised to the upside in terms of spending, albeit bifurcated.
Just quickly on supplying.
You mentioned it the amount of supply we've had in the last twenty four hours, the announcement of companies bringing debt to market. Are they operating from a position of strength or weakness or stress?
A position of proactivity and strength. And Stephanie had mentioned kind of capital spending slowing, but capital management has not slowed, and so if companies I think are being proactive in terms of capital management in the balance sheet as they moved towards later in the year.
And the event risk a clinic as always, it's got to see it.
Thank you, AMOUDA line a black croc with the lysis in the credit market use where the Barclay's Energy Investor Conference kicking off today in New York. Baker Hugh CEO Lorenzo similarly attending, following a better than expected earnings report earlier this summer, the company seeing high demand for its drilling services and equipment in international markets and place to say that. Joining us around the table is Lorenzo. Good morning, sir, great to be with you. Let's talk about the outlook.
You raised the midpoint of that outlook, competitors did not a similar story with competitors, though, was this better international bankdrop compared to say, what's happening domestically? What explains that divide does emergent right now?
I think, first of all, as you look at Baker Hughes, the strength of our portfolio is much broader than just oil field services, and so as you look at the results that we posted in second quarter and also the increase in guidance, it's really based on that total portfolio capability that we have that extends into rotating equipment, compression
and industrial sectors as well. As you look at the international markets, again, they are going to continue to grow, and again we said at the beginning of the year we would see high single digit growth in the international markets. We retain that view as we go into the second half, and as we go into twenty twenty five, the growth will still be there, it will decelerate, and it's really
driven by the demand that you're seeing internationally. When you look at the exports, for example, from Saudi Arabia, a lot of that goes to other countries, very little comes into North America or goes into the developed marketplace. It really is a developing market aspect, and the growing population and demand for energy globally is increasing.
Can you talk to us about the headwinds domestically and where they're coming from? Is it off the back of the consolidation we've seen, we see more careful spending. Is it off the back and lower prices? What's driving it?
There's definitely a lot of the aspects of consolidation that have taken place. There's efficiency also that you're seeing within the production which has enabled production to stay relatively flat and increasing in some cases. And so domestically, I think again we continue to see weakness as we look at the second half of twenty twenty four and then also in twenty twenty five, really looking at North America to
be flatish. The gas market may be increasing somewhat, but North America is really the operators are being very pragmatic with their balance sheet, and again, capital discipline is the name of the game.
Yeah, you need a lot less capital now to produce even more oil than you had in the past. But you think it's going to be flat. Some of the numbers we've run actually see thirteen point nine million barrels a day coming from North America and then fourteen in twenty twenty five. Do you think that's an accurate trajectory.
Again, if you look at between thirteen point nine and fourteen, you're looking at a very slight difference, and again it's driven by the efficiency. It's very transactional in North America. So I think it's early to call right now and
will continue to monitor it. Baker Hughes is much more focused on the production side and also the chemical side, and I think what we are seeing is really a focus on existing wells and also improving recovery rates from existing wells, and that's where the mature assets solutions that
we provide actually have a huge opportunity. And it's actually important to remember seventy percent of the world's production comes from mature wells, and that's a well that's been in operation for over twenty five years or has fifty percent of its reserve depleted. If you're able to increase the reserve recovery by one percent, you're going to add two
to three years of the production required globally. So there's a big focus on capital discipline and maximizing the recovery rates from the mature assets that are available.
You also mentioned gas. Can we talk about liquefied natural gas? Because yesterday we actually saw the Energy Department go ahead with an export license. Because the Biden mormonitorium on the export license, the courts have pushed back. Is that a sign that potentially we could see more LERG come online.
First of all, very pleased that the license was given and congratulations to the team there. I think as you look at the global expectations, it's that the monitorium actually ceases in twenty twenty five. As you look at the LNG, demand is expected to increase. We've predicted that by twenty thirty we need an installed based capacity of eight hundred million tons per annum and the US can contribute to that. That being said, you know, you're never sure until it's done.
And international projects are continuing to go forward as well, so the LNG will be available, and hopefully the United States also participates as it's got plenty of gas that it can explore.
A big focus on this program over the last I would say six months or so, it has been the burden that's going to emerge on the energy grid in this country in the next several years. Every single day we talk about Nvidia and Capex spend coming from some major tech players, spend money throwing money at data centers.
Can you walk us through just the scale of demand you're expecting to see and what you're hearing from some of these utility providers and some of these companies, these tech firms and the need for off grid solutions that you can provide. How big is that growth opportunity for you?
It is a significant growth opportunity. And I think you said earlier this isn't just about today. It is a long term trend. If you look at some of the statistics out there Generative AI, the consumption of electricity by data centers, it's expected to double by twenty twenty six. That's going from two percent to four percent of the electricity usage. Think about that. That's the same amount of electricity that Japan uses on an annual basis. So from
an installed capacity perspective, it's a significant increase. What do we have as a challenge grid stability? And also I live in Houston today, I have power outages on a continuous basis, and we need off grid solutions and that's
where distributed power comes in. That's where opportunities for modular capabilities of gas turbans that are packaged, smaller off grid, and they provide the stability to the data centers for ongoing operations, because the other important aspect is intermittency is important because a data center can't go down, so you need to have that consistency of power generation.
What does growth look like in this area currently and what will growth look like in the years to come for you exclusively specifically for us.
If you look at the industrial gas turbans that we provide significant opportunity. Just look at the ratio of the increase on the electricity utilization from two to four percent. So we're looking and working with the hyperscalers, looking at the ecosystem, and we're looking at the opportunity of mini gas turbans being sold into this market.
What's the overall contribution to your revenue mixed do you expect to come from that in the next.
Say several years.
The reason I asked that question is we've seen a big rally in utility companies in line with the rally we've seen in AI firms. And if we're to sit here today and think about the changing characteristics of your stock, I need to know what the contribution from that area would be to the overall top bottom line.
What's that going to look like in years.
To come as we look at it, and again, this could be from five hundred megawatts to one point five gig watts, and that's what we're looking at from a scaling perspective, and again from a dollar perspective, it's going to range based on five hundred million to potentially larger, and it's going to come over a series of years.
As we go forward.
We look at it as a major new area that we can focus on. We've participated before and we've played in distributed power generation, and we look at this as a growth factor for Baker Hues.
A big concern to the US energy industry has always been these cyber attacks, whether it's colonial, what'sly recently happened with Halliburton. Have you seen any impact.
So we haven't seen any impact. Again, though we're very vigilant. Obviously, cybersecurity is a big concern for everybody and we're all taking the measures accordingly to put the controls in place and very much vigilant on a daily basis.
What does that look like meaning being vigilant, is that having the proper systems in place. Is there a lot of communication with the US government.
There's definitely a communication that takes place across the sector, and there's also trade associations that discuss it. From a standpoint of vigilance, it means making sure that we're doing our own testing on our own systems, making sure that we're putting in the controls, we're patching with the new security that's available, and also doing our own fishing exercises. And so we've got a team that continuously Red team,
Blue team, and we test our own systems. But I also say, you can never be too careful, and you've got to stay vigilant, and you've got to be prepared.
You've got a really busy day ahead of you before we let you go. This conversation's got to time arise in multiple decades, the time horizing of this market. The moment, about five minutes, can we just reflect on yesterday's price action? What's going on include energy markets at the moment. It's a real tangible concern from your side around demand in China. What's it all about.
I think you're always going to have volatility on a daily basis, and it's something we deal with in the business world. At the same time, leading a company, you've got to focus on the fundamentals and the fundamentals of the long term trajectory and make the right investment decisions. That's what we're doing at Baker Hughes. And if you look at the macro tailwinds, I think it's undeniable that
energy demand is continuing to increase. As you look at the population and you look at the development of nations. You also look at developed nations that are now seeing that they don't have enough energy as well, such as here in the United States. So we look at the macro aspect and we're definitely seeing positive tailwinds.
Do you feel like the attitude of fossil fuels has shifted in the last twelve months. Do you think governments, particularly in the West, have had a bit of a reality check.
I think there is an understanding that it's not just about an energy ambition. It's also about an energy expansion, and it's not about the fuel type. It's about reducing emissions. And that's where gas plays a key role because it is abundant, it's available, and you need affordable, secure, reliable energy.
Lorenzo appreciate it. You got a long down ahead of you. Thanks for your time, Thank you, Thank you, Sir Lorenzo. Similarly, there the Baker Hughes c EO Kate McShane of Goldman Sachs saying the following. We have seen growing concerns around the health of the US consumer and more value seeking spending behavior. However, our economists continue to see a resilient consumer and belief the concerns around weakness and consumer spending
are likely overdone. I'm pleased to say that alongside Kate, It's Bloomberg's very own Lisa Bramb.
It's Lisa.
Good morning, Good morning, John, good morning Age. Thank you so much much for having me and Frankly, this is really the key question for so many on Wall Street and Main Street. Basically how resilient is the consumer and we talk about weakness. At what point are we talking about actual weakness versus just it's getting competitive out there. Kate McShane joining us here. Kate, thank you so much for being with us. I am curious you know how much weakness is there?
Do you give credence to.
This story that the consumer is fragile?
Yes?
So, good morning. Thanks for having us.
I think when it comes to the consumer, what we continue see as a somewhat steady consumer. I think what we've heard from most of the companies that we cover is that not much has changed with the consumer over the last six months. They're employed, wages are growing, but they are being choiceful. And part of the reason why they're being choiceful is because there has been a lot of inflation over the last couple of years. Their money doesn't go quite as far. So you are seeing choices
between consumables and discretionary. You're seeing choices between services and goods, and I think that's what's differentiating maybe some of the different performances that you're seeing out of Free Tael coming out of the second.
Sadi Square, this idea that we keep hearing this and yet margins are expanding.
Yes, well, there is some growth, so there is some leverage in some of these retailers models. But at the same time, you've seen costs dissipate, especially on the freight side of things, and so there has been some improvement in margins as costs have come down on freight.
Okay, so it's more of that story and not so much that AI is creating this incredible efficiency that's overwhelming any potential price losses in pricing power that they're losing.
Not yet.
I mean, we are starting to hear more, of course about AI, just like we are across all the other industries, but it's much more nacent and more about efficiencies with regards to getting more efficient with how they catalog online, with their e commerce and maybe freeing up some tasking for their labor. But there isn't anything of scale yet that we've seen that is revolutionizing what's happening with margins in retail.
So just to be clear, when people say maybe some of the increased productivity that we're seeing that's leading to these higher margins stems from the idea of AI making inroads, not really seeing that quite yet.
I don't believe.
I don't believe.
So again, it's being talked about, but I don't think it's being touted necessarily as one of the bigger drivers of my margins are better year over year.
When people talk about a more choiceful consumer or more discretionary how much are they talking about just a sort of stagnant pool and greater competition to get that pool. And I'm thinking about higher income individuals, and increasingly the holy Grail has been just to get a chunk of that.
Yes, well, they are speaking about the higher income individuals too with the choiceful consumer, and I think it's maybe less about consumables versus goods or consumables versus discretionary, but it's that services versus goods. Part of what we saw during the pandemic was a really heightened demand for goods things apparel, home goods, things like that, consumer electronics, and then as soon as the world opened up, you went.
Back to services.
We haven't white seen that pivot back to discretionary goods. It was only on Target and Walmart's conference calls that they have just seen some stabilization in goods. So it's that choicefulness that's happening at the higher end as well, because they're choosing between.
Services and goods.
So you've been doing this a very long time.
You've been all the sasts.
Six years before that, you were at City Group and Credit Suite, and this has been a conference, it's been going on for thirty one years. How is this time different in terms of just the tenor of certainty or lack thereof in terms of the economic cycle as well? As the interest rate cycle as well as some of the technological overlays that you're seeing.
Yes, so the cyclicality is.
Always the name of the game. Right year to year, we're going to be in different cycles, and so certainly right now we're discussing about the health of the consumer because of the interest rate environment we're in, because of what's happened over the last five years. But I think what's so different about the conference this year and what companies are going to be talking about, is we are
entering year five post COVID. Most of the companies here had benefited in a significant way during COVID when everyone was shut in and needed to be entertained or needed to buy food, and now we should be entering a period in twenty twenty five where it's more normal for consumer behavior. And so we're going to be focused on asking, in addition to the macro and what the expectation is for the health of the consumer, what their behavior looks like in twenty twenty five.
What are you seeing?
What's the answer to that.
So we're still seeing that choiceful consumer, but as I mentioned with Walmart and Target, they are starting to see some stabilization indiscretionary goods, and so our thought is that you will see more normalization of the consumer balancing the choices between goods and consumables and services.
How much do you see the most powerful companies consolidating their market share in a way that we haven't really seen in the past. And I'm thinking of Walmart, I'm thinking of Amazon, I'm thinking of some of the behemoths.
Yes, we do think that that is an element that's happening across retail to the haves and.
Almost the have nots.
And part of the phenomenon is that the scale and the one stops shopping is really appealing to the consumer. So if we take Walmart as an example, it's not just the value that they're offering the consumer, the discounted prices, the rollbacks, but it's the convenience. It's the fulfillment optionality that you can get with delivery or click and collect or buy online.
And pick up in store.
What do you think is the biggest anxiety at this conference for the eighty sum companies and executives that are here.
I do think it's figuring out the consumer. That's probably one. I would say tariffs is another. That's a big question mark as to what that looks like post the election, and it could be very costly and retailers are going to have to figure out what they do with their pricing as a result of that.
Kate McShane, thank you so much for being with us, Thank you for having us here. That was Kate McShane, us retailing analyst at Goldman Sax here at the Goldman Sax Retailing Conference.
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