Bloomberg Surveillance -Alejandro Reynal, Four Seasons President and CEO, -Henrietta Treyz, Veda Partners Director of Economic Policy Research-Matt Luzzetti, Deutsche Bank Chief US Economist
Alejandro Reynal of Four Seasons discuses luxury travel, highlighting how higher-end travel remains robust. Henrietta Treyz of Veda Partners discusses US economic confidence in Harris, especially with Vice President Harris set to unveil her economic platform this week. Matt Luzzetti of Deutsche Bank provides insights on the latest PPI data and offers thoughts on what we can expect with CPI data tomorrow.
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
Here's the lead ist, Donald Trump, taking aim at Vice President Kamala Harris in a wide ranging conversation on X with Elon Musk. The conversation coming after Musk endorsed Trump last month, with Trump's campaign looking to curb a wave of momentum for Harris, Henrietta Trees and Beta Partners joins us. Now, Henrietta a lot of talk through about this particular discussion.
I just want to start with what was your main takeaway?
The main takeaway was that this was a great opportunity for X to promote spaces. I mean, over a million listeners at some point, but it was sort of two two and a half hours of two guys.
In a room agreeing with one another.
I wouldn't call it an interview, but more of a conversation that touched on all the hits that you hear.
From a Trump rally or other.
Press press briefings that the president and former president puts on.
There wasn't a whole lot of new information there.
The main takeaway for me was that Elon Musk is interested in getting further involved in the federal government, being.
Part of a federal sort of.
Task force to take on government spending and efficiency, as he calls it.
But that was really the newsiest part of the interview to.
Me, Henrietta, what I took away is that Musk was advocating for two key things. One to stop this demonization which I think someone of you is coming from the far right when it comes to sustainability and evs, but also deregulation, and he brought it up a number of times. Do you think he was successful Musk in convincing Trump potentially some Trump acolytes on that call.
I think that there has been a history of Musk being able to move present former President Trump, specifically electric vehicles, government subsidies of that industry, in particular when it comes to deregulation. I think that's already a big part of the platform. When I speak with Republican staff, that's always a refrain. So I think there's a primed audience for that conversation that could certainly be receptive to that. What's obviously interesting about that is that you simultaneously don't have the votes to repeal the federal subsidies for all.
Of those industries in the clean energy tech space.
The manufacturing tax credits eighteen House Republicans to send a letter to Speaker Johnson saying, hey, we need those subsidies to continue going.
They promote job growth in our districts.
They're promoting you know, research and development, they're countering China. So I think they're going to have a lot of trouble actually governing on that agenda next year if former President Trump is reelected.
So last night was pretty light on substance, but potentially from the Harris camp, we'll actually get some policies on Thursday. We have not seen a policy proposal yet from the Harris Walls campaign, and they're going to be coming out with this economic plan.
What are you expecting, Yeah.
We're expecting the plans to be rolled out around Thursday. Obviously, there are not a lot of heavy hitting interviews happening right now, last night being an example, So I don't know that the Harris Waltz team needs to get two in the weeds.
My advice to clients is to focus on the bill that.
The Houseways and Means Committee put out in twenty twenty one, which receives widespread support from the Democratic Conference.
It includes a top corporate tax rate.
Of twenty six and a half percent, it's graduated in and I think, overarchingly, whatever Harris does put out on Thursday, take that as the high watermark when you go into Congress next year in the off chance it's not a Republican controlled set, and you're going to have to thread the needle very very closely to get two hundred eighteen votes on anything in the House and fifty one or sixty in the Senate. It's going to be much more lenient than whatever a Democratic proposal comes out looking like on Thursday.
In the meantime, Henrietta, we're about a month away from early voting starting, and by all accounts, this is going to be a lot of early voting compared with historical references. Is Donald Trump more or less out of time in trying to define Kamala Harris?
I have two things to say on that. Number One, the most important thing that happened last night is that Arizona put the abortion issue on the ballot. That is something that got doubled the number of signatures that they need.
They didn't bring abortion up once. That's the whole state of Arizona.
If Democrats hold on to Arizona and pick up Nevada and keep it in the blue camp, that seriously undermines Trump's electoral college strategy.
So they should be focusing on that.
And I think time has run out on Trump being able to define himself in a way that's favorable to the majority of Americans on abortion, certainly with gdbans position. Secondarily, you mentioned early voting, seventy two percent of early mail in ballot requests in Pennsylvania came from the Democratic Party. What the Republican Conference led by Trump and sort of the concerns over election fraud have really driven is a material tactical disadvantage in denigrating mail in balloting, which allows the campaign to bank voters, Get those people off your roles once they've already voted, and focus.
On the people you need to turn out on election day.
It's a tactical disadvantage that I think the Republicans have been screaming about for several years, but to no avail at this point, Henry.
But it also brings this possibility that Republicans can continue the line that they did at the last election, that it was rigged, that there were issues if it was all mail in ballots, that they weren't genuine. How concerned are you about a peaceful handover, not a handover, a peaceful continuation of power, I suppose if Kamala Harris is the president.
You know what's really interesting, and I heard this from Republican staff as long as a year ago. Keep in mind why there was a delay twenty twenty and why there was a delay in calling Nevada and upending the Arizona turnout or decision making process.
It was because who was in office at the time.
When Biden is in office, which he will become this November, it's going to be a much more orderly process that adheres to what's actually.
Happening on the ground.
No one's going to be calling the governor of Georgia saying find me the votes. So I think who is actually in office right now materially impacts whether this will be a smooth transition.
I expect that it will be.
You can claim that there was broad but it's going to be certified, hopefully within the next day or two after November fifth, and.
HATI, given the fact that we haven't gotten a lot of policy proposals that people actually are taking seriously and wondering how much you actually do, think that the Federal Reserve is going to avoid cutting rates too much or too soon in order not.
To seem like a political agent.
And I say this because in the absence of real policies, we have heard a lot from the Republican camp, from jad Vans as well as Donald Trump about having a more political hand in the Fed, whereas the Harris camp is talking.
About not so much. How does that color your view of it.
Well, I think we have to focus on what's going to be happening next year. Extending the twenty seventeen tax cuts is going to cost four.
Point six trillion dollars.
I'm getting a lot of inbound questions from clients about whether there will be deficit reduction next year.
There's no scenario where the deficit is renewed. Next year.
There will be substantial federal spending. It'll happen as soon as September thirtieth of this year.
I expect we.
Will continue to get aid to Ukraine, albeit a smaller and lower amounts, along with Israel. There will continue to be spending on par with what we've had in the past, which is about one point seven trillion dollars just to keep functionality. And then next year we have to keep the tax bill extended, and I suspect that almost none of those tax cuts will expire, So the FED is going to have to contend with some of the political stuff, but more importantly with just the fisful outlays that are going to be coming through, whether Democrats or Republicans win next year.
So I think engaging with the FED and trying.
To meddle from a perspective as somebody who's there when we did Tarp and the Auto Baila and that's not.
What I want to see.
You need the autonomy of the FED, and I think that they'll fight you the Neil for that.
Henrita Trees and Veta Partners. Thank you so much.
Four season CEO Alejandra right now saying his company is seen in strongest year ever, writing this short term uncertainty given the current geopolitical macroeconomic pressures are impacting traveler sentiment, but the luxury sent segment is more resilient, Alejandro joins us. Now, Alejandro, thank you so much for being with us. Pleasure to have you here in studio. I want to start there. Is it true that you're not seeing any slowdown whatsoever in the luxury element?
Good morning, Thanks for having me. It's a pleasure to be here. And I love the fact that we're talking about in luxury hospitality. Yes, I mean, we had a really strong first half of the year compared to last year, much better. When I look into the booking trends for the second half of the year, even going on into twenty twenty five, they look very strong as well. You know, I think there's two things that are happening there. First, and for most, is that the luxury guest or the luxury consumer continues to be very resilient. They continue to spend. You know, that desire for experiences to explore continues to be there. But also I would say that from a four seasons angle and from a four season's point of view, we do offer a very clear value proposition to our guest. I mean, we do have very proud to say that we have the very best hotels in the best locations and we provide the best service to our guest. And when you have that as the brand proposition, and that's what we do at four seasons, there's a demand for that. And by the way, this is not new of this year. We've been operating down for sixty years and has been the constant all throughout the period.
So what has changed?
And I'm wondering not just from the consumer who's able to spend, but also from the employer, Yes, and who you're able to recruit. For a long time, there is this earth of people willing to work in hospitality in the direct aftermath of the pandemic. Do you see it as being much easier now to hire people and sort of easier to also retain them without massive price increases wage increases.
Yes. I mean, obviously for us, a key component of what we do is through our people, and we are a service company and the most important asset is the people that we have with us. So we place a lot of emphasis in making sure that we are the employer of choice in every single market that we operate. We do spend a lot of time training people, developing them for us. We do measure employee engagement twice per year. We are at the two percent across all industries in terms of employee engagement. So it's a topic that we spend a lot of time because we do believe that we need to have the best and most engage employees with us. We haven't had. I mean, obviously after the pandemic there was a little bit of pressure from the labor point of view. We don't see that anymore, but again it's because of the air force that we place in making sure that we are the employer of choice in the marketing where we operate.
I want to know about more about your customer, but specifically like the ultra luxury and there. I know you have a private jet service something like one hundred and fifteen thousand dollars for charter a day.
How much demand is there for that?
Yes, you know, it's interesting And just to give you the context of this is obviously Four Seasons started as a hotel and a resource company, and we are now the leading luxury hospitality company and that's where our guests experience the brand. What we found over time is that because our second business is the residential brand, the residential so guests they stay with us, they experience the brand, and then they are willing to buy a residence with us. So that's sort of the journey that they start experiencing with four seasons. And the third piece is what you just said is the journey's experience based travel that we promote as a third line of business. So if you think about the whole analogy, guests they stay with us, they live with us, and they travel with us. They developed such a comfort with the brand and with the brand promise and the brand proposition that they're willing to spend that amount of money in traveling for twenty days through ten four seasons in Africa, in Europe and so forth. So for us, it's been more around creating this lucture ecosystem for four seasons that our guests are eager to travel. By the way, we have all the intineraries for this year sold out for the rest of the year, so it's a very successful product and it taps into that desire to experience, to explore that we find in our guests.
You're saying we're too late for it, then.
Yeah, twenty twenty five, we're opening the.
Good To keep in mind, I mean just talking about the different mix of your businesses.
Only one doing in this.
Space, and it obviously is an exclusive space of those who can offer this, but you think of the online resources also trying to give also experiences to What does competition look like right now?
Well, competition because of the attractiveness of the luxury space, there's a lot of competitors coming in. I think we have as a Four Seasons the advantage of the brand. I mean, we are the most We continuously measure brand preference, brand awareness in terms of our brand, and we continue to be the number one luxury hospitality brand, and I think that carries a lot of weight. But it's because at the end of the day, we're able to deliver that value proposition to our guest. I mean when it's interesting because I do interact with a lot of our guests and when I ask them what do they like about the Four Seasons, the first thing they tell me is that I know what to expect and I've been able as a guest to explore remote destinations. So for example, I've been able to go to Garabora. But because there's the Four Seasons, I feel comfortable because I know what to expect and to have that level of conceit extensy and that brand power is very, very unique. So I think we're uniquely a very well positioned.
Where do you see the demand right now in terms of the hot spots top five people are traveling too.
Yeah, you know, it's interesting because and I'm going to say something which is a little bit of contrariant. When I look into the history of Four Seasons over the last years, travel patterns haven't changed much. For example, fifty five percent of our revenues come from the Americas, the majority of in the US. More than fifty percent of our guests, they are from the US. And whether they travel to the US right now during the summertime, they travel to our South Florida collection, they go to Hawaii. Beyond the US, they go to Mexico and then Europe. The fact is that this has happened for many, many years. Americans are going to go to Europe probably once a year every summer. I mean, that's so, and we're seeing that again this summer, but it happened last year, prior year, prior year. But again America representing fifty five percent of revenues for US in the Europe and the Middle East represents twenty five percent of the revenues, and there the dynamics are similar. Europeans they mostly stay within Europe. They ventured into the Middle East or Africa. And then we have APAC, which is twenty percent of our business. Three percent is only China and that's mainly regional travel.
Do you still see the Chinese consumers spending as much in luxury hotels the same way the US consumers.
No, they have not come back. I mean when I look into what was spending prior to the pandemic is less. It's interesting because they are spending less in China, so we still don't have the same race that we used to have prior to the pandemic in China. But they're starting to spend more internationally, but internationally within the region meaning Japan for the most part, because of visa issues and many other things. They still have not come back to Europe or the US, which is where we saw them prior to the pandemic.
There's real question here about how much and towards is slow of Apollo called us out for us this morning. He said, all you people in media, and I'm paraphrasing, just keep using everyone as an anecdote to try to paint a macro picture. Your company has been around for sixty years. How independent of the macrocycle is it?
Right?
I mean, we're talking about something that.
Is a complete microcosmon to itself of people who have disposable wealth and are going to travel no matter what, versus a company that does have some sort of sensitivity to what's going on in the underlying consumer centimacy.
I mean, I would be lying if I would say that we are immune to any microeconomic geopolitical impacts, because we are. I mean, at the end of the day, that uncertainty impacts travel or sentiment, and people don't travel because of that. But obviously we've been operating for sixty years. Have We've gone through these cycles and they go away, and at the end of the day, what we see in is year or year that the market continues to grow. I mean, trouble and torurism has been growing for many years now, that desire to experience, to explore, continues to be there. I think it's really interesting when you look into the luxury consumer that our composition of guests about twenty percent are boomers, forty five percent are Gen X, thirty five percent already are millennials, so that transfer of wealth is starting to happen, but we're not losing the boomers, so it means that the market is expanding. So always year and year, there's going to be more demand, more growth, and at the end of the day as well, we as as a hotel and restore company, need to be at the forefront in terms of creating amazing experiences so we can satisfy the demand. So I don't think at the end of the day that the demand just comes by itself. We need to have, like we do, a very special product, a very special service proposition to our guests, so at the end of the day, they are eager to come to a four seasons.
So you're doing great with the baby class.
I hear that you really crushing it, you know, particularly south of the US.
Paid actor.
No, it was, you know, but that's one. It's a tremendous learning experience because sometimes we so much more you're marketing that doesn't provide any outcomes, But then these special authentic moments are the ones that the consumers value the most. This was a complete viral moment, but it was completely authentic. We had nothing to do with it. In the end, we have more than three hundred million views through various digital platforms on the four Seasons Baby. Obably, we got a spike on on searches on four Seasons Orlando, so it was very good. But again it was very authentic, which ultimately is what.
People like I love it.
I wonder how many board meetings for about the four seasons Baby. All right, now four Seasons, CEO, thank you so much for being.
Joining us. Now I'm so pleased to say it's now Leazei of.
Deutsche Bank, and I want to start thank you so much for being here. Matt, I want to start with your impression of how predictive to Danny's this PPI print is for tomorrow's CPI.
Yeah, I would agree with Mike that not very Usually what we look at are the few components that go into PC the form the inflation gage that the FED focus is on, so their portfolio management, healthcare, a few of the other airfares or used car prices are most important. I would downplay, you know, what we're seeing in the headline or the core just for that reason. I think, you know, we have to go through some of the details. There are some reasons to think that some of those components could have been stronger, so portfolio management. Inflation one tends to lag the market. So the strength we had in markets and prior months should actually lift that inflation component. But I think ultimately as little feed through into how we think about the CPI beyond those components that matter for the pc I wouldn't change too much of how we're thinking about the CPI tomorrow. But the market is lean, I think in a very doughest direction from a CPI perspective. You know, the market pricing is around a zero point one percent core CPI print, below what consensus is expecting. So the market is kind of anticipating soft inflation numbers which allow the Fed begin to cut rates.
And this really is basically feeding into that kind of coiled spring that we've got coming into tomorrow. In terms of that dubvish positioning, Is there anything that you're seeing in the data that should push back against that because at one point you are more dubbish than the market in terms of rate cut calls.
Now you're actually more hawkish.
Than the market with three rate cuts for the remainder of this year. So is there anything in this data that would give you pause before throwing your hat in the ring and saying you know.
What, market? You're right?
Yeah, thinks changed quickly, you know, as you mentioned about a month ago, we shifted to three twenty five basis point back to back to back cuts and was viewed as aggressive at that point in time. You know, I think from the Fed, what we've heard from them is wanting to kind of take a step back, be able to see the data.
You know.
I think my read on the data is you have a clear slowing, including in the labor market, but it's not recessionary at this point in time. You still do have inflation that's above target, but I think inflation risks have really dissipated, and so I think the Fed should be very comfortable cutting rates should they go by fifty basis points. You know, the market has been priced kind of fifty to fifty for that at this point in time, I think the data will determine it. So if we get confirmation in the next job support that the latest weakness was real, then I think it could be quite likely that the FED cuts by fifty basis points. If you see a reversal of some of that weakness, which is my baseline expectation, if you have the continer to consumer continue to come in resilient, then I think that the Fed can have a path here of going by twenty five basis points at each meeting.
Can you just break down with the difference of going twenty five and fifty is on impact? Is it signaling or is there actual economic legs up that they give the economy by going by fifty instead of twenty five.
Yeah, so at the moment, a lot of this is already priced into the market, right, So two year yields are reflecting an aggressive rate cutting cycle, a little bit more aggressive than we're anticipating. I think markets are reflecting that at this point in time. So if the Fed were to go by twenty five basis point increments rather than that, yields would rise, maybe you see equities come.
Down a little bit. But I'm skeptical that the Fed being a.
Little bit more hawkish is going to tighten financial conditions aggressively, And the reason is the only way that they would do that is if the economy is looking resilient, and I think the market is highly leveraged to negative news on the economy, as I saw with the jobs report.
Anything that looks like it's a downside risk.
So I think if we get resilient news on the labor market and consumer financial conditions can remain easy even if the FED only goes by twenty five basis point.
Clip, are you surprised or even maybe concerned the Fed hasn't given themselves that optionality, announced that optionality of doing fifty basis points that at the moment they're still discussing whether or not to do even just twenty five.
Yeah, I think you know what we will often hear they make decisions at a meeting, and it's only for that meeting. I think what we've heard from FED officials since the jobs report and since market volatility has been entirely appropriate, which has been Yes, there was some weakness in the labor market data, but they are not overly worried about it. They're not worried that it was signaling recession. I think what they were seeing in markets, they thought was being driven by technicals and positioning in a nonwind of positioning, and so I far I think that's played out, and the market went from pricing over one hundred and twenty five basis points this year down to less than one hundred. And if you get good data, I think it'll give them the optionality. So I think they're in a fine place at this point time, and chair pal at Jackson Hole can help guide guide us on how they're thinking.
Matt, you say the consumer's resilient.
What do you make of what Home Depot said this morning, which is that they're in this deferral mindset that they're waiting to make big purchases.
Yeah, I think resilience is definitely different than kind of robustness or strength, and so I think we're coming from a consumer environment where you just had a very robust consumer over the course of twenty twenty three, and it was across the income distribution. It was kind of hard to find pockets of weakness. You now do have some pockets of weakness. You do have some pockets of softness. I think it's more reflecting of a normal type of an environment, you know that said the labor market data does have some risks to it. Job gains did slow, we think some of it was due to hurricane effects, but they have the uneployment rate has risen up to four point three percent, and job gains remain resilient only because layoffs remain low. So if there are risks that I am looking at, it is that that layoff picture changes and that would clearly undermine the consumer in a way that turns it into it kind of a more negative dynamic.
If we are now at full three percent of the uneployment rate is basically what the Fed wants to be at the end of the year. Does that in itself signal that they are behind the curve.
I don't think it's signals that they're behind the curve.
I think it's signals that their dot plot in June is not appropriate at this point in time. So when they set that forecast with that unemployment rate, they had one rate cut this year. I think that no longer is a reasonable view at this point. I think it's more likely that the debate is between going twenty five or fifty basis points, and I think that will be a real debate. I think it'll be dictated by the data I honestly think that there's compelling arguments on both sides.
They are restrictive.
The inflation data is telling them that there's not as much upside inflation risks, and then it depends on whether not the economy is actually as resilient as we think. If it is, then I think that they should go by twenty five basis points, and I think they probably will. But if we get kind of confirming evidence on the labor market front, that gives them scope to go more.
Aggressively, giving some credence to that fifty basis point a rate cut thesis.
If you are just joining us, we did just.
Get that PPI number and did come in softer than expected inflation, then not necessarily the concern and opening the door really to the Fed to cut rates perhaps even more aggressively. Zero point one percent was PPI final demand versus the expectation of zero point two percent.
That leaves the year over year final.
Demand at two point two percent versus the expected two point three percent.
Pretty much across the board, it seems softer.
What you see in markets is pretty much a collective cheer. You see across the board, stocks rally much more aggressively led by the Nasdaq one hundred.
You also have bonds.
Rallying, as you see two year yields fall below four percent solidly. So although we're tracing some of the earlier rally that we saw three ninety six sixty eight, it's pretty much across the board. The biggest bid though into the two year, and if you bleed that through foreign exchange, you see the dollar softer as you expect some sort of rate cutting cycle to commend, certainly in September. A question now the depth of it, the yeurogaining versus the dollar one oh nine forty five. Michael mckeis still with us here. Our economics corresponded, what are you seeing in the details of this?
Well, the big change, as I mentioned earlier, was that services prices went down, while goods prices went up, largely because of gasoline, but we also saw passenger car prices fall two tents. Health Care prices were basically flat, insurance prices basically flat. The big increase in the numbers came from portfolio management. Matt Lizzetti's colleagues are causing inflation at this point. Portfolio management prices rose two point three percent, one of the biggest moves in the whole PPI. So the fact that you get paid either.
Way works out well.
Melazetia is still with us and can responding. What do you make of the details.
Yeah, so portfolio maagement rose as I kind of signaled. I think actually, I think maybe the most important thing was healthcare being flat. So healthcare in the PC is twenty percent of.
The core PC index.
It's basically as important as rent and know we are. We've been signaling some upside risks to that because it tends to be leveraged on healthcare wage growth, and that's been very strong. You got a soft print there, so that is as a read through to core PC. It's a very good indicator for the Fed.
Matt. Just while you've been talking, I've been looking at the interest rate probability tick lower and lower. I mean not a dramatic move, but you were saying it's about fifty to fifty. It's now more than fifty percent chance that they go fifty basis points.
The next meeting.
Are we putting too much weight on each individual data point as this market rolls on?
Yeah, you know, the market is highly sensitive to each data point.
I think just seeing some big moves.
It doesn't take much to move, you know, by ten percent for a cut. It's only two BIPs on in terms of the pricing.
But you know, it makes sense. We're in an uncertain.
Environment at this point in time, and the FED is providing little for guidance. I think appropriately, if the FED is providing little for guidance, then it means the FED is data dependent and we should be sensitive to those moves. I do think the healthcare component here is important. That being flat rather than strong is a Dubbs signal for the core PC.
We'll have to wait what we get from the CPI tomorrow.
Mat Is that a really really smart Thank you so much, As always, Mount Assadi of George.
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