Rate Hike in July? | Bloomberg Surveillance 07/12/23

this is a year where the narrative changes every single week we need to be aware that every data release you get could be leading us astray I think you'd want to see lower inflation data and I think there's a good chance you're going to get it fundamentally you've got a labor market that still looks too tight the Market's starting to believe the FED about a second hike this is Bloomberg surveillance with Tom Keane Jonathan Farrell and Lisa abramowitz it is CPI Wednesday live from New York City this morning good morning good morning front audience worldwide this is Bloomberg surveillance on TV and radio alongside Tom Keane and Lisa gravitz I'm Jonathan Farrow your Equity Market slightly positive 0.2 percent two weeks away from a Federal Reserve decision listen to this [ __ ] rate hike Fork on conclusion Deutsche Bank Jim Reed this morning hike in July pretty much nailed on TK July for a lot of people even before the CPI couple of hours time done deal done deal I don't buy it for a minute I think this is absolutely fascinating the key thing right now John is we had two boring days yesterday was one of the most boring days in 10 years I mean it was a struggle here I saw Lisa not off at one point Grandma Kim caught it but it was slow today's not slow I've got you got yens for 140 to a stronger again there's a lot going on on the data front and John it's one big bet on a new disinflation does that data in two hours 30 minutes Lisa change the conversation that's a key issue and coral will be the key to watch here I just want to say before Tom throws me under the bus I actually was interested in what we were learning yesterday and I thought it was quite interesting today will be even more so because it's not the headline figure that I'm looking at it is the underlying measures of inflation when you strip out some of the more variable costs that still are going to be quite High Services versus Goods yeah again yeah and how much does services start to roll over because people are saying that you're starting to see that to me the debate isn't July isn't September to me the debate is longer term are we heading toward an inflationary regime that is higher for longer not with respect to the FED but with respect to the economy or are we going back to that two percent or sub two percent inflation that to me continues to be the debate and any information that we get on that will be really important the strength of the U.S consumer has been the story over the last couple of years coming out of the pandemic with a bunch of savings year-to-date the performance of tech gets all the headlines look at the airlines 50 guides they're in there abouts on Delta American you United go through the top 10 performance stocks on the S P 500 year today you'll find three Cruise Line operators in there Tom how much longer can that continue yeah they're Dow Jones Industrial Average candidate is what I would see here great article from Bloomberg today on the NASDAQ 100 rebalance I learned a lot uh reading it the basic idea that things are so out of whack with those seven stocks they've got to make an adjustment just you know within pension and diversification NASDAQ slightly positive this morning good morning to you all if you want to just tune again the data 8 30 Eastern time before we get to all of that Bremo is going to go through the diary in just a moment here's the price action for you British folks it's a brief equities slightly positive on the S P 500 you know I have Diaries in the United States you'd have Diaries we do we write in the midnight right and then you oh right they're journals yeah that's diary but you don't have diaries about looking forward you don't put it no we only look back in our tires you only look back introspective Americans this feels like a theory we're down three Lisa your tenure at 394. that qcpi read is going to come out at 8 30 a.m interesting to note that it comes one year after the highest inflation read in the U.S going back to 1981 how much things have changed we have come out on the headline number core really is going to be the sticking point both literally and figuratively 10 a.m I'm watching the Bank of Canada because they continue to be the front runner they had had a hawkish pause earlier in the year then last meeting they were forced to raise rates this meeting they're expected to raise rates yet again to 5 it's expected to be the last rate hike in the cycle but to me this is the key conundrum are they going to have to do an about face once again and revert back to rate hikes we have an 11 A.M news conference with the Bank of Canada Governor Tiff macklem and if you wanted fedspeak we didn't get it yesterday boy do we get it today not only do we get the beige book at 2PM which Tom is going to be reading every word of we also get Richmond fed president Tom Barkin at 8 30 a.m competing with CPI interestingly Minneapolis fed president Neil kushkari and ECB Chief Economist Philip late at 9 45 a.m I'm throwing this in as fed speak because she used to be fed speak NEC uh director Leo Brainerd she's speaking at the ecny event in New York Atlanta fed president Rafael Bostick who has been the resident Dove he speaks at 1pm and Cleveland fed president Laura Mester speaking it at NBR event at around 4 P.M today so that's just a little bit of taste I'm pleased you put Brainerd on there very disappointed at the moment with the lack of public engagement from the NEC director I agree she's you know the vice chair 100 correct I said the same thing about Brandis at one point in the same seat he improved he improved yeah I want to see more engaged our visit with Brian was great got to see him off the roof your answers have got to be longer he got better he engaged more we haven't seen enough well brainerd's this is a really interesting thing because as people become fed visibility think Bernanke or or others BenQ I remember at the White House they changed they learn they adapt and she it's even harder for her because she's adapting from fed speak over to White House speak do you think that her lack of Engagement is her choice or Biden's Choice don't know don't know it seems like Biden takes a pretty hard line with not allowing certain people uh to have too public of a voice and we've seen that pretty consistent Youth and that's the case with Brainerd no idea but I know that that's been a consistent theme through certain offices well disappointed nevertheless and let's hope we see more public engagement from the NEC director in months to come joining us now is Roscoe strict portfolio manager for the BlackRock Global allocation fund Russ wonderful to catch up with you sir the data drops in about two hours and 24 minutes time what are you and the team looking for Russ well good morning Jonathan you know I think we're I think we're just looking forward what services is like most of the last year where you consistently surprised to the upside and markets became accustomed to that I think most investors are going to this number expecting a softer print so it will be interesting to not only see what the number comes out at but what is the Market's reaction to it Russ what does big Tech do if we get a legit disinflation I'm not talking down to two percent but if we you know migrate three-ish or 4.1 I'm sure that on the duration analog of big Tech does that give them a second wind you know Thomas a great question I think in on paper theoretically it does but here's the interesting thing big Tech is you know it on a relative basis it has been a little bit of a market performer in the last month but obviously year to date you've got the NASDAQ up what 39 percent rates bottom months ago and we've seen two-year nominal 10-year nominal reels grinding higher for a couple months now and Tech is mostly ignore that and unlike in 22 when Tech really took its cue from the rate Market what's happened this year as you all know is you've had the secular theme about Ai and that is driven Tech higher even in the face of higher interest rates so I think we've seen a little bit of a decoupling between what the bond market is doing and what tech is doing given these secular things I I mean the secular themes are all fine but your job now in in every shop is absolutely brutal on allocation I really don't care what your allocation is for July and August I want to know the method you're using to make that allocation so I think there are a couple things you're thinking about right now the first and most important of which what is the state of the economy what are we expecting and it's been tough it's been tough because that that narrative that regime has shifted about every six weeks this year but I think the key thing from for our thinking right now we still have a little bit of a positive tilt to equities we're still a little bit underweight duration is that normal GDP real growth plus inflation is going to continue to surprise to the upside and that means you're still a bit cautious on bonds you still question whether or not Bonds are going to provide that long-term hedge at least over the next six months but the positive side of that is in an environment in which nominal GDP is going to be let's call it five percent in 23 that's an environment where earnings are probably better than expected and equities can still grind higher throughout the year Russ can we still see this inflation in that kind of environment with robust economic growth I think you do and I think we are going to see lower inflation both at the headline the core number but you know the big question which I think y'all are talking about you know before we we a few moments ago was you know how low are you going to go uh it's not obvious at this point that you're gonna go back to the school of the pre the post-gfc environment where Not only was inflation at two percent or below but it was remarkably stable and that we are in an environment where inflation's heading lower but maybe not to that same equilibrium and probably not to that same level of macro stability where is that not being priced into the market right now where a lot of people increasingly are reverting back to the old Paradigm of lower for longer over the long term I think there are a couple places you know you still have to kind of question are you being adequately compensated with the term premium in other words that premium you get for going further around the yield curve in an environment reflation is probably going to be a bit more sticky and a bit more volatile so we've been doing we've been hiding at the front end of the curve and I think as everyone knows you know you can get tremendous carry right now in cash and cash like instruments commercial paper for example and there's no need to go out long on the curve and take a lot of rate risk uh when you still have that uncertainty about what is being priced in Russ just talk to me about your cash allocation how consistent has your cash allocation been through this year you know it's been moving around quite a bit and there are a couple reasons for that the first of which is we've moved our Equity allocation pretty significantly higher over the course of the Year from being underweight in in 22 to more of a market weight or slightly overweight than 23. but the other goes back to this question of what is your hedge uh last year the answer was easy there was no hedge uh maybe the dollar is the best you could do I think the question about what is your hedge in 23 is going to depend on your view on inflation uh your view on the stability of inflation what yields you're getting on the tenure so part of that movement in cash comes down to can we rely on bonds of the Hedge probably not yet are we still using a little excess cash to dampen that portfolio level risk hi Russ wonderfully get your Insight your input on CPI day rust constrictor of BlackRock the global allocation fund just on his cash allocation and the amount of times the narrative has changed over the last year or so I was just going through the US two year the Journey of 2023 remember when the start of the year was about soft Landing then it was no Landing then it was about hard Landing March was hard Landing two-year dropped to about 350. on a two-year time we went back through 5.1 percent yeah in Thursday session we're back down to 486 this morning you see it everywhere but I do agree that two years a nice thing to study here folks if you'd like to look at that I looked at the five-year real yield yesterday and we're well out to Historic three standard deviation uh moves to a higher real yield and you know I do take Russ's point that this is about nominal GDP and the miscalculation of those two moving Parts the real economy and inflation and what it means for earnings season and I mean I know we're supposed to so OMG earning season is going to be terrible we're all going to die except I've said that and been wrong for the last six quarters JPMorgan Friday kicking things off brammo we did go for himself Landing no Landing heart Landing it feels like we swung back to self-lanted again and forgotten about the banking failures of March going into April except this soft Landing has a slightly different tenor the idea that you could have higher yields and stocks still performing well and credit still performing well and this is the conundrum can you get ongoing disinflation with growth that surprises to the upside that to me is a tension that is unresolved the first read of the day Matt Bessler at Bloomberg news reporting on inflation in his study of it matters First Rate out of Michigan and also James McIntosh at the Wall Street Journal and Macintosh tears to shreds the certitude of our belief in inflation because we have this fictitious plug-in of our guesstimate of what Jonathan Miller's rent looks like in New York City this is oh I'm going to say after macintosh's article which I thought was great it's oer Wednesday here the key thing today in the inflation surveys John is what McKee says about owner's equivalent rent which to me it's a double Fiction it's a plug shitty the FED knives this town they know it and they keep it separate but everybody's still addicted to this guesstimate of what real estate's doing there is a measure of uncertainty and the James McIntosh story was really interesting the column talking about how if you measured it the way that Europe did inflation would be substantially lower in the U.S that said is that temporary you have the likes of Muhammad alerian out talking about the likelihood of a stickiness underpinning some of these other measures whether it's cars that could potentially revert back whether it's airline prices Dan Skelly coming up to talk about this in the next hour at about 7 A.M eastern time looking forward to that conversation equities right now on the S P 500 positive by about 0.1 percent coming up very shortly we'll catch up with amh down in Lithuania as zelenski speaks right now saying Ukraine can be a NATO member when we're safe on our land Ukraine knows it can't be a NATO member during the war that conversation coming up next [Music] sir [Music] we want to be on the same page with everybody with all their understanding and for today what we what we what we hear and understand that we'll have this invitation when security measures will allow Ukrainian president zielinski speaking on NATO membership just yesterday speaking this morning as well alongside the NATO Secretary General Ian stolenberg here's some of the headlines from that zielinski sang Ukraine knows it can't be a NATO member once the war is ongoing says that Ukraine can be a NATO member when they're quote safe on their land and that Ukraine needs Clarity time on security guarantees the Ukrainian president speaking just moments ago it was the summer of 2023 Johnny Lisa mentioned this yesterday we're in year two of this War I would say America John I don't know if this is true in in England or in in Europe but America sort of has a four-year war time frame going back to the war of the colonies or the colonies one but also other Wars forward we have like a four-year I think that's Shades a week we have a four-year gap on a war and if it's longer than four years Americans get upset and we're only like year one point 5 pure research do you want the numbers please 44 of Republicans of Republican leaning Independents say the US is giving too much Aid to Ukraine 44 that number for Democrats 14 look at where we were in March of last year Republicans were only four percentage points more likely than Democrats to say the US is provided too much Aid today Republicans are 30 points more likely to say so yeah that's the election campaign right there in a poll going into next year on this one issue back the isolationist tones of the middle 20th century to say at the least we need a briefing from Lithuania Maria today are giving us great work there and also Henry Horton our chief Lithuania correspondent from Vilnius this morning Emory I want to go back to 2008 pre-book arrests this is Condoleezza Rice quote we of course are and have been and will continue to be supportive of Ukraine's transatlantic Ambitions how has it changed from 2008 we have a war or you have zelinski there meeting with the president in the New York eight o'clock hour translate for us the Vilnius transatlantic Ambitions of Ukraine while a lot of people here would say that 2008 they're feeling a deja vu in terms of the villainous Summit and the Bucharest Summit because it was at that Bucharest Summit that you really had Germany led by Chancellor Merkel the U.S led by President Bush at odds about what is going to be the path forward for not just Ukraine but Georgia as well and the U.S at that time really wanted a more direct concrete plan the Germans were a little bit nervous backed by the French as well and what you got was ambiguous wording about where Ukraine could potentially fit in the future of this Alliance and what many analysts would say is that you can almost see a line to the crisis we have today some would say that because of that Summit it was too ambiguous it basically put a Target on Keith's back Putin knew that they wanted to move west they wanted to move to this Alliance but they were still not protected by the Article 5 they were not protected by that Alliance and what you saw from the communique yesterday in the war wording in the language which you heard from kuleba when I spoke to him yesterday we're hearing from zelenski now which seems to be a little bit of softening of a tone and Reconciliation of the language but they wanted a more direct invitation and a more concrete timeline and that is something that this group was unable to do Emery in the last 24 hours and this is all speculation I'm summing in various news sources don't quote me on this but we've had an assassinated Russian general we've had another major Russian general killed in some form of missile attack involving British missiles whatever what is going to be Mr Putin's response to what you're witnessing in Lithuania given these two isolated deaths of generals in the general state of the Russian front east of Keith well I think what you see from Putin is that he is going to try to continue this offensive as you see that the military aid that is being discussed here the cluster Munitions that ukrainians are going to get from the United States the next missile tranche they're going to get from France the 700 uh million euros they're going to be getting from Germany in a new Aid package this is going to obviously concern Putin but he's going to continue in this fight especially in eastern Ukraine I would say though that what Putin has said in the past regarding what's happening at NATO with the Ascension of Sweden at this Summit Finland which is already joined he said that he had no problem with Finland and Sweden joining the way he has with Ukraine because he calls Ukraine that there is still territorial disputes but his issue with Finland and Sweden is if there was going to be any infrastructure changes on those countries then Russia would have to act in kind but you have to think how difficult this is at the moment for the Russian military to act in kind on the Baltic Sea when they have an all-out war that they're still trying trying to win and losing at the moment in eastern Ukraine meanwhile never one to let an opportunity pass to do political grandstanding we're seeing members of congress come out and push for a larger defense budget in response to some of the discussion around NATO a lot of disagreement about how much Aid and what parameters go around any kind of money to Ukraine as well as certain social issues but this to me stood out Senator Dan Sullivan republican from Alaska is saying that the most immediate priority is maintaining U.S aid for Ukraine but that that effort could be undermined if the majority of NATO members continue to fall below the two percent threshold of spending on defense how much is that really one of the main thrusts right now getting guarantees from those that perhaps are under contributors well I also think John's Pew research was also uh prevalent into going into the 2024 election and the problem facing Republicans you have many of these defense Hawk They Hawks they want a bigger defense budget they don't want an extra supplemental when it comes to Ukraine Aid package although obviously as they would sign up for that they just want a bigger defense budget and what Republicans here on the ground in Lithuania are saying is that to make our job easier back home because there are some fractures within the Republican party for our constituents about how much money and Aid is being sent to Ukraine you all need to hit your two percent Target and the language has changed at this Summit it is no longer a ceiling or a goal to hit two percent it is the floor they want all of these numbers to hit two percent and at the moment it's about 11 countries that are actually hitting that you have the likes of Luxembourg Canada Italy that need to start catching up and that is their message here on the ground hey mate can we just lean into the presidential campaign a little bit more for the Republican Party how I respect active candidates thinking Nikki Haley traditional Republicans actually capturing this story compared to say the former president Donald Trump well you're seeing a lot of different views Within These candidates who want to be the nominee the former president says that he within five minutes of office could end this conflict and get on the phone with Putin I think you're going to see this Administration want to have a really big contrast with the former president when President Biden heads over to Finland next uh it was then since we have not seen a U.S president in Helsinki since Trump was there and then sided with Putin instead of his own intelligence Services regarding Russia meddling in the 2016 election you have Ron DeSantis the governor of Florida have to backtrack clearly he upset a lot of hawks or potential donors that were supporting him when he called it a territorial dispute and then he came out a lot more forceful in his backing of Ukraine and then I would say really the most hawkish you have even above Nikki Haley who obviously has foreign policy chops given her work at the United Nations during the Trump Administration Mike Pence really setting himself out to be the individual to watch when it come comes to Russia's invasion of Ukraine because he was the first of these candidates to actually go to Kiev and stand next to zielinski and talk about America's support for the country interesting MH great coverage looking forward to catching up some more true this morning I'm Ray Horton there over in Lithuania Tommy went through those numbers The Fading support in the Republican party for potential voters you just wonder how this is going to be handled going into next year that's always been there and it's an I don't mean it's with any disparagement folks but the fact is there has been an isolationist tendency particularly for the Midwest my grandfather was what was called a Chicago Tribune Republican which just means stay out of England stay out of the continent of Europe that is embedded in American politics and it's not a surprise that there's a part of America that feels that way when are we invading England I think it was just another chapter why not White House [Music] back-to-back games on the S P 500 let's see if it becomes day three Equity Futures right now on the S P positive 0.2 percent waiting for inflation data in America about two hours away going into that equities on a NASDAQ up by 0.2 in the bond market what a trip on a two-year yield three five percent in early March then we collide with svb and a handful of other Banks as well the two-year drops to about 355 in late March then last week back through five percent five point one one percent a new cycle High then back in a way to 386 looking for a softer print on inflation this morning what's been interesting as yields back up just a little bit back down the dollar weaker take a look at this coming into today four days of weakness on dxy longest streak since March the Euro firmer again back through 110 Tom 110 25 on their currency pair the correlation here what we see in the Bloomberg launch pad John is tangible this morning after two really boring days Monday Tuesday and the answer is things are really moving I've got yens through 140 in the yield space you mentioned the two-year I've got a combine two's 10 spread from 111 beeps out to 91 less curve inversion and the real yield pulling back there's a whole disinflation tendency to what you see in the combined data I keep going to the UK Tom you've gone to Japan let me go back to the to the motherland as you take Japanese at it yes we had a financial stability from the back of England we could talk about that in just a moment I wonder what his mortgage is doing Tom the typical household rolling off a fixed rate deal in the second half of 23. good face a 220 pound per month increase in their mortgage cost based on current rates they pushed this out they went out to 2026 by the end of 26 about 1 million households would have seen their payment go up by more than 500 pounds a month assuming of course various things stay consistent on but ultimately there's going to be a lot of people in a lot of pain as these mortgages start to roll off and they have to go and make a new agreement with their Banks each country is different here but the end the result is out of the pandemic as we're making it up as we go and I certainly got that feeling from sintra uh we'll have the inflation data for you here in two hours just one minute lesson two hours that's going to be uh you know it's going to be important here John on the American economy yeah Roberta farooqi and the team at high frequency economics expecting a 3.1 percent year-over-year increase in headline CPI that would make it the lowest since March of 2021. I think I want to write this we predict a further deceleration by year end to around 2.5 percent and the annual change could hit the two percent Target done by early next year a stunning statement for the inflationist is the people worried about a sustained statistic at four percent or dare I say even higher we'll talk about Bank of America's important chart in the last 24 hours it shows those different options those different Choice sets we get a brief now on low inflation in America with rubili faruki chief U.S Economist with Carl Weinberg at high frequency economics that is a stunning statement I want to go to the core principal right now of your low inflation call which is the mathematics of real GDP plus inflation equals the animal spirit of the nation nominal GDP are you and Carl modeling that we will see a sub four and a half percent dare I say sub four percent nominal GDP soon good morning great to be with you on the show today um certainly within the range of possibilities uh you know we are looking for a very sharp deceleration in inflation not only today but going forward uh you know economic activity is set to slow if we look at our numbers if we look at what's happening with household spending and we do think that that is going to have an impact on company bottom lines which in turn will have an impact on what happens with hiring the labor market and uh you know what happens uh in terms of nominal growth you know what we what we really need to understand is um you know where the direction from here you know we've constantly um you know underestimated the resilience of this economy but we are seeing some you know moderation if you look at consumer spending it's been pretty much flat since February so I do think that the lagged effects of policy are finally catching up and that we are going to go to a sub one percent growth rate uh in the second half of the Year and that is as implications for you know demand for what companies are going to face and what what is going to happen in the labor markets revealing assume one idea here is that we had a medical event a pandemic and that gave us a sequence of stimuluses as Olivier Blanchard mentions we ended with the third I believe it was Biden's stimulus okay fine we're not going to have the excuse of a pandemic with a rubila faruki sub four percent nominal GDP are we out of optionality if we get down to that slow economy um you know it really depends right I mean we're looking at a slower economy we're not looking at a Contracting economy so you know with a recession is still not part of our base case so I do think that there is still you know uh positive momentum it's just that uh managing that uh positive momentum in terms of monetary policy I think that's where the challenge lies and uh you know we think that you know the FED is definitely determined to go a little bit further uh we think that they really should set it out from this point forward uh but uh you know July is pretty much a done deal it's what they do afterwards and I think the data on inflation especially headline inflation you know we have to remember that is their mandate you know we can talk about poor all we want but once they you know start moving convincingly towards that Target I think that uh that message has to be managed a bit more carefully but I do think that you know this economy has positive momentum we do think that we're going to avoid a recession it's just that we're watching the FED very carefully in terms of how far they push this so what are you looking for in terms of what's a policy error and what's the correct course of action you talked about inflation getting down to two percent which is the goal from the FED wouldn't that be a green light for them to move away from a restrictive policy uh no because you know what we're seeing uh you know we need to sort of keep rates at this level for inflation to continue to move down you know we can't sort of move to a less uh restrictive stance that is you know something that we the FED is struggling with what is the sufficiency restrictive stance we do think that they're there already they don't think they're there they're going to go a little bit further but to consistently bring inflation down to affect the labor market uh you know and to fact that demand side of the economy they do need to keep rates restricted for a little while next year the picture changes because as they hit that two percent Target then policy doesn't need to be as restrictive and we do have 100 basis points as easing uh you know built into our forecast you know a quarter point uh in each quarter and I think that's probably what the fed that's what the FED has and that's probably you know this is what we expect to see uh over the course uh the rest of the year where rates stay higher and then starting next year they start adjusting policy their policy it lower we've been talking throughout the morning to almost bringing up the narrative Whiplash that we've been getting every week seems to be a new narrative whether it's soft landing hard Landing no Landing here we are in soft landing and what a lot of people are saying and what frankly Equity markets are signaling is that we could get our growth and have it too right we can eat it's our cake and have it too in the sense that you do have inflation coming in you do have robust growth that continues can we normalize without the pain the Jay Powell talked extensively about last year at Jackson Hole you know that's the real Challenge and if you look at what the FED has done and managed to accomplish in you know with 500 basis points of typing minimal damage to the labor market no damage to the market and really growth that is continuing to outperform but inflation is coming down wage pressures are not accelerating so that I mean in terms of policy makers reviewed that is ideal you know that is something they should you know take comfort in but the issue is the economy has continued to outperform core inflation has been sticky we do think that component is also going to start easing as that housing the lagged effects of lower rents uh you know flow through and we're also seeing if you look at consumer spending we are seeing a deceleration in Services right we're seeing a deceleration in Food Services accommodations Recreation services roughly flat so we do think that that effect you know that spent up demand that we do think that that's going to also start easing in those components of for the Super Bowl the core Services X housing component and I think that's going to be an important development in the second half of the year and you know that's uh that's something that we're tracking I I look Ruby I it sort of the moment we're at we're going to get an inflation report we really don't know what it's going to be the Zeitgeist this morning is disinflation then do we just wait for the next data point how do you figure out a trend in inflation is it three months is it six months how do you do that um we are going data point to data point but we do think that you know like I said if you look at inflation if you look at where it is it will be in June compared to three months ago six months ago that's an important Improvement uh if we go look ahead you know our estimates suggest that this disinflation is going to continue it's going to accelerate the FED is going to get it's going to accelerate wow yep yeah and then well I mean if we think the destination is going to get to two percent from 3.1 you know headline CPI that that's going to be you know pretty substantial uh move but you know there are still a lot of uncertainties you know we're not looking for you know any geopolitical events that those could be you know a factor uh we hope not but obviously that is something that we're watching very carefully but really for the fed this is the ideal situation where they have raised so much they have not caused damage to the labor market we don't think they need to do that we think they need to be very patient from this point on and you know after they move in July let's say have a data changes that conversation rebela faruki of high frequency economics that data one hour and 50 minutes away thank you this from City this morning and an upgrade yesterday for JP Morgan over at Jeffrey's attack rate this morning to neutral this is what the likes of City have to say going into learning season on Friday JP Morgan is viewed as a high quality franchise with a strong management team and a balance sheet and in turn is rewarded with a premium valuation on that last point that premium valuation this is why they've downgraded the stock we believe the premium valuation has returned and we move to the sidelines at least the latest on JP Morgan is from City this morning especially notable considering the JP mortgage Shares are up 12.4 so far this year which sounds not bad but pretty pretty shabby when you take a look at some of the big Tech names right I mean it's not as if these have been flying that said it highlights the pressure you're going to feel on some of the banking sector uh starting on Friday even if the rest of earnings are much more just Gloom the same 90 days ago I mean where were we 90 days big going for the Regionals 90 days ago yeah okay away from that though but it's just in general earnings I I just think we're just reduxing where we were 90 days ago OMG the world's going to end I mean there's John Williams favorite Market Economist robita farooqi there is with John Williams of the New York fed right back to you know low R star I'm not sure Bram I said the World's Gonna Win not today anyway not this morning not yet hold on I've actually been reading a lot of notes about the earnings season and they've been upgrading their expectations one after the other saying that we might have seen the trough last quarter which is interesting it's not the world that's going to end kind of discussion City's take on things right now Point by point so three issues going into bank earnings they say Bank stocks have underperformed the broader Market due to the key issues there's three of them funding pressures impacting net interest income number two regulatory reform pressuring longer term return profiles and three credit quality concerns ahead of an economic downturn and on credit quality this is what they say credit quality will be a wild card as we are likely to see some one-off hits their view is we continue to believe this cycle will be muted but I think already going into Friday time that's going to be the focus for most people yeah I I the granularity of this Friday I think is tangible I I don't disagree with that at all can I switch gears here without a doubt do you need my permission I'm looking at the phone it's not looking for it drive it in you know the driver says look at your phone and the Bentley and and what have you got and I've never seen this John it was 98 degrees at 2 A.M in Phoenix John let me bring this let me translate this it's not high 30. Global no let me translate this to our Global audience Scenic Arizona on Saturday will be 48 degrees Centigrade John that's nuts I mean I you know I don't know what else to say but folks when you take Fahrenheit over to Centigrade you get a response because it's it's just highly unusual I mean there's no other way to put it there was an article actually in business week about when things get too hot for humans and part of the issue is also humidity and some of these places don't have the humidity when there is You Can't Sweat and cool down I find this all really interesting 93 in New York today yeah this is the whole it's just like you know where are we in the summer it's a beautiful thing is it you know being a Brit we complained about the weather didn't matter what it was doing raining bad Sunny bad always hot for like two weeks in the summer I refuse to get involved in that I refuse to get involved Futures positive on the s p the economy is upside down and backwards and we need to be aware that every data release you get could be leading us at the Stray because it's not clear yet are we doing the rebalancing or are we going down that was Claudia Sam there the former fed Economist working on the U.S economy we've been all over the place in her words upside down and backwards and we need to be aware that every day to release you could get could lead us a strike but we get another data release a little bit later on this morning and we haven't been through the estimates just yet so let's go through them right now headline which of course gets a lot of headlines year over year CPI looking for that to move down from four percent in our survey down to 3.1 percent on Wall Street a very very focused view a month over month course so you strip out food you strip out energy and others of you will strip out some other stuff too to tell whatever story you wanted to tell of course point four percent was the previous read month on month time looking for that to come down to 0.3 that's the estimate in our survey we take it out to one decimal point maybe you'll see two but I'm starting to see houses you know adult houses really trying to game this go up to three and four decimal points which I find absolutely ridiculous it breaks every scientific thing I learned in microbiology you just don't do that because it's not that accurate you know you don't the sum of our study doesn't warrant going to three or four digits I take your point everyone who comes on says maybe the bottles are broken and guess what our model said is it going to be uh you know 2.9673 so you should look at that so there is an element of Truth there I think the bottom line is right now there is a consensus hovering around this what would it take and where is the balance of risks for markets to really get disrupted in their results the United Kingdom does I mean they just clear Victory who's declaring Victory what are we doing now is this another dig at the UK 100 is it before or after we invented we're talking about the war are we talking about inflation of England was very responsible and he said it's too early to declare Victory well it's more mathematics we do the UK's in a delicate situation on the inflation huge yeah and so is that bank of England Governor as well I think they're doing better delicately than we are in explaining it to the audience we're going to four decimal points which is absurd you know it's all others to it have you noticed how Brent crude is uh crepeth towards 80 a barrel yeah quietly here that means it's time to talk to Stephen shark he's principal of a short group he writes a newsletter folks on eight pages constantly using three and four decimal points as well Steve just go to the blunt instrument which is oil finally gets a lift is there legs to it yeah absolutely I think that what is really sidelined the Bulls over the past six months was the waiting for the go moment with China demand and it never really quite showed up uh but we're certainly seeing a response now in the market with production we're now at the peak gasoline season of course July uh seasonings have been very strong at this point we've seen significant uh drawdowns in fact Supply cover uh the amount of days forward-looking in every Market except for propane so distillate fuel gasoline um and uh and so forth are all down lower lower on a year over year basis and on a five-year basis so Tom um as I've been saying since the beginning of the year uh coming in uh the bottom part of our range for oil WGI was that 70 Mark 75 for Brent uh of course you dipped below that but I still I've been saying all along I take a lot of confidence in our modeling right glad that every time you dip below 70 pop right back above it I mean for those of you on radio to be honest Mr shark is styling with the grizzled beard look he's not shaving until the Phillies win three games in a row after the All-Star break Steve shark what does the heat wave do to energy in America what is action I mean you are so into the Micro Data what does the heat doom and 100 a dome and 117 degrees in Phoenix do to our use of energy I think I brought Steve shark to silence there I didn't want to talk about Facebook so he left technical connection there the problem with it Stephen shortcut these short group will try and re-establish that it just that's the way Bramble was with us I mean you wouldn't just dude so that's probably a good thing you know maybe shark was style in there he had the Tupper Lakeland why are they taking a wide just get on two boxes [Laughter] shark there on the granularity of oil and to me it's a wild card we got this gift of low oil prices John within our early disinflation and do we get more disinflation here coming up how do you do that pushing against 80 or 82 Brent crude the data one hour and about 40 minutes away one hour and about 39 minutes away I don't watch much TV anymore TK don't watch that much sport either at the moment I've pulled back I've pulled back just a little bit I've pulled back a little bit but I will watch your new edition of what is this this is really sit down with sit down with the Red Socks they came to me it's John it's like if they came to you and said could you do the Chief Financial Officer of AC Milan go to Milan go to all those memories you have this was so cool I can't say enough about it uh the Red Sox behaved and this is the team the Fenway Sports Group that owns the Red Sox owns the Pittsburgh Penguins and John they have a small interest in a soccer club in Liverpool we talked a lot about Liverpool it's not just about the Red Sox but it was just absolutely great I fell right there on radio I'm walking up the stands expensive seats I almost fell right over my chin okay I've got to ask the question on behalf of Liverpool fans including Bob Michael over at Jacob and they still stand in the club no it didn't come up I was told that that the meeting would be over if I brought that they talked about they are adaptable and amendable at any point Sam Kennedy joins who runs a Red Sox operation in both same Kennedy and Julie swine art made very very clear they're hugely flexible there's very little McKinsey going on here there's very little strategic analysis Sports games adapt and adjust to the division do they adapt and adjust adapt and adjust it was yeah but this is really really uh special Julie's out of the Midwest she's a Cubs fan you know and they they brought her in she's like the chief adult for the Boston Red Sox everybody else is running around doing sports and you know mo Salah and Sidney Crosby and all the rest of it and she's like uh who's gonna pay for this right hello excuse me how you know how I could ticket prices go Tom the certain stadiums particularly the old ones and you mentioned AC Milan when I walk into the San Siro as a fan of lifelong fan it's just a feeling yeah and people might laugh about this because they might not be connected to it but I tell you what you're overcome by emotion you almost gets certain it's quite quite teary when the crowd really starts to make a noise can you talk to me about femway just how magical Fenway is because I've still never made it over the Fenway for again well you've got to go to Fenway the only equivalent America's Wrigley Field and the Cubs and Julie swine are in Chicago but what I would say is these people are dealing John Henry and those crew are dealing with the afterthought that they saved Fenway Park everything they do after their initial action when they took over from the Rocky family is secondary to the fact they wanted to tear down Fenway Park and and they said no this was huge in Boston at the time it transfixed the city is that settled now or do you think oh yeah to renovate and rejuvenate the stadium I don't have a name in front of me but I interviewed the architect that saved Fenway Park built Camden Yards very very well regarded but they basically John saved in 1912 Stadium from the inside out in real time while um while uh they kept playing baseball so you know they did it was great it was it was fun and you know the best part about it was was you know you get the Luxe box I'm in Seth magliners there and you got tickets now for the right side well I didn't get tickets but I got the Luxe boxes about you you walk in you walk in and it's km hot dogs and you know it's all laid out hot dogs in in lobster rolls and they're against Lager beer and it was just really tough very busting it's very Boston very cool looking forward to this Fenway Sports Group executive VP and CFO Jordy swinehart coming up at 9 30 Eastern time it's gonna be on YouTube too we're really pushing ourselves with some popcorn no I'm going to be asleep but but it's a great promo we'll wake you up is this why you killed the Stephen shark line is this why you yeah I killed that uh but but seriously folks this is going to be out on YouTube and Lisa John and I are making a huge effort on Bloomberg surveillance on YouTube because you've asked for it we're doing that with Seth macleaners uh Chief future officer love a TK promo watch it stay up tonight obviously great that worked out Dennis Kelly Morgan Stanley wealth management coming up very shortly big morning ahead CPI just around a corner 8 30 Eastern time so one hour and 35 minutes away then it's on to PPI tomorrow morning and from there we move on to Bank earnings JP Morgan Wells Fargo sit see and we ramp up through earnings season going through July and into August right now going into the Market opens several hours away Equity Futures just about positive 0.16 on the S P 500 in the bond market through five percent back below five percent you're two year right now 486 your tenure in America 3.95. it was just a touch lower the dollar Just a Touch weaker this is Bloomberg this is a year where the narrative changes every single week we need to be aware that every data release you get could be leading us astray I think you'd want to see lower inflation data and I think there's a good chance you're going to get it fundamentally you've got a labor market that still looks too tight the Market's starting to believe the FED about a second hike this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz inflation data in America just around a corner life from New York City this morning good morning good morning for our audience worldwide this is Bloomberg surveillance on TV and radio alongside Tom Keane and Lisa abramowitz I'm Jonathan Farrow your Equity Market showing some back-to-back ganks on the S P 500 with a lift a little one this morning up by 0.1 percent on the S P 500 the data Tom just around the corner I agree there's a little bit of a lift on Equity but I think the data and the anticipation of further maybe greater disinflation has adjusted the linkage here between equities bonds currencies Commodities you go over to a weaker dollar dxy under 102 in a surging Japanese Yen well under a 140 stronger uh Japanese Yen and coalesces around a bond market which signals how important 830 is fed officials say there's still more work to do president daily early this week sent a couple more rate hikes this year Lacey you just wondering if this data at 8 30 changes that conversation in any way shape or form or it changes the messaging where they want to have a hawkish message at a time where people are pricing out the potential for the FED to stay at this type of level for a longer period of time they're going to Signal a hawkish rhetoric are they going to follow through if you do see a deceleration of disinflation at the same time that people see growth continuing you're going to see the deceleration but what's interesting to me is I'm not going to I'm not going to get upset at fed officers that miss the Tipping Point because by definition they missed the Tipping Point and to pick on Mary Daley who's just the latest speaker I mean she's it's okay if she gets it wrong because she's you know they're being cautious and conservative and then at some point they'll go oops we got it wrong and down they come well there have been some Bank fatties in her District which got tons of it that's a separate Story three and a half months ago I'm not going to well I would say those stories were conflated three months ago we came out of March into April there was a feeling that some people thought that was it the feds down credit crunch is on its way three months later and some were talking about higher rates again I I believe if the FED any given fed there's a separation between the monetary analysis and some regulation and critically hear supervision I have to admit I've been appalled the last couple days at the lack of focus on being supervision this idea of going after Jamie dimon you mentioned this buy rating on JPMorgan as we go to earnings or going after Brian Moynihan and that's going to solve the banking crisis it's just baloney absolute baloney a downgrade sorry I figured there excuse me you know I'm busy I'm busy sending out plenty of my writings out there tell them if you're interested I'm not focused I'm sending out I'm sending out tweets on my my Red Sox special 9 30. you're done with three done with threads and I learned last night that Bill had to teach me how I actually learned how gram account they make it so hard to do it's it's a it's just a conspiracy so you were in conversation with the dogs last night oh yeah a few drinks after just doing research okay equities right now on the S P positive 0.2 percent think of the olives on the S P 500 I'm sure that's true yo what's lovely so we're down two basis points the 10-year 394 83. so if you're just joining us now it is CPA Wednesday and we are expecting that CPA report at 8 30 a.m Eastern core CPI will be key how much it's coming in not expected to come in as much as the headline number will it be enough will it change the conversation at a time when fed officials want to remain as hawkish as possible 10 a.m the Bank of Canada has been a leader so far this year it was one of the first do a hawkish pause earlier this year then they reversed their steps and raised rates they're expected to raise rates yet again to a peak of five percent it's supposed to be the final rate hike of the cycle very curious though at the 11 A.M news conference with Governor Tiff Macklin what they say going forward about what their threshold is to know that they have achieved Victory as you know the British do evidently if you well I'm just following on to you know our fearless uh our fearless member over here and today a stream of fed speak it really is dramatic after yesterday's quiet oh yeah you're kidding me five Richmond fed president Tom Barkin at 8 30 a.m Minneapolis fed president Neil Kashkari joined by ECB Chief Economist Philip Lane at 9 45 a.m NEC director Leo Brainerd who also was former Fred chair she will be speaking around midday Atlanta fed president Rafael Bostick he has been the lone Dove I think this is really interesting he's the one saying I think we've done enough coming out not as much as Rafael Bostick he has been really the most extreme on that uh more than Google space wow that's what we've been hearing from him Goolsby has been more on the edge we need to see we need to see Rafael Bostick has been more definitive about perhaps remaining on hold that comes at 1pm just wait there's more Cleveland fed president Loretta Mester speaking around Dr Brainerd must get a first look at inflation like before she speak she's got to know do the others know what the numbers are before I mean kashgar is going to be damn I got to rip up nice look at my McKay Thai question to be honest with you ask Mike he's out in Rocky Mountains right have you seen that I caught her with the medley this week there he is nice cabin we're we're here like you know it's wood fire you know it's just beautiful love it oh he's getting geared up for Jackson Hole what am I doing here just just go and do that he's just who sings that this is this is John Denver's songs Mary Chapin Carpenter kills like John Denver kills it nice it's about a guy on Wall Street a British lad on Wall Street who's wasted on Park Avenue and the British lad on Wall Street would go I guess he'd rather be in Colorado nice I guess he'd rather work up we are live you know we're not the dogs either take a listen to this year today the s p up close to 16 the NASDAQ up more than 30 percent that's the NASDAQ Composite then take a listen to this line from from Morgan Stanley the bear Market's not done yet then Skelly head of Market researchers strategy at Morgan Stanley wealth management Dan gains like that and you guys are saying the bear Market's not done yet Dan tell us why sure John the market to date has been incredibly uh stronger and stronger than we had expected as you mentioned we are still in an environment where we think earnings are going to come under pressure as inflation and wage costs stay elevated and growth slows and let's face it the starting point in this cycle was stronger than we and many had expected given consumers and corporations took advantage of low rates to refi balance sheets in 20 and 21. given High fiscal spending and I think also given a high degree of pricing power and as you know our team has talked about the idea that and we're already seeing this in many of the lower quality areas of the market in a world where inflation and growth is slowing pricing is going to be difficult to maintain forever and so to be fair and into your question the part of the market that has not yet seen that that lapse in pricing is the high quality Mega cap space I I looked in Scully at the idea of a bull market coming out of October third week of October last year and there's all the silliness from the you know our childhood about an intermediate Trend in a bear Market or an intermediate Trend in a in a bull market are you people reaffirming a bear Market or are you reaffirming an intermediate bear Market Trend within a bull market which way is it so so more of the latter Tom and you know Mike Wilson has talked about this idea that he first um released or he first published on two years ago about a cyclical bear within a structural uptrend and the cyclical bear had two phases fire which was the idea that valuations had to adjust to higher rates in the fed and that played out to a t last year and ice and again going back to the ice part the ice has taken longer to to manifest because the stronger starting point of the economy stronger starting point of the consumer and again at the mega cap level higher pricing than we had anticipated you're seeing pricing deteriorate for like the bottom 400 companies in the index you're just not seeing it as aggressively just yet in the top 100 and I guess the last point I would make is given where values have gone it's difficult for us to Chase or change the view at the moment at 20 times earnings if you've gotten to the point where earnings have bottomed or flattened out which is what the market is essentially saying you you know typically when you look back 40 or 50 years the market the market multiple does expand in advance of that and this time around it's been 20 times and over 40 50 years the average is 20 times as well so you really need to see the hockey stick into 24 to get the market to go further from now right 245 is the expectation in 2024 and we just think that's going to be difficult to come by is it getting harder Dan to be cautious you know it certainly is we're certainly being tested and that's happened over Cycles before I think that the the idea that the market has said this is a good part the FED is eventually maybe it has one left in July as the market is priced and and maybe there's more to go as the FED has said as you know there's a discrepancy there but when you look at history there's five instances of a good pause and they're 85 95 9706 and 18. those were scenarios where the market said that the FED pausing means we've done enough to fight inflation at the time but when you look at the macro data at those instances there was the complete inverse of today when you look at the macro data of those instances the yield curve was positively sloping credit conditions were loosening inflation was much lower than today unemployment much higher and leading economic indicators were accelerating not decelerating so you're right it continues to be difficult to stick to this story uh but all the history and all the rest now that we're seeing does support it what would it take then to change the story to change the thesis to actually become more constructive at a time when the economy does seem to have ongoing strength that has defied all expectations well the economy is glowing if you look at the path of real GDP Lisa last year three and a half to two and a half now closer to one a half or two jobless claims are up thirty percent off the lows of the last six months so you would need to see the economy re-accelerate and see that 245 earnings pictures being more probable next year number one and then amid that you know a lot of people think we're going to have this um re-acceleration or this you know ramp up with inflation also going to two percent so that's the disconnect that we still find to be somewhat uh anomalous and somewhat contradictory and here's the thing a lot of levers have been pulled leased as you know to go from nine percent peak in June of 22 to 5 Core today and that includes money supply collapsing and going negative after it exploded during coveted stimulus China reopening in June of 22 and goods pricing and Supply chains improving and oil and gas 30 percent lower than its pre it's Ukraine Invasion highs so think about that that's nine to five I'm not sure and the firm is not sure that there aren't other issues out there that are more structurally related to inflation being stickier I.E shortages in labor and shortages in housing last thing I'll say is related to this idea of the market having its cake and eating it too we and many have said housing residential housing has bottomed so think about the potential inflationary uh effects of that from A first order and second order effect so again we think it's going to be difficult to get to that higher earnings level and if we're wrong about that we also think it's going to be difficult at the same time to not see rates and inflation impede multiples at 20 times it's been difficult to be bearish this year that's for sure Dan appreciate your Insight thank you sir Dan Skelly of Morgan Stanley wealth management very upfront honest transparent about what a difficult year they've had so far at least until I'm six months through it we're not through it yet I mean I think what Mike Wilson would say is you know it's been a challenge six months but it can reverse on a dime if you get the kind of scenario that they've laid out most of strategy John is scenario analysis where there's probabilities and you know you get out on the wrong side of it way out on the wrong side of it and that's where you get into trouble but yeah and to be fair to Mike Wilson I think he's been very probabilistic about it he hasn't said it's not the sophomore exertitude if you want to just tune and get to the program welcome to the program it could be features right now on the S P positive 0.2 percent coming up very shortly David Kelly at JPMorgan Asset Management we'll catch up with him in the next hour as we count you down to the CPI data point Tom one hour 17 minutes away huge huge deal and David Kelly is one of two people I will ascribe to the idea are you ready for sub 100 000 or even a negative non-farmony report yeah I think he would say in December we can ask him but we're not used we're not ready for two percent inflation we're not ready for the Kelly non-farm payrolls uh scenario will we get a two-handle today on Headline CPI most people are looking for something with a three coming up shortly 7 30 Eastern Time Gene to know South Columbia threat needle will catch up with him coming up in about 16 minutes thank you it is a merits-based process and we see the enthusiasm and the intensity with which Ukraine is reforming and thus advancing rapidly towards EU membership so I'm very confident that if they keep on going keeping this speed that success will be there soon as the Wonderland and the European commission president on a situation with Ukraine the potential for EU membership we'll head to Lithuania in just a moment we'll head to Mike McKee a little bit later on today as well we've got to talk about the economic data which drops in about one hour and 12 minutes time going into all of that the scores look like this this Wednesday morning positive point two percent on the S P two-day winning streak on the S P could well Become Three the fate of that might be decided early on by the inflation report just around the corner that two-day winning streak followed a three-day losing streak on the s p 500. in the bond market yields a little bit lower we pull back we're down two basis points on a 10-year 395 on a two-year time let's call it down about a basis point or two to four eighty six but I think a real adjustment here one hour away from this I think it's a real statement after the quiet of Monday and Tuesday John yeah snooze you would say I would say Tuesday Tuesday big time even less so Tuesday was a snooze Fest it was a nice summer well we're not talking about foreign policy we're talking about markets and economic data yeah yeah you know it was nice we should rest relax I'm watching Futures here they got a little bit of a list 100 agree thank you thank you well it's okay first time today we agree we agree that it's good to talk in Lithuania to Emery Horton our chief Washington correspondent also Maria todayo our chief Europe correspondent Maria let me start with you and thank you so much for letting me know that the giant of Czech literature Milan kundra uh has died at 94 years old everyone says he should have got a Nobel prize for the unbearable lightness of being in the rest of it he personifies a Europe of another time and place of the fractious dissidents along the frontier has that Frontier been shattered his Putin shattered the frontier that was the distance from the Czech Republic to Germany Tom that is the hardest toughest question you've ever asked me because I don't think I would even qualify to talk about the genius this man is and his literary Legacy obviously that he leaves behind uh but to some extent You could argue there is a parallel here and there's this idea of what perspective at the time he talked about Central Europe and the influence if he described and talked about a Bolshevik civilization and uh Soviet influence on the region here it's about Ukraine and it's about that shift from the Soviet sphere to now becoming the west and the message from NATO is that you're not formally in it but you're moving closer then we get into the Linguistics here but for the ukrainians that perspective is crucial that signal and this is why president zelinski was infuriated yesterday the tone changed but for them this idea of perspective and where you belong in the world really matters and that speaks to the genius of Mr kundera too I mean I mean Emory Hardin this is really Jermaine you know not so much on Milan kadera but you know my childhood was Tito in Yugoslavia and the Dynamics across Eastern Europe that seems to be ancient news and shattered Emory Horton how does a white what does the White House think has replaced those relationships on the Eastern Front I think they're replacing those relationships what you've seen is more of these uh former Soviet Union countries part of NATO or wanting to become NATO like Ukraine that is the biggest discussion here today we just heard from zielinski speaking but what you are seeing it is a more fortified united front in Eastern Europe now you have this really uninterrupted NATO force from the baltics to the Black Sea and that is obviously a concern for the Russians and something that they do not want to see and especially when you're hearing today zelenski having this reconciliation if you will compared to his scolding yesterday on Twitter when it comes to the West he's saying that of course we know that some are anxious and worried to come out and talk about the fact that Ukraine at this moment could be a part of NATO given there's a war there he said for the first time today he does feel like he has given that recognition that one day it would happen what we've seen overall from this NATO meeting are a couple of different threads whether it's Ukraine on one and whether these it's the internacine European debates on the other and then there's a question of turkey and how it suddenly has entered into the front of everyone's mind Maria from your Vantage Point why is it that turkey's erdogan seems more amenable to a a more friendly relationship with the West and we don't even know if he actually wants a more friendly relationship because ultimately a lot of this when it comes to Sweden for the Turks is transactional we know they won the planes and the Americans they say they're not connected but the Turks say there is an implicit connection there I think also when you talk about erdogan we say what does President erdog want what does he mean we also should always focus on the idea that he speaks to a very different audience and he speaks to a very multi-dimensional audience he talks to obviously the Turkish people and it's been great to dominate the news cycle he can present himself not just as the election winner but really as a big International player he is right there with President Biden he's one of the strongest voices here represented he was the star of the show he also talks to the Muslim world he was very specific about the idea of faith and burning in the Quran and incidents that he said should not happen in Sweden that is also a public that he speaks to and then you have the investment Community we have to wait and see what the Central Bank does but obviously we know this is a country that needs now and investment that needs International investors and maybe there's something for him on that too but I think again it is too early to tell whether this is a transactional shift in NATO or there's something that is medium turn that is changing in the country and Marie fast forward to next week how is President Biden going to spin this and how is he going to talk about what actually transpired in NATO to generate some perhaps greater popularity well I think you're going to see that on display this evening the president local time this evening your afternoon in the United States the president's going to be giving what the White House is billing as a major address and I think it's twofold one is that they want to continue to make sure that they are holding this consensus within the NATO allies within Europe as obviously Putin still has his aggression in Ukraine and also making sure they're showing their support for Ukraine but at the same time they want to show to the American public that what they View and their argument is that Biden's foreign policy has been successful there's also many Republicans who would agree that there have been success successful on this trip in itself you not only have this consensus around Naval NATO they were able to get this wording where they all were able to agree about on the path forward for Ukraine even though some wanted a little bit more of a emphatic direction for Kiev but they were able to expand NATO and I think then tomorrow it's going to become even more apparent that what this White House is trying to do when when you look to 2024 at the moment everyone would argue that this is going to be given the polls another matchup between Trump and Biden and what you're going to have tomorrow is an American president back in Helsinki but this time it's not to meet with Putin they're going there just to have a meeting with the Nordic countries with finland's President it is a victory tour for this President and I think what they're going to try to contrast is the last time a U.S president was there was when Trump was there and obviously we all remember his comments regarding Putin versus his own intelligence Services I've got 30 seconds left A lot's happened in the last 24 hours and Marie yet some people their takeaway of the last 24 hours might be that the president didn't attend dinner does this Administration care about Optics [Music] well I think they care less about Optics than say the former Administration it is not well unlikely it is pretty much a status quo that Biden does Skip dinners um they view that what they're doing on the ground is substantive and some of this optic stuff not exactly necessary they're really excited about the major speech he has to give today potentially that was some of the prep work he did last night he also was dealing with floods that are happening in the Northeast in Vermont but is not unusual that Biden just decides to skip dinners now will that hurt them in the polls it's leading the Drudge Report today it's obviously on top of mind the headlines of the New York Post potentially the messaging will be misconstrued for what they want to see show as a major achievement here in villainous but really American people are just seeing that he missed the meal amh Maria today thank you politics is amazing isn't it it's all these crazy things important sometimes controversial and then the focus shifts to who went to the dinner in the evening social media [Music] CPI data 60 minutes away now going into it the scores look like this on Wednesday Equity Futures positive by 0.25 on the S P up by 0.3 on the NASDAQ kind of Russell up by 0.6 that's the story at the index level promos got some individual stocks for you in just a moment in the bond market two-year 10-year 30-year let's slice up the yield curve to year 486 10-year 395 yields coming in just a basis point or so we've been retreating on a two-year yield going into inflation ever since we got that big upside Monster surprise out of the ADP report we printed a new cycle high on a two year of 511 we're all the way back down to about 485 came to close to I think 482 in the last couple of days in the FX Market Billy dollar weakness emerging developing the last few sessions Tom 110 20 on the Euro against the dollar and combined with the yellow and I'm watching Euro yen to see which way the dynamic is on Euro and yen is a tendency here to Stronger yen versus Euro in the last couple days but you know there's a whole stood of this and I'm going to go to uh dollar Mexico I I can't when I look at the screen my eyes Miss in the Mexican peso because it's 17.02 not yet printing 16.9 X John that's unimaginable to see a Mexican peso that's strong five days of US dollar weakness longest streak gone back to March brahmouth that just developing over the last week or so yeah it's been a really interesting Trend in the dollar sphere what I'm looking at in the single names on one hand you could say Tom is not totally wrong it's a little bit snoozy Cody perhaps the biggest mover because of Kim Kardashian it's gaining nearly four percent after the Wall Street Journal reported that she is in talks to buy back the minority stake of her beauty company that she had sold to Cody three years ago this one was according to people familiar with the matter okay that's an idiosyncratic story Rivia and fascinating because it's up 85 percent since June 26th it gains again ahead of the open here up more than one percent and I put snap here because I was looking for an example of the memification of the market of the meme stocks and those Shares are included in the meme index that some people look at and they're up nearly two percent in pre-market trading meme stocks are up about 10 percent over three days even as you have Consumer Staples down and I'm looking right now at how much you've seen that increase how do we then parlay that into a market call at a time when people previously viewed this across and now suddenly is it different I'm really glad you're bringing this up because it isn't like everything else getting out front of what's perceived to be a disinflationary shock I remember when some five percent rights would kill all of that Lisa do you remember that yeah I do and that's not causing it anymore and that's the interesting thing you've seen this rally in tremendous vacuum of any sense of easing and so is this real is this all of a sudden that you know no it's never real it's the markets the markets you know they're just expecting out and there's been a sharp shifts I just you know with the death of Milan kundera you know I'm just very you know sensitive you're feeling the unbearable lightness of being yeah you know that yeah you know I'm unbearable we know that can you get me off the wide shot that's what's going on this morning TK CPI one hour away G2 news South Columbia thread needle in the second half of the year we think there is a strong case to be made that inflation will continue to fall and end the year below the fed's forecast this should help reduce interest rate volatility and be supportive of bond prices Tom G tonutso Columbia thread needle and joins us right now thrilled that he could give us a brief here this morning it seems to be in the ERA this morning so how rapidly does this occur like if I look at the Bloomberg Total return index and I see price up yield down is the Columbia thread needle Vision six weeks eight weeks eight quarters which is it yeah I think we're taking a little bit longer term view here Tom and if you look for the next six months through the end of the year I think there's a reasonable case that as inflation continues to ratchet lower that we get the FED to have the confidence in that pause and that can really push bond prices higher and I think you know you're looking at Returns on the Bloomberg aggregate Index this year that are pretty paltry a little bit over one percent and we could see that in the three to five percent range as we get into the fourth quarter I don't think that's a stretch I think we have to appreciate is the fact that the FED now in their summary of economic projections has an inflation forecast that is beatable and inflation could surprise to the low side that'll be very supportive I mean on a duration basis is the is the market is long only buy side pension plans more conservative big money are they under duration right now is there a huge almost short cover to be had as everybody standers out to the Tunisia View I think there is room for that I think a trend over the last 18 months has been don't fight the fed the fed's hiking they continue to hike and active managers have been underweight duration or positioned in shorter maturities and that's understandable because frankly in the bottom market right now our biggest competitor is cash or CDs or deposits because short-term interest rates are high but when they stop going up and they're seeing there there's a more visible propensity for longer term yields to go lower I think there's a tremendous opportunity for long-term yields to go lower and really see that price appreciation and fixed income there's attention this morning Gene and it's been here for a couple of weeks now can we see some sort of rally in credit in stocks if you do get this ongoing disinflation if you do get a reversion to an inflation rate even below the fed's targets as you've been basically pointing out and expecting do you seek credit as holding up and doing well or getting punished because of weakness that would have to accompany that type of move I think there's a distinction here between the stronger balance sheets and and sort of the weaker hands that maybe can't withstand um or more rapid growth environment I look at the investment grade universe and I I'd say very confidently absolutely they can withstand that slower growth slower inflation environment we have cash flow and ebitda levels that are stronger than they were pre-covered we have the lowest leverage levels of the investment grade Market that we've seen in over five years so absolutely on the investment grade side particularly with the the I would say the encouraging degree to which the large cap banks have come through the regional banking malaise of the last two quarters on the high yield side I'd say it's it's a little more divided where you know the higher quality companies we think can do well they continue to maintain strong Market positioning but those Triple C rated companies it's very likely that defaults start to increase that's very common at the end of a tightening cycle after Financial conditions have increased and in a slower growth environment that's where they're going to struggle so even though we do a potentially have a more likely soft Landing type of scenario you see still still see some risk for the lower rated credit what do you say to people like Torsten slog who still does think that recession is the base case that soft Landing seems highly unlikely who said this morning that usually the monetary policy transmission takes 12 to 18 months and we're just not there yet I I think there is a long and variable lag to tightening of financial conditions into the real economy but it's hard to argue that the first half of 2023 has been a soft Landing that's exactly what we've seen we've seen low and positive growth the unemployment rate still starts with a three and so the economy is in pretty good shape even though growth is slow but inflation has been coming down I would look at other economies around the world and say he's absolutely right and we are seeing much more risk of a hard Landing particularly in areas like China and also in Europe and so those are areas we are concerned about and we have to be very careful on those Regional differences right now your research note and this is you know really technical you talk about mortgage-backed Securities being the place to be how does the challenges of commercial real estate fold into our listeners and viewers trying to just buy yield does commercial real estate is it Germain to your analysis I think we have to split those things into Tom in particular what we think are attractive are residential mortgage-backed Securities those guaranteed by government agencies so the credit risks associated with commercial real estate are really not embedded in those Securities what you have there is the benefit of higher yields coming from the fed that's been raising rates and higher interest rate volatility over the last year or so so that gets you to a point where those residential mortgage-backed Securities are yielding or have a credit spread on par with what we see in corporate bonds now on the commercial side we are very conservative in that area particularly on the office sector we think there's more pain to go and some of our analysis suggests that you know fundamental valuations of these commercial properties need to come down by 30 percent or more in order to be at an equilibrium level so we remain cautious on the office sector within commercial real estate but would would definitely differentiate where we see strength and opportunity on the residential side Tom writes in from the left side of the desk and he asks what do you do on a really slow uh summer right the idea that we do have a sort of lull in real news we are going to get something starting on Friday with respect to earnings we do get CPI but do you take a breather do that is everyone just sort of try to lobby for working from home and take time off I think a lull is okay Lisa in the bond market yields are a lot higher now and I look at high quality yields in the five percent area high quality high yield you can earn a nine percent yield on you know zero to five year single B assets Double B assets I think a lull is okay and we don't need price appreciation we can earn our income and those are equity-like returns when I'm not sure how much more the equity Market has to go here Gene it's been great is is the understanding of Columbia thread needle John thread needle of course you know you know that bank of England Colombia is a venerable Boston firm and Ted Truscott who put all this together for Ameriprise he has the best seats at Fenway I mean you know franchise Ted Truscott is a Middlebury lab and he pulled strings this is ages ago trust God for the Yahoo family Tom's about to promote a show that he's done that as tonight that he's not going to watch because he's going to sleep but he wants everyone asked to watch it but it's at 9 30 tonight on television and radio I'm not sure what they're doing but you know the fact of the matter is Ted Truscott out of Middlebury has the best damn seats at Fenway if anybody in town I mean in Russia in the UK I think so yeah on YouTube we have people you know thank you for watching on YouTube John and I and Lisa are working every day on our YouTube franchise nice as they say do you want another Primo or you're done no no Jane thank you Jane to know so a Columbia thread note 9 30 Eastern Time Judy swinehart right Julie swinehart is amazing she's in real estate CFO like she's total math nerd and they call her up she goes who's the Red Sox she didn't know she didn't know what Liverpool was they're on the Penguins too hockey how nice Sydney Sydney I've been distracted by reading about milk in Wisconsin really really good yeah it's really interesting Milwaukee Metropolitan sewerage District wastewater treatment system handling huge volumes of milk yeah six thousand to seven thousand gallons 50 Traders a day 50 Traders a day brammo just gun down the train occasionally this has become a real problem when they have an oversupply and then it's the physicality of a good at a time where that matters how do you store it what do you do with it where's the Wisconsin of England the west coast is there like a place where there's just I don't think there is a sheep if Wisconsin was a state it would be the number four cheese producer on the planet ninety percent of that milk goes into cheese last 10 minutes have been fascinating they've got no idea what Gene tunuso said I don't know what Gene said with me you're looking at somebody my mother was so bad I thought Velveeta was Gourmet stay tuned for special coverage of of cheese and you are just tuning into the program wow can make any Futures up by 0.3 you want to talk more about cheese are we we're done I think yeah I can tell you what's coming up Mondelez if they scroll I could tell you what that there it is Simon thank you for that anytime I want the prompter just for the tease there we go Bill Dudley former New York fed president it's an important conversation about 30 minutes going into CPI that'll be cool and the well the disinflation will push against that you know I mean the disinflationary trundle push against the deadly View and milk what does milk fit into this you'll have to ask the gentleman from Berkeley what's sick is the bill Dudley will have an answer he's got somebody to say grandma have you ever had cheese curds and you know they've got cheese hats in Wisconsin okay well this is your home state I've got a lot of family in Wisconsin and you know you're way more Wisconsin than you are New York you mean because I seem like farm girl and you guys yeah totally joke about that yeah all the time and just well ton more than I do yeah yeah but there's an element of truth to it it's it's fascinating because it's the economics of the physicality of goods versus the asset inflation that we talk about every day and physicality of goods is complicated smart push it in a segment on this like they used to are they doing what's something are they drinking milk like they used to personally I'm an almond milk kind of guy really are you just sensitive enough common milk I like I like this not in my coffee now you can have it unsweeted you can have unsweetened unsweetened down really yeah yeah yeah yeah shakes and stuff oh it's a base no you know it tastes nice they're not bad you can have it with oatmeal and or porridge as we might say back home you can you can have them it's so good inflation data coming up inflation itself is getting close to bottoming this cycle we think it's going to be very difficult for the FED to get inflation below three percent if the inflation rate bottoms to three and starts drifting higher the fed's going to find this unacceptable and that two rate hikes that we have priced in for the rest of the year will happen if not three great guests under the last week some to tourists they have strategus chimpyanka of Bianco research on the outlook for inflation as the Outlook the actual data drops in about 44 minutes time going into it the scores look like this on the S P 500. run the green hair slightly positive by 0.2 percent on the S P there's a lift across the s p the NASDAQ and a Russell for futures going into the oven and bound a couple of hours away in a bond market yields backtracking down about three basis points on a 10-year to 394.23 TK not talking about the market in the commercial break TK talking about Barbie and the movie Barbie the movie we'll get I'll do it with Paul Sweeney in the nine o'clock hour he's expert at this but I have never seen a summer hype on a combination of Barbie you know Barbie Mattel pink and all that and something as serious as Oppenheimer and the development of the atomic bomb it's bizarre my old producer Now features writer for Bloomberg Sarah Rappaport calls it boppenheimer Bob and Heimer apparently is the phrase because a lot of people are going to watch Barbie and then they're going to watch Oppenheimer at the same time can I just say that we've gotten from milk storage from Wisconsin why not happy Wednesday Mission Impossible Saturday that's what I'll be watching there you go oh that come out Saturday that's come out this week that's very yeah you've never watched that have you well you haven't watched that two or one so I did watching somebody 100 TK doesn't watch movies no I don't hasn't watched Gladiator what else haven't you watched there was some big big never seen Top Gun never seen Top Gun that's true what about Barbie are you gonna see it honestly no are you kidding I don't have the time but you know I'm fair I mean will Fair I'd go see anything I did see Talladega Nights and that was spectacular the dinner scene at Talladega Nights was lights out how about an Anchorman nope haven't seen it ow you know okay Frozen somebody didn't make it how many times you watch Frozen Frozen I've seen 400 times Jeremy stretch here to save us right now as we go through your movie review Jeremy stretches in London survived morning president with King uh Charles Jeremy serious question here to this raging debate of inflation to a pro like you what does the U.S dollar say about the disinflationary story do you look at your Bloomberg and say okay the FX markets say this about where inflation's going can you do that well I don't know whether you can do that specifically Tom but I think what you can say in terms of today's reading is that the market seemingly is very much in the of the opinion but we are going to see a benign CPI print in terms of the most recent data both in terms of headline and core but I guess the question is not just about where we go in terms of this Absolute Data point but I think in terms of one of your other Talking Heads uh the base effects that which are so uh so beneficial for the headline CPI print today which proves even much more challenging in the second half of the year and I think that's going to be the difficulty that the FED is going to find is that those base effects will preclude inflation on a headline basis falling quite so dramatically in the second half and that's probably going to keep the pressure on the FED in terms of not only this meeting but also the next one as well uh you know John I'm too rattled here as well Jeremy you've got to learn this there's only one talking that's me I'm the talking head here within Bloomberg surveillance I mean I'm reminded daily by brammo and Pharaoh that I am the talking head [Laughter] we've been talking all morning about the persistent weakness uh that we've seen in the dollar and how that really does come to an expectation that we're going to have some plateauing and some real disinflation heading into your end where is the positioning around that trade does that confirm the likelihood of a continuation of this weakness well I think when you're looking at dislocation in markets in terms of positioning obviously one of the big uh dislocations is very much in terms of dollar Yen so we have seen positioning really looking stretched in terms of real money positions back to extremes that we haven't seen since 2018 so we're seeing some degree of uh relocation or reorientation of those uh Yen short positions so I think it is going to be the case that I think there is still story or presumption of a weaker dollar into the end of the year but I think it's still a debatable one whether we should necessarily just extrapolate this move lower than we've seen in the course of the last few days through the summer period because as I said I think there is still a residual risk that we do see uh more than one third hike from here we that's the IBC looking for two and including uh both July and September and September is not really priced in any meaningful form and so if the data starts to suggest that that is a mispricing then I think uh you know some of that uh positioning dynamic in terms of the dollar will kill still keep the Greenback relatively firm across the summer and it's perhaps a Q4 story when we will see a more obvious weakening in terms of the US the US currency 38 minutes to go to that CPI report Jeremy based on Market positioning based on what we have seen what's the bigger risk right now an upside or a downside surprise to FXR markets in terms of the CPI report in the U.S I think because every because everybody is going in with the presumption that CPI is going to be very benign when you look to you know look at things like those used car indices which are suggesting a big reduction then I think a CPI print in line or even a tick or so higher would be a much greater surprise and much more painful so obviously you touched upon the retreat that we've seen in U.S yields from the extremes so after ADP last week so I think of the context of an inline or a tick or higher in terms of CPI I think that will be the far greatest surprise for the market today so I think it it could well be a classic case of uh you know buy the rumor and sell the fact where's the best speculation right now Jeremy stretch seriously which pairing offers the best big figure opportunity well I think in the short term it is very much the case of looking for Yen positioning I think there is still a good case to be made that as we move towards the boj towards the end of the month uh there is scope for further adjustment there I think the other currency the particular note of late is uh somewhere like the Norwegian Corona where not only are you getting the oil inspired influence but of course you also have that CPI print earlier in the week so I think uh the Noki also is is providing some scope and I think in terms of Sterling there's a little bit of interest because of course we have seen very good Sterling performance over the course of the last three months and I think Sterling will remain supported until the cracks in the real economy start to be seen those cracks are still very small fissures at the moment so I think it's still the case and the opportunity still for some degree of Sterling positioning as well but I think over time it may well be that crosses like Sterling Yen could become particularly interesting Jerry stretch of crvc thank you you two can't keep it together throws in a thought listen to this I mean I can't Are you seriously is actually fascinating for how Mattel is broadening its image and business Concepts what are you talking about how many Barbies did you have as a kid oh I didn't have hobbies Barbies no it was not and honestly what does that mean what does that mean Mattel is a toy company manufacturer okay all of a sudden now they're a Content producer and Barbie is IP and that's a fascinating transition to create a new image I think this is interesting all right that's the cheese dude Wednesday here 35 minutes to the inflation hey report can I do a security job you're way more up to speed on and then I am this is exciting it's a kid literally out of nowhere picked up by Georgia Tech who has dazzled them in England this is uh Mr Eubanks and maybe it's somewhat akin to what emiraticano did I'm not sure but this guy's in the quarterfinals tell me about this guy John he's like the real deal six seven I think 27 years old Tom and I would say it's a late bloomer compared to the likes of say alcaraz who's playing also in a quarterfinal today and he's in a quarter final with Danny Medvedev over at Wimbledon today Thomas good luck to him I think the only U.S singles L player left in the draw yeah and it's hugely rare to be this unheralded in the draw right what are your thoughts on this you got a shot oh you want me to give my thoughts on who's going to win well Lisa and I think it's police is trying you've got on the one side of the draw the Spaniard alcaraz on the other side of the drawer Novak and I don't think anyone else has got a look in there you go see that's right first here that's my take I mean I think most people would be on on board with that view I'm just doing the tennis up I hope we get some upsets upsets but you know unlikely I made some ice cream over the weekend and you did some strawberries not ice cream gelato no frozen yogurt actually with almond milk we build an update for Bloomberg TV radio from Tennis Channel I'm Johnny Ray Diaz Alina's vidalina is back the Ukrainian took out world number one IGA schwantek in three sets to reach the semis at the all England club for a second time the victory was fidelina's fourth win over a major champion in London and just her second Grand Slam Tournament since the birth of her daughter Skye last year and don't forget you can watch all the action daily at 5 PM Eastern on Tennis Channel I'm Johnny Ray Diaz this is a year where the narrative changes every single week we need to be aware that every data release you get could be leading us astray I think you'd want to see lower inflation data and I think there's a good chance you're going to get it fundamentally you've got a labor market that still looks too tight the Market's starting to believe the FED about a second hike this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz good morning everyone Jonathan Farrell Lisa Ramos and time keen on radio and television CPI Wednesday and the markets are on the Move Johnson's July 6 two days after the celebration of the colonies we have seen a disinflation in the two-year yield down right now to 4.84 two weeks away from a Fed decision fed hike in July folk on conclusion bemozi and Lincoln Deutsche Banks James Reid pretty much now done how does this change the conversation beyond that July meeting that day to Tom 29 minutes away if we get the disinflationary tone that you're seeing everything from Matt Bessler's work for Bloomberg this morning Jim Mac and James McIntosh over at the Wall Street Journal if you get that disinflationary Trend in place something Goldman Sachs wrote up yesterday as well it changes it changes everything base effects kick in we're looking for a move from four percent to 3.1 percent year-over-year headline on Wall Street Thomas You're Now focused on month over month that estimate into the print in our survey 0.3 0.3 percent down from 0.4 and Lisa what's fascinating to me and this is the Wall Street Journal article this morning as they really pick on real estate as being bad math within the American inflation statistic as well they're not having this conversation in Europe in Europe they use a different measurement that if used in the U.S would make inflation substantially lower yeah I put that out on Twitter on other media as well threads which I have not avoided as of yet and the responses are interesting if you measure another way it's much higher this is a question of measurement and it speaks the ambiguity of the moment or we don't know where it's going either way my question is does this inflation justify a surge in meme stocks a surgeon riskier assets and suddenly a reversion to a frothier to give them the data John we're seeing that now in foreign exchange weaker dollar we're seeing it critically in the bond market I've got West Texas rounded up excuse me Brent crude rounded up to 80 a barrel but John look at equities like yesterday they're just trying to go higher can't get there the vix 14.64 two-day winning streak could become three on the s p with positive 0.3 percent Tom mentioned that dollar weakness five days of it now five days of dollar weakness if you're looking at dxy the dollar Index with that heavy weighting into the Euro the Euro reclaiming 110 against the dollar Tom in the last few days it's good right sure this is an important conversation we really want to take as much time as we can this morning with David Kelly Chief Global strategist at JPMorgan asset management and what Dr Kelly has done folks is say there is a point where non-farm payrolls will crack David Kelly fold in your guesstimates of the inflation view of America with your stunning call that we will see non-farm payrolls plunge here that the labor market will crack well the labor market will eventually crack I have to say that the momentum that we saw in the second quarter in GDP has put that out a little bit I mean I think it's more likely to be you know very late in the year early next year when we see a decline in payrolls but I think the much more important point is we're seeing disinflation everywhere uh we're really seeing deceleration and disinflation in the U.S economy uh the numbers that today I think will get about two tenths of percent on the overall CPI about a 3.2 percent year over year looking at this in a seasonally adjusted basis which I think is the right way to look at this but but the key thing is thereafter I know the base effects go away but I don't really see inflation picking up from three percent I think it stays at about three percent on Headline CPI through December and then begins to fall all the way through 2024 down to two percent uh by the end of the year as those shelter that mismeasured housing issue uh begins to flip the other way so overall I see I see plenty of Science and inflation just fading away here um and the frustration here is seeing the Federal Reserve still Titan to fight a battle they've already won how rapidly will they turn I mean I've been very uh I think fair to them David it's an Institutional effort they're allowed to be late but when they quote unquote turn on a dime how rapidly does that affect our world well I think the the really interesting part here is at some stage we will get that negative payroll read at some stage it'll be a real fear of actual recession here at that point the Federal Reserve stops this quantitative tightening and cuts rates but the problem is the First Rate cut they do is going to make the situation worse monetary policy is at its most restrictive and oppressive when rates are high and you start to cut them because then everybody's waiting for the low rate I mean nobody's going to take out a mortgage when the FED Cuts 25 basis points because you know those rates are going lower and people are going to be scared that if they're just scared they're headed for recession so what I think the Federal Reserve is miscalculating here is the idea that they're going to be able to gradually bring down rates from a too high level in 24 and 25. I think that when they start cutting they're going to have to cut pretty pretty aggressively here so do you think that it's time to get more cautious at a time when everybody else is feeling pretty sanguine about the economy and the likelihood of a soft Landing well we're not going to have a self-landing forever I mean it's uh there is no instance in the last 70 years of having the unemployment rate below four percent and then just move forward for like three or four years without a recession um if you're at full employment with a slow growing labor force it's kind of like riding a bicycle really slowly any any wind can knock you over and so I think at the moment the odds are we won't have an official recession start in the in this year uh but I think as you go into 2024 the odds of recession increase I don't think it's a big recession I don't think it's really necessarily bad for markets I don't even know if you get a huge Market correction out of this but I think it will take the last sort of whiff of inflation out of the economy I think it'll change the federal reserve's mind so until then do you just buy meme stocks no you don't because well at some stage we have volatility and you you know I I don't know this uh you know I'm not saying that a recession will necessarily cause or a mild recession will cause a big Market correction but we'll have some Market correction at some stage for some reason and the thing is that the stuff that is not actually worth anything uh that zooms on low interest rates or or faulting markers that's the stuff that's most vulnerable when everybody gets scared at some stage everyone will get scared and the the you know stuff with real valuation will do okay and stuff that's just nonsense will it will take it in the chin and that's why I would not overload on mean stocks or Bitcoin or any of this stuff so where would you position it this time when people are saying cash is still a good alternative and then others saying if you do that you're going to miss the opportunity in longer term debt and certain other uh securities well first of all in that point that that's exactly right I mean we're we're close to Peak CD rates but when we look back at the last six cycles of the FED tightening um at closest Peak CD rates uh CDs are almost never the best investment uh and you know we're at a four percent 10-year treasury a real fear of recession could easily bring that below three percent uh so right off the bat that's a 12 annualized return of a 10-year treasury bond uh that's better than the CD and remember you know you get these CDs now but what are you going to do when you have to reinvest in in a year's time or in in two years time so I think there is an opera I would be long duration bonds I'd still say high quality because of the you know the risk of of some economic turmoil here but I I'd stay long duration because there is a play there and then for for equities overall uh value does look very cheap relative to growth right now and I you know not not with saying the fact that growth seems to like lower rates I think that the valuation Gap is so dramatic there that I would be a little wage value a little overweight International too I'm really impressed by the fact that the dollar is coming down on a four percent tenure treasury yield and that tells me that when rates go lower in the U.S uh we could have a significant dollar decline I think it's a big positive for international eight ways to go here David Kelly but let's just keep it simple you're looking for a demonstrative week dollar move yes I mean over the next few years that's that's that's very likely to happen the problem has been the first half of this year we thought the US was going to slow more quickly we told Europe would be a little bit more resilient that hasn't played out that way but I still think that where we are as a Federal Reserve is just overdoing it and they've got this this weird notion that they can overshooting rates and then cut rates dramatically that's not the Europeans Playbook it's not the British Playbook certainly not the Japanese Playbook so that Gap in rates is going to close over the next few years as the Federal Reserve brings rates down and the ECB the bank of England and the bank of Japan don't that should push the dollar down so I think the next few years you will see a significant dollar decline it John's been so good about outlining the shock in the United Kingdom of inflation particularly in utility bills and real estate as well are you in your shop optimists on United Kingdom disinflation oh I I think ultimately yes but the problem is that comes from a fair amount of fear about just the overall position of the UK economy I think you know one of the pro you know one of the big issues I think is the UK has got a pretty bad fiscal situation and the question is does the government actually tackle that with the risk of slowing the economy or do they let it get worse um if they if they tackle it I think you will get less inflation in Britain but it could be a pretty a pretty miserable time so we're not I I would say disinflation will take hold of Britain eventually also it's going to be slower process in the new in the US because they've got a very strong union movement in Britain and they're all on strike or you know there are far more strikes there than in the United States but I think disinflation will take hold in Britain um as the economy slows um but it's not a particularly good outlook or you know getting there Andy and Irishman could say that's okay you know they're just all on strike he does his own Central Casting you know he doesn't it's just perfect isn't it just perfect David inflation problem campaigns if we had union membership in line with say the 1970s here Stateside how bad would the inflation problem have been in the last 12 months I would be it'd be significantly different because what we've seen is wage growth has been decelerating here since March of 2022. I can't imagine that if we had you know 25 30 of the private sector unionized as we did back in the 1970s that would have had anything like that deceleration wages so Unions would be out of the strike saying give us five percent give us 10 give us 15 raises um so we'd have had chaos but we'd also had much higher wage inflation and that would keep inflation stickier but you know back in the 1970s we were having over 200 strikes per year we had 23 strikes last year we've had about six major strikes I've been major strikes we've had about six major strikes this year so it's nothing like the 1970s and this is why it's so bad for the Federal Reserve to say well let's talk about the lessons of History the only lesson of history on high invasion in the United States is from the 1970s and that is a very old Playbook and it's really a different labor market from the one that we had back then David thank you sir David Kelly there if JP Morgan Asset Management got into inflation Tom 18 minutes away his call and the job market linking it into inflation is extraordinary is one of the very very first people I said that look we are going to collapse we're going to have this gift of 200 000 plus per month non-firm payrolls it's going to evaporate at some point we'll see what we get very lonely in just a moment CPR just around the corner you are just tuning into the program welcome the S P 500 positive by zero point two five percent coming up former New York fed President Bill Dudley ahead of the U.S CPI data looking forward to that Tom I know you've been itching to talk about this all morning not built badly not CPI surveillance Mr Ricardo has got a seat what we've learned with our five audiences we it's very I don't want to go into the details now there's a lot of people watch us to get a new job and so Ricardo was on and you know David was on and Daniel Daniel excuse me Daniel was I nailed them but anyways Ricardo's on and he's lighting it up boom he's got a new job John explain how Red Bull has two teams they fired one kid that wasn't doing it so Ricardo is the backup drivers gonna go over to the other team right so Alpha tari's kind of like bottom of the pack right now yeah which is let's call it the sister team owned by Red Bull Red Bull the austrians top of the pack he actually came out of tororoso which is the the old Alpha Towery this is where Ricardo came out that's where he came out and ultimately got picked up by by the main team right by Red Bull so look we wish him luck it's going to be difficult it's a hard car so right now it's slow compared to the rest of the grid so it'd be difficult to get on say like this onto the podium get some decent races and he's going against Perez talk over me no but John so he's going against Perez what happened no if he has a good season and you're gonna have to Define what success would look like at our Towery but if he manages to impress then you wonder if checo see Red Bull was under threat given the difference between Max and and such is Max well Max is phenomenal but he seems to be so much better next to get him a job then check it out who would you like to catch up well we can talk to some free agents in the football World Tom it is summer yeah we can have a conversation with them what's Lawrence doing the goalie for Tots talk that he might leave yeah it's great stuff it's great stuff thanks inflation remains well above our longer run goal of two percent we're likely to need a couple more rate hikes over the course of this year to really bring inflation back it can take some time and assess and collect more information and then be able to act I do believe that underlying inflation is declining gradually and in a way that may well be sustainable we'd say we're close but we still have a bit of work to do that was fetch at your own power fed speakers Mary Daley John Williams Raphael Bostick Michael Barr all with their own opinion in two weeks from now they'll be around a table and they've got to make a decision do we or shouldn't we raise interest rates the IMF just did study on economist addictions I think Paul Krugman highlighted this I'm not quite sure on that but the answer is really in recent days they don't have a clue I mean you know we're doing this folks and you know you saw it beautifully there in the sod and with our very important guests coming up here and the answer is John is this is such a tough question you never know with certainty you're in the risk management business Tom so 12 months ago balance of risk the risk of doing too little outweighs the risk of doing too much 12 months later the balance of risk clearly shifts which is why you start to see some splintering on the committee that's just statically obvious so some people are Tom are pushing for another 25 maybe 50 on the committee the chairman when he speaks he's got to do the best he can to kind of represent some form of consensus on the fomc right now at the moment and we can gauge that from the dots but if you look at the median dot short that tells you one thing you look at the spread at the moment the next year there's a range of views on a committee the whole movie should go the Hallmark of Bloomberg surveillance folks is we want to talk to people informed can really State what they believe in and the risks that they see we've extended that to someone and we're going to be with your commercial free here throughout all of the inflation and on into the later part of the hour William Dudley joins us it's been a wonderful relationship since his days with Goldman Sachs he's a former president of the New York fed in the course of Bloomberg opinion columnist is is well Bill John's good comment there on everybody's in Risk Management what are the asymmetric risks or the asymmetric balance that the FED has right now is a new group of people tout a rapid disinflation I think the fed's concern is that if they ease too quickly Financial conditions these as well God will come bouncing back and inflation will not stay down for an extended period of time you know we tried to explain that a lot of the inflation was transitory on the way up to explain it away well some of the inflation disinflation that we're seeing is transitory on the way down the goods price disinflation I think the FED still thinks that they haven't done quite enough because the labor market is still very very tight and wages are still at a level well above the three to three and a half percent range that chair Powell said is consistent with two percent inflation so yes the CPI report is important today but probably even more important is what's happening to growth what's happening to pressure on labor resources and what does that mean for wages how important is the real estate analysis in the Zeitgeist this morning James McIntosh at the journal Matthew Bessler at Bloomberg News talk about the mystery of how we measure real estate inflation do we have an act accurate reading oh we measure it in a funny way in the United States where we basically say if you had rented your home to yourself how much would more would you have to pay this month and that gets fed into the Consumer Price Index even though people obviously don't pay themselves for the home that they own so it's a it's a bit of a fantasy um and obviously that number is going to be coming down in the second half of the Year owners equivalent red and that's going to make that's going to flatter the headline inflation numbers which are Apollo and others have made clear though is what's what's happening to Services ex-housing is going to be very very important because that's the part of the inflation picture that's driven by wages and that and wages are driven by how tight the labor market is so until we actually see a significant Improvement in how it services ex-housing I don't think the FedEx can be completely comfortable you know the CPI report today will be probably a pretty good reading the problem is that the FED pays much more attention attention to the core personal consumption expenditures uh and that core reading has been stuck in a range between 4.6 and 4.8 percent for the last six months it actually showing me for improvement how concerning was it to you the earlier this week the New York fed put out the U.S consumer inflation expectation survey and it showed on the good side at least for the FED a decline in near-term inflation expectations but an increase in longer term inflation expectations it was much greater than people had previously expected is this an alarm Bell to you at a time when the FED wants to avoid inflation expectations from becoming unmoored I I would say one month reading it doesn't make me alarmed but the FED is nervous that if inflation if it takes too long to bring inflation back down to two percent people may start to think that the fed's never going to get there and if they think that then inflation expectations will drift up and they'll make the fed's job more difficult that's why I think they want to stay the course now get inflation down to two percent by the you know roughly the end of next year and if they do that they're pretty confident that inflation expectations will stay well anchored and that'll make their job much easier going forward one concern has been that longer-term yields are not cooperating that they've been declining and that they haven't gone up as much as people perhaps would like to be more restrictive we're looking at a 10-year yield of 3.9 percent you see that going to four and a half percent as a conservative guess what would the FED have to do to get it there well I think it's mostly about the market psychology about where we're going in the future in other words what's the level of normal short-term interest rates uh what's the level of the bond rispering the spread of both bonds relative to the path of short-term rates people I think are very much putting a lot of weight on where we were close to great financial crisis and I think we're actually going to a very different place uh where inflation's gonna be a little bit higher probably average around two and a half percent uh short-term rates that are consistent with the neutral monetary policy and real terms are probably going to be a little bit higher than they were in the past because the fiscal situation in the U.S is a lot worse than it was over 10 years ago and the fact that you know we have a lot of investment demand now that we didn't have before for climate change uh the tremendous amount of money is being spent to facilitate the transition uh the the climate to change is transition and that's also going to put upward pressure on rates so I think it's you know I think the Bond Market is still overly optimistic about where we're going because I think it's putting too much weight on what happened post the great financial crisis Bill Dudley to go Matthew on you here and it's with the Bank of America chart which shows a wonderful fan distribution of potential outcomes of where we are on inflation of getting from four percent in some of the fans to a lower statistic some is to some form of stasis and dare I say there's a camp that says we may see a turnaround in a higher inflation if you set up the present Vector the direction of disinflation how skewed are we right now to a higher inflation or a lesser inflation a greater disinflation well I think there's two positives and one negative the positive is that good prices are coming down partly because people have changed their their demand composition during the pandemic they bought a lot of goods and not so much Services now they're buying services not so much goods and so you see a lot of weakness and goods prices number two you're you're seeing the fact that the housing price inflation is going to start to come down with a lagged effect but we're not seeing any progress on the services side outside of Housing and we're not seeing any progress on the labor market so I think it's still a mixed pitcher the good news is the Federal Reserve has gotten now to a restrictive monetary policy uh I don't think it's that restrictive but it's restrictive enough that it should slow the economy down and probably the FED has another 25 or 50 basis points of rate hikes to go and if they do that and they hold that for a while that should be sufficient to do the job on inflation what are you looking at when you talk about longer term we're not going to be going back to the low inflation regime that we had we're in previously and I see this at a time where increasing automation is driving efficiency and perhaps productivity in a number of different companies for example Chipotle with avocados and new auto cutter and peeler as they try to reduce the amount of time and how does this factor into longer term paradigm well the interesting thing is the actual Pro 2 numbers over the last year or two have been horrible uh so we're actually not seeing the Pro 2 uh Improvement yet generated from things like artificial intelligence and it could actually take quite a bit of time there's a whole bunch of things that we do in the economy that aren't getting more efficient you think about uh you know Hospital Care Medical Care you think about home construction think about you know our teachers becoming more productive in terms of how they're teaching their students so there's a whole part of the economy where proteins are very hard to come by John how do we get to avocados and avocado peelers there brown eyes reading I just it's actually relevant because Dr Dudley knew exactly what you were talking about yes because a lot of fast food companies have been automating more and chipotle now has a collaborative robot dubbed autocato that course cuts and peels avocados before I left one of those Amazon Prime I could see it in the Primo kitchen a lot of did you do Prime yesterday no I did not I'm the only one in the country did you yeah it got some protein protein yeah with your almond milk yeah good yeah Ready Mix the ones I have in the morning you know the ones breakfast I do know what you're talking about stocked up on breakfast Bill's going to stick with us maybe Mike McKee look if you're on TV you can see it if you're watching this on radio you can't so allow me to describe it Mike McKeon this like romantic log fired cabin scene Tom in Idaho Rocky Mountain Summit I mean what are we all doing wrong he's just he's just he owns a high ground that's all I can do just beautiful Mike you're gonna join us and thank you for taking some time to actually come on with us today we appreciate it we really do the CPI out in about four minutes Mike what are you looking for well we're looking for a very good report this time especially for headline uh numbers but as uh bill made the the really good point that uh things are going to be transitory on the way down we're not going to hold the same numbers we also run into what's uh called base effects in economics because inflation uh Rose so much in June last year because of energy then it's going to look much better this year and we're going to see probably a big drop in the headline number but the FED will be looking past that because they know it's going to be tougher the rest of the year inflation had come down on a month over month basis significantly after June so uh don't put all your money on this being the the Turning Point yet Mike we were told that we had two important data points going into the July fed meeting that's two weeks away we had payrolls last week we've got CPI this morning they're the two Deutsche Bank and Jim Reed earlier today hike in July is pretty much nailed on bmo's Ian Lincoln said this yesterday quarter point hike on July 26 it is a foregone conclusion at this point Mike is there any reason to believe that the information we learn we see in a couple of minutes time could change that conversation I don't think so for the reasons that I just mentioned the FED is going to be looking past a lot of those different uh one-off kind of changes they're going to want to see consistent movement and has been they said they're going to going to want to see uh Services X shelter uh start to drop and stop start to drop significantly uh we have not seen a real change in core or Services X since uh the beginning of the year and that's what the FED is looking for so we'll get that rate increase in July the real question is the data between now and September does that make a difference to them in terms of that second move mama okay stand by in just a moment about two minutes from now we get some CPI data for you on to PPI tomorrow morning Mike McKee's going to break that economic data for you and then Bill Dudley former New York fed president now blimburg opinion columnist amongst other things is going to weigh in and respond to that the scores going into all of this Equity is actually a little firmer positive on the estimate P 500 by 0.2 percent yields going into this Lisa just back in a way ever since that ADP report on Thursday you had the information on Friday we learned from payroll since then yields lower yields lower people don't seem to think that disinflation is transitory to use some of the language that we've been hearing they're banking on it and that's what we see in the bond world and that's what we see in the equity world as well can this service pressure in things like Airlines and we've seen where the crews operators and what they're doing here today on the S P 500 can that continue do we have those pockets of cash those piles of cash that we did come out the pandemic still there are reports that it's running out we've seen those reports it was expected to run out of the first half of this year where people haven't grasped is how much that ball of money that was put into the economy keeps rolling from sector to sector as people spend and it goes to other people and it boosts what'd you call it a ball of money yes the ball of money just rolled over and went to Camp that's where it did for that's why you're that's why you're born money just went over to pay for camp for various and Sunday offspring of the abramowitz has been on top of this on a serious note when those tuition repayments I made a joke somebody cut me off and said it's serious it is it is potentially anyway yields right now a little bit lower we're down four basis points on a two-year with that economic data CPI just dropping across the Bloomberg terminal any second now let's get out to my McKee hey Mike well John we're waiting for the numbers to come down and we are expecting a change in uh the overall headline number that will look good and here's a number that comes in uh even better than expected and that's the uh over the CPI core on a month over month basis just up by two tenths the expectation was for three it was four last month and that put CPI core below the anticipated number at 4.8 percent the forecast was for five percent at a headline basis we get a two-tenths move also lower than anticipated and that brings it down to a three percent a year over year number and of course these numbers are going to be the lowest since the pandemic and the lowest uh we've seen uh so in about two and a half or three years so good news overall uh but again we want to warn everybody this is essentially a transitory kind of uh situation uh let me get you a couple numbers here quickly uh food up only one tenth remember that was a big contributor a year or so ago and the energy prices up six tenths gasoline up one percent so all these numbers are in spite of a rise in uh Energy prices gasoline had fallen 5.6 percent last month and then in terms of used cars and trucks this is something everybody's been waiting for used cars and trucks down five tenths on the month and on a year-over-year basis down 5.2 percent so a quick turnaround in used car prices apparel prices up uh two tenths and shelter prices drop back a little bit four tenths I'll get you the number on uh rent of shelter the one that is uh That Matters to everybody and we'll get the numbers on the X services in just a second my thank you buddy you get into that you dig into it we'll dig into the price action let's push through that downside surprise into Equity markets right now Futures positive by 0.7 on the S P 500 guess what bondia able to do in the diving on a two-year we're down by more than 10 basis points 477 on a two-year right now think about where we were on Thursday 5 11 after ADP we have backed away and backed away some more so yields down dollar weaker fifth straight session this time the Euro breaking 1 10.50 11067 a session high now bear in mind that close to 111 I think 110 95 earlier this year was the high of the year that was in late April Tom that was the higher the year on Euro of 110.95 just short of it following this data the printed moments of 80 true 80 print on Brent crude as well showing maybe a more buoyant global economy off of disinflation Salvation in America John you have a jump condition in the 10-year real yield and to go from the 1.80 number of the panic of I think it was July 6th uh down to where we are right near now 1.66 is nothing short of a miracle if you want just again this is a downside surprise across the board here month on month closely followed by people on Wall Street point two percent for core stripping out food stripping out energy point two percent for headline month over month as well that's down from point four percent month over month previously in core and down from point one just a little bit firmer there on Headline headline looks like this year over year three percent just 3.0 down from four point zero percent previously strip out food and energy 4.8 percent that is down from 5.3 the idea that we get a hike in July most people still assume that's going to happen the idea we get one after that Brahma I think a big question mark after that information this morning and if you look at what Futures Traders are look are are pricing in it's a lesser chance of a second rate hike I want to point out that real average hourly earnings Rose at the fastest Pace going back to March 2021 because of the decline in inflation this according to the latest reading and the data so this is the other side of things how they support spending on the flip side even as inflation comes in no data REM Mac it's data's big argument isn't it no doubt we'll catch up with him soon we'll catch up with these guys in about 30 minutes time Robert tippe Jim Christian amounty of Lafayette College Sarah hunt of Alpine Saxon Woods responding to this inflation report Tom softer a welcome downside surprise equity's higher Jazz Swiss Francs stronger we usually look at Euro swissy that's what you and I look at but to see dollar swissy go out to strong Swiss franc here it's got shades of 2011. you know we're not there yet but it really shows how this U.S inflation report has a global ramification it doesn't change July in the minds of many let's wait for the FED speak Lisa said there's plenty through the whole of today Tom so look out for that we'll see what they say see what they guide us towards in two weeks time but ultimately it could change the conversation in September if you get another one like this next month going into that September meeting Mr Jackson hell too yeah well Jackson homemade change as well let's go 20 miles north to Victor Idaho Michael McKee is there in a pre-jackson hall Michael McKee your thoughts as you dive into the economic data well this is a bit uh better than anticipated but it basically tells the same story that we thought about going into this meeting uh we did see the first significant declines I suppose you would call it in shelter costs that have been propping up a lot of the inflation that we've had rent a primary residents uh is up by half a percent no change there but uh the owner's equivalent of rent drops uh by drops to an increase of just to four tenths which is the lowest in quite some time we're starting to see that get into the numbers which is what you want to see airfares went down 8.1 percent I'm not sure uh a lot of people are going to believe that John you you've been flying around uh but uh a decline in airfares and as I pointed out we saw an increase in energy but a lot of this is all going to be offset by the fact that uh the base effects from this year this is going to be one of the best months that we see and I'm still waiting here for the Services X come in and it now comes in on a month over month basis 1.3 percent which is a significant uh improvement from uh the over six percent we started with at the middle of last fall on a year over year basis we're now down at 3.93 so we're seeing progress in Services X shelter that'll cheer the FED but it won't change their minds a moments ago Brent crude ticking over 80 a barrel and John Farrell that clearly has something to do with the expense of your travel on your sabbatical just on the record moments ago I was just stepping away yeah I'd unplugged the microphone you take a dig at me as I'm walking out the door he took the dick that was a Makita airline numbers never mind the rental numbers is Market moving uh data Mr Farrell's going get ready for a nine o'clock effort equities lift NASDAQ up a full one percent that in itself is fascinating and in the bond market we have continued uh thrust if you will off of the news a two-year yield four point seven three percent a ginormous 14 basis point move and the more elastic two-year yield the real yield is important to me 1.67 percent we get perspective from William Dudley Bill Dudley describe transitory on the way down I don't understand that how do we have transitory disinflation but remember Goods prices went up dramatically because during the pandemic people bought a lot more goods and a lot less Services as they stayed home now we're on the flip side of that they're buying less Goods more services so Goods prices are very weak and they're going to be very weak for a while as as people have managed their inventories down but once that comes to an end then Goods prices will level off and so the benefit to headline inflation from falling Goods prices will be over and you'll be stuck with what's happening in the services side look I think this is a very good report today and the FED should be pretty cheered by this but I don't think it changes what they're going to do at the July meeting because they said that they're looking at the totality of the data over the last three months going into the July meeting and the reality is the economy is still doing quite well we had two percent growth in the second quarter if you look at the land of fed GDP now tracker for the third quarter it's a 2.3 percent so the economy really hasn't slowed down enough to make the FED confident that they're going to see that slack and all their work that they that they want what I think this does do is opens up the question is could July be the last one and that's certainly possible because they won't they won't move at the meeting after July they'll take a break just like they did this last time and then we're going to get to November 1st well it's a long time between now and November 1st I can imagine by that point it's possible that they'll see enough news that makes them confident that they've done enough so I think I think the member of rate hike is really up up for grabs at this point bill you talked about how disinflation might be transitory and that there could be a re-inflation once the base effects are stripped out and especially as real incomes continue to rise at a faster Pace as inflation comes in what do you have to see to believe in the disinflation that it will hold and revert back to a sub two percent inflation Norm over the longer term for me it's all about the labor market I want to see you guys slow down in payroll employment growth I want to see a rise in the unemployment rate and most especially I want to see a further moderation wages the labor Market's too tight then you're not going to get insulation back down to two percent that's that's the key Bill Dudley thank you so much for joining us your commitment to Bloomberg surveillance really really appreciate it William Dudley writing for Bloomberg opinion and of course the former president of the New York fed uh thanks to Zero Hedge they had out yesterday a Michael gapeen production uh that is a chart from Bank of America that showed the fan distribution of our American inflation where we could see the surprise of a normal disinflation back to the two percent level or maybe something stasis three four percent or dare I say we could even see sticky inflation and a rise as disinflation moves at lower a lot of confusing Trends in math Michael gapin joins us now head of U.S economics Michael what's the key to determining and of how disinflation unfolds I think I mean just I think it's catching on with what Bill Dudley just said does the does the labor market soften enough to give you confidence that Services inflation will keep inflation running around two percent so for for me it's about broad-based disinflation across Services yes we should get some payback and goods prices we we saw that again this month with with used cars but can we get a combination of disinflation in services so beyond shelter I I agree with you I'm not sure airline fares fell eight percent on the month but is it broad-based enough uh to to make you confident that the new trend or we're back to our prior trend of roughly two percent what do you make of Bill Dudley we just talked about Michael that you can't see this ongoing disinflation unless the labor market cracks unless you see a bit more uh loosening in what we see in the job space do you agree with that do you think we need to see that pain in order to create a subsistence in this low inflation I I do agree with it now it doesn't necessarily mean the FED keeps hiking I agree with The Narrative of I think the FED will hike in in July if we if we're if we're posting Point twos on core from here it'll call into question what they have to do after that so they may stay on hold they may be reluctant to cut and until they see more evidence that the labor market is imbalanced that supply of labor and demand for labor are more imbalanced so that argument may be more about how quickly the FED Cuts or when it cuts than it is how how high the FED goes in the near term distinction because Bill Dudley has been pretty hawkish in terms of the FED having to do more in order to get inflation under control and yet he just came on and said this is a great report and this may be the last rate hike that we see from the fed this month they may not go in September that brings us to November a lot of data in between is that bullish or bearish for bonds is that bullish or bearish for the idea of how long the FED can hold rates at a high level I think on balance you'd have to conclude that it's bullish in the in the sense that we're seeing disinflation in the U.S economy that's that is you know gradually becoming more broad-based in an environment where the labor market still is very healthy and the unemployment rate is low so again I think what what bill was saying was if this is the new run rate then yes it would call into question hikes beyond beyond July and it might give you more confidence that's a less pain in the labor market is needed to convince and give the FED confidence that inflation stability price stability will be restored so on net I think it's hard to argue that disinflation in an environment of a strong labor market uh you know is is bearish I think at the moment that's a bullish view where are you on say our two years not that anybody's modeling out to 2025 but do we get back to some kind of four percent Top Line GDP two percent inflation two percent real GDP probably not until 2025. if most of our Baseline forecasts are accurate for let's call it gradual disinflation uh and perhaps a hiccup in growth here in the in the short run if growth continues to slow down uh you might get you might get something around four percent temporarily uh but I think nominal GDP growth is likely to remain pretty healthy until you get into 2025 and inflation maybe is settled down to around two percent if you're joining us right now on Radio and on television internationally we are commercial free through the rest of this hour Lisa abramowitz and Tom King John Farrell as well here with a shock inflation report and Lisa as I as I sum it up with Futures up 30 that's SP Futures Dow futures up 172 after a buoyant uh Tuesday Nasdaq futures are giving me up one percent moments ago and there's a little bit of an ebbing and flowing here but certainly the shock is a celebration of disinflation yeah in the currency space in particular you see doing the Swiss franc right now at the strongest versus the dollar going back to 2015 you can see a pretty significant and strong moves across the board in the two-year space yields coming in dramatically as people start to game out what it looks like If the Fed rate hike this month is the last in the cycle we're speaking with Michael Capen of Bank of America and Michael you were saying that if this data does continue that does seem like a likely case I just want to get a sense from you on the real wages Point how much does that make it difficult to see ongoing disinflation that real wages are rising at an accelerating pace I think it makes it difficult if you're a policy maker and you're and you're thinking you know I need to get demand and Supply into better balance but what I'm seeing as a consumer that continues to want to spend and is getting significant increases in in real wages so it may be hard for them to you know again make that conclusion that we're on a path back to two it's about confidence in in that Outlook so you need a combination then of actual evidence on the ground that you know where is the new trend in inflation for example it is it is it 0.2 or is this a one-off and we go back to a point three and point threes are more the Run rate or you know you need a collection of evidence on what the new run rate is plus where spending in in real wage data evolve again it this may ultimately be about the timing of cuts and how quickly those cuts come in and the near-term path for the FED may be more about these prints on inflation inflation May dominate whether the FED hikes Beyond July but the cutting environment when they're back to a neutral rate of interest on the other side could very much be about that labor market story meanwhile counter programming is Richmond fed president Tom Barkin who's speaking at a separate event that came out in tandem with the CPI data saying that the U.S inflation rate is still too high that the FED has been moving aggressively as aggressively as it could against inflation and talking about the longer term view Michael if we do see the the rate hike that we get this month as the last in the rate hiking cycle how long do you expect rates in the U.S to remain about 5.3 percent give or take for uh for the foreseeable future we have the first cut coming in in May of next year next year so our Baseline still has another hike Beyond July but we've highlighted that that ultimately will be data dependent and we'll have to see how things evolved our first cut in an end to to balance sheet runoff would be in May of of next year so uh the debate on the committee is some combination of higher or for longer and and I think they would be inclined to want again this is about the evidence the accumulation of evidence and confidence about restoring price stability so we don't have that first cut until May of next year Michael again thank you so much and congratulations on that really informative Bank of America chart over the last 24 hours this is for McKee and I think this is David Rosenberg will be with me on radio I believe here uh in the next hour with Paul Sweeney but Lisa bramlets I think this is really such a big deal how McKee bakes breaks it down and of course he's having a manly breakfast in Victor Idaho at the Rocky Mountain whatever it is disinflation bacon down 1.7 percent disinflation eggs you know how expensive they got 7.3 percent down 7.3 percent he notes that the beverage of your choice flat after pretty substantial Rises during the pandemic yes we did yes okay thank you but that's a granularity is that your breakfast that's my breakfast bacon eggs and a glass of whiskey we call that a shot in this it's not a blast thanks for sure looking at that saving us here and folks we we welcome all of you on radio and television to a major Market move off American disinflation Megan harnaman joins us now Chief investment officer Vernon's Capital Megan do you change your outlook with this disinflation report no I think this was a good report I do agree with that um inflation's going in the right direction disinflation is starting to take hold but I don't think it changes the the move in July from the FED they can't take their foot off the pedal yet there's still three things that they're looking at and they're not necessarily looking at airline fares what they're looking at is housing which owners equivalent rent is still slightly elevated they're looking at earnings which we've just finished talking about how real earnings now are higher and they're also going to be looking at the service sector so those three things they're they are improving um you can't deny that in the report today but I just don't think it's enough for the FED to say we're completely done do you think though that there is a greater likelihood as a result of this report that this rate hike at this month's meeting will be the last if this is the trend that continues yes um let's keep in mind there's a lot of Base effects in this report so we don't want to take one month as a trend but if this continues yeah I think this is this may be the last but I don't think they're going to be cutting and that's something that we've been saying for a long time the market is too optimistic about the path and the timing of rate cuts um we think they're going to stay higher for longer they've told us that and they can't afford especially with the consumer still wanting to spend to take their foot off the gas here that said how does this shift your view on how to allocate your assets at a time when a lot of people are betting that the economy can remain strong even as we continue to see price stability restored to the market so we've been taking the opportunity this year with the big rally we've seen across the global Equity sector to start to reduce some of the allocation we want to get more to a neutral weighting to our Benchmark because we're not while we're looking at a period where the FED may be near the end of their aggressive tightening cycle we're not calling for cuts there is still as we said there is still some inflation in the pipeline that they have to get under control our bigger concern is that the the Market's got a little too optimistic about the economy we continue to see in a lot of these reports underneath of the details that there is significant weakness in the economy and especially the consumer we've talked about this before the FED tightening cycle as well as now tightening lending conditions this takes time to work into the economy we haven't seen those full effects the labor Market's now starting to show signs of weakness this is all negative for the consumer so we're concerned about the consumer in the second half of this year despite some of this positive inflation report because we just don't see this spending that we saw in the first part of this year sustainable so the thing and I think this is really important a tepid economy just simply means less revenue for corporations and that's where the earnings shortfall begins mm-hmm right and and this is you know we're getting ready to start this earnings season here in the second quarter this is the first uh the the worst it's expected to be the worst earnings season that we've seen since the pandemic um we don't really think that this is completely over from an earnings perspective yeah I I I look uh Megan it it the step forward here and I get that this is one report Lisa's told me that three times uh today maybe you take a smooth three-month moving average of disinflation did the disinflation vector change enough for you to have to sit down and recalibrate getting to the third quarter no not yet um I I still think like I mentioned there's three things that's what the fed's looking at and they have gotten slightly better but even if you look at the owner's equivalent rent component that was running a five tenths on a month over month basis oh it slipped to four tenths is that enough for the FED I don't think so I still think that's a concern for the Fed so I'm not ready to make any changes we're sitting neutral with our Equity exposure we have a nice cash position because we are earning now on that and we're looking for the potential that we could see some weakness of the equities in the second half of this year I gotta say Tom I'm looking at bespoke investment they put out a report saying that at the headline level there have only been two stronger than expected CPI readings the last year which is the fewest in a 12-month period going back to November 2019 on a core basis just three stronger than expected monthly CPI readings that has been the fewest since November 2020. there is a sense that Wall Street doesn't have as much faith in the disinflation as is actually coming through in the number this is really well timed that you bring this up because Dr Dudley alluded to that when he did his Newtonian calculus in English where we talk about the first derivative the second derivative you'd make jokes if you're particularly if you had a hangover from course three to light you'd make a joke about the third derivative or the fourth derivative but all of this anecdotal evidence leads to some form of vectors which say the agony of this inflation is over then the debate begins from an investment perspective Megan is it time to get out of cash maybe not go into riskier assets but lock in yields at a higher level if we are seeing inflation come in yes and we actually started to do that recently as well we moved our duration of our fixed income Investments out a little bit not not not significantly long at this point because I still do think there is that uncertainty around the FED yes it looks like they may be able to be done in June I mean I'm in July but when it comes to Ray cuts when are they really coming in and we and we don't think that's the story until 2024 so it's not a rush to run into the long-term yields at this point but we do think you should move out some of those shorter durations into more of an intermediate intermediate duration Megan thank you so much Megan Hardiman with Vernon's Capital Advisors today I'm going to call it a sustained reaction here yeah there's a little bit of a pullback and we'll show the charts on TV and discuss them on radio but the bottom line is clearly off of the enthusiasms of Tuesday afternoon into a Wednesday where I would suggest the disinflationary Zeitgeist got it right Lisa absolutely you've got a tangible movie here I'm looking at the levels I got 4 500 and SPX Futures 34 6 on the Dow that's 34 600 Lisa on the Dow and the NASDAQ 100 to be rebalanced here up nine tenths of a percent rounded up 15 400 in the NASDAQ I I'm in triple leveraged all cash I maybe an odd lot of Apple you know markets are partying right now they're excited about disinflation and the data certainly suggests any way you slice it it is inflation going lower Jason Furman uh putting out formerly of Harvard or of Harvard I should say uh that even the super core data that the FED looks at which includes uh which excludes food energy shelter and used cars also coming in dramatically any way you slice it it says the same picture the same story Tom which is it is a lesser inflationary backdrop it may be transitory that's certainly what we heard from Bill Dudley we need to say thank you to our team for putting together a great great focus on inflation through the day this is important coming up tonight on balance of power a timely conversation with the senator from the Commonwealth of Massachusetts Elizabeth Warren stay with us this is Bloomberg

Channel: Bloomberg Television

Views: 21,841

Keywords: Jon Ferro, Lisa Abramowicz, Tom Keene

Id: yI7s0qtzQ-0

Length: 152min 10sec (9130 seconds)

Published: Wed Jul 12 2023