Surveillance: Recession Risk with Loh

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Joining us now is Marvin low Cydney, Global macro strategist over Stay Street. Marvin, good morning to you, Sarah. It's wonderful to have you with us on the program. To kick off the trade in week CPI a little bit later this week, we get retail sales as well, Marvin, once we get to Friday, what do you expect that data to look like?

Yeah, I mean, I think we're going to get a continuation of the positive trends with the with the core data. You know, certainly PCE raises the risk that it might be a little bit of an upside surprise, but you know, kind of having said that, given where we were, it's not right.

I think we're moving in the right direction.

The consumer remains strong, so they're kind of continues that the challenge that the FED has in terms of in terms of a strong consumer and it making it harder to get towards those inflation goals.

I look, Marvin at the idea of taking strategy or economics and having a.

Conviction and belief.

I love your phrase painfully neutral. I mean, there we are treading water here. Do you have conviction where you can be in the market. Are you convicted to a correction or do you got a gloom bear.

Market out front?

Yeah?

I mean, you know, we need a conviction when we approach our portfolio selecting process ultimately in terms of playing the market.

With regard to the choppiness around.

That conviction, I think it makes it to a certain degree harder because certainly we're going to have volatility in the market, but it's going to create opportunities if we

First study I did this morning, Marvin was a Bloomberg financial conditions index. I went back way back, oh six oh five, eleven ratios folded in there. I believe it's a toxic brow And the answer is, we are accommodative. We are Are we painfully accommodative for central banks like you're painfully neutral?

Well, you know, I think I think we've got the policy diversions that's starting to emerge globally and it's making these conversations interesting for us in the macro space. But it's really showing the challenges that all the different central banks have.

It's hard to say that the.

US is incredibly restrictive, just given where the economy is performing, where you see that transmission mechanism making its way much more readily into the European economies and certainly the economies around the Antipodean.

So you know, you do have kind of these.

These divergences, which is really the challenge that we have going into the end of the year and thinking about policy going.

Into next year, and then understanding also the inter relationship between some of these divergencies. I think of the Bank of Japan over the weekend raising the possibility of understanding the need to abandon negative yields and even move away from yield curve control as soon as later this year. This is a new kind of time frame. Does that shift your understanding of where.

US yields should be given?

Yeah, there is this divergence, but there's inter relationship between these global markets.

Yeah, I mean that's significant.

You know, the view that Japan is finally in a position to make a longer term decision reversing something that has been you know, a decades long policy is significant within the global landscape, particularly when you look at it from the US perspective and they are participation in the trade market. You know that that's a conversation that we started to have in early August, which now comes to the forefront again.

If they're not as accommodator for sure.

Morgan Stanley came out and said that they actually have conviction that yields are going to come down and to remain bullish on US bonds. How much do you push back against that? How much do you feel like the stickiness that we're seeing in yields is going to be really the new normal?

Yeah?

I mean I wouldn't be playing a significant decrease in yields at this point in time.

You know, I do think again a recession is going to drive that type of conversation.

But you know again that that painfully neutral type of view kind of having said that, where valuations are, I don't mind the income quite frankly, and I still think that you could think about curve steepeners, but you know, you need to do it more tactically than just looking at a two s tens perspective. You got to look at how long this thing might take and whether or not out of five to thirties.

View makes more sense.

But you know, just simply simply owning treasuries in an environment where inflation is below that yield is a decent return.

Do you saying pick up the front end, Maffin or you sank them out?

I like, I like, I like the belly more. I like the belly more.

Okay, So the five to seven year portion of the curve, Yeah, does the same apply to credit because we had a lot of credit issuance last week and the bulk of that was quite short term stuff, Marv, And I just wonder what kind of signal you take away from that issuance?

Yeah, I mean, it's it's opportunistic for sure.

You know, the fact that the liquidity is in the market is ultimately concerned corporations are taking advantage of that. I still think that credit is a challenge if the short end becomes a risk. You know, certainly high yield has a greater risk associated with that. Really, kind of getting past the choppiness that might evolve over the next two to three years is something to be cognizant of.

Marvin, Thank you, sir for the update from State Street. Marvin Low, thank you very much.

So.

Rajapa joins us now ahead of US right strategy, it's sock Gen here on the forty seven narratives that were out there, you have to pick a narrative this weekend to go with on Monday, which is the sock Gen narrative right now.

On what rates will do, I.

Think for the most part it's going to be wait and see at least for this week ahead of f MC next week. Broadly speaking, if you look at the price action that we've seen in the bond market, the funand seems to be very anchored to FED expectations. The Fed's going to pause at the September meeting whether they hike again in November is yet to be seen, but the data that we get this week will kind of guide the dots for next week as well as set the trend for what potentially the Fed could be doing

On what's your takets about? Drew on the implication from the latest missive over in Japan about potentially ending yield curve control as well as negative yielding policy sometime in the near future and having a better sense of when that would be appropriate by the end of this year. Does that change your outlook for US yields given the incredible buyer base that we've seen coming from Japan.

Absolutely, I think that we've seen a pretty decent change in the trend and momentum in yields in August. Granted it's a quiet month, but we had the Fitch down grades, you had the change in the YCC policy that's definitely putting some pressure on yields, not just in the US but also globally. But we'll have to kind of see how things play out because at the same time, while they're adjusting policy, you're also looking at a broader snowdown Europe. Know,

Does that give you more conviction to buy in the government bond space and less conviction to buy on the credit side of things that might be more affected by the weakness.

That seems to be where you would want to put your money in. If you think that there's going to be a meaningful slowdown in growth in twenty twenty four. We've always had a recession in twenty twenty four. We're moving perhaps away from a recession in the early part to more the mid part of the year. But you know, so if the recession is still very much in the cards, and if that were to play out, I think you should start seeing a moderation in yields or the sell off in years we've seen.

At the back end.

It's about v I got to buy a bullet piece on the curve, which maturity, full faith and credit right now is most attractive for price.

Up yield down.

The front end is definitely very attractive. The market, in my view, is fully priced in for high for longer from the Fed, So we're basically pressing for the Fed on hold until perhaps the second second half of nets

To rally as it's going to catch up and get the view from Selkschen Sabato a jape there joining us around a table. Christina Hoop, a chief Global market strategist at Invesco. Christina, good morning to you.

Good morning.

We also need to talk about union disputes UAW, the Detroit Big Three. Can you tell me from your perspective, is that just a headline risk we're reading in the papers right now. Is that a symptom of a broader, stronger, hot labor market in America that's going to lead to higher cost for some of these companies.

Well, I would argue that it's more likely the latter, and that's because we saw Walmart's announcement last week about lower wages for new employees. I think actually, because the labor market has eased a bit, it's tight, but it's not as tight that what we're seeing with the UAW is probably more of a rear view mirror issue than what we have ahead of us in terms of what I expect to be moderating wage growth.

You I have a shingle from Cornell, which is somewhat argue, the number one labor economics program in the country. Good morning everyone from Northwestern as well. This is not Walter Ruther's uaw is it to explain to us right now your view, Christine, with all your study at Cornell and the atomization of the American labor economy, is it legit or can there be a reunionization?

Well, there certainly can be areas, and we've seen moves in different industries towards more unionization. But the reality is that that is a function of the tightness of the labor market, and directionally the labor market is getting less tight, and so I would anticipate we see less of this activity in the future. This was a very unique environment that we've lived in in the last few years, and it really has opened the door to the potential for unionization.

Happening rear view, Mirrord. To me, that's fascinating the idea that you're saying that this is not going to be what we're going to see going forward. And so from your vantage point, what does that mean in terms of the last mile of inflation that we were talking about and how quickly, oh we can get back to the two percent, how much conviction you can have to go back into longer term bonds, Well, the.

Last mile is going to be hard, but I do believe that we are very much on that disinflationary trend. Not every data point is going to support that narrative, but that will be the case. And actually I'll point to something that came out last week. The Chicago Fed economists put out a note utilizing their model. They anticipate will get close to the Fed's target by the middle

So there are two schools of thought with this, and it's really highlighted by the Morgan Stanley view of things and then the sort of Jim Bianco view of things. Increasingly the JP Morgan view of things. As they ratchet up some of their yield forecasts that when we go back to something more normal, bonds will maybe have lower yields than they have now, but not significantly. Morgan Stanley

Well, I would argue it is so hard to market time so that it makes sense to at least start to increase exposure now, even if one is not sure that we've actually hit the peak. I think this is a time to be starting to increase allocations.

The vector.

We brought this up a couple times a day. I'm not going to let it up.

I think it's so important and timely to October sixth, and that is the vector of three month annualized non farm payrolls.

Wow, is that moving in a strident direction south.

Can you frame a negative non firm payroll statistic?

Well, what I can. I don't have a lot of negative things to say right now about the state of the labor market. What we have is labor force participation increasing, and we have wage growth moderating. That's what I need to see. Those are the two most important data points

Doug cast writes in race is an important question about the Detroit three. Let me throw it out you, Christina. If I can deglobalization, doesn't it just give these workers in Detroit more power, more leverage of their employers.

Well, one could argue that deglobalization has an impact act and serves to boost inflation in a variety of different ways, including potentially this way. But the counterbalance, of course is technological innovation. So could we get to an environment in which we're a bit above the Fed's target in terms of inflation for the medium term. Yes, but I think the Fed's willing to tolerate that because we also saw inflation below target for some time.

Christina Hooper and Invesco.

John this is one of my most important conversations over the last twelve months. Gentaloni at IMF meetings was stunning.

How cute he was.

Let's start that conversation right now with Po Gentiloni, the EU Economy Commissioner for the European Commission Commissioner. Want for to catch up with you once again, Sarah's been a number of months. We've got the new forecast from the Commission in front of us right here. Can we start with stagflation? Is that the risk for you, sir, from your personal assessment or is that the reality?

I think it's too soon to say that we are in a stagflation framework. What is clear, I think is first that we avoided recession, which was not obvious only eight nine months ago. Please consider that, of course the Russian war against Ukraine is for the EU an economic issue, not only a geopolitical threat. So we address these issues. We avoided recession. But indeed growth is zloing. This morning we present the forecast, and the forecast is for twenty three of growth of zero point eight percent.

Is this something.

Of long duration where our estimate is that we will have probably a rebound already next year.

So this is why I would not call it.

Abruptly tlagflation. It's a moment of easing growth for sure.

Commissioner Christine Lagard, in a speech in New York in April, talked about a need for capital reform, market reform in Europe. Obviously there's a primal scream of fiscal reform in Europe which you've lived. Is former Prime Minister of Italy. How urgent is reform given the war and given the present monetary crisis within Europe, I.

Think it's urgent.

We also, of course should take into account the fact that we are entering in the period where we will have.

European elections.

So this is a challenge, a mid term challenge, not something that we can solve tomorrow. What we have to address now, I mean tomorrow, is the difficulty to find the right balance between supporting investments and.

Addressing inflation.

We have the privilege and the opportunity to do so for the first time in the EU story, having behind us a strong, strong, strong tool of common funding, allowing also to weaker fiscally member states to invest and to spend.

This is the main challenge ahead of us.

But I fully agree with Christine Lagard that we need capital markets reform to re gain our competitivity in the global markets.

Given the fact that you talked about this challenge between inflation and slowing growth, right now, has the balance of those two risks shifted for you and actually become more important to see growth and that investment and all sorts of roots of something stronger rather than being that much more aggressive in fighting inflation.

Well, inflation.

In the forecast we presented this morning, we have growth easing momentum, but also inflation declining.

And so you are right that we are in this narrow path between these two things.

I don't think it's easy now to say, okay, we want the challenge with inflation, so that as concentrate on spending and investments. I think we are near to the peak of interest rates, that the decisions will be taken of course by the ECB and not by the European Commission.

On Interest Rates.

At the same time, please preserve the good investments. Can we do this also in countries without deep financial pockets? Fortunately, yes, because we have the eurobonds, this common funding, and this is the opportunity we shouldn't miss in the coming months.

Does that mean you see more potentially, more easy, potentially the ability to raise more money PLO? Is that what you see further down the line you can come together and is she more dere.

Oh? I see the existing programs that at least until twenty twenty six will disburse to member states still more than six hundred billion euros of common money.

Commissioner, we have to leave it there. It was great to see you earlier this year in DC, and we hope to do it again early next year. Parlo Gentiloni, the the Economic Commissioner for the EU Commission.

Joining us right now, Mandy saying we've got to go right to this. It's so important.

Senior Apple analysts for Bloomberg Intelligence as well, and also surveillance tennis expert. Let's digress here, rip up the script right now. I could hear people in buildings cheering. That was one hell of a final men's tournament.

Wasn't it. It was? Especially the second set was epic. I mean, you don't see those kind of six years old.

It felt like he was faltering at one point, and I've seen this a million times with Novak. It looks like he's lost his legs. His fake second set looked like he was aging. I was ready to say Novak's got old, and then Novak got young again. Meant that was kind of the way when the second set.

The fatigua you know in the response and uh love. I mean, the guy is clearly a lot we'll argue about it, but he is the goat when it comes to the slams, and probably no one can beat his record.

When he comes off. When he comes off the court, he doesn't go I'm going to Disneyland. He goes, I'm going to Cooper Tino to buy whatever the new toy is. How is this week going to go for Apple? I mean, away from the modem news, you got to thumb up on all this soare for mister cook andall.

I think with Apple, you have to think about the features they're going to introduce in the phone. And it's not a guarantee that we will have a big upgrade cycle. That's why these events are so important because time and again we have seen the big upgrades come when they introduce new features, whether it's a camera or something else in the phone. And there has to be that element that's going to rush people to you know, upgrade their iPhones. And it's not a guarantee.

Well, this is a problem because they've been able to dress up poor unit growth with higher average selling prices. So if there isn't a big upgrade where they're going to get the higher sp from.

And that's never a good strategy to you know, extract more in terms of making people pay more because you reduce your install base. I mean, look right now, Apples install base isn't growing now for them to take market share, they really need that new phone that everyone is excited about. And they are one company that hasn't talked about generative AI or large anglid models. You would argue a lot of the inferencing for those generative AI has to be

So what's at stake in terms of the new creations in this new iPhone?

Right?

What could they really move the needle with? Is it that much better of a camera We've done that before. Is it just a faster kind of charging device?

Eh?

Okay, what could it be? Well, so they've shown their Vision Pro demo, and clearly spatial computing is where the next leg of computing is going to grow. I mean, I'm not betting on meadow wars, but clearly there's an argument to be made that similar to variables, you could get a big pop in terms of you know, the vision Pro devices and how it really expands the Apple ecosystem. In the end, it's about the Apple ecosystem and the

So in other words, you're saying that instead of having a laptop or a basic computer, we're going to put on goggles and have our phones and be able to walk around and be in a computer.

You could argue that is the future, but that's not imminent, like, it's not near term. It's all about what is it that they can do in terms of expanding the scope of your iPhone to really tailor it to the next leg of computing. And that's why I bring in the generative AI aspect because Qualcom has argued you are going to run your large anguige model on your phone, You're not going to do it on your cloud. That's what inferencing is all about. And Apple hasn't mentioned anything around it.

But let's channel man deep thing right now. Is there any discussion about what happens after cook? Is there like a succession or an envelope in a desk, or like like how long does he keep this going?

I mean really, right now, they're at a crossroads where supply chain diversification is paramount for investors and until they fix this in terms of Apple actually diversifying their supply chains. Tim Cook is the guy to you know, make to facilitate that.

Is this buzz about Huawei's new phone legit? Do you appreciate that? Bus Well?

I think it's very hard for Huawei to embed the latest leading a note chip because look, China government has thrown a lot of money in terms of building semiconductor manufacturing, but for them to get all the pieces right chip, packaging, assembly, everything, it's very hard. And we know semiconductor manufacturing is very iterative. That's why TSMC is finding it hard to replicate their fab outside of time on. So I have my doubts in terms of the phone being as good as an iPhone or.

Even if it's not as good, Yes, say it's three years back. Let's say it's like the iPhone twelve.

Whatever.

Are we missing the mood of a country shifting away from Apple, That's what I'm trying to identify. And if there is a mood shift, does it really matter whether it's the equivalent of the iPhone twelve?

But why would consumers want a phone that's equivalent to iPhone twelve? As a consumer Chinese consumer, you want your hands on the latest gadget, and we know they're very savvy with all their app used.

If I wanted a better phone, wouldn't I just get a Samsung. There's a reason I buy this, and it's not just because it's a decent phone. The Samsung is arguably a better phone, as a better camera has done for ages, But I don't buy the Samsung. The reason I buy this beyond the technology that it has. I've had it for a long long time. I'm a part

I don't think so. I think you're going to see a rush to upgrade, especially from Chinese consumers, before there is an explicit ban, let's say. And in my opinion, everyone gravitates towards the perceived attractiveness of Apple, and it's because of the ecosystem. It's a software, it's everything that's vertically integrated about an Apple ecosystem.

So how does the ambassador of Tim Cook address some of the concerns that have been expressed in share prices, if expressed by analysts at this launch or even in the next couple of weeks. If he wants to maintain that kind of enthusiasm within China, will also maybe shifting and diversifying some of.

That risk well.

So they clearly have to work with the Chinese government, and so far Apple has done a pretty good job. I mean, there is no other mega tech company that has twenty percent revenue exposure to the Chinese and market, and so to give Apple credit, they have been able to work through the issues. But clearly I think from a China perspective, they want that local company Huawei to start making the phones, and that's why they're investing so much.

This is on American We got to change from Apple over the Pumpkin. I mean this is a design. I saw this like three were times this weekend.

You know how we rush it.

We get Christmas decorations out like November one. Meg Turrell over at CNN with a action photo out on Twitter.

Thank you Meg. Their medical correspondent Pumpkins.

Now, it's fifty days to Halloween, John, you buy the orb right now.

It's not going to make it carved a run car.

It's an American illness, isn't it.

It's what Lisa help me here? When should we be buying the.

I'm all with you.

In terms of early decorations, pumpkins are just it's fall and they grow in fall, so they are harvesting pumpkins.

But also this is like a pre Halloween prochise, sort of.

Like celebrating fall. And I can get behind the idea of that because you can see the leaves starting to change when you go, you know, outside of the city. So I'm just saying I have that last year. I just I do agree though that pulling out, you know, the Easter bunny after Christmas is sort of crazy.

January one, Yeah, January.

One, all of a sudden, those like marshmallow.

It's funny buying roses. You don't want to buyer it's.

Expensive now you want to buy them a day offtend Thank you.

I keep seeing bloomberget satogens.

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