Surveillance: Clear Slow Down In Labor Market, Page Says

bit later this morning in America. What are you looking for? So? I think what we're seeing, and we've seen it in the European numbers, is that we're in a global manufacturing slowdown here UM. And that's something that we've seen very clearly in the U S data as well. What's not obvious is how much that's spilling forward. So in terms of the I M today we see another soft picture, you know, mixed numbers that coming out of the regional numbers.

Even yesterday Chicago was pretty soft, Dallas not so much so. UM. And from a European spective, I think, you know, very very early suggestions that maybe we've seen something of a bottom come through here. But I think you know we're in the broad scheme of things. The IM is gonna remain soft, and it's how much it spills into the non manufacturing on on Thursday that's going to be key.

What do you see beneath the surface of some really awful headline numbers that give you some encouragement that the story might be bottoming out. What do you see A couple of things. I mean that the China numbers this weekend, this the last couple of days was not too bad. We started to see some pickup come through there. Also the European p M eyes, although they've fallen back there at odds with some of the some of the more

country based measures, particularly in France for example. So we think that given the China moves there maybe some traction coming through from the stimulus that we've seen. The problem, of course, is going to be the additional headwinds that we see come through in the fourth quarter. We are expecting trade to be an issue again, probably as soon as the next couple of weeks. David, what's the statistic actually has in the US economy is a two percent?

Is that we're optimistic two point three, or do you bring it on down with all these chair lenges to something so that this twelve months forward. So for this year we've got two point three percent. Next year we've got one point six, so we think it slows. And we've got Q three g d P come in in a two percent annualized so we are seeing its slow down. I mean, I look at ACTS I look at your colleagues at PIMCO, with much the same responsibilities that ACTSA

has with longer old money. How do the politicians do a sub two percent economy or not comfortably? Um? And of course I think that's one of the debates that's going on in the White House at the moment. We've heard a lot of White House staff suggesting that they've been urging the President to take this interim deal from China to try and soft pedal a little bit through here and concentrate on a solid economy, particularly going into

next year's election. Now, whether or not the president takes that, whether or not he can take that against a backdrop of all the domestic pressure here is a big question. John. The chart of equities flat even a little rising in the quarter for actually versus the Q three story which was stunningly low yields. David really really disappointing that after this massive effort to get China to level the playing field, they accepted an interim deal for short term political and

economic reasons. Well, it's not clear that they're going to have much of a choice. There is no long term strategic deal on the table over the next over the next three months, potentially probably not over the next twelve months either. So what you see is a pragmatic choice that the White House has to make. Do they persist with tariff hikes on the fifteenth of October and the fifteenth of December and potentially going into next year, risking

the problems of an election or not? Would it be disappointing, certainly not from markets? If well, this would be the big question I think that has existed over the last two years. To what degree with the economy, to what extent with the markets constrained this administration's ability to do what I think a lot of people agree with, which is getting China to open the economy up more and getting them to level the playing field. I haven't seen

it in the markets. Financial conditions are still pretty loose, supported of course by the Federal Reserve. We've certainly had a lot of other hility in between now and say eighteen months ago. In the economy, we've started to see some weakness, but not in the labor market in a pronounced way that I think is really unsettling this administration just yet now that I emphasize the word yet, because I wonder when it will start to bleed into the labor market. Do you see any sign of that at

the moment, David, that it's bleeding through? Yes, I mean, we're seeing a clear slowdown in the in the labor market. Some of that's driven by manufacturing, so you know, we'll get payrolls on Friday to confirm the trend. But the three months trend in payrolls growth has slow to sub one fifty, whereas last year, albeit boosted by this le stimulus, it was over two hundreds. We are seeing a softening, but that's brilliant. How do you model sub two GDP

and that a hundred thousand nine farm imperials? Are we going to enjoy d run rate? Now? And I think the risk is and I think we're close to a tipping point here, and that's one of the key concerns if we see the economy dip much below one and a half percent, then you would expect to see on the employment rate slow so that unemployment starts to pick up, and that's not sustainable. The FED would have to work rate just to jump in. David, what's the equilibrium rate?

That the amount of payrolls we need to be generating every month just to keep things in balance. On a trend basis, we would say a hundred and forty. Obviously, months to months, the labor supply jumps about a little bit, so you can see the unemployment rate not move, But on a trend basis overy six months, we would say a hundred and forty thousand. We're about there. We think

you're going to be a fixed income strategist. Now, don't let you'll know work know that Ferall doesn't know what to do with the real yield on Friday, so you've got to get them started. Here. It's a backup in yields. What is the significance of the recent backup and yields higher yields, lower bill not bond prices thirty year band two point one seven? What's its signified? So at the moment, we're not thinking that this signals a slow down. We think that there has been a pickup comes through the

shift in the inversion. We think perhaps suggests that markets are getting a different read on how the Fed's going to operate the plumbing of the system. But I think longer term, this continued inversion is a risk to the economy. To me, it's fascin thing. And how we're you know, Fort David for this at all. We're micro analyzing three basis points of four basis points of moves in the two tents spread. I actually think the move this morning, though,

is is actually quite significant. The Bank of Japan came out on Monday and essentially slashed its purchase ranges for four major maturities. Its signaled that it may even be inclined to stop buying anything longer than twenty five years.

The Bank of Japan wants a steepy yield curve. What that's meant this morning is that when the Japanese government came out with a ten year issue at the weakest demanded around about three years, and what did we get Exactly what the b o j wanted steepy yield curves. And we didn't just get that in Japan we're getting that in the United States as well this morning, and another point of encouragement, and it's really really early to

draw any firm conclusions, but it is a point of encouragement. Nevertheless, the idea that we have got high yields, steeper yield curves, and an echoy market that finished positive in Japan, I just wonder if that's a clue, a little nudge for the guards e c B to take a look at what the Bank of Japan is doing, because if this continues, I think it's really encouraging. What's really important to your David,

And this goes to economics one on one. I'm gonna call it green span one on one is the idea that if you get a risk on feel in a better stock market, that pulls right into a confidence builder for a troubled economy. Absolutely, and the corollary of that is that one of the biggest risks going further forward. So far, we've had a strong household sector, but household sector doesn't remain strong if you see a tiny in financial conditions, So then we loop all the way back

to trade. If we get negative news developments coming through in trade, that plays the risk through the household sector, and that's the bigger risk, not just looking through being potentially considering downtown. In one David pitch, come back when you saw brexit, he is with an accident this morning Sun for one time, keen getting you started on a Tuesday, the first date of the fourth quarter. To frame this, and particularly for a US audience, we need to look

at Europe. Timothy graph with US with State Tree Global Market. Tim I want to start with why an American audience needs to focus on europe dynamics. That's not intuitive, and yet there we are weak euro strong dollar le guard coming in. Why do you care about Europe if you're someone planted in the United States of America? Sure, Tom, absolutely,

good morning. UM. I think a lot of what happens in Europe matters quite a bit for US investors in particular, not least given the anchoring of yields caused by central bank policies in Europe, which of course have drive and driven yields significantly. Lower treasuries tend to respond to that and and get a demand, as does the dollar in

response to that based off of yield differentials. Europe is also I think important as kind of where a lot of the negative feedback loops as far as trade tensions are concerned, are happening in that it is a very open economy. You have other smaller European enemies like Sweden that are even more open and that respond to these trade tensions and particularly the reduction in trade volumes and

the hits to industrial production growth in emerging markets. They're very sensitive and that has global implications that the most investors need to pay ten. John Ferroll, this is incredibly important what Mr Graff said about feedback loops. To me, that's a huge theme in the Yuran. Wou'd t him.

Let's explore it further. You've been bullished the dollar now for what four years, a lot of people trying to work out the pieces that pull together to generate the circumstances whereby the dollar actually does roll over, and it hasn't been the differential story, Tim, So what will it be? I'm at this point what I think that the most likely approximate cause is a FED that is even more

dubblish than what markets anticipate. In the markets already anticipates some more rate cuts over the coming twelve months, So I think it's going to really require that because, as you noted, the fall in relative real direct differentials between the US and other currencies so far has not impacted it. You have clear dollar funding gaps that are showing up

on foreign balance sheets. You have funding dislocations in the US, or a night market as we've seen the last couple of weeks, all of which speak to to me at least a structural demand for dollars that even the easier FED policy we've seen over recent months is not enough to quench. And so I think the response of the

FED is probably the key variable here. And that's kind of why, even though I'm looking for reasons to be negative on the dollar, I can't really find them, because at least as far as the way the FED is currently speaking, I don't see that shift happening at least for the next several months. Too many people have struggled to get the dollar call right, especially over the last

couple of years. The consensus view right now is to be shut the global cycle to some degree, and certainly not to be long the inflation story, tim is the some optionality there that you want to take? Yeah, I think as much as I don't see, you know, the FED needing to respond to a lot of the the disinflationary conditions and and continuing to to ease policy a lot further. I think break evens, it's just our tips

in general, look attractive from a risk reward perspective. Basically, as you say, no one is contemplating the possibility of inflation, and I suspect that's kind of probably going to be the reality while we're in this environment of trade tensions. But the fall and forward break evens too, not just in the US but elsewhere, has been so aggressive towards multi year lows that I think risk reward favors having at least some inflation protection as part of a portfolio.

Even if you know you do get continued falls and nominal yields and inflation protection, inflation protection will still do relatively well, just not as well as nominals it end

growth inflation protection. That's a good question. Yeah, it probably in this day and age, it probably is, and that you know, that was the narrative we had a couple of years ago when stocks were the new bonds, when the SMP DI it end yield rose above nominal yields as it has done recently, and so I suspect It probably is as good of an inflation brea to protection

as anything else. Right now, Tim grit to catch up, the Timothy graph sty straight ahead of a mere Macris strategists, wang In on global markets tongue a lock fun here. It's October one, Q four. All the stresses out there, the pageantry we're seeing in China just extraordinary, the very serious protests in Hong Kong as well, And we need to describe. And we have a guest here that can absolutely nail this, which is what we always hope for

at Bloomberg Surveillance. Tottenham's playing the Germans. Man City is playing Denomos Zagreb. But did I get that? Was like close? Yeah? Real? What's club Bruge, Club Bruge? What is going on? What's the Champions League's when with the big clubs in Europe playing each other? Is this bigger than pre your football? Yeah? To win the Champions League is massive. It is like a bigger deal than like Man City last year. Yeah,

Liverpool win in the Champions League. I think Man City would have liked to have done what Liverpool did last year and win the Champions League. Is it a locomotive Moscow? Or is it so this is this is the group stage. So this is the group stage. You have to come top two, which group advance in the knockout stages? Lets have the longest Investco Investco dim When you and the rest of you are watching ten games at one time, Uh, they do look at me like I'm an alien um

when what the the whole father is about? But you know, it's the greatest sport in the world. And the Champions League is really the the Acropolis, the Olympus soccer. I agree, it's just a beautiful thing. First in the tears here, you're gonna watch some of it, like Juventus bear Is that like a big deal? That's a nice game to watch. You should watch. That is so like one game here I need to focus on. Oh, come on, Liverpool's playing

Red Bull tomorrow. I would say that the pick of the peak of today and tomorrow is Barcelona Inter tomorrow at three pm. Okay, focus, which is an inter Milan is a less team. We welcome all of you coast to coast across. They're still with us. Let's go to let's turn it within your research note to America, which is Investco, which was you know, the combination with Oppenheimer's all about international investment, but you're saying America first, that's

still not time to overweight international. Yes, the cyclical forces are still suggesting that um U S equities are still the better place to be, both from a from a policy standpoint, as well as the dynamism within the private sector, the resilience in the private sector. Certainly, valuations and long term prospects are now beginning. Long term expected returns are looking more attractive in foreign markets, including emerging mode. What's the catalyst for me to have the code? Exactly? You

always need the catalyst. Valuations don't make a trade. What will the catalysts be? We need to see that the turnaround in in emerging market Emerging markets growth, I think, is what's going to lead us into this rotation trade. But it may well take first that general global recession to reset the clock. Remember the G twenty in Argentina

around about twelve months ago. Remember remember what the market was looking for also is looking for a truce with China and the United States, and that's actually what we got the G twenty in Argentina. It wasn't enough to stop an ugly Q four and the consensus for you that I keep hearing looking out through the rest of this quarter and looking into is that it will be defined by the trade story. The trade story holds the keys to what will happen the fate of assets cross

asset and worldwide. And so do you think we're missing the broader story because a lot of people thought that would define Q four and that's really not what defined Q for What defined Q forwards a series of monegy policy mistakes. Looking back on things, what do you think really determines the outcome of assets governed out twelve months? And can we really say it's just one thing, it's

the outcome of the tride story. I think we're going out twelve months, that's still the story really because monetary policy, as as we've discussed in the past, cannot really offset that. There's we're now pushing on a string. And today's and with the bond sell off is a bit of an example of that. UM and equity evaluations are otherwise very stretched.

So to be honest, uh, bond yields are the asset class that has reflected most cleanly that trade bearishness and bond lower bond yells is what is maintaining high equity evaluations globally. Where you see the impact of that trade war is really in this outperformance of US equities compared to international and emerging market equities. That spread, given the global expansion that we've seen otherwise, doesn't make sense. Right. Trade is affecting foreign markets much more than US domestic

markets because of the much larger propensity. But this is fascinating because if we get a successful trade agreement, even John, as you're complaining earlier, if it's just some quick thing to get through to the politics of that's bad for US equities because the side relief will shift US to abid an international On a relative basis, that should be far more positive for international markets than US markets. Does it mean that US equities should suffer outright? No, that,

but on a basis on really important folks. I mean, this is one of the great bets of Q four. John, you okay over there, Yeah, I'm just following the conversation. Do you think Milan really can do it again? How would speaking? That wasn't what I was thinking about. If you've got some real stats, to the real stats, you're making them up. I'm reading, folks, on reading this, I'm read on this and like like Pharaoh's over there reading it on next the Washington always told thalking about the

potential about performance abroad and global equities. It started to get me thinking about the underperformance of forleign exchange and for the U S Dollar against G ten. And I think if you really want to construct the story to tell that develops into a weaker dollar story, you need to be telling me good things about global growth. You need to be telling me a better story of global trade. Can you tell me a better story in that unlocks that dollar weakness? It would have to be in relative terms.

I think it's bearing a successful trade negotiation that creates that catalyst that thom was talking about, that catalyst to um accelerate foreign growth. The the only other element, the only other narrative that you can build, is a surprising deceleration in US growth their own relative terms, UH raises the attractiveness of foreign markets given we're how we're currently priced. The positioning in fair ever of US asset classes is

now really a multi year high. Right. Any asset class you pick, bonds, credit, equities, U S, s A classes have outperformed for there are foreign counter parties now for many many years. The potential for that rotation and the turnaround in expeditions is very powerful. I want to wrap things up on the bond market for our listeners that might have just tuned in. We had a tenure bond auction in Japan overnight, the weakest demanded around about three years.

We had some tweaks from the BLJ yesterday which essentially meant they really want to wink at the front end of the yield curve in Japan. I want to buy less of the long end to generate a steeper yeld curve that spooks some investors. It's bleeding into global bond markets.

Steeper curbs, higher yields. Do you think that the e c B, and this is really aimed at the e c B. We'll be looking at Governor Coroda right now in the Bank of Japan and thinking if this works, if risk assets, equities credit can do well in a rising yield environment because the curve is steeper and at the Bank a Japan is being able to adjust the modalities of its bond buying program to generate that to determine that outcome. Do you think the ECB could follow suit?

The c B could um I am still skeptical of how much steepening of the yield curve we can generate here. Um, given the challenges that we have, and given the limited prospects on long term nominal growth without a healthy and credible rise of inflation let's say just one one and a half percent UM, it's very difficult to maintain a steeper yield curve from here. Then within that does investors suggest scale that people come in, there'll be more M and A, etcetera. Q four. I mean, John, it's got

to happen if you've got nominal GDP that low. I mean you get either you do or you begin a merging acquisitions discussion before one. Right, Well, yeah, not really my turf to to opine on that. I think you in trouble. I think the I think the challenges um. You know, M and as globally have been really mostly a function of it's where, it's where why the borrowing has taken place. Like when you look back, we always ask ourselves what could be the excesses that bring the

current cycle to its end. There is none to point out unless you look at the non financial corporate death sector and all of that leverage has really been deployed into share buybacks and m and A activity. If that willingness to borrow or to land decreases, that's a part of them. Quickly, before you watch Milwaukee Washington and the playoffs? Where are you gonna watch Champions League? What's what are you watching? The three? It will have to be u Enters.

I guess that's my my pig for Italian team up six. Unless you're in Vasco. Good morning, This is Bloomberg, m John, True and Tim Keene. We're focused on the markets. We'll get to that in a minute. Right now, we are thrilled on the seventieth anniversary of what mao rot have Meredith sumter with us if you raise your group, Meredith John, I believe Genrett and I can't remember. In the blur of the morning, the President tweeting out congratulations President g

on the seventie anniversary. Translate that how is that treated by the Chinese? And how is the president's congratulations given the span of seventy years in US Sino relations? The President's offering the greetings uh and congratulations on the seventieth anniversary. I'm sure it will be warmly received in Beijing, but it does not fundamentally change the underlying constraints of these the world's too largest economies, finding some kind of reconciliation

between their two economic models. So look, we're we're we're looking at the prospects for some kind of not a full fledged deal, but even some kind of of modest agreement or arrangement when Leo Hook comes to Washington next week that would at least sort of ease an onward escalation of tariffs. That's what she Jumping is really focused on too. He has is not interested in any comprehensive deal with um President Trump. He views President Trump as

weak beholden to the ballot box. But even further weekend after the threat of impeachment and impreachment proceedings which euris your group believes will result in the House voting to impeach the president and we place a seventy fent probability on that. So what we see the Chinese doing essentially with and I know Tom, you and Gen are also watching this as well. There have been reports that China

is going to move forward with some soybean purchases. Uh, they are moving forward with you know, some further slight opening its financial sector. They're doing things to allow for an easy enough current tensions, but they're not interested in fundamentally coming to the table with the kinds of structural reforms that Trump's Washington says it's necessary for a long term agreement to take hold. I think in sum to speak, John, that was called a complete cave by the United States Meredith.

Wouldn't that be somewhat disappointing if that's what we do get after spending eighteen months to aggressively take on the Chinese to do what many people agree is the right thing to do, to get them to open up, to get them to level the playing field, wouldn't it be somewhat disappointing that they caved and absolutely achieved very little.

That's exactly right, John, And and this is why we have this sort of paradox in Washington right now, where you have a president because of the political risk from impeachment, he is primed to find some kind of arrangement. And keep in mind, he's got to keep those repor bign senators on his side. Uh, And they're telling him you need to stave off on the onward escalation of tariffs.

So he's got that on the other side, he's got nothing from Beijing on the fundamental asks that Bob let Heiser has been putting on the table consistently since September, and Beijing is just waiting to see who's gonna be elected in November. So I think the risk here for investors is not so much what's happening in the trade space, but the real game is going to come outside of the trade space, because the trade space is kind of static right now. So you've got to look at the

at the national security or the non trade areas. And that's why the announcements on last Friday, and you know, continued over the weekend of uh potential increased US scrutiny of Chinese companies listing on US markets. It's that kind of onward escalation outside of tariffs that we're gonna be watching forth moving forward. I would suggest, Meredith that maybe what we could do is have the president throughout the first baseball at the Brewers and National Game tonight. That

would be a good start something. Just to wrap things up. I'll go to question with you is often to get insight as to what is happening with the Chinese press. I'd be really intrigued to find out from you just how this impeachment inquiry of speaking Pelosi is playing in China right now? What's the story the Chinese people being told and how is it resonating with the government. In this week, the focus is less on the impeachment and more on the seven Daith anniversary, and so there hasn't

been as much speculation in Chinese press about it. Uh too. It's a very foreign concept, I think for the Chinese people to look at what they would presume to be the most powerful political operator in the United States, the

most powerful country of the world, being humbled in this way. Uh. But you know, if you talk to Chinese contacts in the negotiations around the negotiations, this just further confirms for Beijing that time is on their side and that as you know, President Trump deals with these imp proceedings and the political embarrassment to him of being impeached, even if he's not going to be removed from office. You know, from Beijing's perspective, they're using this time to double down

on economic resiliency. So as you know, tariffs go up with US, they look for other ways to get tariffs

to come down with other trading partners. They're looking for other ways to reform their economy in in China's own view of how its economy should be reformed to strengthen it for a long term confrontation because they know, regardless of whether the president is removed from office, regardless of who wins in November, they know they've got a long term economic struggle with the United States, and they're preparing

for that. Meredith sumteror you're with us of uh Mao's Chinese Revolution, Meredith Sumter with Eraise your group, Dane Swark with us right now, let's get to this, Grant and Dine. You just heard John go through the busy week that we're going to see. What will we know next Monday. I think one of the things will know next Monday is just how weak is manufacturing and persisting or are we seeing a bit of a dead cat bounce or

something coming back here. That's been one of the key issues we're watching very closely, and more importantly is their contagion into the rest of the economy. What we want to see is the weakness we've seen tied to growth abroad, and the weakness and growth abroad and the trade war to start to dissipate instead of compound, and so far we've yet to see that done. A ton of data

through the week. What are the data points out of everything we get that you will be closely following the most more than anything, well, the I s M and the employment of course, the I s M s because they give us a sense more on a real time basis.

And what's interesting is this employment report that we've got for the month of September will not include that comes out on Friday, will not include the GM strike That will if it continues into next week in the October data, but it will show up in production as we go forward, and things like that and so knockoff effects, those things are going to be important. But the employment data on

Friday really watching participation. Diane Swunk mentioned it there, and I would suggest that she is more qualified than anyone we speak to day after day after day to speak on the atomization of the American labor movement and an underreported GM strike. Have you been struck, Diane of how it has been underreported this effort at General Motors. I think more striking is how few people it includes. I remember Peck when I was a kid, when Gianne had

over six hundred thousand workers. We're talking about fifty eight thousand workers UM about fifty thousand workers workers on strike, and then the knockoff effects to suppliers and production in Canada as well has been idled. So it does have an impact, and it many of the workers show up

in different places and they once did as well. It's not just the complete loss of manufacturing at GM, it's also the workers that were one classified as workers at GM are now classified as you know, service workers outside of GM, accountants and things like that. What is the urgency to settle this strike for the management of General Motors but also for the Greater Midwest region. Well, it's really clear at a time it's adding insult to injury at a time when we're already feeling the effects of

terrace in the manufacturing sector. And this is critical as it goes through the supplier chain. The supply chain is being affected. And I think that's the way we need to think about it is the knockoff effects are not insignificant. It's hard to make up these days the losses to these kinds of things, this manufacturing recession. If you run a regression equation, you throw on epsilon and the far right. But along the way they are those things, those coefficients.

How large is the Trump Mercantile coefficient? How large in this manufacturing slowdown is the trade war? The trade war is certainly a key factor for the US, because what we have is a global economic saw down. That's certainly is exacerbating it. And it's often, you know when I think the trade wars exacerbated weakness, most notably in China. So as China was stumbling, we stook our foot out and they stub They're stumbling even more and tripping up

even more. But there's no question that for the US this has really been some unintended consequences in terms of the fallout effects. We all know that China cheats. There's all kinds of issues with regard to our tense relationship with China. The question is is this the right way to solve them? Given the knockoff effects in the manufacturing sector, particularly here in the Midwest where we're feeling at most. Let's try and tie all of this together as we

can with one common theme. It just seems to me that the epicenter of a lot of this is a really, really weak global autosector right now, Diane, just how much is that one sector driving things? Well, it's not the only sector driving things, but it is a major you know, ironically, the auto sector driving things. This is muhicle sales peaked in China some time ago, and that's where it was one of the fastest growing markets for the global vehicle autosector.

It's one of the reasons that Germany is feeling the sluggishness it is and um flirting with recession itself at this stage of the game. So you really do see the effects globally here. But it's more than that alone. I think the disruptions to the supply chain throughout our economy are really quite large in the global economy, and the slowdown the inability to stimulate like we once did. Let's face it, we just don't have the tools. Then, you know, I don't want to be a Debbie Downing here,

but that's okay. Is attacks, It really is attacks in the economy. Not only the tear of the direct tax, but the indirect tax of uncertainty is even greater. That's the first in the quarter. You're allowed to be Diane Downer, but I'm out of time day and I got like, seriously, I got like fifteen more questions and we'll get to get her back on. That was brilliant when Thanks for

listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter her at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio