>> THE FED WANTS TO STOP IF
THEY CAN. >> A LOT OF COMPANIES ARE
FEEDING THAT STRAIN AND WILL CONTINUE TO DO SO. >> THEY SEEM TO BE GUIDING US
TOWARD A SLOWER PACED POLICY. >> THE BIGGER RISK FOR THE FED
IS TO DECLARE A MISSION ACCOMPLISHED TOO EARLY. >> THIS IS BLOOMBERG
SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA
ABRAMOWICZ. JONATHAN: GOOD MORNING.
THIS IS BLOOMBERG SURVEILLANCE ON TV AND RADIO. YOUR EQUITY MARKET ON THE S&P
500 INDEX POSITIVE BY 0.4%, WRAPPING UP A CENTRAL BANK
TRIPLE HEADER WITH THE BOJ SHAKING UP THE GLOBAL BOND
MARKET. A TWEAK TO YIELD CURVE CONTROL.
LISA: WHAT IS THIS? YIELD CURVE, MAYBE, WE ARE NOT
SURE BUT WE WILL LET YOU KNOW WHEN WE GET IN THERE AND START
BUYING? THIS IS BASICALLY THE BANK OF
JAPAN CONCEDING AROUND THE EDGES AND EASING AWAY FROM EDGE
CONTROL, MAKING IT MORE SUSTAINABLE FOR THE LONGER TERM.
JONATHAN: IT IS A CHANGE IN TOLERANCE
AROUND THE BAND. THE UPPER CEILING, 0.5%.
THEY OFFERED TO BUY 10 YEAR DEBT EVERY DAY AT 1%.
THE LINE IN THE SAND YOU WOULD IMAGINE IS SOMEWHERE IN BETWEEN.
THERE WAS A REPORT WITH A STRONG SUGGESTION THIS IS WHAT
WE WOULD GET THIS MORNING. ON MARKET MOVING TREASURIES
YESTERDAY. YOU SABE YEN MOVE YESTERDAY --
SAW THE YEN MOVE YESTERDAY. TOO EARLY TO DRAW CONCLUSIONS
HOW THIS MARKET WILL PERCEIVE THE MOOSE FROM THE BOJ TODAY.
LISA: THIS GIVES A LOT A FLEX ABILITY
TO WHAT THEY ARE TRYING TO DO. YOU ARE BASICALLY TRYING TO BET
AGAINST THE CENTRAL BANK, WHERE YOU HAVE THE CHAIR SAYING THIS
IS NOT A STEP AGAINST NORMALIZATION.
YOU WANT TO BET AGAINST THAT AT A TIME WHERE PEOPLE ARE SAYING
THIS IS THE END OF CURVE CONTROL. BUT IT IS NOT. JONATHAN: HE DOES NOT WANT THAT
CONVERSATION RIGHT NOW. GO BACK TO THE INFLATION STORY.
THEY STILL BELIEVE THIS IS AN OPPORTUNITY TO RESET LONG-TERM
EXPECTATIONS HIGHER. THEY DO NOT THINK BASED ON WHAT
THEY ARE TELLING US THIS FAR THEY ARE THERE YET. LISA: THIS IS NOT A BANK OF JAPAN
CONCERNED ABOUT RUNAWAY INFLATION, WHICH RAISES A
QUESTION ON WHETHER THEY ARE TAKING AN OPPORTUNITY OF OTHER
CENTRAL BANKS MAYBE PUTTING THEIR RATING -- RATE HIKING
CYCLES ON PAUSE. THAT CALM TO MAKE ADJUSTMENTS
ROUNDS POLICY SO THERE YEN IS MORE SUPPORTED. JONATHAN: DON'T YOU THINK IT IS TOO EARLY
TO DRAW CONCLUSIONS OVER WHAT WE HAVE SEEN OVERNIGHT BASED ON
THE PRICE ACTION THIS MORNING? LISA:
IT IS TOO EARLY TO UNDERSTAND THIS.
THE 1% PURCHASING, EVEN THAT -- HOW DO WE UNDERSTAND THAT GIVEN
THE UPPER LIMIT OF THE BAND IS 0.5%? JONATHAN: WE OFTEN REFERRED TO THE
JAPANESE BOND MARKET -- WE THINK ABOUT WHAT IS GOING TO
DO, WHO HOLDS THIS STUFF ANYMORE? LISA:
WHAT DEGREE ARE THEY GOING TO KEEP BUYING?
ARE THEY TALKING TO THREE PEOPLE WHO BASICALLY SET
PRICING ACTION? THIS RAISES QUESTIONS ABOUT THE
FUNCTIONALITY, THE BROADER IMPACT ON BROADER MARKETS IS
CLEAR. THE RIPPLE EFFECTS YESTERDAY
WITH THE REPORT, HIGHLIGHTS HOW THE RESPONSE IS FOR SOVEREIGN
BOND YIELDS IN DEVELOPED WORLD'S TO GO UP AND RISK
ASSETS TO GO DOWN. JONATHAN: 10 BASIN -- 10 BASIS MOVE ON
TREASURIES. I WOULD NOT CALL THAT A
DISASTER, WOULD YOU? LISA: IT IS NOT, BUT WE ARE GETTING
TEA LEAVES AND DO NOT KNOW WHAT YOU'RE GETTING.
IT IS A HINT IT IS GOING TO BE A DISRUPTION.
I CAN SAVE THAT FOR LATER. JONATHAN: GIVE IT AN HOUR.
THE ECB BEHIND US, THE BOJ AS WELL.
YOUR EQUITY MARKETS SLIGHTLY POSITIVE ON THE S&P 500 BY .4%.
YIELDS, LOWER DOWN BY TWO BASIS POINTS THROUGH 4% BRIEFLY
YESTERDAY. FX MARKET, DOLLAR STRENGTH
RECENTLY TAKING THE EURO BACK TO 1.10. THIS MORNING, 1.09. LISA:
BASED ON THE CPI REPORTS OUT OF FRANCE AND SPAIN -- CORE CPI IN
THE EUROZONE ZONE STILL STUBBORNLY HIGH AT 5.5%.
FRANCE CAME IN AS EXPECTED. SPAIN'S INFLATION ACCELERATED.
DO WE SEE A DIFFERENT PICTURE IN THE GERMAN ECONOMY, WHICH IS
STAGNATING? 8:30 A.M. IN THE U.S., PCE DATA.
I AM WATCHING CORE PCE, THE FED WATCHES THIS CLOSELY.
DO WE SEE IT COME DOWN MEANINGFULLY?
IF WE DO NOT, IS THIS DATA THE FED DEPENDS ON?
WE HAVE TO START ASKING, WHEN DOES IT MATTER? 5:00 P.M., THE IOWA GOP LINCOLN
DAY DINNER IS GOING TO HAPPEN. THIS IS THE FIRST TIME TRUMP
AND FLORIDA GOVERNOR DESANTIS ARE EXPECTED TO BE IN THE SAME
ROOM, THE KICK OFF TO THE GOP CONVENTION. JONATHAN:
IS THAT WHERE TOM IS? LISA: THAT IS WHERE TOM IS.
IN A LEOPARD SHOES. THIS IS GOING TO BE
INTERESTING, ESPECIALLY IN LIGHT OF RECENT DEVELOPMENTS
AROUND PRESIDENT TRUMP AND RON DESANTIS IN HIS CAMPAIGN.
A LOT OF PEOPLE ARE GOING TO BE IN THAT ROOM. JONATHAN:
AMH COMING UP LATER, SHE DID NOT MAKE THE DINNER BUT WILL BE
TALKING ABOUT IT. JOINING IS NOW, JEFF YU.
YOUR REACTION TO WHAT WE SAW FROM THE BOJ.
WHAT IS THE IN THE SAND FOR A JAPANESE 10 YEAR GOVERNMENT
BOND YIELD? >> IF YOU LOOK AT THE SLIDE THE
BOJ ANNOUNCED, THERE IS THIS HAZY PART BETWEEN .5 AND 1%.
I THINK THAT IS THE BOJ TOP TELLING YOU THERE IS NO LINE IN
THE SAND. THE STRATEGIC AMBIGUITY, THERE
IS SOME COMPARATIVE TO THAT. IF IT IS TIGHTENING FINANCIAL
CONDITIONS YOU ARE TRYING TO ACHIEVE, GENERATING VOLATILITY
IN FX MARKETS AND FIXED INCOME MARKETS, JOB DONE.
EVERY BOJ MEETING IS GOING TO BE LIVE AHEAD. JONATHAN:
YOU BELIEVE MAYBE THIS OPENS THE DOOR TO TAKING A STEP
TOWARDS RAISING INTEREST RATES NEXT YEAR? GEOFF:
EVERYTHING IS ON THE TABLE. THE GOVERNOR ADMITTED APRIL
OUTLOOK AND PERHAPS A BIT TOO MUCH ON THE BENIGN SIDE.
THERE IS A 70 BASIS POINT INCREASE IN THIS YEAR'S
INFLATION OUTLOOK. YOU CANNOT PHRASE OR
CHARACTERIZE SUCH A TWEAK IN RESPONSE TO A HIGHER INFLATION
PRINT, INFLATION FORECAST, AS AND EASING STEP.
I THINK THE MARKET CAN SEE THAT. IT IS ABOUT THE NEXT STEP WE
KNOW THE TRAJECTORY IS TOWARDS TIGHTENING AND COMPREHENSIVE
CONDITIONS, THE PHRASE THEY ARE USING.
MARKETS, YEN IN PARTICULAR -- JJ B'S FIXED INCOME WILL HAVE
TO REACT ACCORDINGLY. LISA: THEIR REACTION IN GLOBAL
MARKETS -- WE DID SEE A SELLOFF IN RISK ASSETS.
IS THAT INDICATIVE OF WHAT COULD POTENTIALLY HAPPEN, IT
WILL BE ORDERLY BUT DISRUPTIVE? OR, DO WE NOT HAVE ANY SENSE AT
WHAT WILL THE RESPONSE BE TO YIELD CONTROL? GEOFF:
ALL OF THE ABOVE. WHAT WE KNOW IS FIGURES YOU
MENTIONED EARLIER -- U.S. 10 YEAR IS NOT MOVING MUCH MORE
THAN WHAT THE JJ BE HAS DONE. ONE BASIS POINT IN THE U.S.
IN BUNDS IS NOT EQUIVALENT TO ONE BASIS POINT IN JGB 10 YEARS.
THE MORE THAT IS GOING TO MOVE. IF YOU ASSUME THE PROCESS IS
LINEAR, THE STRONGER THE REACTION IS GOING TO BE.
JAPANESE INVESTORS HAVE BEEN RETREATING FROM EUROPE OR SOME
TIME, FROM THE U.S. ON A RELATIVE BASIS.
CHINA HAS BEEN RETREATING, AS WELL.
LOOKING FOR NEW PURCHASES FOR THE EUROZONE BOND MARKET AND
THE U.S. TREASURY MARKET, THAT HAS BEEN
GOING ON FOR SOME TIME. IN THAT CONTEXT, SHOULD NOT
GENERATE TOO MUCH VOLATILITY IF JAPAN STEPS BACK MORE. LISA:
EVEN IF WE GET FULL NORMALIZATION, YOU COULD SEE IT
HAPPEN IN A ORDERLY FASHION THAT WILL NOT NECESSARILY
PRESENT IN TAIL RISK OR SOME HEADWIND TO SOVEREIGN BONDS
GLOBALLY. GEOFF: I THINK AS LONG AS THE
NORMALIZATION ITSELF FROM JAPAN, FROM TOKYO, IS GOING TO
BE MORE ORDERLY, THEN THE ANSWER IS YES.
IF IT IS STUDDED, -- SUDDEN, LARGE, DISCRETE CHANGES, THEN
IT IS A DIFFERENT STORY. IT TAKES TWO TO TANGO. JONATHAN:
WE HAVE GOT TO REV UP THE LAST TWO MONTHS.
FOR THE LAST DECADE, WE HAVE HAD TWO ANCHORS AROUND THE NECK
OF THE GLOBAL BOND MARKET. THE ECB, THE BOJ, BUYING
GOVERNMENT BOND YIELDS, WHAT HAS BEEN HAPPENING IN GERMANY A
LONG TIME -- THOSE ANCHORS ARE AWAY.
SLOWLY BEING LIFTED OVER JAPAN. I NEED TO THINK ABOUT A NEW
FLOOR IN THE GLOBAL BOND MARKET WHEN IT COMES TO YIELDS.
HOW ARE YOU THINKING ABOUT THAT NOW? GEOFF: IT IS GOING TO BE SLOWLY LIFTED.
THEY WON'T MAKE SURE IT IS NOT GOING TO BE A VOLATILE PROCESS.
THAT ASPECT CONTINUES TO COME OFF.
THEY WILL BE MONITORING THAT QUICKLY.
THE SECOND PART IS GOING TO BE DATA. IMAGINE PREVIOUS ENVIRONS.
IF WE HAD GERMAN MANUFACTURING PMI'S ON THE 30 HANDLE, THESE
WOULD BE TALKING ABOUT EASING. THAT IS WHERE THE DIRECTION OF
TRAVEL IS. WHO IS GOING TO STOP THIS
BALANCE SHEET UNWIND PROCESS? LOOKING AT ALL CENTRAL BASE, I
THINK MARKETS CAN ABSORB THIS FOR NOW. LISA:
AS WE LOOK, QUESTIONING WHETHER WE ARE SEEING THE END OF THE
RATE HIKING CYCLES FROM THE FED AND ECB, WHICH SOME BELIEVE IS
THE CASE -- WE ARE TALKING ABOUT THE POTENTIAL ABANDONMENT
OF YIELD CAN TURN -- YIELD CURVE CONTROL.
WHERE ARE WE GOING TO HEAD IF YIELDS COME DOWN?
WHAT IS THE FLOOR WE HIT THAT SEEMS LIKE THE NEW NORMAL AT A
TIME WHEN SOME UNCONVENTIONAL POLICIES ARE NO LONGER IN
EFFECT? GEOFF: MY RULE OF THUMB IS ALWAYS,
WHERE'S POTENTIAL GROWTH ON A NOMINAL BASIS? THE U.S.
IS ON A FIVE HANDLE. THE EUROZONE IS IN THE TWO TO
THREE RANGE. JAPAN COME SLIGHTLY LOWER.
THAT REALLY STARTS TO COME IN. TO GET THAT, WE NEED TO GET
INFLATION BACK TO TARGET FIRST. THAT MEANS MORE UNWINDING, MORE
QT FIRST BEFORE WE CAN START THAT DISCUSSION. JONATHAN:
LET'S GET TO FAVORITE TRADES IN FX RIGHT NOW. WHICH ONE? GEOFF: YOU WANT TO OWN A PACK FUNDERS
AGAINST THE DOLLAR RIGHT NOW. YOUR KOREAN WON'S, YOUR TAIWAN
DOLLARS,. THE JAPAN HAS MOVED, THAT GIVES
MORE ROOM FOR ASIAN CENTRAL BANK TO TIGHTEN THINGS OR SHIFT
TOWARDS A MORE ASSERTIVE STAMPS. YOU HAVE CHINA, JAPAN PUT
TOGETHER. YOU CANNOT AFFORD TO LET YOUR
CURRENCY STRENGTHEN. THEY ARE ALLOWING MORE
TOLERANCE . SO CAN YOU. GIVEN DATA, OUR CUSTODIAL
POSITIONING DATA, THESE CURRENCIES ARE CURRENTLY UNDER
HELD RIGHT NOW. JONATHAN: THAT IS A PACK VERSUS THE U.S.
DOLLAR? GEOFF: YES, AND EUROS VERSUS G10 AS
WELL. JONATHAN: GOOD TO CATCH UP.
WRAPPING UP THE CENTRAL BANKING TRILOGY THIS WEEK.
HIGHS FROM THE FEDERAL RESERVE, 25 BASIS POINTS. ECB, 25 POINTS.
THE BOJ WAS MEANT TO BE A SNOOZE, THEN A TWEAK TO YIELD
CONTROL. STRATEGIC AMBIGUITY, THAT IS
WHERE WE ARE AT RIGHT NOW. IT IS UP TO US TO SEE HOW THIS
MARKET BEGINS TO PERCEIVE THE MOVE FROM JAPAN OVERNIGHT.
IT IS NOT CLEAR, AT LEAST FOR NOW. LISA:
THE ANALYST NOTES I WAS READING, SOME ARE SAYING THIS
IS THE FIRST STEP OF TRYING TO CONTROL A MARKET NO LONGER A
MARKET AND IT SEEMS INCOMPATIBLE WITH WHERE
INFLATION IS. OTHER PEOPLE ARE SAYING, IT WAS
NOT SUSTAINABLE FOR THEM TO KEEP GOING.
IF THEY TWEAK THINGS AND ALLOW MORE FLEXIBILITY, THEY CAN KEEP
GOING FOR LONGER. TWO DIFFERENT SIDES OF THE SAME
COIN, WHICH PERHAPS IS THE REASON YOU ARE SEEING STASIS
AFTER YESTERDAY'S CONCERN. BRIEF CONCERN IN MARKETS WHEN
THE REPORT CAME OUT. JONATHAN: THREE DECISIONS THIS WEEK,
WHICH STANDS OUT FOR YOU? LISA: THE ECB WAS MORE DOVISH IN SOME
WAYS EVEN THE INFLATION PICTURE AND THEIR SINGLE MANDATE.
THE BANK OF JAPAN INTERESTING, BUT I CANNOT COME TO A
CONCLUSION OTHER THAN THERE IS GOING TO BE MORE FLOAT.
WITH THE ECB, EVEN SOME RHETORIC'S IN OFFICIALS
AFTERWARDS HAS BEEN -- WE DO NOT KNOW WHAT WE ARE GOING TO
DO NEXT GIVEN THE SLOWER GROWTH PERSPECTIVE. JONATHAN:
THE SIDE-BY-SIDE OF PRESIDENT LAGARDE AND CHAIRMAN POWELL WAS
ALMOST IDENTICAL. I WAS THINKING, THERE IS
NOTHING IDENTICAL ABOUT THE UNDERLYING ECONOMIES.
I HAVE SET FOR A LONG TIME PRESIDENT LAGARDE HAS A MUCH
HARDER JOB TO BALANCE INFLATION WITH GROWTH AND INSTABILITY ON
THE PERIPHERY. WHAT YOU ARE SEEING TODAY IS
THE DIVERGENCE. THAT IS WHAT YOU WOULD LIKE TO
SEE IF THE WHOLE ECONOMY LOOK BACK -- LOOK LIKE THAT.
GERMANY IS STAGNATING. LISA: I WAS THINKING ABOUT THAT THIS
MORNING. HOW DO YOU DEAL WITH THE
BIGGEST ECONOMY IN WEAKEST SPOT? HOW YOU WITH THAT AS A CENTRAL
BANK WHERE YOU SEE MAY BE INFLATION COMING DOWN, BUT
RE-ACCELERATING IN SPAIN WHERE THE ECONOMY IS STRENGTHENING?
YOU LOOK AT THIS MOTLEY PICTURE, HOW DO YOU GET
CONVICTION THAT CREATES UNITED POLICY? JONATHAN:
IT HAS BEEN HARDER TO COME UP WITH THE RIGHT POLICY, ONE
THING FOR THE WHOLE OF THE EUROZONE. CONSTRUCTIVE ON INTERNATIONAL
EQUITY MARKETS, JOINING US VERY SHORTLY.
EQUITY MARKET ON THE S&P 500 POSITIVE 0.4%.
THIS IS BLOOMBERG. >> WE HAVE GOT TO NAIL THIS
INFLATION PROBLEM NOW. LET'S MAKE SURE WE TAKE THE
STEPS NECESSARY. THERE IS A BIT OF CAUTION.
THE UNDERLYING ECONOMIC GROWTH WERE GOOD, BUT THEY DO NOT WANT
TO KILL WHAT LOOKS TO BE QUITE A RESILIENT RECOVERY IN THE
FACE OF HIGH INTEREST RATES. JONATHAN:
THE DATA IN AMERICA THIS WEEK, STELLAR AGAIN.
THAT WAS BILL WINTERS, THE STANDARD CHARTERED CEO.
YOU HAVE TO SAY, CHAIRMAN POWELL MUST LIKE THE POSITION
HE IS IN RIGHT NOW. FROM NEW YORK CITY THIS
MORNING, WELCOME TO THE PROGRAM AS WE CLOSE OUT A WEEK INTO THE
WEEKEND. EQUITY MARKET WITH A LIST OF
0.4% ON THE S&P 500. TREASURIES DROPPED, YIELDS
POPPED OFF THE BACK OF A REPORT SUGGESTING THE BOJ MIGHT ADJUST
YIELD CONTROL. THIS MORNING, TO SOME EXTENT
THEY CHANGED THEIR TOLERANCE AROUND THE CEILING ON A 10 YEAR
JAPANESE GOVERNMENT BOND YIELD THAT WAS .5%.
NOW, WE ARE GOING TO TOLERATE SOMETHING MORE ABOUT THAT. LISA:
IT IS NOT ABANDONMENT OF YIELD CURVE CONTROL AND THEY ARE NOT
GOING TO RAISE RATES. THE CHAIR BASICALLY CREATING
CONFUSION, THE MARKET SAYING THEY ARE NOT GOING TO DO
ANYTHING TO RASH TOO QUICKLY. YOU ARE SEEING A RE-ORDERLY
ASSESSMENT OF YESTERDAY'S DRAMA. HOW MUCH OF YESTERDAY'S DRAMA
HAD TO DEAL WITH STRONG GDP DATA OUT OF THE U.S.?
THAT RAISES QUESTIONS ABOUT JUST HOW MUCH THE FED CAN TAKE
A SIGH OF RELIEF. JONATHAN: A BIT OF BOTH IN TREASURIES.
IF YOU WANT A CLEANER REACH, LOOK AT FX AND WHAT THAT WOULD
HAVE SPOKEN TO YESTERDAY WOULD BE DOLLAR STRENGTH.
YOU CAN SEE THE REPORT TRYING TO STIR UP CONCERN WE ARE GOING
TO LIFT. GOING BACK TO WHAT I HAVE SAID
REPEATEDLY IS, IT IS TOO EARLY TO DRAW CONCLUSIONS HOW THIS
MARKET WILL PERCEIVE MOVES FROM THE BOJ OVERNIGHT.
IT WILL BE INTERESTING TO SEE ON VARIOUS DATA POINTS AS THEY
COME IN NEXT SEVERAL WEEKS AS TO WHERE THIS MARKET IS GOING
TO PUSH THAT PERCEIVED LINE IN THE SAND. LISA: AND WHETHER CHAIR UEDA HAS LOST
CREDIBILITY, SAYING HE IS GOING TO WAIT FOR THE STRATEGIC
REVIEW NEXT YEAR BEFORE HE MAKES SIGNIFICANT MOVES.
JONATHAN: A FASCINATING TRIPLE HEADER
FROM CENTRAL BANKS THIS WEEK. MARIA TADEO CENTRAL BANK IN
BRUSSELS, NOW IN FRANKFURT YESTERDAY. LET'S TALK ABOUT IT.
THE CHANGES WE SAW FROM PRESIDENT LAGARDE, THE
UNWILLINGNESS TO OFFER GUIDANCE. WHAT WOULD YOU TAKE AWAY? MARIA:
THESE ARE SIGNIFICANT AND IMPORTANT CHANGES TO THE
CENTRAL BANK. A MONTH AGO, SHE WAS ALMOST ON
AUTOPILOT REGARDING HIKE, HIKE, HIKE.
INFLATION IS TOO HIGH, WE HAVE NOT TALKED ABOUT A PAUSE,
DEBATED THE IDEA OF A PAUSE. YESTERDAY WAS AN ENTIRELY
DIFFERENT CHRISTINE LAGARDE. SHE TALKED ABOUT AN OPEN MIND.
SHE SAID IT EXPLICITLY IN SEPTEMBER WE COULD HIKE OR HOLD.
WHATEVER THEY DO IN SEPTEMBER, SHE SAID IT COULD VARY FROM
MEETING TO MEETING. WE SAW A MASSIVE SHIFT IN THE
TONE AND LANGUAGE FROM THE EUROPEAN CENTRAL BANK YESTERDAY
FROM, WE ARE GOING TO CONTINUE ON AUTOPILOT TO IT IS GOING TO
BE UP TO -- TO LOOK AT THE DATA UNTIL SEPTEMBER. JONATHAN:
LET'S LOOK AT THE DATA THIS MORNING.
DID YOU GET A SENSE YESTERDAY THEY WERE BECOMING INCREASINGLY
CONCERNED ABOUT THE GROWTH BACKDROP AND THAT WAS JUSTIFIED
BY THE DATA THIS MORNING? MARIA: THAT DEPENDS WHAT ECONOMY YOU
LOOK AT AND WHO YOU ASK. SHE DID TOOK -- SHE DID TALK
ABOUT AN OUTLOOK FOR THE EUROPEAN ECONOMY UNDER PRESSURE.
SHE TALKED ABOUT THE DIVERGENCE BETWEEN SERVICES AND THE
INDUSTRY. THAT FEEDS INTO THE GDP STORY
WE GOT THIS MORNING. THE FRENCH ECONOMY, GOOD NEWS
FOR THE FRENCH PRESIDENT. SOME GOOD NEWS WHEN YOU LOOK AT
THE GERMAN ECONOMY, IT IS NOT IN A RECESSION BUT YOU DO NOT
SEE MATERIAL GROWTH IN THAT ECONOMY. IT DEPENDS.
THE SAME HAPPENS FOR INFLATION DATA.
YOU HAVE THE GERMANS SUGGESTING YOU SEE A COOL DOWN, BUT IN
SPAIN, THIS IS THE SUMMER SEASON.
YOU SEE IT PICK UP AND IT DEPENDS.
WHAT I WOULD STRESS IS, THEY ARE NOT GOING TO MAKE A
DECISION BASED ON THE DATA TO TODAY.
HAVE TWO MORE INFLATION PRINTS TO COME, TO MORE CORE INFLATION
PRINTS THAT WILL HAPPEN IN BETWEEN THIS AND THE FUTURE
DECISION. THEY WILL LOOK AT IT ON AN
OVERALL PICTURE, MAKING IT THEIR PROJECTIONS. LISA:
ARE YOU FEELING TENSIONS BETWEEN ECB MEMBERS DEPENDING
ON WHICH ECONOMY THEY ARE TIED TO, BASED ON THE FACT SUMMER --
SOME ARE ACCELERATING AND SOME ARE NOT? MARIA: YES. YESTERDAY, SHE POINTED TO A
UNANIMOUS DECISION. WE DID NOT GET THE TENSION WE HAVE GOTTEN PREVIOUS -- IN
PREVIOUS DECISIONS. RIGHT NOW, THERE IS ALMOST A
RETHINKING GOING ON. IT IS TOO EARLY.
THEY KNOW IT IS A SUMMER BREAK. AUGUST IS SEEN AS A MOMENT OF
QUIETNESS AND REFLECTION AND TAKING TIME TO THINK AND VALUE
THE MEDIUM-TERM BEFORE THE EURO AREA.
WE WERE AT THIS POINT AWARE BEFORE REACHING THE END OF
TRADE-OFFS WOULD BECOME MORE PROFOUND, BUT WITHIN THE
GOVERNING COUNCIL, THE ASSESSMENT TO THIS ECONOMY
WOULD BECOME WERE SPLIT. AND SHE MAINTAINED THAT?
WE WILL HAVE TO SEE. WE HAVE NOT GOTTEN A LOT OF
PUSHBACK. JUST STAY WITH AN OPEN MIND, WE
WILL FIGURED OUTCOME SEPTEMBER. LISA: WHAT WE ARE HEARING FROM
MEMBERS OF THE ECB, EVEN FROM FRANCE SAYING IT IS UNCLEAR
WHAT THE OUTCOME FROM FURTHER RATE DECISIONS WILL BE.
WE HAVE HEARD THE STONE FROM OTHERS AROUND THE EUROPEAN
REGION. HOW MUCH HAS THE CONSENSUS BEEN
WE SAW YESTERDAY WAS THE LAST RATE HIKE IN THIS MOST
AGGRESSIVE RATE HIKING CYCLE FOR THE ECB AND ITS HISTORY?
MARIA: THAT IS A DIFFICULT QUESTION TO
ANSWER. THIS WAS THE KEY QUESTION TO
MADAME LAGARDE, THIS WAS PUT TO HER IN EVERY POSSIBLE WAY.
SHE DID NOT GO ONE WAY OR ANOTHER.
SHE MADE IT CLEAR MULTIPLE TIMES.
SHE REPEATED THIS IDEA, LET ME REPEAT AND EXPLAIN, IT WILL BE
ABOUT THE DATA. SHE IS A LAWYER BY TRADE.
THERE WAS IRONING AND THAT. IT WAS DIFFICULT TO GET A SENSE
OF WHICH WAY THEY GO. A LOT OF THIS WILL DEPEND ON
INFLATION DATA WE GET THROUGHOUT THE SUMMER.
IS THIS A BIAS, NO. OVERALL WHAT IS SIGNIFICANT IS
THEY HAVE GONE FROM, WE ARE NOT DEBATING A PAUSE TO NOW PUTTING
ONE ON THE TABLE. THAT IS SIGNIFICANT IN THE
SPACE OF A MONTH. JONATHAN: IF IT WAS A 200 MILLION EUROS
TRANSFER FROM MADRID TO PARIS, WHAT WOULD HAPPEN TO PARISIENNE
ECONOMIC ACTIVITY? MARIA: I DO NOT KNOW WHAT WOULD HAPPEN.
I AM NOT INTERESTED IN WHAT WOULD HAPPEN WITH ECONOMIC
ACTIVITY AT THAT POINT. THEY WOULD BE KIM A PLAYER --
BECOME A PLAYER FOR MADRID AND WE WOULD KILL IT.
MY CONCERN ABOUT THE FRENCH ECONOMY AT THAT POINT, NOT
REALLY. JONATHAN: THANK YOU. THAT IS A KEY TRANSFER -- KEY
ASSET THAT COULD TRANSFER. I COULD HAVE REALLY TWEAKED HER.
WHO LIKE SCALING -- WHO LIKES GOING ON VACATION TO ITALY WHEN
YOU COULD GO TO? IS IT HOT IN THE SUMMER? LISA:
IT IS HOT IN THE SUMMER. RECORD HEAT.
THIS IS SOMETHING THAT IS SERIOUS AND I AM HEARING
REPORTS FROM PEOPLE WHO ARE ON VACATION. JONATHAN:
WHO IS GIVING YOU THE LIVE UPDATES? LISA: FRIENDS.
JONATHAN: THEY ARE GIVING YOU THE BLOG OF
THE SUMMER. LISA: AND KIDS. JONATHAN:
I HAVE SEEN ON THE WEATHER APP, AS WELL. LISA:
DOES IT AFFECT YOUR DECISION? JONATHAN: NO. LISA:
THERE ARE SOME PEOPLE WORRIED ABOUT SOUTHERN EUROPE AND
VACATION SCHEDULES, AND SOME PEOPLE NOT GOING BECAUSE OF HOW
HOT IT HAS GOTTEN. JONATHAN: OK. ARE WE DONE WITH THAT
CONVERSATION? COOL. LAURA RAINE OF SS INVESTMENTS
AND WHETHER IT IS GOING TO BE HOT OR NOT AND WHETHER SHE HAS
GOT AIR CONDITIONING. IN EUROPE, MY FAMILY HAS NO
AIR-CONDITIONING IN THE SUMMER. WE HAVE MARBLE FLOORS AND THE
BLINDS ARE SHUT. THIS IS A WORKING CLASS FAMILY,
SUPER WORKING-CLASS. MY GRAND DAD WAS IN THE
QUARRIES. THESE FLOORS MEANT YOU DID NOT
RETAIN HEAT IN THE APARTMENT AND YOU GOT BY. LISA:
THE PROBLEM NOW IS, IF YOU CANNOT REDUCE YOUR HEAT AT
NIGHT TO A CERTAIN LEVEL, IT MAKES IT MORE TENUOUS BECAUSE
NO ONE HAS AIR-CONDITIONING IN A LOT OF THESE PLACES. JONATHAN:
I UNDERSTAND IT IS DANGEROUS AND CAN GET WORSE.
I THINK THE COVERAGE HAS BEEN EXTREME THE LAST SEVERAL WEEKS.
LISA: I AM WATCHING THE WEATHER. JONATHAN: GOOD FOR YOU. SO AM I.
FEATURES ARE POSITIVE. JONATHAN:
LIVE FROM NEW YORK CITY, GOOD MORNING.
EQUITY MARKET SHAPING UP AS FOLLOWS ON THE S&P 500 POSITIVE.
ADVANCING GOING INTO A BIG WEEK FOR EARNINGS NEXT WEEK.
APPLE AND AMAZON NEXT THURSDAY. THE EARNING SO FAR THIS WEEK
DECENT FOR META AND ALPHABET. THE ONE SOFT SPOT IS MICROSOFT
BECAUSE THE BARK WAS SO HIGH. THE STOCK YEAR-TO-DATE HAS BEEN
PHENOMENAL. LISA: THE INVESTMENT IN AI TENDS TO
BE SANDBAGGING SPECIALS PEOPLE SHRUGGING OFF THAT. JONATHAN:
EQUITIES UP IN BOND MARKET. BOJ SHAKING THINGS UP FOR YOU.
VIOLENCE LOWER BY A COUPLE OF BASIS POINTS -- YIELDS LOWER BY
COUPLE OF BASIS POINTS. A GREAT DAY IN AMERICA, GDP
PRINT STRONGER-THAN-EXPECTED. THERE IS A REAL RESUME FOR THE
SHIFT WE HAVE SEEN DOES NOT INTERNATIONALLY BUT ALSO
DOMESTICALLY IN AMERICA. LISA: IT'S GOING TO BE INTERESTING TO
SEE WHETHER IT BE LANDING NARRATIVE CAN CONTINUE IF YOU
DO GET THE IDEA OF THE STRENGTH GOOD FUEL FOR THEIR INFLATION.
UNEMPLOYMENT COST INDEX SHOULD BE INTERESTING BECAUSE IT IS
WHY THE FAVORITE GAUGES TO SEE WHETHER WAGES ARE GOING UP
MATERIALLY AND IF THAT DOES INDICATE SURPRISED NOT GOING
DOWN OR ACCELERATION IT COULD BE AN ISSUE. JONATHAN:
TWO CPI PRINTS AND PAYROLL PRINTS BETWEEN THE FED MEETING.
EVEN IF CHAIRMAN POWELL IT SOUNDED LIKE HE MIGHT HAVE BEEN
BACKING AWAY A BIT IN THE NEWS CONFERENCE, YOU GET TWO STRONG
PRINTS AND IT IS BACK ON. WILL BE DISCUSSING A HIKE AGAIN.
LISA: RICH CLARIDA THINKS THE MARKET'S UNDERPRICING THE RISK
OF ANOTHER RATE HIKE. THERE IS A QUESTION HERE ABOUT
WHAT HE WANTS TO SIGNAL FROM WHETHER HE CARES ABOUT
DISRUPTING THE MARKET, IF FORWARD GUIDANCE HAS THE SAME
POTENCY AND THUS ITS TAKEAWAY THE TRIFECTA, FORWARD GUIDANCE
IS DEAD ON ALL FRONTS. ALL OF THEM ARE SAYING WE'RE
NOT GOING TO TRY TO PLAY THE MARKET -- BOJ IS SLIGHTLY
DIFFERENT BUT OTHERWISE WE ARE GOING TO TAKE THESE AS THEY
COME. JONATHAN: WE ARE DATA DEPENDENT.
LET'S FINISH ON FOREIGN EXCHANGE.
A TOUGH WEEK FOR THE EURO. 1.09 AT THE MOMENT.
WE'RE POSITIVE JUST ABOUT BITE 0.04% OF THE DATA HAS NOT BEEN
GREAT. ALYSSA -- A DIVERGES IN EUROPE. BOJ FRONTING OUT OF THE WEEK OF
CENTRAL-BANK DECISIONS WITH A SURPRISE EASING OF WHAT THEY
CALL YIELD CURVE CONTROL. CUT THE TARGET FOR TWO-YEAR
YIELDS AT 0% OF THE UPPER BAND COMPANY SELLING A REFERENCE
POINT 0.5%. THIS IS NOT A STEP TOWARDS
NORMALIZATION, WE ARE FAR FROM WHERE WE CAN RAISE SHORT-TERM
INTEREST RATES AND PLEDGING TO COME IN EVERY DAY AND BY 10
YEAR YIELDS AT 1%. THIS WORKING OUT FOR THE BANK
OF JAPAN. LISA:
IF YOU BELIEVE IT IS A MARKET CAN GIVE YOU A SENSE OF WHERE
IT CAN BE TRADED IN A FREE TYPE SITUATION, IT IS NEAR THE
HIGHEST LEVELS GOING BACK 2014. YOU GET A SENSE OF HOW LONG IT
HAS BEEN SINCE THERE WAS FREE FLOW OR LESS CONTROL FLOAT,
AGAIN, CONFUSING TO KNOW HOW QUICKLY THEY'LL MOVE AWAY AND
WHAT LONG-TERM APPLICATIONS OF THIS ARE. JONATHAN:
JEFFREY YOU NAILED ONE BASIS POINT MOVE IN JAPAN IS NOT THE
SAME AS IN TREASURIES. WHAT IS 10 BASIS POINTS ON THE
10 YEAR END EQUIVALENT ON THE TREASURY BY 2030? LISA:
FRESH DATA OUT OF EUROPE. EXITING THE WINTER RECESSION.
GDP UNCHANGED ON THE PREVIOUS THREE MONTHS BUT FELL SHORT OF
THE 0.1% GROWTH FORECAST BY ECONOMY.
THIS IS THE CHALLENGE LAGARDE HAS GOT.
FRENCH GROWTH WAS OK SO YOU SET POLICY FOR FRENCH OR GERMANY --
FRANCE OR GERMANY MAYBE YOU HAVE A DIFFERENT CONCLUSION IF
WE HIKE IN SEPTEMBER OR NOT. LISA:
YOU SEE INFLATION ACCELERATING IN PLACES LIKE SPAIN.
WERE GOING TO GET THAT READ ON CPI IN GERMANY AT 8 A.M.
EASTERN DO WE SEE A DECELERATION?
JUST TO GIVE A SAYS TO THE ECB TIGHTENING AND LIVING
CONDITIONS -- DOESN'T GIVE A SENSE TO THE ECB TIGHTENING AND
LENDING CONDITIONS ARE WORKING? IS THIS GOING TO BE THE
TRANSMISSION MECHANISM YOU FINALLY START TO SEE BRING DOWN
INFLATION? JONATHAN: HOW DO YOU BALANCE EVERYTHING
IN BETWEEN. IT IS SO DIFFICULT. NEVER MIND ONE ECONOMY, TRY
DOING FOR TONS OF ECONOMIES ACROSS THE EURO ZONE. LISA: I WONDER IF JAY POWELL GAVE HER
A PASS BECAUSE HE WAS SO AMBIGUOUS, SHE COULD BE AMBIGUOUS AND NOT MAKE ANYTHING
TO CONCRETE THAT COULD RATHER ANY FEATHERS.
THIS IS THE EASY TIME BEFORE THEY HAVE TO START COUNTERING
WHETHER THEY ARE BEING MORE AGGRESSIVE IN THE FACE OF
WEAKNESS. JONATHAN: AMBIGUITY SEEMS TO BE THE WORD
OF THE DAY FOR BOJ, ECB, FEDERAL RESERVE.
FORD PUMPING THE BRAKES ON TV PRODUCTION AND BLAMING THE
PRICE WAR. ABADONING THE PLANS TO MAKE 2
MILLION EV'S A YEAR AND NOT EXPECTING LOSSES FROM EV'S TO
HIT 4.5 BILLION DOLLARS THIS YEAR, UP FROM AN ESTIMATE OF 3
BILLION AND MORE THAN DOUBLE FROM WHAT THE COMPANY LOST ONE
YEAR AGO. IT IS GOING TO TAKE LONGER AND
IT WILL COST MORE MONEY. LISA: IT COMES AFTER THEY CUT PRICES
ON VEHICLES. WE SAW SIMILAR TYPE OF PRICE
CUTS AMONG OTHERS. IS IT A FORWARD PROBLEM -- FORD
PROBLEM? IS IT A MOVE WHERE TESLA HAS A
DOMINANT FOOTPRINT OR IS IT A SIGN OF WHAT TO COME?
IT IS NOT TRADING THE PROMISE PEOPLE THOUGHT BECAUSE OF HOW
DIFFICULT IT IS TO MANUFACTURE, SELL AT HIGH PRICES AND GREAT
INFRASTRUCTURE FOR CHARGING. JONATHAN: THE STOCK IS DOWN.
JOINING US NOW IS LARA RHAME. IT IS WONDERFUL TO CATCH UP
WITH YOU. I THINK WE NEED START THE DATA
FROM YESTERDAY. YOU GOT DROWNED OUT YESTERDAY
AFTERNOON -- IT GOT DROWNED OUT YESTERDAY AFTERNOON.
THE DATA IN AMERICA LOOKS DECENT DOESN'T IT? LARA:
I THINK IT IS SOMETHING THAT HAS CAUGHT A LOT OF PEOPLE OFF
GUARD IN THE BEGINNING OF THE YEAR. THERE'S BEEN TREMENDOUS
MOMENTUM IN THE CONSUMER. SECOND QUARTER GDP REPORT
HEADLIGHT WAS SIMILAR BUT DETAIL SHOWED MORE BALANCE
PROFILE OF GROWTH. THE CONSUMER SOLID BUT
DECELERATED FROM A ROCKET SHIP IN THE FIRST QUARTER AND YOU
HAVE THIS SOLID INVESTMENT PROFILE. THE GOVERNMENT IS STILL
SPENDING. YOU HAVE OTHER AREAS WHERE THE
ECONOMY IS STILL A LOT OF MOMENTUM. THAT IS THE BACKDROP WHICH
EVERYONE IS PROJECTING FORWARD INTO THE SECOND HALF OF THE
YEAR. JONATHAN: YOU CORRECTLY AND TO DIVIDE A
DYNAMIC I DO NOT THINK WE SPENT A LOT OF TIME ON, FOR SCHOOLS
EASING, GOVERNMENT -- FISCAL EASING, GOVERNMENT SPENDING.
LARA: WE CONTINUE TO SEE THE SLOW
DRIP OF INFRASTRUCTURE SPENDING COMING INTO THE ECONOMY.
WE SEE IN THE CHIP'S ACT AND IN THE FACT THAT WE UNDERINVESTED
IN OUR ECONOMY FOR SO LONG THAT WE ARE HAVING TO PUSH FORWARD
WITH THE INFRASTRUCTURE SPENDING, THE ENERGY
INFRASTRUCTURE, AND ALSO BUSINESS BRICKS AND MORTAR
SPENDING HAS BEEN SURPRISINGLY SOLID DESPITE THE FACT THAT
INTEREST RATES HAVE RISEN. AN AREA WE HAVE UNDER SPENT SO
LONG. ANY IMPROVEMENT IS GOING TO BE
SOMETHING THAT IS NOTABLE. THE GOVERNMENT FISCAL PULSE IS
IMPORTANT BECAUSE LOOKING AHEAD TO NEXT YEAR IT IS ONE OF MANY
FACTORS THAT IS LIKELY TO FLIP TO A HEAD WHEN.
IN THE BEGINNING OF NEXT YEAR AT THE EARLIEST, WERE GOING TO
START SEEING GOVERNMENT SPENDING BECOME A DETRACTOR
FROM GROWTH. LISA: HOW DO YOU SAY IT IS LIKELY THE
FED WILL HIKE RATES AGAIN? AND MARKETS MAY BE OVERLY
VULNERABLE TO THE IDEA THAT THE ECONOMY IS RESILIENT AND
INFLATION MAY NOT COME DOWN AS MUCH AS PEOPLE THINK? LARA:
THERE IS A LOT OF ROOM BETWEEN HERE AND BEGINNING OF THE YEAR
OF NEXT YEAR WHEN I THINK WE ARE GOING TO SEE THE NEGATIVE
IMPULSE FROM FISCAL SPENDING. THE POINT ABOUT INFLATION IS
THAT THE BASE AFFECTS MEAN THE CORE INFLATION NUMBERS ARE
GOING TO TAKE A VERY LONG TIME TO COME DOWN.
REMOTELY IN A RANGE OF COMFORTABLE.
THE CUSTOMER DATA, A LOT OF DATA AND FINANCIAL CONDITIONS
ARE RAGING AHEAD. WHEN YOU LOOK AT THE LABOR
MARKET, IT IS JUST NOT NUMBERS THAT ARE CONSISTENT WITH 2%
INFLATION. WE WERE HERE IN 201 NIGHT WE
HAD A TIGHT LABOR MARKET BUT AT THAT TIME INFLATION WAS NOT
GOING ANYWHERE AND WE HAD NO WAGE INFLATION.
WHERE IN A DIFFERENT SITUATION NOW AND I THINK THE FED IS AT
THIS POINT THEY NEED TO MAKE SURE INFLATION DOES NOT
REIGNITE. LOOK AT THE LABOR HEAD LICE
WE'RE GETTING THIS SUMMER WHERE THERE IS MUCH MORE BARGAINING
POWER OF THE COST SIDE AS LABOR PUSH SIDE OF THE INFLATION.
LISA: IS IT TOO SOON TO SEE SOME OF
THAT COME THROUGH?
COULD WE SEE DISINFLATION ON A
STEADY PATH THE NEXT COUPLE OF MONTHS BEFORE IT REARS ITS HEAD
AGAIN? CREATING A HEAD FAKE FOR A FED
THAT MAY STOCK RISING RATES AND MAY HOLD FOR THE TIME BEING?
LARA: THAT IS WHAT THEY ARE WORRIED
ABOUT. I DO NOT THINK WERE EXPECTING
ANY HUGE SURPRISE IN THE INFLATION DYNAMICS THE NEXT
COUPLE OF MONTHS BUT FROM A FED POINT OF VIEW AND FOR MARKETS,
WHEN THE FED IS IN THIS SIDEWAYS PATTERN, AND WE CAN
HAVE A HEALTHY DEBATE OVER ONE MORE RATE HIKE OR WHETHER THEY
ARE ON HOLD, AT THE END OF THE DAY, THEY ARE FIGHTING AGAINST
MARKETS TRYING TO IMPOSE SOME KIND OF RATE CUTS OR A DECLINE
IN LONG-TERM YIELDS WHICH GOING TO REIGNITE INTEREST RATE
SENSITIVE SECTORS. FOR THE FED AND MARKETS WITH
THE SIDEWAYS PROFILE, IT IS HARD TO FIND A CATALYST THE
NEXT MOVE UP IN EQUITIES WHEN EXPECTATIONS ARE SO STRONG ON
THE ECONOMIC SIDE. JONATHAN: PIMCO SPEAKING TO BLOOMBERG, IF
THE FED DOES PAUSE AND THEY DO NOT GO AGAIN THIS YEAR, IT IS
DANGEROUS TO THINK THEY ARE DONE THE.
WE THINK MARKETS CONTINUE TO UNDERESTIMATE THE LIKELIHOOD
FOR THE TIGHTENING FROM THE FEDERAL RESERVE. BEST GUESS, WAS THE HIKE THIS
WEEK THE LAST HIKE DO YOU THINK WE ARE OPEN FOR A FEW MORE.
LARA: I DO NOT WANT TO SAY AND --
SOUND LIKE THE ECHO CHAMBER BUT WE RECOGNIZE THE FED HAS TO GO
MORE THAN THEY THINK THEY'RE GOING TO GO AND I THINK WERE
STILL IN THAT BOAT. IT IS A BOLD MOVE GIVEN HOW FAR
WE HAVE MOVE THE GOALPOST ON THE FED RATE CYCLE TO SAY THEY
ARE DONE. I THINK THAT IS TOO SOON.
JONATHAN: LARA RHAME, THANK YOU.
WE THINK THEY ARE DONE, MAYBE THERE'S MORE TO COME. WE CAN GET EVERYONE TO AGREE ON
ON THE SWEET SPOT IN THE SUMMER. EVERYONE IS TALKING ABOUT A
SOFT LANDING. THE DATA IS STILL TO COME THIS
SUMMER AND MAY LOOK LIKE A SOFT LANDING BUT THERE IS A BELIEVE
HE HAS WITH SOME CONFIDENCE THAT LATER THIS YEAR IT WILL
NOT LOOK LIKE THAT. LISA: IT IS A REASON WHY DATA
DEPENDENCY CAN BE DANGEROUS FOR SOME PEOPLE BECAUSE IF YOU ARE
DEPENDENT ON DATA THAT IS NOT REFLECT FORWARD-LOOKING, DO YOU
END UP WITH THE BACKWARD LOOKING POLICY?
THAT IS THE FEAR FOR A LOT OF PEOPLE.
THAT SAID, PEOPLE HAVE GOTTEN IT SO WRONG AND IT IS REASON
WHY WITH GOD AND MOVE THE GOALPOST SO MUCH AND GOTTEN IT
SO WRONG IT IS HARD TO SAY MARKET PRICE AND LESS THAN 40%
CHANCE OF ANOTHER RATE HIKE IN CYCLE. JONATHAN: PAIN CHAIRMAN POWELL TALKED
ABOUT PAIN WHEN UNEMPLOYMENT WAS AT 3.5%.
JOBLESS CLAIMS NEAR 200 K IF YOU ASK ANYONE, YOU'RE RIGHT TO
POINT OUT PEOPLE HAVE BEEN WRONG ABOUT ALL OF THIS, YOU
ASK ANYONE, MOMENTS AFTER THAT JACKSON SPEECH FROM CHAIRMAN
POWELL WHERE THEY THOUGHT THE ECONOMY WOULD BE 12 MUST OUT,
THERE IS NO WAY PEOPLE WOULD HAVE PREDICTED THE KIND OF DATA
WE WITNESS IN THIS COUNTRY YESTERDAY MORNING. LISA:
THE JOBLESS CLAIMS WERE SHOCKING TO ME, ANOTHER
DOWNSIDE OF PEOPLE FILING FOR UNEMPLOYMENT BENEFITS WERE
TIGHTER CREDIT CONDITIONS WERE SUPPOSEDLY GOING TO RESTRAIN
THE ECONOMY AND BECAUSE MORE LAYOFFS.
THE OPPOSITE IS HAPPENING. IT RAISES THIS QUESTION OF WHAT
STRUCTURAL CHANGES HAVE THERE BEEN POST-PANDEMIC AND EVEN
ACCELERATED BY THE PANDEMIC WITH LABOR SHORTAGES,
IMMIGRATION OR THE OTHER THINGS. YOU CANNOT CREATE A MODEL FOR
IT THE SAME WAY. JONATHAN: EITHER THE ECONOMY SUPER
RESILIENT AND IF SHAKING OFF THE HIGH RATES AND POLICIES AS
SUFFICIENT RESTRICTIVE OR THE LAGS ARE SUPERLONG. LISA:
WHAT IS THE DIFFERENCE? IF IT IS NOT WORKING, LESS
INTEREST RATE ECONOMY. JONATHAN:
MARITA STATED JOINING US SHORTLY. -- AMRITA SEN JOINING US
SHORTLY. >> GAS PRICES ARE NO LONGER FALLING AND THEY RETURNED
STORAGE LEVELS TO QUITE HIGH LEVELS SO THAT IS IMPORTANT.
CONSUMERS DO SEEM TO BE SENSITIVE TO THE FACT THAT
OTHER AREAS OF INFLATION ARE STILL HIGH AS WELL. JONATHAN:
JANET HENRY THERE ON WHAT IS HAPPENING WITH THE COMMODITY
MARKET IN EUROPE. 2023 HAS TURNED OUT TO BE
BETTER THAN WHAT IT WOULD BE. PARTICULARLY FOR THE WINTER IN
EUROPE. THERE WAS A MOMENT LAST SUMMER
WITH THE FEAR OF EUROPE'S ABILITY TO THROUGH THE WINTER
AND IT MANAGED TO DO THAT. SO WHEN WE TALK ABOUT
STAGNATION IN GERMANY, RECESSION TO THE WINTER, IT WAS
A MILD ONE, AND RELATIVE TO WHAT WE EXPECTED A YEAR AGO,
THE MILD RECESSION WAS BETTER THAN WHAT WE THOUGHT IT WOULD
BE. LISA: THERE HAVE BEEN QUESTIONS
AROUND UNDERSTANDING THE DYNAMICS OF ACCRUED MARKET, --
A CRUDE MARKET. CRUDE PRICES BEING AS LOW AS
THEY WERE DEFIED EXPECTATIONS OF A CHINA REOPENING, ROBUST
TRAVEL SEASON, ALL THE USE WE SEE AROUND THE WORLD SO WHAT IS
GOING ON? SHOULD I GO HIGHER? -- SHOULD IT GO HIGHER?
AND NEVER HAPPENED UNTIL RECENTLY. JONATHAN:
AMRITA SEN JOINS US NOW. IT WAS THE COMMODITY RUNNING
THAT NEVER REALLY WAS OFF OF THE BACK OF CHINA REOPENING.
WHAT HAPPENED? AMRITA: THE CHINA REOPENING PROBABLY
GETS TOO MANY FINGERS POINTED AT IT.
CHINESE OIL DEMAND HAS BEEN STRONG.
GASOLINE HAS BEEN GROWING, DEMAND HAS BEEN UP.
I THINK THE PROBLEM HAS BEEN WE HAVE DESTOCKED AN ENORMOUS
AMOUNT OF CRUDE AND THE MORE WE GO THROUGH THE NUMBERS I BELIEVE -- WE END UP WITH A
LOT OF OIL. THEY HAVE BEEN ABSORBED
GRADUALLY. YOU CAN SEE A VERY BIG
DISCREPANCY BETWEEN WHAT PINKER TRACKING SHOWS GOING INTO CHINA
VERSUS CHINA'S OWN IMPORT NUMBERS SO THE SHADOW VESSELS
HAS JUST BEEN SEEPING INTO THE MARKET AND I THINK THAT IS
ALLOWED THE MARKET TO ABSORB EFFECTIVELY MORE SUPPLY AND US
BUT I CAPS ON PRICES. IT IS ALSO A FUNCTION OF HIGHER
INTEREST RATES WHICH WE HAVE BEEN HIGHLIGHTING PEOPLE ARE
NOT WILLING TO HOLD INVENTORIES. I THINK YOU'RE GETTING TO A
POINT OUT RIGHT INVENTORY LEVELS ARE LOW AND AS A RESULT
YOU HAVE -- YOU START TO SEE THIS MOVE UP AND IT IS
SOMETHING WE ALWAYS SAID WILL HAPPEN AS DEMAND GOES UP.
JONATHAN: YOU EXPECT A RESTOCKING OF
INVENTORIES? CAN YOU GIVE US NUMBERS AND
PLACES OF WHERE YOU EXPECT TO SEE THAT? AMRITA: I DO NOT EXPECTED BECAUSE WERE
NOT GOING TO BE IN LOW INTEREST RATE ENVIRONMENT ANYTIME SOON.
5% INTEREST RATE CHANGES THE DYNAMIC SIGNIFICANTLY.
YOU'RE SEEING IT IS MUCH MORE IN OIL PRODUCTS.
THEY ARE ROOFING RIGHT NOW AND THAT IS A FUNCTION IN-WAS A
STOCKS DATA THAT WE COLLECT IS THAT IT RECORD LOW ACROSS OIL
PRODUCTS AND AT LEAST THE MARKETS SUSCEPTIBLE TO SPIKES
LIKE WE ARE SEEING IN GASOLINE AND DIESEL AND THAT IS WHERE
THE RISK FOR CRUDE AS WELL. ON AVERAGE WE ARE PROBABLY
GOING TO TWO DAYS LOWER BECAUSE PEOPLE DO NOT WANT TO HOLD
INVENTORIES BUT THAT HAS ITS OWN RISK AND THAT IS, THE
PROBLEM, THE CHALLENGE FOR THE CRUDE MARKET. LISA:
LET'S BRING THIS MORE CLEARLY SO I AM SURE I'M UNDERSTANDING
IT CORRECTLY. MONEY COST SOMETHING NOW SO
PEOPLE DO NOT WANT TO TAKE THAT CREDIT, THE OPPORTUNITY COST
AND PUT IT INTO HOLDING PHYSICAL BARRELS OF CRUDE WHICH
IS WHY PRICES HAVE NOT BEEN HIGHER DESPITE THE INCREASE IN
DEMAND. WHAT SUGAR COULD CAUSE THOSE
PRICES TO SPIKE? -- TRIGGER COULD CAUSE THOSE
PRICES TO SPIKE? PRICES ARE GOING UP BECAUSE
THEY'RE SUCH HIGH DEMAND. AMRITA:
THE FIRST PART IS EXACTLY RIGHT. IT IS TOO EXPENSIVE AND PEOPLE
DO NOT WANT TO HOLD INVENTORY BUT WHAT IS HAPPENING NOW IS
ONCE YOU RUN THROUGH THAT INVENTORY, YOU NEED CRUDE OIL
TO MEET DEMAND. ONE SWEET RUN DOWN THAT
INVENTORY, YOU'RE SEEING -- ONCE WE RUN DOWN THAT
INVENTORY, YOU'RE SEEING WE NEED TO RUN DOWN THE CRUDE.
THE RISK IS YOU NEED ONLY ONE SUPPLY OUTAGE AND THEN YOU
START TO SPIKE LIKE YOU ARE SEEING IN THE PRODUCTS MARKET.
YOU SEE PRODUCT SPIKE BECAUSE YOU DO NOT HAVE THE BUFFER IN
THE SYSTEM ANYMORE. LISA: FIVE DAYS AGO WE SAW U.S. GASOLINE PRICES AT $3.59 NOW
THEY ARE THREE DOLLARS 71 SENT. HOW HIGH COULD THEY GO IN YOUR
ESTIMATION BASED ON SUPPLY DEMAND DYNAMICS THAT ARE
POTENTIALLY GOING TO UNDERPIN MORE INCREASES? AMRITA:
THE GOOD NEWS FOR THE CONSUMER IS WE ARE SWITCHING TO WINTER
GASOLINE SOON AND THAT IS WHEN SPECIFICATIONS ARE LESS BUT
UNDERLYING GASOLINE AND DIESEL INVENTORIES ARE LOW SO YES, WE
CAN CONTINUE TO SEE PRICES GO HIGHER, ESPECIALLY BECAUSE WITH
THE HEAT WAVE IN EUROPE AND PARTS OF U.S.
WE HAVE SEEN REFINERIES STRUGGLE TO PROCESS CRUDE.
JONATHAN: WHAT HAPPENED TO THE REFINERIES
THAT ARE GETTING REFILLED? LISA: IT IS SO'S -- IT WAS SUPPOSED
TO HAPPEN BUT IT DID NOT. AMRITA: IT IS HAPPENING 3 MILLION BARRELS IN AUGUST, 3
MILLION IN SEPTEMBER. THIS WOULD BE A A SLOW TRICKLE
3 MILLION BARRELSBUT THIS IS THE OTHER THING, THERE'S
ANOTHER LONG THE TO GET REPAID FROM NOVEMBER 2021 AND THAT'S
GOING TO BE IN 2024, WE DO NOT HAVE INVENTORIES AND THIS IS
WHY ARE YOU TALKING ABOUT THE DESTOCKED INCOME IF YOU HAVE
LOW COMMERCIAL INVENTORY TO BEGIN WITH, IMAGINE TAKING MORE
CRUDE OUT OF THE COMMERCIAL INVENTORIES TO PUT BACK INTO
THE SPR, THERE IS GOING TO BE MORE PRESSURED ON PRICES.
THE GOOD NEWS FROM A CONSUMER POINT OPEC-PLUS HAS THE
CAPACITY THANKS OF THE VOLUNTARY CUTS SO THEY CAN
BRING BACK PRODUCTION GRADUALLY. THE SAUDI ARABIA ONE BILLION,
RUSSIA HALF A MILLION BARRELS A DAY THEY CAN START BRINGING
THAT BACK SHOULD PRICES GO UP TOO FAST BUT OTHER THAN THAT WE
DO NOT HAVE MUCH OF A BUFFER. JONATHAN: RECENT JOKE IT WAS THE
STRATEGIC MIDTERM RESERVE BUT DO YOU SINCE SPR WILL BE USED
POLITICALLY GOING INTO THE ELECTION NEXT YEAR IN TERMS OF
RELUCTANCE? AMRITA: THE SPR HAS THE SPR HAS BEEN
USED POLITICALLY. AT THE START OF WHEN IT WAS
RELEASED LAST YEAR, EVERYBODY THOUGHT WAS A PRODUCTION WOULD
FALL MORE, IT DID NOT BUT WHEN IT WAS CLEAR IT WAS NOT
FALLING, THERE IS NO NEED TO CONTINUE WITH THE SPR.
IT IS CLEARLY DRIVEN BY TRYING TO KEEP PRICES DOWN AND IT DOES
BEEN EIGHT CLEAR OBJECTIVE OF THE BIDEN ADMINISTRATION TO A
LOT MORE SALES TO HAPPEN QUIETLY.
I DO NOT THINK THEY HAVE MUCH MORE AMMUNITION GIVEN WHERE SPR
LEVELS ARE TO RELEASE MUCH MORE NEXT YEAR BUT YES, I DO THINK
THE PACE OF REFILLS COULD EASILY SLOW DOWN BARRING THE
LOANS BECAUSE WHY OTHERWISE PUSH PRICES ESPECIALLY GIVEN
DEMAND IS LOOKING ROBUST EVERYWHERE, WHY ADD TO THE
PRESSURE? I'M NOT EXPECTING A BANK
REFILLING NEXT YEAR. JONATHAN: AMRITA SEN, THANK YOU. BRENT CRUDE 83.92.
A BIT LOWER TODAY BY 0.4%. THE BTI A BIT LOWER BY 31%.
LISA: IT IS THE MAIN SLEEPER STORY
PEOPLE ARE NOT TALKING ABOUT ENOUGH BECAUSE IF WE SEE
GASOLINE PRICES GO UP SIGNIFICANTLY THAT ONLY IS
THERE A HUGE POLITICAL QUESTION, THERE'S A CONSUMER
PRICE INDEX COMPONENT OF THIS. HOW MUCH OF THE DECLINES WE
HAVE SEEN HAVE BEEN FUELED BY WHAT WE HAVE SEEN IN OIL
PRICES, ENERGY PRICES, LOWER? IF IT REVERSES, HOW MUCH DOES
IT UP AND THE GAINS WE HAVE SEEN ON A YEAR-OVER-YEAR BASIS
AND MAKE PEOPLE FEEL LESS WELL OFF? JONATHAN:
GASOLINE PRICES EIGHT MONTHS HIGHS.
THE SOMETHING TO WATCH FOR THE POLITICS, ELECTION CAMPAIGN
GOING INTO NEXT YEAR. LISA: HOW CAN THEY START REFILLING A
STRATEGIC PETROLEUM RESERVE AND THERE PREMIUM AROUND STORAGE
PEOPLE DEMAND MORE THAT WILL INCREASE THE PRICE MUCH MORE ON
THE MARGINS? HOW CAN THEY DO THAT IF THEY
ARE CONCERNED ABOUT WHERE GASOLINE PRICES ARE? JONATHAN:
HOW LONG WILL IT TAKE SIX OR EIGHT YEARS?
TO GET IT BACK TO WHERE IT WAS. JAY PELOSKY JOINING US LATER.
THE ENTHUSIASM FOR THE INTERNATIONAL BACK DROP AT A
TIME WHEN A LOT OF PEOPLE ARE BECOMING INCREASINGLY
ENTHUSIASTIC ABOUT WHAT IT'S BEEN DEVELOPING STATESIDE AFTER
STRONG DATA IN AMERICA YESTERDAY. GDP STRONGER.
JOBLESS CLAIMS LOWER. GOING TO THE UNEMPLOYMENT COST
INDEX LATER. I SAW THAT THAT.
COMPARED TO EUROPE, EUROPE NOT GETTING IT DONE. LISA: THIS IS ACTUALLY KEEP MORE THAN
ECB POLICY AT THIS MOMENT. JONATHAN:
EQUITIES ON THE S&P POSITIVE BY 0.4%.
LIVE FROM NEW YORK CITY, GOOD MORNING. >> A LOT OF COMPANIES ARE
FEELING THAT STRAIN AND WILL CONTINUE TO DO SO. >> THEY SEEM TO BE GUIDING US
TO A SLOWER PACE OF POLICY. >> THE BIGGER RISK FOR THE FED
IS TO DECLARE MISSION ACCOMPLISHED TOO EARLY. >> THIS IS BLOOMBERG
SURVEILLANCE WITH TOM KEENE, AND LISA ABRAMOWICZ. JONATHAN:
GOOD MORNING. THIS IS "BLOOMBERG SURVEILLANCE"
ON TBN RADIO. THE EARNINGS PRETTY DECENT.
THE FED CHAIR JAY POWELL TELLING US NOTHING ABOUT WHAT
HE MAY OR MAY NOT DO IN SEPTEMBER.
THE BOJ IS MORE UNCLEAR ABOUT WHAT THEY DID OVERNIGHT.
YIELD CURVE CONTROL TWEAKS. LISA: IT IS SHOCKINGLY STABLE IN
MARKETS GIVEN THE UNCERTAINTY AND AMBIGUITY WHICH IS NEW
TERRAIN FOR ALL OF THE CENTRAL BANKS, PARTICULARLY JAPAN.
YOU SAID IT IS TOO EARLY TO SAY WHAT THE MARKET REACTION WILL
BE TO THE BANK OF JAPAN. YOU SAID THAT SEVERAL TIMES.
IT IS TOO EARLY TO SEE IF PEOPLE CAN BUY INTO THE SOFT
LANDING NARRATIVE IN THE STRATEGIC AMBIGUITY BY ALL OF
THE CENTRAL BANKS AND BE OK WITH IT. JONATHAN:
THEY STILL HAVE A TARGET OF ZERO BUT THEY SEEM TO ALLOW MAY
BE ADRIFT ABOVE .5. ULTIMATELY IF IT GETS TO 1%
THEY WILL STEP IN EVERY DAY AND BY 10-YEAR GILTS AT 1%.
WHERE IS THE LINE IN THE SAND NOW?
WE SEE THE 10 BASIS POINT MOVE OVERNIGHT, WHICH IN JAPAN IS A
REAL MOVE. WE PUSH IT TO .6, .7? ALL THE WAY TO 1%? LISA:
WENT TO THEY START STEPPING IN? HOW MUCH IS THIS ABOUT THE YEN?
HOW MUCH OF THIS IS GETTING THE YEN STRONGER?
THESE ARE SOME OF THE AMBIGUITIES.
THE BIGGER QUESTION HAS BEEN WHAT IMPACT WILL IT HAVE ON
BROADER MARKETS. MAYBE THEY DO NOT HAVE TO HAVE
MUCH OF AN IMPACT IF THEY DO IT SLOWLY AND WITH STRATEGIC
AMBIGUITY. JONATHAN: SO FAR, SO GOOD.
FIVE DAYS OF YEN STRENGTH. DOLLAR-YEN NEGATIVE .2%.
LET'S CHECK OUT THE PRICE ACTION.
EQUITY FUTURES POSITIVE ON THE S&P.
YIELDS LOWER BY TWO OR THREE BASIS POINTS.
IF YOU ARE JUST TUNING IN, THE MOVE IN TREASURIES YESTERDAY
OFF THE BACK OF THE NIKKEI REPORT ABOUT WHAT WE EVENTUALLY
GOT FROM THE BOJ WAS REALLY YESTERDAY.
THROW IN STRONG ECONOMIC DATA. LISA:
THIS IS THE REASON WHY YOU'RE NOT SEEING THE MOVE TODAY.
THE REASON WE SAW THE BIGGEST MOVE IN THE 10 YEAR TREASURIES,
PERHAPS PEOPLE REASSESSING TODAY.
IN ABOUT AN HOUR GERMAN CPI FOR THE MONTH OF JULY.
THIS COULD BE ONE OF THE MOST INTERESTING THING THAT HAPPENS
ESPECIALLY OUT OF FRANCE AND SPAIN GIVEN THAT EUROZONE
INFLATION IS STILL RUNNING VERY HOT. 8:30 IN THE U.S., THE PCE
DEFLATOR FOR JUNE. THE EMPLOYMENT COST INDEX FOR
THE SECOND QUARTER, THE KEY INDEX THE FED LOOKS AT FOR WAGE
INCREASES. HOW MUCH DOES THIS G INFLATION
METRIC START TO COME IN GIVEN HOW STICKY IT IS.
WHICH DATA MATTERS IN THIS INCREASINGLY DATA DEPENDENT
STRATEGICALLY AMBIGUOUS STRATEGIC MORE ASK WE HAVE BEEN
IN THIS WEEK? LATER, THE FIRST TIME FORMER
PRESIDENT TRUMP AND RON DESANTIS ARE EXPECTED TO MEET
UP WITH ALL OF THE OTHER CONTENDERS. JONATHAN:
THAT WILL BE INTERESTING. LET'S SEE IF THERE IS STILL ON
THE SAME STAGE A MONTH FROM NOW. LISA:
BOTH OF THEM HAVE THEIR ISSUES THEY CAN GO AFTER EACH OTHER
WITH. YOU HAVE FORMER PRESIDENT TRUMP
DEALING WITH A HOST OF LEGAL ISSUES, THEN YOU HAVE RON
DESANTIS LOOSENING ONE THIRD OF HIS STAFF. JONATHAN:
HAVE A LEFT OR HAS HE CUT THEM? LISA:
I THINK HE HAS CUT A NUMBER OF PEOPLE BECAUSE OF BUDGET CUPS
-- BUDGET CUTS. JONATHAN: PROCTER & GAMBLE NUMBERS BE ON
THE TOP AND BOTTOM LINE. EPS GROWTH 6% TO 9%.
REVENUE CAME IN STRONG. EPS 137 AGAINST AN ESTIMATE OF
132. THERE IS HIGHER PRICES. IT LOOKS LIKE THEY STILL HAVE
THE PRICING POWER. LISA: THE FACT THAT MARGINS EXPANDED
GIVEN THE FACT THEY ARE SEEING FUNDAMENTAL PRICES COME DOWN
AND THEY CAN STILL PASS ALONG INCREASES IN PRICING TO
CONSUMERS. WE HAVE SEEN THIS FROM CONSUMER
FACING COMPANIES. COCA-COLA, MCDONALD'S, NOW
PROCTER & GAMBLE. AT WHAT POINT DOES THIS FEED
INTO THE IDEA THAT MAY BE A SOFT LANDING IS NOT SO PERFECT
IF YOU ARE STILL SEEING THESE INCREASES.
THESE ARE SOME OF THE THINGS PEOPLE ARE TALKING ABOUT.
HAVE WE GOTTEN TOO COMFORTABLE WITH THIS IDEA THAT THE FED HAS
WON AND WE WILL NOW HAVE THIS IMMACULATE DISINFLATION? LISA:
I THINK YOU -- JONATHAN: I THINK YOU CAN MAKE THE
OBSERVATION THIS IS PRETTY IMPRESSIVE BASED ON WHAT WE
EXPECTED BUT IT IS DIFFICULT TO EXTRAPOLATE THAT OUT AND SAY
THIS IS THE DESTINATION AND THEY CAN TAKE A VICTORY LAP.
IT IS TOO SOON TO MAKE THOSE CONCLUSIONS. LISA:
IT IS IMPORTANT TO REALIZE THAT OVERALL SALES ARE DOWN IN Q2
PROFITS ARE DOWN 8% SO FAR. CROSSING A LOBAR IS ONE WAY OF
LOOKING AT IT. JONATHAN: DO HAVE FAVORITE GUESTS?
HERE IS ONE NOW. JAY PELOSKY. IT IS GOOD TO CATCH UP.
CAN WE START IN JAPAN? THE LATEST CHANGE FROM THE BOJ.
DID YOU LIKE WHAT YOU HEARD THIS MORNING? JAY: YES.
JAPAN HAS HAD SUCCESS AT SOMETHING THEY'VE BEEN FIGHTING
FOR FOUR YEARS, TO GET RID OF DEFLATION. THEY HAVE DONE IT.
WE LIKE JAPAN AS AN EQUITY MARKET.
IT IS SET UP BEAUTIFULLY. THE CURRENCY IS SUPERCHEAP ON A
PURCHASING POWER PARITY BASIS. 50% UNDERVALUED.
STOCKS ARE SUPERCHEAP. YOU HAVE STOCKS THAT SELL FOR
LESS THAN CASH. 20% OF CASH SELLS FOR LESS THAN
IS ON THE BALANCE SHEET. WE THINK THE BANK OF JAPAN IS
EXITING YIELD CURVE CONTROL. THAT WILL SET UP NOT ONLY A
POTENTIAL ALLOCATION OUT OF FOREIGN ASSETS WHICH IS WHAT
JAPAN INSTITUTIONS HAVE BEEN DOING FOR YEARS BACK INTO
DOMESTIC ASSETS, BUT ALSO WITHIN THE DOMESTIC ASSET
ALLOCATION WHERE THE FAMOUS RETAIL INVESTOR HAS BEEN DOING
NOTHING BUT BUYING BONDS. NOW THE BONDS IN JAPAN ARE
GOING INTO THE SAME MARK THAT U.S. BONDS
-- THAT MEANS AN ALLOCATION SHIFT TO EQUITIES.
JAPAN IS ONE OF THE MOST ATTRACTIVE MARKETS IN THE WORLD
IN THIS MOMENT ON A SIX MONTH OR 12 MONTH BASIS. JONATHAN: YESTERDAY EVENING I WAS GOING
FROM'S -- I WAS GOING THROUGH SLIDES FROM TORSTEN STOCK ON
JAPANESE BANKS AND LOOKING AT NET INTEREST MARGINS.
IT IS INTERESTING HOW THERE OF THE NET INTEREST MARGINS ARE AT
A JAPANESE BANK COMPARED TO WELLS FARGO.
WOULD YOU PLAY IT THROUGH THE JAPANESE BANKS AND HOW MUCH OF
A MOVE HAVE WE SEEN ANTICIPATING WHAT WE GOT THIS
MORNING? JAY: THE BANKS HAVE MOVED FIRST.
WE HAVE BEEN IN THIS EXTREME LOW RATE ENVIRONMENT.
ONE OF OUR KEY CONCLUSIONS, LISA WAS TALKING ABOUT
STRATEGIC AMBIGUITY, IT BROUGHT ME BACK TO MY NATIONAL SECURITY
DAYS IN D.C.. THEY ARE LOOKING TO DO
SOMETHING DIFFERENT AT THE OPPORTUNITY IS TO GROW THE
ECONOMY AND TO HAVE INFLATION COME BACK, AND THAT HELPS THE
MARGINS, THAT HELPS EARNINGS. JUST AS WE LOOK IN THE U.S.,
HIGH NOMINAL GROWTH. WE HAVE BEEN TALKING ABOUT THIS
FOR AGES. THE SAME THING APPLIES IN
JAPAN, WHICH IS WHY YOU WILL HAVE GOOD EARNINGS, YOU WILL
HAVE GOOD BANK RESULTS, AND YOU ARE NOT PAYING ANYTHING FOR IT.
20% OF THE MARKET SELLS FOR LESS THAN THE CASH ON THE
BALANCE SHEET. IT IS A VALUE PLAY OR DREAM.
THE CURRENCY IS GOING TO APPRECIATE. RATES ARE GOING UP.
BONDS WILL SELLOFF. PEOPLE WILL BUY STOCKS.
IT IS A FANTASTIC SET UP. LISA: IT WAS GEOFFREY YU WHO GOING TO
STRATEGIC AMBIGUITY. I WAS JUST PARROTING.
WHAT ABOUT IN EUROPE? IS THERE IS STILL A VALUE
PLAYERS DREAM IN AN AREA THAT HAS DISAPPOINTED IN A WAY THE
U.S. HAS NOT? JAY: EUROPE HAS MORE OF A CHALLENGE
ON THE ECONOMIC FRONT. I THINK THAT IS CLEAR.
THE SENTIMENT -- ONE OF THE THINGS WE'VE BEEN TALKING ABOUT
IS THIS TREMENDOUS GAP BETWEEN DATA AND SURVEY SENTIMENT.
THE DATA CONTINUES TO COME IN GOOD AND THE SURVEYS CONTINUE
TO BE PRETTY LOUSY. DATA IS WINNING OUT.
THE SAME APPLIES IN EUROPE. YOU TALK ABOUT BANKS.
WE HAVE TALKED ABOUT IT OVER TIME. WE HAVE BEEN AN OWNER OF
EUROPEAN FINANCIALS FOR THE LAST SEVERAL YEARS AND THEY
CONTINUE TO HIT NEW HIGHS. THEY JUST HIT NEW HIGHS IN THE
LAST COUPLE OF WEEKS. WE THINK THE SITUATION IN
EUROPE IS BETTER THAN IT IS BEING PORTRAYED.
WE WERE BULLISH EUROPE LAST YEAR. WE HAVE BEEN BULLISH JAPAN THIS
YEAR. WE WROTE A PIECE CALLED ROTATION TWO MONTHS AGO.
THAT IS WHAT IS GOING ON IN THE MARKETS.
WE HAVE A ROLLING ROTATION. WE ARE ALL ABOUT WHAT IS NEXT.
MARKETS ARE MOVING VERY FAST. TO US WHAT'S NEXT IS WE HAVE
CLEAR SKIES, WE HAVE A MANUFACTURING RECOVERY.
THAT WILL BE THE SURPRISE OF THE SECOND HALF OF THE YEAR.
MANUFACTURING WILL PICK UP AS WE RESTOCK THE INVENTORY
DRAWDOWNS. ONE REASON WHY WE ARE BULLISH
ENERGY IS EXACTLY THAT. WE THINK THE BIG OPPORTUNITY
RIGHT NOW FOR THE NEXT SIX TO 12 OR 18 MONTHS IS AND
EMERGING-MARKET EQUITIES AND COMMODITIES, BOTH OF WHICH ARE
AT 15 TO 20 YEAR LOWS RELATIVE TO THE U.S.
EQUITY MARKET AS AN EXAMPLE. LOTS OF UPSIDE IN THOSE
SEGMENTS. JONATHAN: DO NEED STIMULUS OUT OF CHINA
TO MAKE THAT WORK? JAY: NO. CHINA IS THE POSTER CHILD FOR
NEGATIVE SENTIMENT. JUST RIDICULOUS HOW NEGATIVE
PEOPLE ARE ABOUT AN ECONOMY THAT IS THE SECOND BIGGEST
ECONOMY IN THE WORLD THAT IS GROWING AT 5%.
WITH PRETTY MUCH AN INSURANCE. THEY ARE MAKING SHIFTS.
THEY ARE WELCOMING BACK THE TECH COMPANIES.
THE WHOLE ISSUE AROUND CHINA TECH IS OVER AND ONE OF THE
THINGS WE HAVE TALKED ABOUT IS PROFITS FROM U.S.
BIG TECH, REALLOCATE THAT INTO CHINA TECH.
WE THINK EMERGING MARKETS ARE GOING TO LEAD THE NEXT CYCLE IN
CENTRAL BANKS, WHICH IS RATE CUTTING.
WE ARE AT THE END OF THE RATE HIKING CYCLE IN THE WEST. MAYBE
JUST BEGINNING IN JAPAN, FAIR ENOUGH.
EMERGING MARKETS WILL LEAD THE RATE CUTTING CYCLE AND WE THINK
MARKETS LIKE BRAZIL ARE VERY ATTRACTIVE.
WE LIKE CHINA, WE LIKE BRAZIL WITHIN EMERGING MARKETS.
WE LIKE JAPAN. WITHIN THE COMMODITY SPACE WE
LIKE ENERGY, WE LIKE INDUSTRIALS, WE LIKE PRECIOUS
METALS. COMMODITIES ARE THE NEXT THING.
WITHIN THE NEXT TWO WEEKS, WTI HAS BROKEN OUT.
THAT IS TELLING YOU WE WILL NOT HAVE A RECESSION.
BONDS PRICED OUT THE RECESSION BY GETTING RID OF THE RATE CUT FOR NEXT YEAR, THEN STOCKS WITH
THE MOVE INTO CYCLICALS AND NOW COMMODITIES ARE PRICING OUT
RECESSION. WE WILL NOT HAVE A BREAKOUT IN
COMMODITIES IN A RECESSION. THOSE DON'T GO TOGETHER.
JONATHAN: THIS WOULD BE EASIER IF WE
STARTED THE INTERVIEW SAYING WHAT DON'T YOU LIKE.
THIS WOULD HAVE LASTED 30 SECONDS. HE HAS TO GO. LISA: HE DOES NOT WANT TO GO.
JONATHAN: LET ME TELL YOU WHAT I DON'T
LIKE. YOU. [LAUGHTER] WE GET ALONG.
COMING UP, TONY RODRIGUEZ OF NEW BEEN. >> THERE ARE CONCERNS ABOUT
YOUR DEMOCRATIC COLLEAGUE DIANNE FEINSTEIN AS WELL.
IS IT TIME FOR THESE INDIVIDUALS TO STEP ASIDE AND
MAKE WAY FOR A NEW GENERATION OF LEADERS? >> THEY WILL HAVE TO MAKE THAT
DECISION THEMSELVES BUT MEMBERS OUGHT TO BE ABLE TO DO THEIR
JOBS. MEMBERS OUGHT TO BE ABLE TO
MAKE A PLACE WHERE THEY CAN PERFORM THE DUTIES AND
RESPONSIBILITIES OF INTO THEM BY THEIR CONSTITUENTS, AND I AM
HOPEFUL BOTH OF THOSE INDIVIDUALS MAKE THE DECISION
BASED ON THAT CRITERIA. JONATHAN:
STENY HOYER OF MARYLAND SPEAKING TO ANNMARIE HORDERN.
WE WILL CATCH UP WITH HER IN JUST A MOMENT.
PLENTY OF FEEDBACK ABOUT JAY PELOSKY AND HIS OPTIMISM.
THE FEEDBACK IS WELCOME. EQUITY MARKET POSITIVE .5%.
YIELDS ARE LOWER FOUR BASIS POINTS.
TAKING BACK SOME OF THE MOVE FROM YESTERDAY.
YIELDS MUCH HIGHER OFF THE BACK OF STRONGER-THAN-EXPECTED U.S.
DATA AT THE SUGGESTION WE GET A YIELD CURVE CONTROL SHIP FROM
THE BANK OF JAPAN THIS MORNING. LISA:
HAVEN'T YOU BEEN SURPRISED THAT ALL OF THE STRATEGIC AMBIGUITY
HAS NOT CREATED MORE VOLATILITY GIVEN THE FACT WE COULD BE
NEARING THE END OF THE BEGINNING DEPENDING ON WHICH
REGION YOU ARE IN IN SOME NEW CYCLE? JONATHAN: WE USED TO GET THESE FINANCIAL
STABILITY REPORTS FROM THE BANK OF INTERNATIONAL SETTLEMENTS
AND THEY ARE ALWAYS PRETTY BEARISH ON GLOBAL MARKETS.
YOU REMEMBER THEM? RATES WERE TOO LOW AND ALL OF
THAT STUFF. MEMBER THIS PHRASING?
AN UNCOMFORTABLE CALM? THERE IS AN UNCOMFORTABLE CALM
RIGHT NOW THIS SUMMER. THERE IS THE BELIEF -- EVERYONE
THINKS THE DATA WILL CARRY ON LOOKING THAT WAY THIS SUMMER.
THAT UNDERPINS THIS UNCOMFORTABLE CALM.
CAN YOU EXTRAPOLATE CURRENT CONDITIONS THREE MONTHS, SIX
MONTHS INTO NEXT YEAR. LISA: IS UNCOMFORTABLE CALM BECAUSE
IT IS DIFFICULT TO BE BEARISH AFTER BEING SO CALM THE NEXT
SIX MONTHS. YOU SIT WAITING TO UNDERSTAND
WHICH DIRECTION WE ARE GOING IN FROM DATA WHICH MAY OR NOT SHOW
IT SOON ENOUGH. YOU CANNOT BELIEVE THE
YEAR-OVER-YEAR COMPS MAY NOT PROVIDE THAT. JONATHAN:
IT IS FAR MORE UNCOMFORTABLE IF YOU MISSED OUT ON THE 40% MOVE.
ANNMARIE HORDERN JOINS US IN WASHINGTON, D.C..
YOU KNOW WHERE THE CONVERSATION HAS BEEN IN WASHINGTON.
IT IS AN AGING SENATE AND MORE UPSETTING PICTURES COMING FROM
WASHINGTON, THIS TIME OF DIANNE FEINSTEIN.
CAN YOU TELL US WHAT YOU ARE LEARNING ABOUT THE FUTURE OF
SOME OF THESE POLICYMAKERS? ANNMARIE:
TODAY THE WASHINGTON POST, THE DATA THEY HAVE IS IN TERMS OF
INCUMBENT LEGISLATURES. OF COURSE THERE WAS CONCERN
ABOUT SENATE MINORITY LEADER'S, MITCH MCCONNELL, WHEN HE FROZE
ON CAMERA FOR ABOUT 20 SECONDS. YESTERDAY, DIANNE FEINSTEIN,
WHO IS NEWLY BACK IN THE SENATE, SHE HAD TAKEN TIME OFF
TO RECOVER FROM SHINGLES, SHE SEEMED COMMUTE -- SHE SEEMED
CONFUSED AND THE APPROPRIATIONS COMMITTEE AND SHE LOOKED DOWN
TO START GIVING A SPEECH AND THEN SHE ONLY HAD A VOTE AND
THEN SHE WAS PRODUCT TO VOTE AND SHE WAS TOLD BY THE SENATOR
NEXT TO HER TO JUST SAY AYE. SHE WAS VERY CONFUSED, AND THEN
SHE WAS BASICALLY TOLD ON CAMERA WITH A HOT MIKE HOW TO
VOTE. THIS RAISES FRESH CONCERNS OVER
WHETHER OR NOT THESE INDIVIDUALS ARE FIT TO DO THEIR
JOB. JONATHAN: WASN'T IT NIKKI HALEY WHO
RAISED THE PROPOSITION THAT WE SHOULD HAVE COMPETENCY TESTS
FOR PEOPLE IN WASHINGTON DC? ANNMARIE:
YES AND WHEN YOU LOOK AT SOME OF THE DATA IN TERMS OF THE
POLLING, MANY PEOPLE WANT TO SEE TERM LIMITS FOR THESE
CONGRESSIONAL LEADERS. OTHERS WANT TO SEE, IF IT WILL
NOT BE TERM LIMITS, THEY WANT TO SEE UPPER AGE LIMITS.
WE SHOULD NOTE A LOT OF AMERICANS THINK IF YOUR 70'S OR
80'S BUT YOU HAVE THE MENTAL CAPACITY AND YOU ARE FIT TO
SERVE THEN YOU SHOULD BE ABLE TO DO SO, AND YOU PROBABLY
BRING A GREAT DEAL OF KNOWLEDGE THE LEGISLATURE.
IF YOU ARE NOT, THEY WANT TO SEE SOMETHING HAPPEN WHERE WE
ARE NOT IN THIS POSITION WHERE INDIVIDUALS ARE CONCERNED OR
CONFUSED ABOUT WHERE THEY ARE AND THEY ARE SUPPOSED TO BE
LEGISLATING ON BEHALF OF THE AMERICAN PEOPLE. LISA: MITCH MCCONNELL'S FUTURE IS A
QUESTION AT THIS POINT WITH EVEN SOME IN THE REPUBLICAN
PARTY WONDERING WHO COULD FOLLOW HIM AS THE GOP MINORITY
LEADER IN THE SENATE. SOME PEOPLE POINTING OUT
SENATOR JOHN THUNE OF SOUTH DAKOTA AS THE LIKELY SUCCESSOR.
WHAT IS THE LATEST? ANNMARIE: IT WILL LIKELY BE AN INDIVIDUAL
NAMED JOHN, THERE ARE ABOUT THREE SENATORS NAMED JOHN THAT
COULD TAKE ON THIS ROLE, JOHN THUNE, JOHN CORNYN, THEY ARE
LIKELY TO BE THE NEXT SUCCESSOR FOR THE SENATOR.
ANYTHING CAN HAPPEN, BUT THESE ARE PART OF HIS LEADERSHIP TEAM
ON THE REPUBLICAN SIDE AND THEY CAN POTENTIALLY TAKE THE REINS.
WE SHOULD NOTE MITCH MCCONNELL HAS COME OUT AND HE HAS COME
OUT AND TALK TO REPORTERS AND HE SEEMED FINE.
HE WANTS TO REMAIN WHERE HE IS AT THE MOMENT.
I THOUGHT HE HAD A VERY GOOD POLITICALLY ASTUTE MOMENT WHEN
HE WENT BACK OUT AND SPOKE TO REPORTERS AND SAID THE
PRESIDENT OF THE UNITED STATES CALLED ME AND I JUST TOLD HIM I
GOT SANDBAGGED. HE IMMEDIATELY REMINDED
REPORTERS ON THE OTHER SITE OF THE AISLE THAT THERE ALSO
INDIVIDUALS QUESTIONING ABOUT THEIR AGE AND OBVIOUSLY HE WAS
TALKING ABOUT THE PRESIDENT, WHO TRIPPED OVER A SANDBAGGED
EARLIER THIS YEAR. LISA: THIS IS AN ISSUE IN ALL SIDES
AND IT IS NOT A PARTISAN ISSUE. THERE IS A QUESTION ABOUT THE
COMPOSITION OF THE LEGISLATURE. THERE IS ALSO A QUESTION ABOUT
WHO THE LEADERS WILL BE AT THE TOP OF BOTH PARTIES IF THERE IS
SOME SORT OF TURNOVER, DOES THE BALANCE MOVE MORE TO THE
FRINGES OR MORE TO THE CENTER? IS THERE AN IDEA AS THERE IS
DISCUSSION ABOUT NEW LEADERSHIP? ANNMARIE:
THAT IS A GREAT QUESTION. A LOT OF THIS DEPENDS ON WHAT
CONGRESSIONAL DISTRICT YOU ARE LOOKING AT.
A LOT DEPENDS ON WHAT STATE YOU ARE LOOKING AT, AND ALSO IT
COMES DOWN ON THE PRESIDENTIAL LEVEL.
THERE IS A LOT OF CONCERNS AS WE GEAR UP FOR 2024 AND THE
NOVEMBER PRESIDENTIAL ELECTION ABOUT THE AGE OF THE TOP
CANDIDATES ON BOTH SIDES, ABOUT BOTH OF THEIR AGE.
IT IS NOT JUST THAT THE PRESIDENT IS IN HIS 80'S AND AT
THE END OF HIS SECOND TERM HE WOULD BE 86, A LOT OF PEOPLE
THINK THE FORMER PRESIDENT, DONALD TRUMP, BESIDES THE FACT
HE IS DEALING WITH A TREMENDOUS AMOUNT OF LEGAL ISSUES, HE IS
IN HIS LATE 70'S AND MANY WOULD SAY HE IS AN UNHEALTHY MAN AS
WELL. THIS IS A HUGE PROBLEM ON BOTH
SIDES OF THE AISLE, BUT IF YOU WILL SEE A NEW GENERATION OF
LEADERS, POTENTIALLY IT GOES TO THOSE IN THEIR 60'S?
AND THEN MUCH LOWER, 40'S AND 50'S.
YOU'RE SEEING THEM EMERGE ON BOTH SIDES. JONATHAN:
CAN WE TALK ABOUT THE LATEST INDICTMENT OF THE FORMER
PRESIDENT? WHAT HAVE WE LEARNED? ANNMARIE:
THE PRESIDENT NOW HAS FRESH CHARGES AGAINST HIM IN THE
DOCUMENTS CASE. EVERYONE WAS WAITING ON THE
INDICTMENT ABOUT THE OVERTURNING OF THE 2020
ELECTION RESULTS. FROM'S LAWYERS WERE AT THE DOJ
YESTERDAY BUT THAT NEVER CAME. WHAT WE HAVE OUR FRESH CHARGES
WHEN IT COMES TO THE DOCUMENT CASE PROSECUTED OUTSIDE THE
SOUTHERN DISTRICT OF FLORIDA. THIS IS TWO ISSUES IN THIS
CASE, THE LATEST CHARGES. ONE IS THAT TRUMP WANTED TO GET
RID OF SURVEILLANCE FOOTAGE AND THERE IS A THIRD DEFENDED THAT
IS CHARGED IN THIS CASE, ANOTHER WORKER AT MAR-A-LAGO.
THE SECOND IS HE WANTED TO CONCEAL NATIONAL SECURITY
DOCUMENTS. MEMBER THERE WAS LEAK AUDIO
ABOUT THIS AND A CONVERSATION IN HIS GOLF COURSE IN NEW
JERSEY ABOUT A VERY SENSITIVE DOCUMENT ABOUT THE U.S.
POTENTIAL MILITARY PLAN IN ANOTHER COUNTRY.
THESE ARE THE LATEST CHARGES IN THAT SAME CASE IN FLORIDA.
THIS IS THE DOCUMENTS CASE. JONATHAN:
WHAT A BIZARRE TIME IT IS IN WASHINGTON.
AMH IN WASHINGTON, D.C. ON THE LATEST. WELCOME TO THE
PROGRAM AS WE GET YOU TOWARDS THE WEEKEND.
.5% HIGHER ON THE S&P 500. THIS FROM APOLLO AND TORSTEN
SLOK THIS MORNING. "FOR MARKETS TO CONTINUE TO
TRADE HIGHER THE SOFT LANDING MUST BE A SOFT LANDING, NOT
EVERY ACCELERATION. IF HOUSING AND CONSUMER
SPENDING ACCELERATE FROM HERE, THE FED WILL HAVE TO RAISE
RATES A LOT MORE." WE WILL PICK UP ON THAT IN A
MOMENT. TONY RODRIGUEZ IS UP NEXT. JONATHAN:
EQUITIES WITH A LIFT THIS FRIDAY MORNING.
ON THE NASDAQ, .9%. THE NASDAQ HAS LOOKED PRETTY
GOOD ALL YEAR. IT HAS BEEN BACKED UP BY THE
EARNINGS WE HAD THIS WEEK FROM GOOGLE, FROM FACEBOOK.
IN THE BOND MARKET, TWO YEAR, 10 YEAR, 30 YEAR.
THE DATA DECENT. THIS MORNING TREASURIES RALLIED.
DOWN SIX BASIS POINTS TO FOUR -- 24.8682. TWO CPI PRINTS, AUGUST 10 AND
SEPTEMBER 13. NEXT FED MEETING SEPTEMBER 30. IT IS ALWAYS UNCLEAR, CHAIRMAN
POWELL DELIVER A SPEECH. YOU MIGHT.
IT IS UNCLEAR WHETHER HE WILL. LISA: YOU MADE THE SUGGESTION
YESTERDAY MAYBE HE JUST DOESN'T SHOW UP.
MAYBE HE JUST TAKES AUGUST OFF. HELLO SUMMER. JONATHAN:
TAKE A BREAK. AFTER THE FINANCIAL CRISIS
THERE BECAME THIS EXPECTATION WE WOULD GET THE SPEECH FROM
THE FEDERAL RESERVE CHAIRMAN JACKSON HOLE. WE PROBABLY WILL.
MAYBE WE WON'T. LISA:
THE ISSUE IS IF HE DOES GIVE A SPEECH WHAT CAN HE SAY IF HE
SAID NOTHING AT THE PRESS CONFERENCE BY DESIGN COME IF HE
IS HERDING CATS OF DIFFERENT PHILOSOPHIES AND LOOKING AT
DATA THAT CAN TELL YOU FIVE DIFFERENT STORIES. JONATHAN:
BY HERDING CATS YOU MEAN THE PEOPLE ON THE COMMITTEE, THE
FOMC, GIVEN THE DIFFERENCE IN VIEWS OF THE FEDERAL RESERVE AT
THE MOMENT. CHAIRMAN POWELL EXPECTED TO
DELIVER A SPEECH AT JACKSON HOLE.
WE WILL SEE IF HE DOESN'T OR DOES NOT.
LET'S TURN TO FOREIGN-EXCHANGE. THE EURO AROUND 1.10.
TURNING POSITIVE IN THE LAST 20 MINUTES. POSITIVE .33%. YOUR TOP STORY, THE BOJ
ROUNDING OUT THE WEEK OF CENTRAL BANK DECISIONS WAS A
PRIZE EASING OF WHAT THEY CALL YIELD CURVE CONTROL.
THE GOVERNOR OF THE BANK OF JAPAN KEEPING THE TARGET FOR
THE 10 YEAR YIELD AROUND 0% BUT THIS .5% CEILING IS BEING
CALLED A REFERENCE POINT AND NOT A RIGID LIMIT.
THE GOVERNOR SAYING THIS. THIS IS NOT A STEP TOWARDS
NORMALIZATION. WE ARE STILL FAR FROM WHERE WE
CAN RAISE SHORT-TERM INTEREST RATES.
WE DO NOT WANT TO TALK ABOUT RAISING RATES BUT ULTIMATELY
THERE IS A SHIFT IN THE TOLERANCE AROUND THE SEATING
FOR A 10 YEAR YIELD IN JAPAN. LISA:
WE GOT THE RUMOR OF A SHIFT YESTERDAY.
THE MARKET WAS CONCERNED. YOU COULD FEEL THIS.
IT WAS A SIGNIFICANT HOLD UP. NOBODY IS EXPECTING THIS.
THEN HE COMES OUT AND SAYS WE ARE NOT DOING SOMETHING BUT WE
ARE. WE ARE ALWAYS GOING TO BE DATA-DEPENDENT.
THERE WE ARE WITH RELATIVE CALM. TO ME, HOW MUCH FREEDOM DOES
THAT GIVE THEM TO MAKE FURTHER ADJUSTMENTS GIVEN THE CALM WE
HAVE SEEN TODAY? JONATHAN:
IF THE CALM CONTINUES, AND SO FAR, SO GOOD, AND EUROPE FRESH
DATA OUT OF THE EURO ZONE SHOWING GERMANY JUST EXITED
THIS WINTER RECESSION IT HAS BEEN IN FOR THE LAST COUPLE OF
QUARTERS. OUTPUT STAGNATED. THE GOOD NEWS IS THEY ARE NO
LONGER IN RECESSION. THE BAD NEWS IS OUTPUT
STAGNATED . GDP UNCHANGED FOR THE PREVIOUS
THREE MONTHS. WE ARE HOPING FOR .1% GROWTH
ACCORDING TO ESTIMATES. LISA: WE STILL HAVE PROJECTIONS BY
GLOBAL BODIES GERMANY WILL BE THE ONLY DEVELOPED ECONOMY THAT
WILL BE IN RECESSION THIS YEAR. THEY ARE EXPECTED TO BE IN
RECESSION FOR THE FULL YEAR AT A TIME WHEN PREVIOUSLY IT WAS
THOUGHT THEY HINGED ON EXPORTS THAT GO TO CHINA.
IS THIS STILL A CHINA STORY OR IS THERE SOMETHING ELSE GOING
ON STRUCTURALLY WITH THE BIGGEST ECONOMY IN EUROPE THAT
CREATES A REAL CHALLENGE, ESPECIALLY WITH MONETARY POLICY
BUT ALSO FOR GETTING OUT OF INFLATION WITHOUT STAGFLATION?
JONATHAN: IT IS A STRUGGLE. HERE IS THE LATEST FROM PROCTER
& GAMBLE. WHAT YOU DO A VOLUME IS DOWN,
HOW DO YOU ACHIEVE REVENUE GROWTH? PUT PRICES UP.
THEY HAVE THE PRICING POWER TO DO IT. PROCTER & GAMBLE UP 1.7%.
PRICING POWER IS BACK. IT LOOKS LIKE THE CONSUMER IS
STILL TOLERATING IT. LISA: HAVE YOU EVER BOUGHT TIDE PODS?
THEY ARE PRETTY EXPENSIVE. JONATHAN: DO THEM ON PRIME DAY.
LISA: YOU LOAD UP? IN A NEW YORK CITY APARTMENT
WHERE DO YOU STORE THEM? JONATHAN: WE'VE GOT STORAGE.
LISA: IN THE LOCAL DRUGSTORE THEY ARE
LOCKED UP BECAUSE THEY'RE THAT VALUABLE.
MY POINT IS THEY DO HAVE PRICING POWER AND YOU SEE GROSS
MARGINS INCREASING AS INPUT PRICES COME DOWN.
THEY'RE NOT HAVING TO SPEND AS MUCH TO MAKE TIDE PODS.
JONATHAN: I'VE THE LUXURY OF HAVING THE
WASHING MACHINE AND DRIER IN THE APARTMENT AND I KNOW IT IS
LUXURY. IN THE UNITED KINGDOM THAT IS A
LUXURY FOR A NEW YORK APARTMENT TO HAVE A WASHING MACHINE AND
DRIER IN THE APARTMENT AND PILE UP THE TIDE PODS DOWN THE SIDE.
LISA: THAT IS SO IN CHARACTER. YOU JUST HAVE THEM STACKED UP
PERFECTLY? IT IS LIKE BUILDING BLOCKS.
JONATHAN: TONY RODRIGUEZ JOINS US NOW.
WE WILL NOT TALK ABOUT TIED, WE WILL TALK ABOUT THE BOJ.
WHAT HAVE WE JUST UNLEASHED? TONY: GOOD TO BE WITH YOU.
I THINK WITH THE BOJ MARKET SURPRISED.
EVERYBODY EXPECTED YIELD CURVE CONTROL WOULD BE ADDRESSED.
THEY DID IT IN A BIT OF AN AMBIGUOUS WAY, PUTTING THE 1%
CEILING. OUR VIEW IS THE 10 YEAR IS
PROBABLY FAIR VALUE. WE ARE IN THE 75 TO 85 BASIS
POINT AREA. WE THINK THE 1% CEILING IS ONE
THAT WOULD NOT BE HIT. I THINK THIS IS A SMALL STEP IN
THE DIRECTION OF HAVING A FIRM CEILING OF 1%.
GIVEN THE CONDITIONS OF THE JAPANESE ECONOMY, ALTHOUGH
INFLATION IS CERTAINLY STRONGER NOW THAN IT HAS BEEN ANY TIME
IN THE LAST 30 TO 40 YEARS IN JAPAN, WE DO NOT THINK IT WILL
BE AN ELEVATED ENOUGH LEVELS AND GROWTH CANNOT BE
SIGNIFICANTLY STRONG ENOUGH DRIVE YIELD SIGNIFICANTLY
HIGHER THAN WHERE WE ARE RIGHT NOW. JONATHAN:
25 BASIS POINTS IN A PLACE LIKE JAPAN IS NOT NOTHING, IT IS
SOMETHING. CAN YOU TELL ME HOW YOU WOULD
EXPECT DOMESTIC INVESTORS TO REALLOCATE AWAY FROM
INTERNATIONAL STORIES AND BRING MONEY BACK HOME? TONY:
I THINK YOU WILL SEE A MODEST AMOUNT OF REALLOCATION.
AT THE END OF THE DAY YOU ARE SEEING SIGNIFICANTLY HIGHER
YIELDS ABROAD. AS LONG AS HEDGING COSTS BEGIN
TO DECLINE BECAUSE THOSE HAVE BEEN STOPPARD, WE'VE SEEN
HEDGING COSTS FOR THE EURO DECLINED DRAMATICALLY FROM THE
PEAKS WE SAW LAST YEAR, WHEREAS COSTS HAVE STAYED HIGH.
I THINK YOU WILL SEE SOME REALLOCATION BUT WE DO NOT
THINK IT WILL BE SEISMIC BY ANY MEANS.
ULTIMATELY IT WILL BE ABOUT WHAT IS THE BEST TOTAL RETURN
VALUE YOU CAN FIND ACROSS BROAD CAPITAL MARKETS FOR A YEN
FACING INVESTOR AND THAT EQUATION -- WE STILL THINK
AREAS OUTSIDE OF JAPAN WILL REMAIN ATTRACTIVE FOR THE
JAPANESE INVESTOR. LISA: THE ERA OF FORWARD GUIDED SEEMS
TO HAVE DIED THIS WEEK FROM THE FED AND THE ECB AND THE BANK OF
JAPAN AS WELL. HOW DOES THAT SHIFT YOUR VIEW
GOING OUT ABOUT A GRADUAL MOVE LOWER IN U.S.
YIELDS AND A GRADUAL LEAN INTO DURATION? TONY:
CERTAINLY CENTRAL BANKS HAVE HAD DIFFICULTY FORECASTING
WHERE WE ARE HEADING. FROM OUR PERSPECTIVE, ONE OF
THE KEY DRIVERS OF MONETARY POLICY IS THE INFLATION METRICS
IN THE UNDERLYING ECONOMIC STRENGTH.
FROM THAT PERSPECTIVE WE THINK WE WILL CONTINUE TO SEE
IMPROVEMENT ON THE INFLATION STORY. NOT SIGNIFICANT ENOUGH
IMPROVEMENT TO ALLOW CENTRAL BANKS TO SAY MISSION
ACCOMPLISHED. THE BIG ISSUE IS ON THE GROWTH
SIDE. WHILE GROWTH HAS SURPRISE TO
THE UPSIDE, WE THINK THIS IS MERELY AT DELAY AND ULTIMATELY
SLOWING ECONOMIC GROWTH. IF WE TAKE THE U.S.
AS AN EXAMPLE, IT IS BECAUSE OF THE CHIPS ACT AND
INFRASTRUCTURE SPENDING. OR IT IS BECAUSE OF THE
CONSUMER BEING MORE RESILIENT DUE TO A STRONG LABOR MARKET
AND EXCESS SAVINGS. AS WE LOOK FORWARD WE THINK THE
EXCESS SAVINGS ARE BASICALLY SPENT.
YOU ARE HEARING THAT FROM MANY OF THE BANKS AND EARNINGS CALLS
STOP THAT WILL NO LONGER BE A SUPPORT. WHEN YOU LOOK AT THE
MANUFACTURING SECTOR WE ARE SEEING MODEST SLOWING.
OUR VIEW IS YOU WILL SEE A SLOWDOWN IN THE SECOND HALF.
POTENTIALLY A VERY MILD RECESSION.
IT MAY LOOK LIKE A SOFT LANDING OR FEEL LIKE A SOFT LANDING. IT WILL BE ENOUGH ECONOMIC
WEAKNESS TO ALLOW MARKET YIELDS TO DECLINE FROM WHERE WE ARE
TODAY, BOTH IN THE U.S. AND ABROAD. LISA: HOW HAVE YOU SHIFTED YOUR
STANCE GIVEN THAT SO MANY PEOPLE ARE PUSHING OUT YOUR
EXPECTATIONS FOR RECESSION? TONY:
THE BIG SHIFT WE HAVE SEEN AS WE HAVE GROWN MUCH MORE
COMFORTABLE WITH DURATION RISK. ANY TIME WE SEE A 10 YEAR ABOVE
4% WE THINK THAT IS AN ATTRACTIVE AREA.
WE ULTIMATELY THINK HIGH-QUALITY DURATION WILL BE A
VERY GOOD HEDGE IF WE ARE WRONG AND IT IS A MORE SEVERE
DOWNTURN THAN JUST A MILD RECESSION/SOFT LANDING THAT
LONG HIGH-QUALITY DURATION WILL BE A VERY ATTRACTIVE HEDGE
VERSUS RISK ASSETS. AT THE SAME TIME, AS WE SIT
HERE THIS SUMMER, GIVEN WERE RISK PREMIUMS HAVE GONE AND
SPREADS HAVE TIGHTENED, THE ATTRACTIVENESS OF THE CREDIT
SECTOR HAS DECLINED. WE ARE REDUCING OUR EXPOSURE,
THINKING THERE IS BETTER ENTRY POINTS AS WE MOVE THROUGH THE
YEAR. WE ARE MOVING CLOSER TO THE
MIDPOINT OF OUR BUDGET AND STAYING UP IN QUALITY TO
REFLECT THE SLOWING OF ECONOMIC GROWTH.
WE ARE EXPECTING INCREASE IN DEFAULT THIS YEAR IN OUR
PORTFOLIO. JONATHAN: TONY RODRIGUEZ OF NUVEEN ON THE
CREDIT MARKET. I HAD THIS CONVERSATION WITH
PETER TCHIR YESTERDAY. PETER TCHIR THINGS WE ARE IN
THE SUMMER SWEET SPOT IN THE JUICE IS WORTH THE SQUEEZE.
MAYBE TAKE ON MORE RISK FOR THE SUMMER.
YOU HAVE 20 RODRIGUEZ TALKING ABOUT THE SAME SWEET SPOT BUT
USING THIS OPPORTUNITY TO TRIM RISK. LISA:
GET THE OUTCOME RIGHT AND YOU WILL GET TWO DIFFERENT TRADES
AND THAT IS A GREAT WAY OF PUTTING THE UNCERTAINTY NOT
ONLY IN WHAT WILL HAPPEN, BUT HOW YOU PLAY IT OUT FOR MARKETS
THAT HAVE DEFIED LOGIC IN SOME CAPACITY. JONATHAN:
HOW DO YOU FEEL ABOUT THE BANK OF JAPAN?
GOOD ON TIGHTENING OR MAKING EASING MORE SUSTAINABLE? LISA:
BOTH. YOU ARE MAKING EASING MORE
SUSTAINABLE BY RELAXING THEIR HOLD.
HOW MUCH OF WHAT WE SAW FROM THE FED AND THE ECB GAVE THEM
LICENSE TO DO THIS BECAUSE YOU HAD A LESS AGGRESSIVE POLICY,
IT WOULD BE LESS AGGRESSIVE FOR THEM TO MAKE A SHIFT AND THAT
IS WHY THEY SAW AN OPENING. JONATHAN:
IF THEY MADE THE MOVE WHEN GOVERNMENT BONDS WERE SELLING
OFF AGGRESSIVELY -- LISA: EXACTLY. JONATHAN:
WELCOME TO THE PROGRAM. ON THE S&P 500 WE ARE POSITIVE
.5%. COMING UP LATER AT 8:30,
JONATHAN PINGEL, THE CHIEF U.S. ECONOMIST AT UBS TO BREAK DOWN
THE STRONG DATA WE HAVE SEEN SO FAR THIS WEEK.
MORE DATA LATER THIS MORNING. LISA: HERE IS THE ISSUE.
WHAT DATA IS GOING TO MATTER. IS IT GOING TO BE PROCTER &
GAMBLE SHOWING THEY CAN RAISE PRICES?
IS IT THE FACT THAT NASDAQ 100 COMPANIES ARE NO LONGER
MENTIONING RECESSION, THEY ARE ALL MENTIONING ARTIFICIAL
INTELLIGENCE? ARE WE GOING TO LOOK AT THESE
LAGGING INDICATORS THAT APPROVED FAULTY IN THE PAST?
WHAT IS THE ACTUAL INDICATOR THAT WILL GIVE US A SENSE OF
WHAT DIRECTION CENTRAL BANKS WILL MOVE IN. JONATHAN:
YOU GET A BREAK IN THE GOLDILOCKS STORY.
MAX KETTNER OF HSBC HAS BEEN INCREDIBLE IN THE PAST MONTHS
AND HE TALKS ABOUT THAT MOVEMENT WHERE THE ECONOMY IS
NOT TOO HOT , ENCOURAGING THIS IDEA OF A SOFT LANDING.
THE TORSTEN SLOK'S POINT, FOR MARKETS TO GET THAT ULTIMATE
OUTCOME YOU DO NOT WANT TO WREAK CELEBRATION -- YOU DO NOT
WANT RE-ACCELERATION. LISA: THE HOUSING MARKET IS KEY.
YOU SEE A BOTTOMING OUT AND A REACCELERATION.
IF THAT IS THE LEADING INDICATOR IN TERMS OF INTEREST
RATE SENSITIVE SECTORS, WHAT IS THAT SAYING ABOUT PRICE
TOLERANCE, ABOUT THE FSK SHOWS NEST -- ABOUT THE EFFICACIOUS
NEST OF A 7% MORTGAGE? JONATHAN: J FULLY OF RABOBANK -- JANE
FOLEY OF RABOBANK JOINING US IN ABOUT FIVE MINUTES.
INTERESTED IN CATCHING UP WITH JANE. TO THE HEART OF
FOREIGN-EXCHANGE VERY SHORTLY. >> THEY DON'T THINK THEY HAVE
BEATEN DISINFLATION. THEY HAVE MOVED UP SHORT-TERM
INFLATION FORECAST. >> IS THIS NOT A STEP TOWARDS
NORMALIZATION? >> IT IS AN INDICATION THEY
KNOW THE LOOK OF CONTROL IS A BAD POLICY THAT NEEDS TO GO.
THEY ARE COGNIZANT OF THE EFFECT THE ECONOMY IS DOING
BETTER THAN IT WAS. IT WILL TAKE MONTHS TO DO THE
NEXT MOVE. YIELD CURVE CONTROL IS TERRIBLE.
JONATHAN: KITCHEN OOPS AT SOCGEN CATCHING UP WITH DENNY -- KIT JU KES
CATCHING UP WITH DANI BURGER. YEN STRENGTH AGAINST THE U.S.
DOLLAR. ON THE WEEK THAT CURRENCY PAIR
IS -1.85%. TONS OF YEN STRENGTH OFF THE
BACK OF THIS MOVE FROM THE BOJ. JANE FOLEY SAYING THE BOJ -- AS
EXPECTED THE BOJ RAISED ITS INFLATION FORECAST BUT THERE
WAS NO UPWARD REVISION TO CORE CPI IN 2024 42025.
THEREIN LIES THE REASON FOR CONTINUED CAUTION FROM THE BANK
OF JAPAN IF FURTHER PROGRESS IS MADE IN REVIVING DOMESTIC
INFLATION THE BOJ MAY ACT AGAIN BUT THEY ARE IN NO RUSH.
WE HAVE TO START WITH THE QUESTION.
LISA HAS ASKED IT A FEW TIMES. IS THIS THE STARTING GUN ON
TIMING FOR JUST SETTING UP POLICY TO KEEP THINGS MORE
SUSTAINABLE FOR LONGER? JANE: THE STARTING GUN REMINDS ME OF
THE TORTOISE AND THE HARE AND I THINK THE BANK OF JAPAN IS THE
TORTOISE IN THIS RACE. IT WILL BE IN NO RUSH.
THIS IS BACKING AWAY FROM YIELD CURVE CONTROL BECAUSE IT CAN BE
A NUISANCE TO THE POLICY. BANK OF JAPAN MADE IT INTO THE
RANGE FOR A 10 YEAR YIELD. YOU CAN SEE THOSE DISTORTIONS. YOU HAVE THE FIVE YIELDS YIELD
RISING ABOVE THE 10 YEAR YIELD. YOU HAVE TO RAISE THE
PARAMETERS. ON THE OTHER HAND, IF YOU READ
THROUGH A LOT OF THE RHETORIC FROM THE BANK OF JAPAN
POLICYMAKERS, SOME OF THEM ARE SEEING THESE SIGNS.
SOME OF THESE CONDITIONS ARE BEGINNING TO NORMALIZE.
REAL PIECES OF NEWS FROM JAPAN THIS WEEK IS THE GOVERNMENT
LOOKS LIKELY TO BE RECOMMENDING ANOTHER HIKE IN THE MINIMUM
WAGES ALL STOP THAT WOULD BE A 4% HIKE.
THERE WAS ALREADY A BIG RISE THIS YEAR. IF THAT 4% GOES THROUGH THAT IS
THE WHEELS IN MOTION OF DOMESTICALLY GENERATED
INFLATION. THAT IS WHAT THEY WANT TO SEE. JONATHAN:
THE LONG-TERM FORECAST FROM THE BANK OF JAPAN, SHOULD THAT VIEW
THAT AS AN HONEST VIEW OF WHERE INFLATION WILL BE BUT A SINGLE
FROM THE MARKET FOR WHERE THEY WANT TO BELIEVE POLICY WILL BE?
JANE: THE GOVERNMENT CAME OUT WITH A
SIMILAR FORECAST FOR CORE CPI FOR THE NEXT FISCAL YEAR,
STRIPPING OUT SOME OF THE BASE EFFECTS BECAUSE THERE HAVE BEEN
SOME ENERGY RELATED SUBSIDIES. LOTS OF ECONOMISTS ARE ON THE
SAME PAGE. THEY THINK INFLATION NEXT YEAR
WILL BE LOWER THAN THIS YEAR. THAT IS WHY THEY HAVE TO BE
CAUTIOUS. WE HAVE TO REMEMBER A LOT OF
THE INFLATION WE ARE SEEING, TO BLESSING THE INFLATION ON THE
HEADLINE IS FURTHER THAN IN THE U.S..
MAYBE THEY SAID BE TIGHTENING. A LOT OF THE INFLATION IN THAT
PRINT IS IMPORTED PRICES. IMPORTED PRICES ARE NOT
DOMESTICALLY DRIVEN. THEY WANT TO SEE THE WAGE PRICE
SPIRAL, GETTING THEMSELVES UP TO SUSTAINED INFLATION AROUND
2%. WE ARE ON THE ROAD BUT THEY'RE
NOT QUITE THERE YET. LISA: IS IT A COINCIDENCE THAT THE
BANK OF JAPAN TWEAK COMES AFTER A SHIFT FROM THE FED AND ECB
MOVING AWAY FROM FORWARD GUIDANCE AND AWAY FROM
COMMITTING TO FURTHER RATE HIKES? JANE:
I THINK THE MOVING AWAY FROM FORWARD GUIDANCE REFLECT THE
FACT THAT THE COMMITTEES WITHIN THE CENTRAL BANKS BETWEEN THE
DOVES AND THE HAWKS. WHEN YOU HAVE THIS DIVERSE
RANGE OF OPINIONS YOU CANNOT DO THAT.
I THINK THAT IS PROBABLY TRUE OF THE BANK OF JAPAN AS WELL.
THERE IS A RANGE OF OPINION WITHIN THE BANK OF JAPAN.
SOME OF THOSE POLICYMAKERS ARE BORE READY TO ACT ON POLICY
THAN OTHERS. A CAUTION HAS ALWAYS PREVAILED
THROUGH THE BANK OF JAPAN BECAUSE OF ITS HISTORY WITH
DEFLATION AND DISINFLATION. I THINK THAT IS STILL HERE.
THAT IS VERY EVIDENT IN THE COMMENTARY THIS MORNING FROM
THE BANK OF JAPAN GOVERNOR. LISA:
IT HAS NOT JUST BEEN THE BANK OF JAPAN.
THIS WEEK THERE SEEMS TO BE APPEALING THE FED AND THE ECB
MAY BE DONE WITH RATE HIKES. THIS CALLS INTO QUESTION
WHETHER ECB MAY END UP HIKING FURTHER THAN THE FED THIS YEAR,
WHICH WAS THE CONSENSUS HEADING INTO 2023.
DO WE HAVE TO RETHINK THIS THAT MAYBE BOTH ARE AT THEIR PEAK
AND THE RATE HIKING CYCLE IN EUROPE IS NOT GOING TO BE AS
LONG AS MANY PEOPLE THOUGHT IT MIGHT BE? JANE:
WE ARE COMING DOWN ON THE VIEW THAT THEY MAY PAUSE IN
SEPTEMBER. THERE MAY NOT BE ANY MORE MOVES
FROM THE ECB. SOME OF THE COMMENTARY FROM
SOME OF THE OFFICIALS FOR THE ECB IN LAST COUPLE OF WEEKS HAS
BEEN MIXED, BUT THERE HAVE BEEN COMMENTS INDICATING THAT
PERHAPS CORE INFLATION COULD BE -- THAT IS THE FOCUS FOR EUROPE.
IF WE LOOK AT THE ECONOMIC DATA, THE PMI WE HAD FOR EUROPE
AT THE START OF THE WEEK WERE QUITE WORRYING IF WE SAW THE
CREDIT SERVICE IN THE ECB THIS WEEK, THAT SHOWED THE HIGHER
INTEREST RATES, THAT CLEARLY IMPACTED.
THE RECESSION IS HANGING ABOVE EUROPE. GERMANY WAS ALREADY IN
RECESSION. RECESSION RISKS ARE REALLY VERY
REAL. THAT MAY GIVE THE ECB CAUSE FOR
CONSTRAINT IN SEPTEMBER AND PARS POLICIES.
IF WE ARE DATA-DEPENDENT WE HAVE TO MAKE UP OUR MINDS
ACCORDING TO THE DATA. THERE IS A RISK THAT THE MARKET
IS GOING TO THE POSSIBILITY OF A PAUSE IN SEPTEMBER.
THAT IS REALLY IMPORTANT. OUR POSITIONING WILL BE
ADJUSTED AND I THINK THE MARKET HAS GONE LONG EURO AND
ANTICIPATED A HIGH HAWKISH ECB AND MIGHT HAVE BEEN OVERDONE.
JONATHAN: ALL FAVORED TRADES. LET'S WRAP UP.
DOWNSIDE ON THE EURO, WHAT IS IT? JANE:
WE HAVE HAD EURO-DOLLAR AT 1.08. A FEW WEEKS AGO PEOPLE WOULD
NOT HAVE AGREED WITH THAT. MAYBE NOW PEOPLE ARE COMING
AROUND TO THAT. THE MARKET IS LONG EURO AND IT
IS INCREASINGLY DIFFICULT TO SEE THAT SITUATION BEING
JUSTIFIED. JONATHAN: THANK YOU FOR GETTING ON BOARD
THIS MORNING FOLLOWING THE BREAKING NEWS FROM THE BANK OF
JAPAN. JANE FOLEY OF RABOBANK RESPONDING TO THE LATEST
HEADLINES. HERE IS THE FOCUS ON AMERICA. ANDREW HOLLENHORST AT CITI
WRITING THIS. "STRONG GROWTH AND SOFTER
INFLATION LOOK LIKE A SOFT LANDING BUT WE DOUBT THE
GOLDILOCKS CONDITIONS CAN LAST FOR MORE THAN A COUPLE OF
MONTHS." THE SUMMER SWEET SPOT COMMENTARY ALL OVER AGAIN. LISA:
AND HOW YOU INTERPRET IT DEPENDS ON WHO YOU ARE AND
WHERE YOU'RE COMING FROM. ANDREW HOLLENHORST SEEING A
PICKUP IT INFLATION, POINTING TO THE COST INDEX, SAYING LABOR
COSTS ARE RISING TOO QUICKLY TO GET TO SOME SORT OF IMMACULATE
DISINFLATION. IF WE GET A SURPRISE TO THE
UPSIDE, DOES THE MARKET SELLOFF? IS THAT A HUGE MARKET MOVER IN
AN INCREASINGLY DATA DEPENDENT FED? JONATHAN: CURRENT LABOR MARKET FIGURES
INCONSISTENT WITH RETURN TO 2%. AS PEOPLE ASSUME SOMETHING WILL
GIVE OR THE FED PUSHES HIGHER OR PUSHES OUT THE TIMELINE.
LISA: MY THEORY THAT IS VERY SUBTLE
AND UNSPOKEN, I THINK PEOPLE STILL BELIEVE IN THE IMMACULATE
DISINFLATION. PEOPLE BELIEVE IN THE PANDEMIC
EFFECTS THAT WILL SHAKE THEMSELVES OUT.
THEY ARE EXPECTING THE YEAR-OVER-YEAR COMPS TO RETURN
TO LOW INFLATION AND A LOW GROWTH WORLD BECAUSE OF THE
AGING POPULATION THE OVERHANG OF DEBT.
THAT IS THE PRESIDING SENTIMENT DRIVING THE FEELING WE WILL GET
TO ANOTHER PLACE THAT IS VERY FAMILIAR. JONATHAN:
WE WILL GET THERE IN 2025. CAN YOU IMAGINE THE WHEN THEY
WERE PLAYING THE TRANSITORY GAME THEY SAID TRANSITORY IS
FOUR YEARS, WE WILL BE BACK IN 2025, AND FOR THAT REASON WE
SEE NO REASON TO HIKE RATES AGGRESSIVELY?
THERE ARE PEOPLE WHO BELIEVE THE TIGHTNESS CYCLE HAS NOT
BEEN YET , THAT THE DECELERATION WE HAVE HAD HAS
NOTHING TO DO WITH WHAT WE HAVE SEEN FROM THE FEDERAL RESERVE.
LISA: THAT IS THE SIMPLY THE
YEAR-OVER-YEAR COMPS AND THIS IS DISINFLATION POST-PANDEMIC.
HE TO WATCH THE UNIVERSITY OF MICHIGAN SENTIMENT SURVEY.
THE LONGER-TERM EXPECTATIONS OF INFLATION.
IN GENERAL, THE LONGER IT TAKES IS WHEN YOU SEE INFLATION
EXPECTATIONS PICKUP? JONATHAN: I JUST WANT THEM TO CALL ME.
THAT IS IT. LISA: IF YOU ARE ON THE UNIVERSITY OF
MICHIGAN POLLING CENTER, CALL MR. JONATHAN FERRO WITH HIS
TIDE PODS STEPPED UP. JONATHAN: I JUST WANT TO CONTRIBUTE TO
THE SURVEY. I WANT TO BE ONE OF THE 600.
LISA: YOU SHOULD SAY I BELIEVE IN
THRACIAN WILL BE 3.1269. >> QUANTITATIVE TIGHTENING HAS
KICKED IN NOW. >> PARTS OF THE ECONOMY ARE LED
ASTRAY BY HIGHER INTEREST RATES. >> THE PACE OF THIS CYCLE IS
DIFFERENT THAN WE HAVE SEEN BEFORE. >> THIS CYCLE IS AIMING TO HIT
SHOP SOMETIME IN THE FALL. >> EARNINGS THUS FAR ARE PRETTY
CONFIRMATORY OF THE OUTCOME OF A SOFT LANDING IN JUNE. JONATHAN:
WE SHOULD DO WITH THE EUROPEANS DO. VACATION FOR A MONTH.
DID YOU FEEL THAT FROM THE MEETING YESTERDAY?
WE WILL SETTLE IT AND WE ARE DONE. LISA: EXACTLY. JONATHAN:
FROM NEW YORK CITY THIS MORNING GOOD MORNING GOOD MORNING.
IT IS MY REASON AND PURPOSE IN LIFE IN NEW YORK CITY TO
CONVERT AMERICA TO THE EUROPEAN VIEW. LISA: HOW IS IT GOING? JONATHAN:
IT'S GOING WELL BECAUSE WE HAVE TK ON VACATION.
S&P 500 AT .5% UP. AND BREAKING NEWS FROM THE
CENTRAL BANK WHERE A WEEK OR SO AGO WE DID NOT EXPECTED TO COME
FROM. THE BOJ. LISA: THEY TWEETED THEIR POSSIBILITY
WITH THE UPPER LIMIT OF THE BAND ALLOWING 10 YEAR
TO TRADE UP. HERE IS THE QUESTION, HOW LONG
CAN WE SEE A COLUMN IN MARKETS. YESTERDAY IT SEEMED JITTERY ON
THE HILLS -- HEELS OF RUMORS OF THIS BUT THIS HAS LANDED.
JONATHAN: WE SHOULD DO THAT AND GO FIND THE ONE PERSON THAT TRADED DOJ
JGB LIKE A WEEK AGO. LISA: I WAS THINKING ABOUT THAT THEY
COULD CALL THE THREE PEOPLE THAT TRADED AND SAY TO THEM OK,
WHAT IS THE WORD? WHAT WILL YOU DO WITH THIS?
JONATHAN: HALF OF THE MARKET. WE HAVE LOST PERSPECTIVE OF
WHAT HAPPENED OVER THE PAST 10 YEARS.
HE WROTE ABOUT IT EXTENSIVELY. WE HAVE A CENTRAL BANK THAT
OWNS HALF OF THE GOVERNMENT BOND MARKET IN JAPAN THAT SET A
LIMIT FROM HOW HIGH YIELDS CAN GO. IT SETS A LIMIT ON BORROWING
COST FOR THE JAPANESE GOVERNMENT. AT .5%. AND IMAGINE SOMEONE IS TUNED
INTO THIS PROGRAM FOR THE FIRST TIME EVER. WELCOME.
YOU'RE TRYING TO EXPLAIN TO THEM THIS COUNTRY EXISTS THE
DEVELOPED COUNTRY THAT IS BUYING ALL OF THE GOVERNMENT
BOND AND CAPPING INTEREST RATES AT .5%.
WE ARE SITTING HERE SAYING IT IS NEWS THAT THEY MIGHT
TOLERATE MAY BE A BREACH OF THE LEVEL AND PERHAPS COME IN AND
THEY GET 1%. THAT IS A MONSTER MOVE BECAUSE
RELATIVE TO THE PAST 10 YEARS THAT IS INTRODUCING A LITTLE
BIT OF MARKET DISCIPLINE BACK TO THE JAPANESE BOND MARKET.
LISA: TO TAKE IT FURTHER THEY HAVE
BEEN BUYING STOCK THROUGH THE ETF PURCHASES. NOT JUST BONDS.
WHY SHOULD WE CARE? A NUMBER OF YEARS PEOPLE SAID
IF THEY ABANDON THIS IN THE HEELS OF INFLATION THAT JAPAN
IS SEEING AS WELL THAT COULD DISRUPT ALL OF THE MARKETS AND
SEND YIELDS AND MARKETS SURGING HIGHER. WHAT WE HAVE SEEN THIS MORNING
ON THIS TINY MOVE WE ARE SEEING CALM AND SOME SAY THIS MIGHT BE
FREEDOM TO GO FURTHER. JONATHAN: IT IS NOT A GROWTH STORY IT IS
THE INFLATION STORY. THIS SOUNDS LIKE GOOD NEWS IN
GERMANY THESE DAYS 6.5% CPI A DOWNSIDE SURPRISE MONTH OVER
MONTH ON YEAR-OVER-YEAR. 6.5% CPI IN GERMANY. LISA:
I CAN HEAR THE CHEERING. GREAT. IT IS GOOD IT CAME IN BELOW
EXPECTATIONS. IF YOU LOOK AT CONSUMER PRICES,
THERE IS A .3% MONTH OVER MONTH AS YOU ARE SAYING.
REA'S -- ARE WE SEEING A VICTORY THAT GROWTH DOES LEAD
NECESSARILY TO A SLOWDOWN WITH INFLATION OR DOES THIS -- I
DON'T WANT TO SAY THE SICK DOG OF EUROPE BUT THE ECONOMY THAT
IS DOING THE WORST AMONG ALL OF THEM. JONATHAN:
0% GROWTH 6.5 PERCENT INFLATION. WHAT IS IT CALLED? LISA:
STAGFLATION. JONATHAN: DID THAT COME UP IN THE NEWS
CONFERENCE TOMORROW AT ALL? LISA:
NO IT IS GERMANY SO THEY WILL NOT ADDRESS A SPECIFIC NATION
THAT YOU ARE RIGHT. YOU ADJUST STAGFLATION WHERE
YOU HAVE A POLICY THAT DEALS WITH THE GROWTH PICTURE IN
FRANCE AND SPAIN. JONATHAN: I WAS REALLY DISAPPOINTED WITH
THE NEWS CONFERENCE WITH THE FED RESERVE AND THE ECB WITH
THE INCEPTION -- OBSESSION WITH SEPTEMBER.
NONE OF THE QUESTIONS IN THE NEWS CONFERENCES ARE ASKED WITH
THE PURPOSES OF TRYING TO GET THE HEADLINE OF MOST MARKETS.
YOU SEE EVERY INDIVIDUAL IN THERE TRYING TO ACHIEVE IT SO
THEY CONSISTENTLY ASK ABOUT SEPTEMBER. LISA:
IT'S A GOOD POINT INSTEAD OF FOLLOWING WHETHER OR NOT THEY
NEED TO FURTHER RATE HIKES. JONATHAN:
STEVE CHIAVARONE JOINS US NOW AT FEDERATED GLOBAL INVESTMENT
AT HERMES. WALK US THROUGH THIS. STEVE STEVE: IF RECESSION RISKS MOVE HIGHER
AT SOME POINT, IT IS NOT TODAY AND TOMORROW LOOK -- DOES NOT
LOOK GOOD. YOU ARE STILL IN A POSITION OF
HIGHER JOB MARKETS AND INFLATION THAT IS STICKY THE
FED THAT IS CAUSING AT BEST. ME STILL BE AN A HIKE CYCLE.
WE WILL SEE WHAT SEPTEMBER AND NOVEMBER BRING.
BUT IT IS NOWHERE NEAR A PLACE WHERE THEY ARE CUTTING.
HISTORICALLY THAT IS NOT AN ENVIRONMENT WHERE YOU HAVE BIG
EQUITY SELLOFF. CAUSES ARE WITH EQUITY MARKETS.
20% MAX RALLY. I THINK YOU ARE IN A SCENARIO
AND AS YOU MENTIONED IN THE PRIOR SEGMENT, A SUMMER WINDOW
IDEA. I DO NOT THINK IT IS A SUMMER
WINDOW, I THINK IT GOES HIGHER FOR LONGER.
I'M TALKING ABOUT EQUITY MARKET. WE SEE THIS ON THE HORIZON EVEN
IF STORM CLOUDS MATERIALIZE. JONATHAN:
UPSIDE WE ARE BECAUSE PEOPLE ARE WILLING OR WANTING TO SHIFT
AWAY FROM THE TECH, THAT THEY WANT TO THINK ABOUT THOSE THAT
THEY LEFT BEHIND LIKE TECHNICALS BANKS OR ENERGY.
HOW DO YOU THINK ABOUT THAT? STEVE: WHEN YOU LOOK AT THE FED
POLICIES AND WHEN YOU GET INTO FED CUTS CYCLICALS DO BETTER
VAN YOUR DEFENSIVE GROWTH THINGS. 27 TIMES MULTIPLE RUSSELL 1000
VALUE IS HARD FOR US TO HOLD OUR NOSE AND BY.
WHAT WE ARE BUYING IS EVERYTHING ELSE INSTEAD.
WE ARE OVERRATE IN CYCLICALS IN THE DEFENSIVE DIVIDEND PAYERS.
AND A LITTLE BIT OF HEDGE. AND THE IDEA IS TO SELL OFF THE
YEAR BEFORE IN THE PICTURES ARE STILL DOWN 20% ON A TWO YEAR.
VALUATIONS LOOK HIGH ON A BASIS RELATIVE TO TWO YEARS AGO.
IF THERE IS A DISRUPTION TO BIG TECH GROWTH NAMES IT WILL BE
SMALLER COMPANIES THAT EMERGE. WE THINK THAT OFFERS A BETTER
UPSIDE SCENARIO. IT IS CYCLICALS, DEFENSIVE
DIVIDEND, AND SMALL-CAP GROWTH WHERE WE THINK THERE ARE BETTER
OPPORTUNITIES. LISA: I WANT TO APPOINT TO SOMETHING
WE WERE TALKING ABOUT EARLIER WITH OAK.
MARKETS CONTINUING TO TRADE HIGHER, IF THEY CONTINUE, THE
MARKET MUST HAVE A SOFT LANDING RATHER THAN A RE-ACCELERATION. HOW MUCH DOES YOUR BULLISH CALL
HINGE ON INFLATION NOT REALLY ACCELERATING -- RE-ACCELERATING
AND CONTINUING TO GO DOWN? STEVE:
YEAH A LIST OF THINGS TO WATCH. WE HAVE THE HOUSING MARKET AND
PRICES -- OIL PRICES HAVE SHOWN SIGNS OF REACCELERATION.
WE SEE LABOR DEALS COMING THROUGH AND WE ARE WATCHING
WAGES. OUR EXPECTATION IS THAT YOU
WILL SEE SOME REACCELERATION IN THE HEADLINE NUMBER IN THE BACK
HALF OF THE YEAR. YOUR EASIEST CALM DEPENDING ON
HOW YOU THINK ABOUT IT, IT YEAR IN THE FIRST HALF OF LAST YEAR.
AS YOU GET TO THE BACK HALF, THE BASE EFFECT SHOULD TAKE YOU
UP. WE HAVE 3.9% CORE CPI FOR THIS
YEAR. IF IT WAS HIGHER THAN THAT, WE
ARE TALKING ABOUT A FED THAT IS FORCED INTO MUCH MORE
AGGRESSIVE POLICY ACTION. THAT COULD HAVE SOME
DISRUPTION, BUT IF YOU LOOK, YOU THERE HAS NEVER BEEN A
MARKET IN 40 YEARS WHERE THE S&P 500 WAS THINKING OF THAT
DURING THE HIKE CYCLE. THERE WAS NEVER A MARKET EXCEPT
FOR ONE THAT WAS NEGATIVE IN THE PAUSE CYCLE. WHEN THE ECONOMIC DATA
DETERIORATES AND YOU ARE IN A CUT CYCLE, YOU WORRY ABOUT THAT
BUT IT IS HARD TO SEE THAT SCENARIO IN 2023.
THAT IS A STORY WHERE IF YOU ARE A SOFT LANDING PERSON OR
SOMEONE WHO SEES A BULLISH TREND BEING OVERWEIGHT EQUITIES
IS A TREND. BUT THE CIRCLE TRACK RECORD
SUGGESTS FOR SOME TIME, NOT A SHORT PERIOD OF TIME, THERE ARE
UPSIDE RISKS. LISA: WHEN DO YOU KNOW THE UPSIDE
POTENTIAL FOR SOME RISK ASSETS IS GONE? STEVE:
I THINK WHAT YOU WATCH IS THE SPREADS.
WHEN YOU START TO SEE SPREADS MOVE UP, I THINK YOU NEED TO
SEE MORE DETERIORATION IN THE INITIAL JOBLESS CLAIMS AND AT
LEAST GET TO THE 300,000 LEVEL BEFORE YOU START TO REALLY
THINK ABOUT A MATERIAL DECELERATION IN THE LABOR FORCE.
UNEMPLOYMENT RATE WOULD NEED TO CREEP UP ON THE BACK OF THAT.
THE YIELD CURVE BEING INVERTED BUT STARTING TO RECEIVE AT
LEAST. IF YOU SEE THE YIELD OR GET BACK TOWARD THE EURO
HISTORICALLY THAT IS ASSIGNED THAT IS STARTING TO HAPPEN.
BOND YIELDS THAT ARE FALLING, YOU GET THE IDEA.
THOSE ARE THE THINGS THE MOST BEARISH FOLKS THOUGHT WOULD BE
HAPPENING ALREADY. EVEN THOUGH WE SAW A FIRST HALF
RALLY, I MIGHT HAVE EXPECTED TO SEE MORE PROGRESS IN THAT
DIRECTION SO FAR THIS YEAR. IT HASN'T HAPPENED.
UNTIL IT DOES, YOU HAVE TO STICK WITH THE REGIME YOU ARE
IN. JONATHAN: STICK WITH IT STEVE AT
FEDERATED HERMES. A MARKET THAT HE THINKS CAN
LAST A LOT LONGER THAN MANY OTHERS DO.
THIS IN FROM THE BANK OF ENGLAND.
THE COURT OF BANK OF ENGLAND IS POLICED -- PLEASED TO ANNOUNCE
-- IN BERNANKE TO LEAD THE REVIEW INTO FORECASTING AT THE
BANK OF ENGLAND IN TIMES OF SIGNIFICANT UNCERTAINTY.
THIS IS THE BANK OF ENGLAND UNDERLINING THE REVIEW AFTER
THE INFLATION CALL WAS WRONG. AND THEN THE CENTRAL BANK
CONDUCTED THIS KIND OF REVIEW GETTING SOMEONE ON THE OUTSIDE
TO COME IN. LISA: THERE TRYING TO GET CREDIBILITY
AND RETAIN THE CONFIDENCE OF THE INDEPENDENT AT A TIME WHERE
A LOT OF PEOPLE ARE QUESTIONING HOW CENTRAL BANKS CAN GET
THINGS WRONG. I DO WONDER WHO IS NEXT?
CAN YOU SEE THE FED GETTING AN EXTRA WARD FROM THE BANK OF
ENGLAND MEMBERS TO DISCUSS WHAT IS WRONG WITH TRANSITORY
INFLATION. JONATHAN: I THINK WE NEED A BIG COMMITTEE.
THE PEOPLE THEY GOT IT RIGHT FIRST START I DO NOT -- I'M NOT
SURE THAT WAS BEN BERNANKE. SOME ONE ON THE SHOW THAT GOT
IT RIGHT, OK. LISA: WHO DID? JONATHAN: MOHAMMED. LISA:
OF THAT IS TRUE. JONATHAN: YOU CAN PICK OUTSIDE EXTERNAL
ECONOMISTS. WHO GOT IT RIGHT. -- WE LOOK AT THE MARKET S&P
500 AND THE NASDAQ POSITIVE BY .56%. AND WE HAVE THE LATEST ECONOMIC
DATA DISCUSSION WITH JONATHAN PINGEL LATER. AND IF YOU TAP SOMEONE TO DO A
REVIEW ON THE BANK OF ENGLAND GET SOMEONE THAT GOT A RIGHT
CALL ON INFLATION. LOOK AT THEIR THINKING AND WHAT
PROCESS THEY WENT THROUGH TO COME OUT WITH THE REVIEW OF THE
CONSENSUS ON YOUR COMMITTEE. LISA:
MOHAMMED IF YOU ARE WATCHING RIGHT NOW IF YOU WOULD LIKE TO
BE TAPPED ON THE SHOULDER LET US KNOW. [LAUGHTER]
JUST KIDDING. I UNDERSTAND. JONATHAN:
WITH THE SENTIMENT THERE IS SOMETHING TO BE SAD ABOUT THAT
BUT WHEN YOU TAP INTO THE ESTABLISHED FIGURE WITH THE
CONSENSUS OF WHERE INFLATION WILL BE. LISA:
IT IS AN IMPORTANT POINT WHERE YOU -- HOW DO YOU GAIN
CREDIBILITY WHEN PEOPLE ARE HAVING SOME FEELING THAT
EVERYONE NEEDS TO GET ON THE SAME PAGE IN THE CENTRAL BANK.
IF THEY HAVE A DIFFERENT VIEW, THEY ARE OFTEN PILLORIED IN THE
CONSENSUS. HOW DO YOU GET A SENSE IN THE
PUBLIC BODY THAT THIS IS CREDIBILITY ONE THAT DOES HAVE
INDEPENDENT THOUGHT NOT JUST GROUPTHINK. JONATHAN: A MOMENT AGO ONE SAID THIS IS
NOT MY VIEW IT IS THEIRS. -- THERE IS INFLATION CAUSED BY
PRINTING MONEY. THAT IS ONE VIEW AND IF PEOPLE
WANT TO PUSH BACK. HENRIETTA TREYZ AT VEDA >> POWELL WAS CONFUSING.
HE WANTED TO ASSERT STRONGLY THAT IT EVERY MEETING IS LIVE.
EVERY MEETING IS MADE BASED ON THE DATA. IN FACT, THERE SEEMS -- THEY
SEEM TO BE GUIDING US TO A SLOWER PACE OF POLICY.
THAT SOUNDS TO ME LIKE IT IS NUMBER ONE BIDEN AND NUMBER 2
--[INDISCERNIBLE] JONATHAN: SUCH A THOUGHTFUL GUY THERE.
HIS THOUGHT ON POWELL WITH THE DATA AND GDP JOBLESS CLAIMS.
THE EMPLOYMENT COST INDEX THE NEXT REPORT TO WATCH THE ECI.
LABOR MARKET PRESSURES AND WHAT DO THEY LOOK LIKE?
DO WE SEE A FURTHER DISINFLATIONARY THEME IN THE
HOPE OF SOFT LANDING IN THE EQUITY MARKET.
S&P 500 UP BY .56%. THE NASDAQ IS UP BY MORE THAN
THAT. IT HAS BEEN QUITE A WEEK FOR
THE ECONOMIC DATA. YIELD LOWER ON A DAY WHERE
THINGS HAVE BEEN SHAKEN UP A LITTLE BIT.
THE BOJ AND WE REPEATED A FEW TIMES THIS MORNING THIS IS
BECAUSE WE HAVE A STRONG LEAD FROM THE CASE REPORTING ABOUT
WHAT WOULD COME FOR THE BANK OF JAPAN. LISA: THE LEAD WAS MORE AGGRESSIVE
THAN THE ACTUAL MOVE ITSELF. AS YOU MENTIONED SEVERAL TIMES
TODAY IT IS TOO EARLY TO WRITE THE BOOK ON WHAT IT LOOKS LIKE
BECAUSE IT IS TOO EARLY TO UNDERSTAND WHAT THEY WILL BE
DOING. THE PROOF IS IN THE PUDDING OF
HOW THIS STUFF TRADES. BUT WHETHER IT ENDS UP WITH THE
YIELD MATERIALLY GOING UP IN THE END. JONATHAN:
I THINK IT IS WORTH FLUSHING THIS OUT.
THERE ARE DAYS IN THE JAPANESE GOVERNMENT BOND MARKET WHERE
NOTHING TRADES. WHERE THE JAPANESE 10 YEAR DOES
NOT TRADE AT ALL. LISA: THIS IS THE CONUNDRUM WHY TRADE
SOMETHING AND MAKE A BET AND YOU CAN HAVE A WHALE THAT WOULD
COME IN AND CRUSH YOU? DECIDING I DON'T LIKE THAT I'M
GOING TO SNUFF THAT OUT. THAT IS THE REASON WHY WE MAY
NOT GET THAT BIG OF A MOVE BECAUSE IT IS UNCLEAR HOW FOR
THIS WILL HAPPEN. JONATHAN: EXACTLY WHERE IS THE LINE IN
THE SAND? IS IT CLOSER TO 1% I GUESS
MAYBE WE WILL FIND OUT. AND WE HAVE A DIRECTOR OF
ECONOMIC RESEARCH AT VEDA PARTNERS, HENRIETTA TREYZ .
IT IS GREAT TO HAVE YOU ON. WITH WASHINGTON DC, IS ANYONE
GOING TO DO ANYTHING ABOUT IT IF AT ALL? HENRIETTA: UNFORTUNATELY IS IT IS NOT A
NEW STORY. WE HAVE ALL EXPERIENCED THIS
AND POSSIBLY BEFORE I HAVE. IF THERE IS A VACANCY, THERE IS
A QUESTION OF HOW FAST THE SEAT WILL FILL.
WILL THERE BE A PUSH THROUGH OF LEGISLATION AS WE GET INTO
SEPTEMBER? IT I LIKE THE APPROPRIATIONS
COMMITTEE WHICH IS AS BIPARTISAN AS YOU CAN GET AND
THEY HAVE ALL 12 APPROPRIATION BILLS FOR THE FIRST TIME SINCE
2018. I THINK THOSE SPLIT IS HAVE --
HELPING AT THIS POINT IN THE SENATE.
AND THOSE IN OFFICE WILL BE REPLACED WITH THE SAME MEMBER
OF ALREADY SO YOU WILL KEEP THE STATUS QUO OF THE VERY SLIM
DEMOCRATIC MAJORITY. AND THERE WILL BE DIRECTIONAL
LEADERSHIP CHANGE. SINCE WE HAVE BEEN TALKING
ABOUT MITCH MCCONNELL WHO IS THE LEADER OF THE REPUBLICAN
PARTY FOR THE LONGEST OF ANY REPUBLICAN SERVING IN THAT ROLE.
I THINK THE LEADERSHIP DIRECTION IS INTERESTING.
IS HE CONTINUING TO GIVE SPEAKER MCCARTHY FREE REIGN
WITH -- TIM SCOTT FOR PRESIDENT OVER DONALD TRUMP.
THE LEADERSHIP DECISIONS ARE SO DIFFERENT IN THE SENATE VERSUS
THE HOUSE OR THE REPUBLICAN PARTY FAR RIGHT FRINGES OR THE
SUPPORT OF PRESIDENT TRUMP SUPPORTERS.
IT IS A MARKET DIFFERENCE AND WHOEVER PLACED MCCONNELL, IF HE
NEEDED TO BE OUT OF OFFICE -- REPLACED MCCONNELL IF HE EVER
NEEDED TO TO BE OUT OF OFFICE IT WOULD BE DIFFICULT.
HE HAS DONE A GREAT JOB ON THAT FRONT. JONATHAN: HOW DO YOU EXPECT THIS TO SHAPE
THE CAMPAIGN IN MONTH. WHERE SOMEONE LIKE NIKKI HALEY
HAS PUT OUT THERE ASKING FOR COMPETENCY TESTS FOR LEADERS IN
WASHINGTON. HENRIETTA: IS NOT THE FIRST TIME WE'VE
SEEN THAT FOR LEADERS IN WASHINGTON.
I DO NOT THINK ANY OF THAT WILL MOVE THE THRESHOLD FOR SUPPORT
IS TOO HIGH. YOU WILL HEAR THAT ARGUMENT.
UNFORTUNATELY IT DOES SPAN BOTH POLITICAL PARTIES.
YOU HAVE OLDER ELDERLY LEADERS ON BOTH SIDES.
IT SOMEWHAT NEGATES THE ARGUMENT SINCE EVERYBODY IS
DOING IT. IT IS FREQUENTLY FRAMED AGAINST
PRESIDENT BIDEN OR REALLY MANY OF THE LEADERS.
BOTH SIDES OF THE AISLE REPUBLICANS AND DEMOCRATS HAVE
FILLER -- HAVE VERY OLD MEMBERS OF THE HOUSE. LISA:
THEY SAY ONE REASON THIS IS PERSISTENT IS BECAUSE VOTERS DO
NOT CARE AND THEY CONTINUE TO VOTE FOR PEOPLE REGARDLESS.
THEY TAKE THE PRIORITY NAME RECOGNITION AND YEARS OF
SERVICE OVER A NEW INDIVIDUAL. WHAT IS THE IMPACT WITH YOUNG
VOTERS? DO WE SEE A SHIFT OR IS IT
STATUS QUO? HENRIETTA: IT IS MORE OBVIOUS TO SEE THE
CHANGES BASED OFF OF WHAT A CANDIDATE VOTES FOR.
THEY CAN USE THE LAST ELECTION AS AN EXAMPLE.
THE RECOGNITION IS HUMONGOUS. CHUCK GRASSLEY HAS INCREDIBLE
NAME RECOGNITION IN HIS HOME STATE AND IT IS UNLIKELY THAT
HE WOULD TO BE -- BE DEFEATED. I WOULD SAY THE NUMBER ONE
PIECE YOU ARE LOOKING FOR IS FOR YOUNGER VOTERS TO FOCUS ON
THINGS LIKE ABORTION AND CLIMATE CHANGE.
IT DOESN'T MATTER HOW OLD YOU ARE IF YOU'RE ABLE TO GET THOSE
THINGS RIGHT. YOU HAVE PRESIDENT BIDEN
WORKING ON STUDENT LOAN FORGIVENESS.
THAT IS OBVIOUSLY A YOUNG VOTER SUPPORTED INITIATIVE AND THAT
IS WHERE HE GETS A VOTE DESPITE HIS AGE.
ON THOSE REISSUES CLIMATE CHANGE, ABORTION, AND STUDENT
LOAN ISSUES THINGS LIKE THAT VOTERS TEND TO FLOCK TO IF THEY
ARE A YOUNGER VOTER. OLDER VOTERS WANT TO FOCUS ON
IMMIGRATION. THE TOP FOCUS -- DEMOCRACY IS
THE SECOND-HIGHEST IMPORTANT ISSUE FOR VOTERS ACROSS THE
BOARD RIGHT NOW. THAT'S AN INTERESTING ARGUMENT.
IN SOME CIRCLES THAT IS ANTI-MAGA AND OTHER CIRCLES
THAT IS ANTI-THE BIDEN ADMINISTRATION SO THOSE ISSUES
DO TAKE ON NUMBERS. JONATHAN: I'M SORRY I HAD TO JUMP IN.
[LAUGHTER] WE SAY DEMOCRACY ISSUES ON
ANTI-MAGA AND ANTI-BIDEN. HOW IS DEMOCRACY ANTI-ONE OR
BOTH? HENRIETTA: EVERY WEEK IT IS FASCINATING TO
WATCH THE TREND. I FOCUS ON THAT A LOT.
THE ECONOMY IS INSISTENTLY THE ISSUE.
EVERYBODY SAYS THAT AND THE OTHER ISSUE IS IS THIS BEING
DEMOCRACY? AND I APOLOGIZE -- THAT DOES
THAT. THE DEMOCRACY THAT IS THE VALUE
OF YOUR VOTE AND THE ABILITY TO HAVE TO GO VOTE.
ALL THE ISSUES DONALD TRUMP RAILED AGAINST BEFORE AND AFTER
HIS ELECTION THINGS LIKE MAIL-IN BALLOT THOSE ARE ALL
DEMOCRACY IS THAT YOU CAN HAVE AN ISSUE WITH THE DEMOCRATIC
PARTY ON. AND THEN FAR LEFT YOU LOOK AT
THE INSURRECTION AND THE SPECIAL INVESTIGATION OCCURRING
RIGHT NOW. THE INDICTMENT OF PRESIDENT
TRUMP TODAY. DID HE TRY TO TAKE AWAY THE
RIGHTS OF AMERICAN VOTERS TO VOTE?
DID HE NULLIFY THEIR VOTE WITH VICE PRESIDENT PENCE?
BOTH SIDES OF THE AISLE HAVE A WAY TO SAY THAT DEMOCRACY IS
CRITICAL TO THEM. IT POLLS AS NUMBER TWO AMONG
IMPORTANT ISSUES. JONATHAN: AMAZING THANK YOU.
HENRIETTA TREYZ AT VEDA PARTNERS.
IT IS AMAZING HOW THEY DIVIDE THINGS UP. LISA:
TRAVEL POLITICS. AND THE OTHER SIDE IS
DESTROYING THE FABRIC OF THE NATION.
WHAT YOU GET IS WHERE YOU CAN COME TOGETHER AND TALK ABOUT
ISSUES AND THINGS PEOPLE CAN AGREE ON AND HAVE COMMON GROUND.
JONATHAN: THAT WOULD BE NICE, WOULDN'T IT?
BUT THAT IS NOT POLITICS RIGHT NOW.
WE HAVE PLENTY OF THAT ON THE OPEN IN ABOUT 35 MINUTES WITH
PEOPLE THROWING STUFF AT EACH OTHER ABOUT MARKETS.
LIKE A DEFINITIVE MANDATE. WE HAVE OUR GUESTS COMING UP.
AND WE DISCUSSED TRIBE LIES MARKETS ON BLOOMBERG TV AND
RADIO. LISA: [LAUGHTER] JONATHAN:
YOU CAN HEAR THE REMORSE AND A VOICE CAN'T YOU? LISA: NO. LISA:
JUST MOMENTS AWAY FROM A SLEW OF U.S.
ECONOMIC DATA INCLUDING THE COST INDEX HOW HOT OR COOLING
THE U.S.-MADE BERT -- LABOR MARKET IS. AND THE PCE DEFLATOR.
THIS IS THE KEY METRIC THE FED WATCHES FOR THE DIRECTION OF
INFLATION IN MARKETS. NOT A LOT OF DRAMA.
AGAIN IN THE EQUITY MARKET A RETRACEMENT FROM YIELD GOING
HIGHER ON THE HEELS OF THAT REPORT AFTER BANK OF JAPAN
ELIMINATED CURVE CONTROL. WE HAVE THE DATA COMING IN AND
WE ARE JOINED BY MICHAEL MCKEE. OF BLOOMBERG. WHAT DO YOU SEE?
MIKE: WE HAVE THE EMPLOYMENT COST
INDEX COMING IN LIGHTER THAN ANTICIPATED.
DOWN FROM THE PRIOR QUARTER IT COMES IN AT 1% DOWN FROM 1.2%
IN THE FIRST QUARTER WHICH WOULD BE GOOD NEWS.
THE FED WILL GET THE BREAKDOWN ON THAT AND SEE THE WAGE
COMPONENT. IT RISES .3% THAT IS LESS THAN
.4% LAST MONTH. AND LOWER THAN ANTICIPATED.
THE MAIN NUMBER WAS REVIVES -- REVISED 2.5% WE SEE THAT --
REVISED TO .5%. WE SEE REAL PERSONAL SPENDING
AT .4% WITH NOT A HUGE INFLATION EFFECT.
AND THE PCE NUMBERS EVERYBODY FROM LISA TO JAY POWELL ARE
WATCHING THE HEADLINE NUMBER COMES IN AT .2% A LITTLE FASTER
THAN I ASKED MONTH -- LAST MONTH THAT WAS FORECASTED.
ON THE YEAR-OVER-YEAR BASIS HEADLINE PCE IS 3%.
THAT COMES IN AT 4.3% AND THAT COMES IN LOWER THAN ANTICIPATED
AND LOWER THAN 4.6% LAST MONTH. WE HAVE BASICALLY THE SAME
STORY WE HAD AS LAST WEEK. THE DATA COMING IN LINE WITH
WHAT THE FED WANTS. NOT ALL PERFECT BUT BETTER
BENNETT HAS BEEN. LISA: SUGGESTING A SLOWDOWN IN
INFLATION AS WE RETAIN STRENGTH IN CONSUMER SENTIMENT AND
GROWTH. THE MARKET REACTION IS BASED ON
THE TREND THAT THIS CONTINUES. THE NASDAQ LEADING THE WAY UP
MORE THAN 1%. THE TWO YIELD -- TWO-YEAR YIELD
SLOWER AT 4.85%. THE EURO-DOLLAR HAS BEEN MOVING
ALL OVER THE PLACE AND THERE'S BEEN A BIT OF DOLLAR STRENGTH
AND PEOPLE HAVE BEEN REASSESSING.
WE DO NOT SEE A HUGE SHIFT WITH EURO STRENGTH AND DOLLAR
WEAKNESS CONTINUING. WHEN I LOOKED THROUGH THE
NUMBERS, IT SEEMS TO BE CONFIRMING THIS GOLDILOCKS
SCENARIO OF SLOWING GROWTH AND SLOWING INFLATION AND ROBUST
CONSUMER SPENDING. HOW RELIABLE AND SIGNIFICANT IS
THIS DATA SHOWING UPSIDE SURPRISE OF PERSONAL SPENDING
EVEN THOUGH INCOME FALLS OFF A LITTLE BIT? MIKE:
IT IS THE STORY WE ARE SEEING. WE GET A LITTLE BIT OF AN
UPSIDE IN PERSONAL SPENDING. THE GDP NUMBERS SUGGEST
CONSUMER SPENDING HAVE FALLEN OFF.
THAT WAS WEAKNESS IN APRIL AND MAY AND BEEN THIS SETS YOU UP
FOR BETTER SPENDING IN THE THIRD QUARTER.
WE HAVE BACK-TO-SCHOOL COMING UP WHICH WILL BE AN IMPORTANT
MEASURE FOR RETAILERS. THE OTHER NUMBERS COMING IN
BETTER THAN EXPECTED DO NOT HAVE A HUGE IMPACT RIGHT NOW
BECAUSE WE GET A LOT OF DATA BETWEEN NOW AND THE NEXT FED
MEETING. BUT IT SHOWS THAT THINGS ARE
GOING IN THE RIGHT DIRECTION. MAYBE JAY POWELL GIVES THE
BOARD OF GOVERNORS TOGETHER AND THEY GO OUT FOR HAPPY HOUR
TODAY OR SOMETHING. LISA: [LAUGHTER] OR MAYBE THEY TAKE A DAY OFF AS
JONATHAN HAS BEEN TALKING ABOUT. WE HAVE SOMEONE AT THE FED WHO
MAY TALK ABOUT HAPPY HOUR AFTER GETTING ECONOMIC RELIEF.
THAT IS CHIEF ECONOMIST AT UBS SECURITIES JONATHAN P GO.
-- JONATHAN PINGEL. HOW MUCH RELIEF CAN YOU HAVE IN
THIS SOFT LANDING -- HOW MUCH HOPE CAN WE HAVE A A SOFT
LANDING WHEN WE SEE -- THAT MAYBE WE WILL GET PRICE
STABILITY. JONATHAN: THIS IS CERTAINLY GOOD NEWS,
BUT WE ARE STILL ACTUALLY A LONG WAYS AWAY FROM PRICE
STABILITY. LOOKING AT TODAY'S EMPLOYMENT
COST INDEX DATA AS MIKE WAS SAYING AS WELL AS THE CORE PCE
DEFLATOR THE YEAR-OVER-YEAR CHANGE FALLING 4.1%.
IT PUTS THE FED WITH A STRIKING DISTANCE WITH A FULL YEAR
PROJECTION OR LATER THIS YEAR. 4% OR THE FEDS 3.9 PERCENT AND
Q4 YOU ARE A WAYS AWAY FROM I STABILITY.
EVERYTHING LOOKS GREAT NOW. LOOKING AS MIKE WAS MENTIONING
REAL SPENDING COMING IN STRONGER.
WE EXPECTED THE .4 PERCENT INCREASE. AND WE REVISED UP ON Q3
CONSUMPTION ESTIMATES AND RETAIL AS A RESULT.
THIS IS ALL GOOD NEWS AND BE ECONOMY HAS PROVED RESILIENT,
BUT THEY DO HAVE THIS PROBLEM WITH BRINGING PROGRESS ON
INFLATION. BUT WE ARE NOT ACTUALLY AT 2%
YET. THERE IS A BIG GAP BETWEEN NOW
AND HOW WE GET THERE AND A LOT OF UNCERTAINTY.
AT THE MOMENT, THE DATA LOOKS GOOD. LISA:
WHAT IS THE BIGGER RISK RIGHT NOW THAT WE ARE WRONG ABOUT
INFLATION COMING DOWN AND WE SEE A REIGNITION OF SOME OF THE
PRICE INCREASES OR THAT THE ECONOMIES WAS DOWN MORE
TRAUMATICALLY AND THE STRENGTH WE SEE RECENTLY PERHAPS IS
INDICATIVE OF THE LONGER TERM TREND. JONATHAN: I AM WORRIED THE ECONOMY WILL
SLOW WEANING FULLY IN THE COMING QUARTERS.
THERE IS A LOT OF CAUSATIVE RIGHT NOW BUT THERE ARE ALSO
HEADWINDS. I ALSO AGREE WITH CHAIR POWELL
WITH THE FOLLOW-THROUGH OF MONETARY POLICY TIGHTENING.
THERE IS STILL EXCESS SAVINGS THAT IS PERCOLATING THROUGH AND
ACCORDING SPENDING. SOME OF THESE FORCES COULD
DIMINISH. WE HAVE STUDENT LOAN REPAYMENT
COMING UP. THERE IS A NUMBER OF HEADWINDS
AND CHALLENGES THAT WE FACE AS AN ECONOMY.
BUT I THINK YOU HAVE NAILED THE RISKS ON THE HEAD.
EVERYBODY WOULD LIKE TO HAVE A SOFT LANDING AND NOT HAVE JOB
LOSS AND DISCONTINUE, BUT THE INITIAL CONDITIONS ARE TOUGH.
BY INITIAL CONDITIONS YOU START WITH A LOW UNEMPLOYMENT RATE.
EVEN WITH THE ECI AT 1%, I THINK THAT IS GOING TO BE GREAT
NEWS AT THE FED TO TAKE A LITTLE BIT OF THE WIND OUT OF
THE SAILS OF THE MORE WORK TO DO COMPONENT OF THE COMMITTEE,
BUT THAT IS STILL 4% ANNUALIZED. THE FED KIND OF NEEDS IT TO GET
DOWN CLOSER TO 3.5%. NOMINAL WAGE IN RELATION --
INFLATION WE SEE A RISK AND IF THERE IS A STRONG ECONOMY THE
FED MAY STILL HAVE TO HIKE AND DO MORE WORK TO SLOW THE
ECONOMY. LISA: A LOT OF PEOPLE HAVE TALKED
ABOUT IT BEING EASIER TO GET A DISINFLATIONARY TREND WITH THE
YEAR-OVER-YEAR NUMBERS OVER THE PAST FEW MONTH. WHAT CHANGES?
WHAT AREAS ARE YOU LOOKING AT? IS IT HOUSING, CAR PRICES,
SOMETHING OUT THAT COULD FUEL STRENGTHENING IN THE INFLATION
RATES? JONATHAN: IT IS ALL OF THAT.
I DON'T THINK THE DETAILS OF THE INFLATION DATA, IN MY
CAREER HAVE EVER BEEN AS LOOKED AT AS THEY ARE TODAY FOR HELP
OR SHOW IT HAS BEEN FOR MONETARY POLICY.
WHEN WE THINK ABOUT WHAT IS UNFOLDING IN VARIOUS CHUCKS OF
THE BASKET, THERE ARE PEOPLE TALKING ABOUT SUPER COURT AND
ALL THE MEASURES I DO NOT WANT TO PUT A LABEL ON IT, BUT WHEN
WE LOOK AT SERVICES COMPONENTS THAT ARE MOST LINKED TO WAGE
INFLATION, MANY OF THEM ALSO HAVE RELATIVELY CAN THIS TO
COMPONENT. WE CAN GET COMFORTABLE WITH THE
GOODS DISINFLATION AND WE SEE IT AND I THINK WE ARE WATCHING
WHERE WE ARE WITH RENT SLOW AND THE CPI DATA, THE OTHER
SERVICES ARE REALLY WHAT I THINK IS WORTH WATCHING FOR.
THE IMPROVEMENT COULD COME OR WHAT MIGHT REACCELERATING
BECAUSE OF THE LOW UNEMPLOYMENT RATE.
THAT IS ONE OF THE REASONS I THINK CHAIR POWELL IN HIS PRESS
CONFERENCE WENT AHEAD AND MENTIONED THE ECI AS AN
IMPORTANT DATA POINT WE GET BETWEEN JULY AND SEPTEMBER FOMC
MEETING. LISA: IF YOU'RE JOINING US NOW WE SAW
THE EMPLOYMENT COST INDEX COMING IN AT 1% FOR THE SECOND
QUARTER AND THE EXPECTATION WAS 1.1% IT IS DOWN FROM 1.2
PERCENT. PERSONAL SPENDING COMING IN
STRONGER THAN ASK ACTED AT .5%. PEOPLE MAKING LESS AND SPENDING
MORE. WHAT YOU SEE MIKE MCKEE? MIKE:
JONATHAN WAS TALKING ABOUT THE ECI FOR WAGES GOING DOWN FROM A
1% GAIN FROM A 1.2% GAIN IN THE PREVIOUS QUARTER.
THAT WOULD BE CONSIDERED A REASONABLY -- REASONABLY GOOD
NEWS, BUT WHEN YOU LOOK AT THE INCOME FIGURES, WAGES WENT UP
.6% IN THE MONTH OF JUNE. THAT IS UP FROM .5%.
THAT IS THE HIGHEST INCREASE SINCE JANUARY. WE HAVE SORT OF CONTRASTING
VIEWS OF WHAT WAGE PRESSURES ARE DOING AT THE MOMENT.
AS JOHN MENTIONED, AS WE DO EVERY TIME WE GET AN INFLATION
GEAR, THE SUPER COURT WHICH IS JAY POWELL'S FAVORITE THING.
CORE SERVICES ASK HOUSING COMES IN AT .2% GAIN.
IF YOU WANT TO ROUNDED UP IT CAN BE .3% AND THAT PUTS IT IN
A 4.1% INCREASE FOR THE YEAR. THAT WILL BE YOUR LOWEST SINCE
BASICALLY LAST AUGUST. THINGS MOVING IN THE SUPER COURT
DIRECTION TAKE HOUSING OUT OF THE EQUATION AND SERVICES FOR
THE PCE LIKE THE CPI ARE DOWN. THE WAGE NUMBERS ARE STILL
HEALTHY AND I GUESS CONSUMERS CAN STILL KEEP SPENDING, BUT
THE QUESTION IS WILL THE FED SEE THAT AS INFLATIONARY? LISA:
AS WE TALK ABOUT THE NUMBERS 4.1 PERCENT DOWN SIGNIFICANTLY
FROM WHAT IT WAS AT 4.6% IN THE PREVIOUS READING.
WHAT IS ENOUGH? ARE WE HEADED TOWARD 2% OR ARE
WE LOOKING AT SOMETHING ABOVE THE TARGET THAT THE FED WILL
LIVE WITH? JONATHAN: WELL, THIS IS PROBABLY --
FIZZES A QUESTION THEY WILL HAVE TO ANSWER AT SOME WEIGHT
NEXT YEAR -- SOME POINT NEXT YEAR. IT IS NOT LOW ENOUGH NOW. I THINK IT IS RELEVANT FOR THE
MEETING BY MEETING DECISIONS THEY WILL MAKE GOING FORWARD.
THEY ARE ONLY .2 PERCENTAGE POINTS AWAY FROM THEIR FULL
YEAR CORE INFLATION PROJECTION ALREADY IN THE JUNE DATA.
THEY ARE CLEARLY MAKING PROGRESS.
THE OTHER THING THEY ARE MAKING PROGRESS ON ISRAEL RATE -- IS
ON REAL RATES. AND THIS IS AFTER THE RATE HIKE
WEDNESDAY, IT MIGHT BE AT A LEVEL THAT IS NOT BEEN AROUND
SINCE 2007. THEY ARE MAKING PROGRESS IN
TERMS OF RESTRICTIVENESS AND NOT JUST RATE HIKES BUT ALSO
BECAUSE THEY ARE MAKING PROGRESS ON INFLATION.
A YEAR FROM NOW, LET'S SAY INFLATION IS MOVING DOWN 2.5%.
THEY WILL HAVE TO MAKE A DECISION HOW HARD THEY PUSH TO
PUT IT BACK DOWN AT 2.0%. I DO THINK MONETARY POLICY
MAKERS WOULD LIKE TO GET IT AT 2.00% FOR THEIR CREDIBILITY TO
SHOW THEY CAN DO IT. ARE THEY GOING TO WORK HARD TO
RUN IT AT 1.8% TO SHOW THEY ARE ON BOTH SIDES?
I DO NOT KNOW IF THAT IS WORTH COSTING A LOT OF PEOPLE THEIR
JOBS. BUT I DO THINK THEY BELIEVE --
IF THEY ARE STRUGGLING TO GET BACK TO THEIR TARGET, THEY
PROBABLY WOULD LEAVE RESTRICTIVE POLICY IN PLACE FOR
A WHILE. LISA: JONATHAN FINGAL AT UBS FINK YOU
FOR TAKING THE TIME. WE SEE A REBOUND IN THE SF --
JONATHAN PINGEL AT UBS. THANK YOU FOR TAKING THE TIME.
-- OUR BLOOMBERG'S ECONOMIC CORRESPONDENT MICHAEL MCKEE,
WHICH DATE IT MATTERS? IF WE HAVE INCREASINGLY
DATA-DEPENDENT AND ECB, MARKETS ARE NOT MOVING MUCH ON THIS?
, WHEN DOES IT MATTER? MIKE:
IT WILL NOT MATTER IN TILL WE GET INTO SEPTEMBER.
WE HAVE A LOT OF JULY DATA WE START IN ON NEXT WEEK.
WE GET THE SEPTEMBER JOBS -- AUGUST JOBS NUMBERS IN
SEPTEMBER. AND WE GET MORE CPI NUMBERS AND
PCE NUMBERS, THE FED WILL HAVE A LOT OF DATA BETWEEN NOW AND
THEN THAT COULD CHANGE. RIGHT NOW, THE SITUATION LOOKS
PRETTY GOOD AND THAT IS WHY I EXPECT JAY POWELL TO BE BUYING
AT THE HAPPY HOUR THIS AFTERNOON, BUT WHEN YOU LOOK AT
THE NATION NUMBERS, THEY ARE MOVING IN THE RIGHT DIRECTION
WHICH IS WHAT THEY WANT TO SEE. BUT WE WILL HAVE TO GET A
BREAKDOWN FROM JONATHAN FERRO ONCE THE MARKETS OPEN UP ABOUT
GOODS WHETHER WE SEE CONSUMER STAPLES RISE BECAUSE GOOD
SPENDING ROSE FASTER THAN SERVICES SPENDING ACCORDING TO
THE GOVERNMENT IN THE MONTH OF JUNE. LISA: INTERESTING.
HERMES CAME IN BETTER THAN EXPECTED BECAUSE OF WORKING
GIANT. TOM WAS SPENDING. EXACTLY. THE INVESTMENT MANAGER. >> ALTHOUGH ACTIVITY IN THE
HOUSING SECTOR HAS PICKED UP, IT REMAINS WELL BELOW LEVELS A
YEAR AGO LARGELY REFLECTING LARGER HEIGHT PRICES.
AND SLOWER OUTPUT GROWTH APPEARS TO BE WEIGHING ON
INVESTMENT. LISA: THAT WAS THE FED CHAIRS
SPEAKING AT HIS PRESS CONFERENCE AND HE WAS SAYING AS
LITTLE AS POSSIBLE AS HE LOOKED TOWARDS SOME OF THE FREE MARKET
KIND OF STRATEGIC DECISION-MAKING POLICIES.
WITH THE MARKETS WE DO KNOW THERE IS A LIST FOLLOWING THE SELLOFF ON THE NIKKEI REPORT
AND THE BANK OF JAPAN MIGHT -- MADE ADJUSTMENTS.
WE SEE THE S&P 500 FUTURES UP .6%.
WE SEE THE EURO GAINING VERSUS THE DOLLAR ONE POINT 10 -- 1.10.
AND WITH THE BIGGEST MOVE, WE SEE GOING BACK TO SEPTEMBER
WITH CRUDE CROSSING $80 A BARREL ON THE -- LEVEL.
I WANT TO ADDRESS THE AREA WITH THE CAVEAT. WE HAVE IMMACULATE
DISINFLATION. THE MARKET IS RIGHTSIZING AND
WE WILL SEE PRICES STABILIZING. WE HAVE DANIEL HALE CHIEF
ECONOMIST AT REALTOR.COM JOINING US.
SOME SAY THAT WE ARE SEEING A REACCELERATION OF THE MARKET.
ARE YOU SEEING A REACCELERATION OF HOUSING PRIZES AND -- PRICES
AND DEMAND AND AVAILABILITY? DANIELLE:
WHEN YOU LOOK AT THE MONTH TO MONTH NUMBERS YOU SEE A PICKUP
IN PRICING. WHEN IT COMES TO DEMAND AND
SALES THEY ARE STILL AT LOW LEVELS. THE MOST RECENT DATA SHOWS WE
ARE UP MONTH-TO-MONTH .3%. IT IS A FAR CRY FROM
REACCELERATION WE ARE ROUGHLY FLAT AT LOW LEVELS GRINDING
SLOWLY HIGHER. -- THERE WAS A SURPRISE ON THE
UPSIDE. WE DID NOT FORECAST BIG DECLINE
IN PRICES THIS YEAR, BUT WE DO SALES -- STILL SEE PRICES
WEAKER THAN A YEAR AGO. WE ARE NOT SEEING BIG
INFLATIONARY RUN-UP IN PRICES OVER THE PAST YEARS. LISA:
PEOPLE EXPECTED SIGNIFICANT PRICING WITH MORTGAGE RATES AT
.7%. THEY THOUGHT THIS WOULD BE THE
MECHANISM FOR BENCHMARK RATES GOING HIGHER.
IS ANYONE THAT YOU SEE BUYING A HOME PAYING 7% INTEREST RATE?
DANIELLE: YEAH THEY ARE. A SIGNIFICANT PORTION OF THE
MARKET IS PURCHASING A HOME WITH A MORTGAGE.
IT IS AN IMPORTANT TRANSITION CAN IS HIM BUT IT IS IN TO CONSIDER AS WELL THAT 4 MILLION
UP TO 6.5 MILLION HOMES TREND EVERY YEAR.
THE VAST MAJORITY OF HOMEOWNERS DO NOT MOVE SO THEY DO NOT
EXPERIENCE A CHANGE IN WHAT THEY ARE PAYING FOR IN HOUSING. WE HAVE A SIGNIFICANT PORTION
OF 65-75% OF THE MARKET THAT ARE LOCKED IN WITH MORTGAGE
RATES LOW BELOW 4%. THAT CREATES A DISINCENTIVE TO
MOVING BECAUSE IT CREATES A FINANCIAL -- I NATURAL DISRUPT
ALL. IN OTHER WORDS YOUR HOUSE HAS
TO BE A BAD FIT TO DECIDE THE HIGHER COST YOU WOULD PAY TODAY
FOR A NEW HOME OR MOVING. LISA: THAT IS WHY RENT WAS GOING UP
IN SOME AREAS BECAUSE PEOPLE DID NOT HAVE THE INVENTORY TO
BUY. AND THEY DID NOT BUY AT 7% MORTGAGE RATES.
WE HAVE SEEN IT COME OFF A BIT, DO YOU EXPECT TO SEE A
REACCELERATION IN RENTAL COSTS AT A TIME WHERE THE BACKDROP
FOR THE SALES MARKET HAS NOT CHANGED MATERIALLY? DANIELLE: WE DO NOT EXPECT TO CA REACTS
-- TO SEE A REACCELERATION IN THAT RENTAL DEPARTMENT. THE CONSTRUCTION RIGHT NOW OF
MULTIFAMILY UNITS IS AT AN ALL-TIME HIGH.
THEY WILL ALL BE FINISHED AT A TIME WHERE WE SEE WEAKENING IN
RENTAL DEMAND ALREADY AND PRICES ARE DECLINING.
IT DROPPED FROM A YEAR AGO IN MAY AND JUNE.
WE SEE DECLINES IN THE WEST AND SOUTH AND THE NORTHEAST AND
MIDWEST. THEY ARE DUE TO BETTER ECONOMIC CONDITIONS IN THE
NORTHEAST WITH AFFORDABILITY IN THE MIDWEST. IT IS INTERESTING
TO SEE THIS PATTERN REFLECTED IN THE RENTAL AND SALE MARKET.
WE DID A STORY WITH THE WALL STREET JOURNAL ON THE HOUSING
MARKET AS WELL. THE MIDWESTERN MARKETS
DOMINATED THE TOP OF THE LIST. WE SEE ECONOMIC FUNDAMENTALS
IMPACT THE HOUSING MARKET. THAT IS LEADING TO NUANCED
PERFORMANCES IN THE MIDWEST. ON THE WHOLE, WE SEE RENTAL PRICES
SLOW. WE EXPECT THAT TO CONTINUE AS
WE SEE SUPPLY COME ONLINE ACROSS THE COUNTRY. LISA:
THIS IS THE REASON I AM ASKING. WE'VE BEEN TALKING ABOUT
ECONOMIC INDICATORS AND DATA. WHETHER WE SEE INFLATION D
ACCELERATING INTO YOUR IN. A LOT OF PEOPLE TALK ABOUT THE
HOUSING MARKET AND THE RESILIENCE TURNING A CORNER AS
AN EVIDENCE OF NEW PRESSURE ON INFLATION.
DO YOU BUY THAT ARGUMENT? DANIELLE:
I THINK IT IS TOO SOON TO SAY WE HAVE TOTALLY TURNED A
QUARTER -- A CORNER. IT IS NOT A MASSIVE INCREASE.
HOUSING IS SEASONAL AND IT IS INTERESTING TO SEE PEOPLE
FOCUSED ON MONTH TO MONTH CHANGES WHICH WE KNOW CAN BE
NOISY. WHEN PEOPLE LOOK AT CPI IN THE
SAME WAY THEY WOULD SAY WE ARE ALREADY BACK ON TARGET. THE CPI FOR BOTH HEADLINE AND
CORE INFLATION IS BACK AT 2% BUT NOBODY IS DOING THAT
BECAUSE WE KNOW THAT IT CAN BE A BIT VOLATILE.
WE SEE A PICKUP IN THE HOUSING MARKET BECAUSE THE SUPPLIER
REMAINS LOW AND HOUSING TRANSACTIONS REMAIN LOW AND IT
IS HARDER TO SEE THEM FALL LOWER WITH YOU HAVE DEMAND WITH
RESPECT TO SUPPLY. I DON'T THINK WE ARE TOTALLY
OUT OF THE HOUSING MARKET AND I THINK WE WILL SEE PRICES MOVE
SIDEWAYS BECAUSE AFFORDABILITY IS NOT THEREFORE MOST HOUSEHOLD.
LISA: WITH LONG AND VARIABLE LAGS,
HOW LONG DOES IT TAKE FOR HIGH RATE TO IMPACT THE VALUATIONS
IN THE MARKET THAT A LOT OF PEOPLE SAID WERE INFLATED
DRAMATICALLY BY LOW RATE? HOW LONG DOES IT TAKE IN AN ERA
OF 30 YEAR MORTGAGES? LISA: IT DEPENDS ON WHAT HAPPENS WITH
THE BROADER ECONOMY. IT IS NOT JUST THE INTEREST
RATE PANEL THAT MATTERS ON THE HOUSING MARKET BUT IT MATTERS
FOR THE BROADER ECONOMY. THE BROADER ECONOMY HAS MANAGED
TO SURPRISE AND SURPASS EXPECTATIONS IN THE PAST YEAR.
WAGES CONTINUE TO GO UP FASTER THAN MANY WOULD HAVE EXPECTED
GIVEN THE HUGE INCREASE IN RATES THAT WE HAVE SEEN OVER
THE YIELD CURVE AT THINK AS LONG AS INCOMES REMAINED
RELATIVELY HEALTHY WE SEE THE HOUSING MARKET MOVE SIDEWAYS.
IT WILL JUST TAKE A LONG TIME FOR THE HOME PRICES TO GET BACK
IN LINE WITH ECONOMIC FUNDAMENTALS. AND MAKE NO MISTAKE PEOPLE ARE
PUTTING BIGGER CHUCKS OF THEIR INCOME TOWARD HAVING A HOME
THAN THEY HAVE HISTORICALLY THAT IS TRUE -- STRAINING
BUDGET AND LIMITING THE NUMBER OF THOSE WHO CAN PARTICIPATE IN
THE HOUSING MARKET. LISA: WE ARE 36 MINUTES AWAY FROM THE
OPEN. IT IS TIME FOR YOUR WHETHER RIB
OR AND I ASK YOU WHETHER THE EXTREME HEAT RATE HAS CAUSED A
SHIFT IN THE SUNBELT. HAVE YOU SEEN ANYTHING?
DANIELLE: WE'VE SEEN BETTER PERFORMANCE
IN THE MIDWEST AND NORTHEAST. I THINK THAT IS MORE DRIVEN BY
ECONOMIC FUNDAMENTALS THAN ANY CLIMATE RELOCATION.
I THINK THAT IS AN INTERESTING QUESTION.
WHEN YOU LOOK AT THE MARKET DEMAND, THERE ARE A LOT OF
PEOPLE MOVING TO FLORIDA AND THERE ARE OTHER PEOPLE
RELOCATING FURTHER NORTH INTO GEORGIA AND OTHER STATES IN THE
SOUTHEAST LIKE THE CAROLINAS SO I THINK IT IS TOO SOON TO SAY
WHETHER THAT IS CLIMATE DRIVEN. WE KNOW CONSUMERS ARE
INTERESTED IN A CLIMATE DRIVEN INFORMATION.
WE HAVE A LOT OF INFORMATION ON FLOOD RISK AND FIRE RISKS.
CONSUMERS CAN HAVE THAT INFORMATION WHEN THEY THINK
ABOUT BUYING A HOME AND SHOPPING FOR A HOME.
IT IS AN IMPORTANT CONSIDERATION, BUT IT IS ONE OF
MANY. CONSUMERS ARE TRYING TO MAKE
THE BEST DECISIONS THEY CAN WITH A LOT OF DIFFERENT
INFORMATION THAT THEY ARE TRYING TO TAKE INTO ACCOUNT AS
THEY ARE BUYING OR CHOOSING TO BUY. LISA:
THANK YOU SO MUCH, DANIEL HALE AT REALTOR.COM.
HAVE A GREAT WEEKEND. WHEN WE LOOK AT THE DEPTHS OF
SUMMER COMING UP WE GET THE UNIVERSITY OF MICHIGAN IN --
SENTIMENT SURVEY. INTERESTING TO SEE WHETHER IT
DOES TAKE A LONG TIME TO GET BACK TO 2% OR IF IT SHIFTS
UPWARD AT ALL THE SENTIMENT IN THE GENERAL POPULATION.
PERHAPS NOT JONATHAN FERRO. THEY HAVE NOT CALLED HIM BUT
THEY COULD STILL CALL HIM. HE MIGHT GIVE YOU A WILD NUMBER.
COMING UP LATER PAT GELSINGER IN THE 12:00 HOUR WILL BE
TALKING AFTER INTERIM RESULTS CAME OUT BETTER THAN EXPECTED.
THIS IS AFTER SEVERAL QUARTERS OF LOSSES.
WE WILL BE KICKING OFF THE MARKET OPEN WITH JONATHAN FERRO
ON BLOOMBERG TELEVISION ON RADIO BLOOMBERG SURVEILLANCE
DOES CONTINUE AS WE MOVE TOWARD WHAT WE HAVE WITH INCREASING
DATA DEPENDENCE, STRATEGIC AMBIGUITY, THE TRIFECTA OF
CENTRAL BANK.
