Markets Digest Softening Inflation Data

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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio,

I mean these days it's because there's so much seasonality problems in the data. That's been one of the most important show.

So you agree.

With with Anna along it at Bloomberg that there are data problems.

Oh, there are data problems in a big way. I mean, look at core PC and Q four at average one point five percent, and in Q one and average four point two percent inflation, it was neither. We were running somewhere on two and a half to three percent. So there's just truly seasonality problems that are working the way through. When I think we learned that last week is the seasonality problems.

And when you synthesize the math and the revisions leads you to a greater disinflation.

Yes, and it leads me to believe that the FED can cut.

Into actly does that?

When you're a math major you do that? You don't say yes, Tom, You say yes, you stupid?

So what's a favor? So steady? Is the FED behind a curve?

Do you think should they have been cutting already given some of the real time data we see.

I mean, I think could they have cut in July?

Maybe?

But the inflation data were bad in Q one. Understandably they want to be convinced, so September I don't think they're in a rush. September is perfectly fine. I think they probably need to be cutting this year, otherwise we might run into some problems similar to what we saw a couple of years ago with some of the regional banks.

So I mean, if I look at the I mean, the interesting thing here for a lot of investors is it feels like that that data we got in first quarter ofut inflation that suggests that.

Inflation was still around. Yeah, We've got a couple of prints after that that suggested maybe not.

So.

I guess it's understandable for the FED to be waiting.

Yeah, it is. And I think, I mean Powell was one of the people who really believed in the season is. I think some of the other FOMC members need to be more convinced than perhaps even Powell. But the CORPORC number should be something like point one five in the next month, and the seasonals go the other way throughout the of the year. And Oer is a big one. Oer, we should see the big next step down in the month of June.

We should explain to our audience it's Oer's.

Real estate exactly, real estate CPI, real estate inflation.

Okay, very good, And that's the thing for everybody who's trying to run an apartment in the city retail sales tomorrow. How's the consumer doing? What do you expect to see from retail sales tomorrow?

Yeah, that'll be that's going to be a big one, because you know, the street is looking for sort of a modest gain, but if you look at some of the alternative data, looks like it could be running a little bit hotter. Some of the credit card data look a little bit stronger, like you might actually get a bit of a bounce back if you net out what we've seen for the bulk of this year, it's been a consumer that's spending but slower than what we saw

We'll give me a proportional analysis here. What's your forward view on real GDP the one everybody follows, but also nominal GDP, real GDP plus the inflation element. What are those two numbers forward?

Yeah, so we're looking for something around a two percent real GDP growth, which is kind of historical average. That's a normal trend, like solid solid, and then if you add a two point two percent something inflation like that, then you're looking at a four point two percent nominal GDP growth.

Well, where's the gloom? I mean, all week in Sam row out with a spectacular six charts from the different street sources showing you know, I'm sorry it's a bull market because actually the economy is pretty good. Yeah, Stephanie, is that safe to say?

Yeah?

The economy is good and it's been an impressive rebalancing. We were coming from a place where inflation was running at nine percent and it's come come down back to something that's very close to what the Fed's looking at. And now we're looking at inflation to several decimal places. We were in a position where who fault, I mean, who cared what inflation was the second decimal when when you were seeingero point six percent month on month prints.

But you can't in other times of distance in the early nineteen fifties, nobody was looking to three decimal points. That's a modern idiocy, that's fair, and.

I mean there's so much FED communication and there's just all of that has changed a lot over the number of years. But now we're in an environment where it matters.

Paul is at the Beach this week and study in central limit theorem exactly.

Talk to us about this.

You know the labor marketer, because I know the FEDS looking at the labor market and we're pushing up to four percent unemployment but still fully employed economy.

How do you think about this US labor market?

A lot of it has been driven by immigration, and by that I mean we were coming from a place where the labor market was really tight and we had a really strong influx of immigration, which is still ongoing, and that helped to rebalance the labor market or add a lot of supply where there wasn't really a supply. We don't have that as much as strong sort of domestic labor force growth, but now we got it from

So on a non farm payrolls pick a number, what's the immigration plug there? Give give her audience scope and scale when people toss her around the phrase immigration. How much of that's in non farm payrolls?

Sure, so when you think about the steady state of payrolls, gth forgetting about immigration, we're talking somewhere there's domestic growth of eighty five to one hundred thousand. That's without sort of strong immigration trends. Immigration trends roughly double that, double,

Working, this is too important. You're telling me we got a run rate non farm payrolls of one hundred thousand a month, and you're willing to pop that up to one eighty or two hundred based on immigration in America.

Yes, that's why this has been every balance.

Now look at this, Torst and Slock, our good friend from Apollo just out with a note going to the same issue. The foreign born labor force has grown eleven percent since February twenty twenty, and the native born labor forces unchanged over the same period. So the growth in the labor force is entirely driven by immigration.

Yeah, and by the way, that data might not even be fully capturing all the immigration because they're having trouble, especially in the household survey, which is what captures that, capturing all of that.

Bob, can we slot Stephanie into your jobs day and just tell her people she can't be so mathy? Yes, that is emotional.

This is great.

You know, how do kids get so they love statistics? How do we get back to when we were kids and you have to take statistics at gunpoint and you did it and nobody complained, You just took it.

Yeah, that's fair. I mean, I think it's kind of fun. You learn a lot from just digging into the data.

Foundational.

Yeah, it totally is. I mean, especially these days where the data are just so funky. In the post cos I.

See that the dining room table and start talking one over square out of tea and the kids they throw, you know, they throw vegetables serving. It's definitely right, Thank you so much. She is with the Wolf. Researcher Stephen Major has led letter lead on this. It a just be see vigilant about a lower rate regime where they just be c Hong Kong. Stephen Major, are we finally two the lower rate regime you've been predicting.

We've had to be very patient, Tom it seems to be coming through, and I think the catalyst was obviously not predicted by anyone. It seems to be the elections. Maybe in France and Mexico. They have one thing in common. They both bring chaos and concerns on the fiscal front, and bonds don't like it in those countries, and that into the safe havens like treasuries and buds, and I think that's helping, and it's taking the focus a bit away from every data release in the US and every FED speaker.

Do you, as a grizzled veteran, do you get any value from monitoring the credit default swap market or is it just too ill liquid where Steve Major stays looking at full faith and credit bond market data.

Yeah, it might give us a clue on sentiment and direction, but no one's going to default here. So the French spreads moved a bit, but the more interesting one So the French CDs has moved, But the one that's more interesting is the comparison between buons and oats, say in the five year segment. So I think CDs gives us some sort of warning, but I don't think it's it's particularly liquid, and I think you get much more value looking at the proper government bonds and their asset swap spreads.

So Stephen, you know, I'm kind of lazy enough to just say I think I'm just going to sit around in a US to your treasure and get four point seventy five percent. But you're the global head of fixed income at HSBC. Do you get anything more exciting for me than just the US Treasury?

And I think you're wrong on the two years. You might want to go a bit longer. And the way I explain it to people is sort of simple opportunity cost. And to make it really simple, if you roll bills for one year, you can get five and a quarter to five and a half. But you see, if they're cutting rates, you won't get that in a year's time, So locking in for two years at four seventy ish seems like a good trade.

Elsewhere globally, I think.

You can find some some of the emerging markets looking quite interesting. India has been resilient in all of this this recent volatility, because when volatility goes up, spreads go out.

That India is not really a spread market, it's on its own.

So there's something to say there and I think in Europe there's there's still value to be had in government bonds, but you've got to keep away from the from the hotspots.

So it's more like Spain, for example.

It's attractive and and and again Germany is the one that wins in this situation. But you know, I know that four point seven doesn't sound very exciting, and you're looking for some more sex, drugs and rock and roll. But in the bond market, I'm afraid it's supposed to be boring exactly.

How about credit risk?

So if I want to take a little bit of credit risk, where do you see some opportunity out there?

I know that you know a lot of folks are telling spreads are so tight.

You've got to get defensive, and we're shortening in terms of spread duration. And what that means in plain English is will we'll we'll go to the front end. We can take some sort of more defensive trades. Some of those haven't done very well recently because it tends to push you into banks, and banks don't like some of the stuff going on. So high yield is okay at the front end, but you get your duration from the right place.

The treasury market.

Steve Major, how do we flip from our focus and short duration and move out to the belly of the curve and even out farther. What is the exercise of the process where mere mortals decide to have the confidence to buy longer?

Yeah, I mean, I have to say, hand on hard it's very difficult to give a strong guarantee about buying ten years or longer in terms of the term premium. So that's part of the problem because you know what the scenarios are around the election, A lot of the known. At least if you're buying the twos to the fives, you should be okay, because the yield to maturity there is really driven by the policy rate and the expectations

Steve, it's time now, and you know we got to do this. It's time for obligatory soccer talk. I'm looking at Italy and they snuck bag it was a mountain Negroes Albania in England snuck by Serbia. But I'm looking at that. There's some like real games coming up, like Netherlands, Austria, France, Poland Lake. Some of these brackets are interesting. Does England have the easiest brackets since time began?

No, there's no, there's no easy games. And I think that the first challenge is get out of your group. And you know in tournament football or tournament sports even you have to play your way into the tournament. This thing is for four weeks or so long, so it's best not to start too well.

I would have thought.

That Germany and Spain would be worried about how well they play, I mean, save your best game to the final. And I think England England did a good job of starting in a very average way, like Toenham.

Very good, Steve Major, thank you so much. The Totenham strategy to football. Let's be average and.

So this is what this is the Euros.

I can't keep up.

I can't keep up, I mean, but I will pay attention because I do like them. In the country we have we've internewed.

If we have interview notes, okay, like Anthony Cascenzi talk about his damn Pool and Steph mad Island, Steve Major, you have to talk about west Ham football or whatever your England's doing. We should, says thank you, Steve Major, thank you so much. Will they just be seen. We need to dive into this and we're going to get him on many times here as we dive into the summer. David Rosenberg owns the study of inflation. He was literally

Well? I think that the disinflation momentum, which has restored itself after some of the earlier distortions, it's going to surprise a lot of the what I call inflation phobes. I think we're going to finish the year very close to two percent on headline inflation, and the way I'm seeing the agriates apply act demand curves behaving, I think we're going to get down towards one and a half percent by the end of next year.

Wow.

So, David, what what drives that inflation down? Because if you talk to the you know, the folks on the street, they're saying, boy, my supermarket in the gas station.

I'm just not seeing it. What's going to be taking us down that route?

Well, I think the problem is that people tend to conflate prices with inflation, and inflation is not the price level, it's the call it the year of year percent change in the price level. I mean, look at Paul Vulker in the Hall of Fame of Central Bankers for being the greatest inflation dragon slayer of all time. But you know, nobody calls him the CPI dragon slayer. Prices never went down under Vulgar. In fact, the CPI in a seven

But then, David, what is this FED going to do? You are a great student of the history of our central bank, and there's this absolute delusion. I see that the FED can get out front. Don't they by definition have to be dramatically exposed and weight weight weight for the Rosenberg disinflation.

Well, I don't think that they have to wait weight weight. I think that the FED is still somewhat shamed for having missed nine percent inflation in the summer of twenty twenty two and leaning so hard on transitory although eighteen months in real time doesn't sound transitory, but in the overall annals of economic history, eighteen months is still pretty transitory.

Are they deliberately slow, David, or are they are ready behind the curve in terms of not cutting rates.

Well, look, the yield curves told them they've been behind the curve for at least a year. I think that you know what got in the way last year was the boost taggrit demand from the fiscal stimulus. So many people thought the deficit was going to expand twenty five percent in a year when the unemployment rate was self

With this Rosenberg Research in Toronto, we continue Paul Kruman, the laureate publishing in the recent hours, and he agrees with Rosenberg headline X shelter two point one percent core inflation X shelter sub two percent one point nine percent. What does the stock market do, David Rosenberg given a disinflation? I understand there's ambiguity there. Which way does it tilt?

Well, you know, Tom, when you're asking me about the stock market today, you've also just asked me about what's in Vidia going to do. It's the it's it's the okay, in Vidia, you know, Microsoft, Apple. You know, you could argue that when investors are pricing in for Nvidia, which is a long term, accelerating growth profile, has nothing to do with the contours of the business cycle. But I mean, come on, we have three stocks that account for twenty percent of the S and P five hundred and half.

Well, what's important? Rosenberg harkens back to the concentration of the Canadian stock market, Yeah, which used to be Canadian Pacific, Toronto, Dominion Bank, and Molson Golden. Peter lloydge as my stockbroker years ago, and he said Molson Golden is one of the big three of equities in.

Can Absolutely, I'm right there with them on that, no problem.

So David, you know, how do we think about, you know, the earnings power of some of these of the S and P five hundred here. Seems like the earnings have been pretty solid. I mean, I'm not sure what that's telling us about this this economy here.

Well, you know, everybody says it's an earning's driven market, but what are earnings up over the past year? Six percent?

Right?

And the S and P five foundered is up more like thirty percent. So you know, if we had the stock market of six percent, earnings of six percent, I'd say one hundred percent earning's driven market. But it's been principally, principally a multiple driven market, and that's just a sign of what animal spirits, momentum, psychology, sentiment, these are important things that go into the stock market. But I would

So were those big tech Magnificent seven or however many names are in that group today, are they should we be getting at should investors be getting out of them, lightening up on them, hedging them.

I would That's what I would recommend. But you know, we're talking about tremendous emotions that always screw up the stock market, which is fear and greed and everybody always thinking they can get out of the I'm a big fan, not just some diversification. Well that's been thrown out of the in the waste paper basket. But I've been saying that what is wrong with me balancing the portfolio? But I'm finding that so many investors now I've fallen fallen

Oh listen there, doctor David, giving us some some some advice there. Thank you so much, David. I got one final question, mister Trudeau at G seven looked as lost as all the rest of them. What's the political calendar in your Canada? When is there an election to determine the path of a beleaguered Canada.

Well, October of next year is the election date for Canada. And right now the polls are showing that the Conservatives are going to win a landslide majority. Every poll is saying the same thing. So answer to that, I will have a new prime minister just over a year from now.

Maybe Justin Trudeau can become GM of the Montreal Canadians.

I'll thank them.

David Rosenberg, thank you so much with the Rosenberg research. Always good to speak to, but particularly when disinflation clicks in massive email shoes in Atlanta, they're like, are you kidding me? Where are the newspapers? Have them do it from the deep South? Your front pages with Lisa Matals. Lisa, you were a miss go oh thank you?

All right, So you heard about how weight loss drugs. Right, there's a problem.

Food companies are worried, has everyone you know up in arms, But clothing retailers are actually saying it's helping sales because more slimmer Americans they need to buy new clothes. Right, they have these new sizes and you have to buy new clothes. This was in the Wall Street Journal. You got to check it out. And they don't just want a regular wardrobe. They want, you know, body hugging shapes. They want sexy clothing to show off their new size.

That these were This is a real story in a Wall Street journal. Yes, I can't.

They're seeking this ship because they needed the boost the clothing.

John Farrell was way out front on this. I mean he was, I'm like, what are you talking about? Where are we two years from now with a zempic with a lily product?

Where are we?

It's like nine hundred towers a year.

It's a lot because it depends on if you're insurance, because some do, some don't.

But it's just expanding in so many different ways.

I mean, all these studies showing how it helps with this and helps with that.

There's now maybe one for pets.

I mean, it's it works. You know, I've seen it firsthand. It works.

Okay, it's a thing I'm not you know, I've I was poop pulling it all. But it is they you know, my experience is there's no.

Appetite, right, you know.

But that's the thing. So you lose all this weight, so you have a whole new wardrobe.

You gotta star.

Lose your body keep functioning.

It does, but you wind up losing protein drinks.

Yes, you gotta be.

That's the only problem.

You want to be exercising.

You got to be doing the least mantao crazy in the basement exercise.

Thing is that arms are legs today. What are we doing?

Today's upper body things?

Today's up fighting the way good minds upper body too.

Here, let me pick up this glass of tang Next, here we go Apple.

This was actually an interesting article from Mark German over in the Terminal always taking it slow with the new artificial intelligence offerings that it said it was rolling out.

It's going to stretch into twenty twenty five. You have the company.

It won't be available for developers to try out until later this summer. When it does launch in the fall, it's going to come as a preview and some users might even have to join this weightless But what Markerman is saying is that there are benefits this kind of staggered approach. He's saying that it prevents like choke points with staffing, but it also gives them more time to train AI models for other languages, So there's different benefits there.

There's a thought process behind the mast.

All my radars up.

Well, I'll tell you what Apple is Mark Emer's reporting. This is kind of what they do. They don't seem to feel they need to rush to be first, a little like we'll be second, third, or fourth.

But when we come in right, it's gonna look awesome. Okay, okay, now I need this money this.

Weekend on my phone, I Google has given me AI now and I doutifully went in to try to figureut how to get rid of it, and you can't. They're forcing me to take some kind of AI and my search function that I really don't want.

Did you try it? You didn't even try it.

I just it's just too much noise. It's just too you know, I mean, it's it's all my radars up.

Yeah, we'll see, we'll say, Apple.

Do people want this? I mean, make Siri, I get the phone.

Do you want?

I go no, and I move on. Really how many people are like that?

Very few?

I think, But I think it's the fact if you could say, hey, Siri, can you return this shirt that I bought last week? And Siri can pull up the email, find it, send the email automatically to return it, so that you, I mean, it does the word.

If it can do that to solve me, I'm sold.

It makes my life easier. Okay, wells Fargo, this is interesting. They're losing millions of dollars a month. It had this fancy rent credit card that it came out with about two years ago.

It launched it with bill Technologies.

So the perk wise is that users can pay for rent without incurring fees from their landlords, while also earning reward points. But the thing is it kind of backfired because their executives thought that people would kind of get into debt and they can make some revenue if people just charge.

Their rent on it.

But people didn't do that, and so they didn't make any money on it. They're losing actually ten million every month according to the journal.

I read every word of the article. It's all accurate. I have lived it, and it is a disaster.

It is.

It's been a disaster for months. There's actually, as I mentioned later in the articles, some security issues where people got into my accounts and there's many, many other people, not just me. But it's been an It's a perfect example of a conservative Belton Suspender's company going we need to be cool and digital, let's just do it right, and it rarely works out. I thought it would really.

Wanting your credit card debt every single month. Do not let it ride. That's within it. That's that's what the advice was for the offspring, and I think they're following it.

Yeah, do you have one more?

I do?

Okay more parents.

Speaking of debt, they're taking on debt to pay for their Disney vacation. Prices are soaring. This is a survey from lending Tree. Forty five percent have gone into debt for the trip. That's up from thirty percent twenty twenty two. How much debt about two thousand dollars, they're saying on average, So they're charging up just to give their family that experience. And they say they did. They said they don't regret it, No regrets. About sixty percent said they don't regret it.

It say, travels fascinating. I guess every seat's taken. But prices are lower, you know, end of the summer. Well see Lisa Matteo, Thank you so much the newspapers. This is a Bloomberg Surveillance podcast bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am