Surveillance: Jobless Claims with Dutta

economic data ninety minutes away in the United States. What are you looking for, kid, I'm I'm hoping we don't get another uptick in new claims and even more so another uptick in continuing claims, just because this would be this would be an awfully high level of unemployment for things to stabilize with the unemployment rate, get level of getting stuck around here. There's an awful big hole still to fill in. And you've had decent number on on I,

S M and on. Quite a lot of the data has said that yes, there's been some battens on the virus, but had to return to loth Dantons carry on um. So the labor market data have to have the capacity to really put a dantoner on on that kind of story. You know, kid, I look at this and I love your morning. Note the acuity of it as you look at the granular data around all these political emotions, including the claims report at eight thirty, and I got to go to the bond market kit and we go out

to four digits here on Bloomberg Surveillance. We call these Roman numbers in honor of Roman who made this happen. But going out to four digits on the ten year yield is just simple point five one five zero. What does it say to you, Kit Jukes? And where is the critical ten year yield? I guess the critical tenure yield is when it does negative and joined for the rest of the planet. That's where That's where we're just

going out. But I mean it's you know, we are in we are in pretty new territory in terms of this movement. And that's what I mean to say that some of us the day data has shown, you know, resilience would be with the sort of the widest spread around the United States of the pandemic. But there's there's just a continued hunk for safe hunts, for safe assets and a continued belief that rates for staying low for

just as far as the eye can possibly imagine. Uh, and you know that doesn't look as if it's going away anytime soon. But but say look at tit shields. I mean they are they are just accelerating away. So today I think that market is clearly we're frightened of bad numbers as opposed to brace for strong ones. What strikes me is the incredible divergence and the widening divergence in developed markets ability the U s is ability to lower rates and even issue more debt, and the lack

of that ability by a number of developing markets. Turkey is its own idiosyncratic story, but how representative is it of emerging market nitions that are not able to ease some of their monetary policies to juice growth for fear of capital flight. Yeah, we have to be precise about which emerging markets that there's more than one. I actually think that where we've got through this year, in a sense,

the weakest the weakest currencies, it goes um. You know, we still have a considerable weakness out there for the Turkish lear of the South African rand, and we do for the Brazilian real This year, the Morgan family folks talked about the Fragile five. India and Indonesia further east are in much better shape than than the Terrible three or the fragile three. If it's if it's G three um developed currencies which are all resilient, it's really those

G three em ones that are together weak. And but but if you, if you are dependent on foreign capital, you do not have the ability for quee aggressive fiscal responses to the pandemic. And you and you live in danger of what sort of global environment is. And here we are in August, and you know August is his star coortally not a good month to need to go to the world and borrow money. And this is what we see. Get your worried about the month of August.

Aren't you just walk us through that what you're looking for this month? Well, so you know, we put out a bunch of a bunch of pieces separately at our shot. Whether the rates guys were worried about risk aversion in August, the emerging market guys are worried about risk aversion. And I was looking at various currency trades that do well in August and The currencies that do badly in August do include you know, the turkishly Hera, the Brazilian rail,

the South African rand. What does well is the dollar and the yen and gold historically. I don't know if gold can do well starting from here, but um, but but what you know what happens in August is that it's a liquid um and volatile. You see it pick up in volatility typically and therefore uncertain. And what you can see is then he is that in an liquid market, these fragile emerging market currencies can gap wider incredibly quickly on on really no volume at It's just a daft market.

And that's what's happening. I mean, you can I think this is brilliant and it's great to go around the world, But the answer is your own powers central banker to the world and to go back to where you said, I guess the tenure yield is important in a negative statistic point five zero, folks are getting very near the workout of a couple a week ago or so. But but kit there's a point here where the central bank has to say, okay, the markets finally testing is that

a point for zero? Is it a point to zero or is it really they're gonna wait for a negative statistic. I think they have very little choice. But you know, the Fed has made it clear they're either adding more money or you know, they'll wait for inflation to come up. They know that the dawn side risk of the economy is still there, so you know, sort of mean the

Fed is on easy, staying easy. That the day to protect the markets, they came in and delivered, you know, massively accommodative policy globally in March, with all the international moves they did on the treasury we PO and on the swap program, hugely positive in turning around sentiment. That's weakened the dollar, but it's weakened the dollar more against developed market currencies and these fragile ones because it hasn't unlocked global capital and that's really a problem for growth

in those sides. If you're just joining us on Bloomberg Television, Bloomberg Radio, Worldwide Surveillance with you this morning, Lisa Bramwa was John Farrow and Time keen markets are on the move before the claims data which we see here in an hour in twenty minutes, Fran seeing the Quase interview with Governor Bailey scheduled at the top of the eight o'clock hour as well. Okay, the bond markets on the move, but the dollars shows that persistent resilience even within a

week dollar regime can suck and call week dollar. Yeah, once this comes down. At the moment, the dollar is still slightly stronger than it was at the start of the year in trade weighted terms on the b i S measure of up some broad trade weighted terms. It will weaken, but I don't know if it can weaken until we can stabilize these fragile emerging market economies, because what weakens the dollar is American investors looking for higher

yield somewhere else. The said on its job and give made sure that there's no yield unavailable at all in the United States. I don't know the NATS back has done his job to get equity. Bryce is so high. I'm not sure if many people have the stomach to keep on chasing. But but we have to get this is where the pandemic hurts. Can we can we make the rest of the world at active to sell the dollar into buying really in a proper way around emerging market a bit, you know, without getting a vaccine or

some some kind of solution to the barrus. That's the key question, Kit, before we let you go positive or negative print in pay rolls tomorrow. I hope positive. The fact that it took a while to answer that question speaks to how uncertain tomorrow is. Kit. Great to catch up, Sir kt Jukes, a sock gen Blimberg's Francine lack work, good friend and Carlie catching up with the bank, aving

the governor Andrew Bailey take a listen. The things we've looked at, probably further QUEI, further quantity of easing, potentially use some negative rates, and full guidance. Those are the things that we've looked at. So your curve control has not been discussed or is it something I mean, obviously your control is quite interestingly discussed in in central backs

and we do, we do discuss it. It's it's something that I mean, we've we've preferred to to look at quantity of easing and forward guidance as tools in that respect. But it's but I would make the point that we will go on looking at the toolbox. You know, nothing is fixed down forever, but it's not in our planning at the moment. I think it is true that I think when you look at the experience of other countries,

they appear to have worked more effectively in the recovery phase. Now, I would however, qualify that a bit by saying, I think there's a there's a tricky identification issue at that point as to what extent it's negative rates that are driving, for instance, the recovery of the banking system, the lifting of the release of provisions, and therefore the ability to lend into what it's that that would have happened anyway, because it's it's a cyclical point, it's a it's a

rather tricky issue in that respect. So the evidence is there, but it's a little bit hard to identify the causes. But then again, in terms of sequence, it's not something that that you would rule out, but it could happen at that phase. Oh, definitely. Message we're giving today it's it's there in the box. I mean there are other central banks that have so they're not in the box because again their financial systems have got different properties and

they draw different conclusions. I can understand that are in the box. We're not considering using them at the moment. The Governor of the Bank of England with Francine looked quite Neil data with us right now, Renaissance Macro. He has been a great optimistic voice over the last decade or so, Neil Dada, this was a relatively optimistic statistic is and I said, we're beginning to set up a set of data points did show some trend towards healing.

Is that what you observe I do? I mean, if you look at the jobless claims number today, Um, you know, the non siically adjusted claims, and remember the seasonals matter a lot right now, just given the sheer volume of claims that are being processed. But the n s a number tom that actually dipped below a million thousand. So that's something to keep an eye on. So that's I think the positive development. You know. Look, I mean, I think the virus this is something that J Powell said.

The fet statement has it the course of the economy and reflects the virus to a large degree. And we know the virus spread more rapidly across the country starting sometime in the middle of June. Uh and it's coming under some control, some signs that that it's beginning to EBB a bit now. Uh, and so I think the labor market basically hit a big pothole in in July. But we also know that at ativity, you know, there's still a bunch of sectors that are still doing reasonably

well all things considered. I mean, auto sales picked up better than expected. We obviously know. You know, look at any chart type to the housing market, whether that's home builders or Worldpool. Uh, they're all showing very strong recoveries. And that's mirroring the recovery we're seeing in homesale. Um and uh. And they still needs that there needs to be an inventory restocking of some kinds, so that's going to support manufacturing. So UM, I think the activity is

doing okay. The labor market kind of hit a pot hole in July, but historically and generally, the labor market follows GDP, and so you should expect labor market activity to accelerate in August. Read in the and green in the screen, folks, SFP future is a negative two and we see green with a dow in the nails deck one as well. Neil Dutta, what is your unemployment rate statistic for tomorrow? I think you get another slight tick down.

I mean, the thing about the unemployment rate, which which it was something I've been thinking about, is, um, you know, as we get to the fall, UH, labor force participation may not actually come up as much as it has been because parents are going to need to juggle work from home arrangements and their children's schooling and so do you see a scenario where the labor enforce participation rate

isn't actually coming up that much? But the the upshot of that, it would be that's the jobless rate falls a little bit more uh than expected. UM. That that's something I think people need to keep in mind. UH. And whether that maybe leads to a little bit more wage pressure um for those that are working. Obviously, it's hard for parents that physically can't get to work to exert downward pressure on the wages of those that are still working. So that's something I think we should be

keeping in the back of our minds. Certainly, if you look at something like the Conference Board labor differential consumers feel relatively buoyant about about the jobs market given some of the data that we've seen UH and now would point to a unemployment rate that probably goes below ten percent by you know, a few months before the end of the year. NaSTA future is positive on the session now a potentive one percent. The S and P just about a raising the losses of the morning so far.

Now you mentioned some of the seasonal effects. Let's talk about that with regards to the payrolls report tomorrow. How should we navigate the numbers tomorrow with that in mind? Well? Sure, I mean the most obvious as the state and local government piece, right, So obviously the pandemic for state and local government layoffs much earlier in the year than as normal typically see a big season will drop off in

UM in June and July. Uh, you probably got that sooner, which led to disproportionate declines in state and local government perils over the month. So if non seasonally adjusted state and local government employment is flat in July, the seasonal factor will probably add at least eight hundred thousands to it. So UM, this is one reason why you know, you should be a little bit wary of using the ADP to draw a big sweeping conclusion about nonfarm perils in

UM for July for tomorrow. And that's the as the stain local piece of it's going to show a large seasonally adjusted increase in my view. Neil, you were talking about consumer spending and how that's giving you some optimism the auto sales in particular, and I'm wondering how much the expiration of enhance unemployment benefits factors into this. Everyone was talking about how crucial this was for the continuation of it in order for the economy to remain up.

Now it has expired. No deal in sight, How important is it that there is a deal or do you have to change your outlook? Yeah, I mean I think it's It's definitely something that that I'm worried about every I think everyone's worried about it. Obviously. Um, you know, you mentioned that no deal is in sight. Obviously the markets are disagreeing with that. The market do see some

deal inside. Otherwise why would they be rallying on the expectation of, you know, apparently these fiscal authorities getting closer to some kind of an agreement. So, um, you know, I would sort of take issue with the idea that

they're moving further apart. I think they're moving closer. Um. But yeah, I mean, you know, obviously people are going to pull back ahead of those benefits expiring, which is one one reason you probably have seen some stalling out and things like credit cards spending them on long income consumers over the last number of weeks. So uh yeah, I mean, I think the US has great physical capacity at the moment, so there's really no excuse to not

extend them. So I agree, But it's certainly a downside risk, um, but I do think it'll it'll get resolved to some degree. And to catch with you, sir ahead of tomorrow never Nicelest Macro, thank you fantastic interesting dynamic and nuance in the markets today. And to give his perspective from black Rock head of Global Fundamental Fixed Income Strategy, Maryland Watson with us right now with a wonderful Transatlantic view. Maryland, I look at the bond market and there's a point

where you switch from yield analysis to price analysis. Is all this is about, whether it's full faith and credit or it's a new Google forty year piece that there's a buying frenzy for paper. Um. I think it's really

just really reflective on the environment right now. I mean, if you look at the huge amount of demands for yield and for carry, you look at the enormous amounts of stimulus that you're seeing still coming through from the Eurozone, from the US UM At the moment, it's just where the investors put the money UM and I think particularly now as well, when you can move into August, you have typically thinner markets, more volatility. We've seen all the

events in Turkey today and elsewhere. I think investors are really just scrabbling to find where they can find income and yield and where they can put their money. And so as you say, I mean, you know, looking at price for looking at the yield, I mean yield, aren't They're got to say local a long time. I mean, Lisa, it's great to Google forty year piece. You get a two and something percent coupon. It's up two percent after three day ago offering, which I think is a greater

than one thousand percent total return per year. I didn't get into that at least. I'm glad you bought the Google paper. Yeah. I lovered it up with my triple average cash find that I have at the class it along with the oil. I am wondering though, at what point Google is sort of an idiosyncratic story with the idea of it being a pretty strong company that's enjoying a lot of balance sheet advantages, whereas there are a lot of investment grade companies on the cusp potential fallen

Angels and Maryland. I pair that with the idea that yields average yields and investment grade bonds have plunged to all timeloads in the US of one point eight three per cent. Is this overdone? Um? Well, so at the moment,

I don't think it's necessarily overdone. I think if you look at and say that a huge amount of demands, but you also look at declining issuance, particularly after as you saw that you have the huge supply some of some emergency issuance in Q one, UM, we're still in the world which is really starved of high quality yields UM.

You know, and I think, as I say, given the amount of stimulus that we're seeing and support from monetary policy, but also we are expecting something else from the cysteal side. Then and you look at UM, you know, tech companies for example, or communications um the continue to do while during the pandemic, then I don't think it's necessarily overdone. I think it's just that, you know, investors are really

trying to find where they can put the money. And you know, so we are still overweight tech in communications for example, um and despite the rally, I think, you know, we investors need to put the put their money somewhere. Obviously we will see a lot of dispersion going forward as we do continue continue to see how the economy evolves and the judictory there obviously have payrolls um tomorrow, we have the day to today. So I think it's just really investors have really trying to find word to

put the money. And you know, at the moment you're not getting any value in treasuries, so where do you put it? Yeah, in full disclosure, I did not buy Google or any single name anything, just in case any anyone was wondering. But I am wondering, Marilyn, from your perspective, where do you draw the line? Where is the risk too great to pick up the extra yields? I mean, if you really want extra yield, you can go into Turkey.

Well yeah, so so you have to take a very clear view on your risk or profile and your tolerance for for volatility. And I think really, when you're looking at an overall fort of holistic portfolio like, volatility is something that you really have to take into account. Obviously in the measure markets or in Turkey in particular, then um, you know that's that's a specific case because of the dollar demand on shore and the huge funding requirements that

they have for the capital account. But um, I think as I say, also just looking at the markets now in terms of volatility, it's really important, as you say, particularly now when you're looking at the moveses thing in the market, when you're looking at the tightness of spreads, but you look at the very quick moves that you can see when there's some sort of trigger, then factoring

volatility into your analysis is important. And really understanding liquidity when I can't trust enough how important it is to understand the liquidity of any asset that you that you want to hold. And to give your perspective, there is a bram or, it's a sidle and into the nine year Turkish piece with seven and five aids coupon trading at ninety eight right now. It's traded ugly the last couple of days. No surprise of Turkey as well, Lisa, I just think you should hold out for a nine

percent yield in Turkey than you, you know, Maryland. I look at all of this and it's great. But within an allocation it used to be equities and bonds, maybe a little cash as well. Are you finding bonds are part of an institution's allocation now or have they just giving it up because of the real risk? So they do still remain part of an institution allocation. UM definitely UM.

And you know, you have seen a shift in terms of what investor putting the money within the six income space, but they still remain a very strong part of institutions investments for a pension funds and when you look at demographics, whether it's in the US or elsewhere, then you know there's an ongoing consistent funding requirement for for pensions, for retirement UH and for other things. And so I think six income remains a key part of an institution's portfolio.

But you know, the risk rewards are different. And when you look at the prospect for the extra market versus six income in the short term, that's they particularly given all of the stimulus then UM. And you know, when you look at the correlations and July was an incredibly good month for both equities and credits UM, then it's just really important to continue to look at the beta between the different asset classes, and maybe we balanced a

portfolio a little bit. Marilyn, Thank you so much, Marilyn Watson with a black rug. Turkey not looking good this morning, that's for sure. The Turkish they were up very much on the floor. Pyoto, Mattis joins us now Rummer Bank Emerging market strategist, Pyota. I know it's become a bit of a routine that you and I only usually catch up when something like this happens, and it speaks to the frequency of how often these kinds of things happen

in Turkey. What's different about this moment um also the first of all lots of similarities of war we witnessed in the summer of two thousand eighteen. The Turkish lira is falling quite precipiously, precipitously, and the central Bank faces the same major dilemma as on previous occasion, whether um interest rates shoot raise quite substantially by a few hundred

base points. The main difference between summer dozen eighteen and right now is that government resile who was appointed in the middle of the nineteen to slash interest rates aggressively faces a tremendous challenge of convincing President every One that raising interest rates will be the right thing to do, and my concern is that he will find it so difficult to convince President every One that Turkey may come dangerously close or perhaps beyond the point of no return,

and we're getting to witness a full scale currency crisis in Turkey. What does a full scale scent currency crisis actually look like in Turkey? To me, it would we would see dollar lira um at around ten or even higher. We would see Turkey's residents running towards the newest bank to withdraw dollars because suddenly trust in banks may evaporate.

And actually, in my note, i emphasized that trust is one of the most important indicators a word watching incoming weeks or even days, because as we know, the central bank currently relies on record high dollar deposits borrows dollars

from from commercial banks to replenish following effects reserves. So if there's a run on a bank in in Turkey, important to emphasize no such signals warning signals yet, but if such scenario words unfold, then dollar era would we would say it's significantly high at completely uncharted territory and Bloomberg Radio, Bloomberg Television now watching the markets moving here talking emerging markets with pure dematus of rubble bank gold just out to new record highs. Pure to tell me

what a Turkey does where they have two regimes. They have a dollar based financial system in a lira based financial system. How do the people of Turkeys survive this currency collapse? Um? The good news is that Turkish households and corporates are relatively well prepared um. They hedge against even weaker lira, as reflected in record high dollar deposits at above two hundred billion dollars. So there prepared um.

That said, they would be tremendous pain never like, because a week lira, even at current levels, is going to have significant inflationary consequences at the time when inflation is at around twelve percent, and it's likely to remain in double digit territory incoming months, which in turn is going to keep real interest rates deeply in negative territory. And this is one of the reasons why Turkish era is so vulnerable. Pyotre just zooming out a little bit. Turkey

is its own case. But I wonder how representative it is other emerging markets that have high foreign currency exposure. I'm just thinking about the fact the statistic really struck me that the Turkish central Bank spent more to support its currency in the first six months than all of

and you're seeing the foreign currency reserves decline. How much of a common story is this UM Turk usually definitely to large extent the couple from from other emerging currency uh July for most of them was actually a very very good month, So there are some great opportunities in in e M e M space. Turkey is a is a specific story. I think it's a it's a lesson, It's a warning signal to UM other influential leaders not to interfere in monetary policy. Leaves central banks along and

make sure that they do their job properly. And my concern is that at the time when across emerging markets central banks cut interest rates to record low levels and more importantly started using quantitative easing, there's going to be lots of far more political interference in monetary policy. So I hope that politicians in other e M countries will refrain from trying to influence monetary policy and Turkey is

a very good lesson. I have a feeling we'll be talking against soon automatics of Wrapper Bank on a situation. Thank you for having me on and look forward to it's 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 at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio