Bloomberg Surveillance - Dana Peterson, The Conference Board Chief Economist- Kristina Hooper, Invesco Chief Global Strategist- Marvin Loh, State Street Senior Strategist - Global Macro
Dana Peterson of The Conference Board says the Fed can be less concerned about inflation following the release of the August Core PCE inflation data. Kristina Hooper of Invesco believes there is a lot of nervousness about the Fed's 50bp rate cut and what it means for the economy. Marvin Loh of State Street says, "A lot of what we're seeing in China is market supported, but not necessarily economically supported."
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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. Joining us now is Dani Peterson at the conference board. Daniel, welcome back to the program. Got lots to talk to you about that consumer confidence number from earlier than this week. I just want to pick up on the data that came out just months ago this morning. How are you thinking about it? How does it inform your view of where the Fed goes next?
Well, I think the jury still out.
We still have a lot more data where you could see, especially next week's ecloyment data.
But I mean the good news is.
Then please and is continuing to slow and so the Fed can be less concerned about that if inflation flows faster than the past that they outlined in the September SDPs. Then certainly they can go fifty, but again they need to I think they need to see the labor market, and I think the labor market's doing fine. When we look at the number of payrolls, you don't need to have two three hundred thousand payroll editions a month when you're pretty much at full employment and the unemployment grade is very low. Wage inflation is still elevated, so there's still a lot of good news about the labor market. And also when we look at growth, you know, if consumers continue to spend, then that's.
Going to mean very strong GDP growth. So I think the Fed is still going.
To be data dependent, and you know, all the data from now until November are going to decide whether the Fed goes.
Fifty or twenty five.
Well, Dena, how low is the bar to go fifty? We've got payrolls next Friday. They estimate in our surveys about one thirty. You said yourself, we don't need two hundred. Something between one hundred and one fifty is still okay for the economy. And where we're at right now, how low is the bar to go fifty.
Well, I think if you start seeing negative payroll reads or further creep in the unemployment rate. You know, the FEDS looking at the unemployment rate to kind of top out at four point four percent. The natural rate is four and a half, so that's full employment. But I think if you start seeing the unemployment rate keep above that, then the set is going.
To lean on.
Okay, now from the downside, risks that we feared or starting to materialize, So we need to cut rates faster to undergir the labor market.
Were surprised by Dana and by how weak some of the labor sentiment was by the consumers.
That you ended up surveying.
Were you surprised that people felt like jobs really were getting much harder to get?
Well, not really, because if you think about it, the peak of the job hard to get jobs needed to get differential was back in twenty twenty two, when we.
Know it was very easy to find a job.
You had all these job openings because companies are still trying to replen at their ranks after the pandemic. Now, companies that pretty much have all the workers that they need.
When we talk to the CEOs of.
Large companies, About forty percent of them are saying, you know, we're not making any changes to our workforce, and the other forty percent are saying, we're going to continue to hire, and only about twenty percent are saying, ah, well, maybe you'll let some people go.
So it's still a story of hiring and hoarding.
And so if that's the case, then you're not going to see big payroll gains month after month because we're at full employment.
We also saw a decline and consumer sentiment just more broadly, and previously it had been really inflation expectations that were driving that. When people felt like the cost of the goods they were buying or going up at a dramatic pace, they felt pretty bad about that, pretty negative. Do you think that this had more to do with the jobs picture maybe softening from a very strong level, or do you think this has more to do with things like the election and other sentiment factors that come into some of these economics points.
Sure, well, the measures.
That go into our headline are business conditions, the labor market, and income. We don't the election or inflation. Those measures don't fold up into the headline. And so when we look at the headline. It really has been moving back and forth. Certainly, the last reading is at the bottom of the range that we've seen in the last two years. But certainly we do ask consumers what do you think about inflation? What do you think about you know, things that are impacting the economy. It's still the case that prices and inflation, those two words are still cropping up. Prices, you know, the level of you know, how much things cost is elevated, but they're a little less concerned about.
The rate of change and inflation.
We did notice that the words interest rates and election did pop up.
In some of the right and measures.
Even still when we looked at the election certainly over the last years in terms of.
Those right and it's still pretty low.
I think consumers are not really going to get too focused on at as being a major issue for the economy until we get to October.
But to Lisa's point, I understand you have a surgical way of how you go about this survey, but you talk to CEOs, you see what's going on in a campaign trail. Right now, if you're a CEO and you come out and say, potentially you might be moving workers to a different country because you need to save money or you need to find certain labor, you are going to be basically in the bullseye of one of these candidates is they are concerned, potentially in the labor market, that companies are just waiting for more clarity after November fifth.
Yes, companies are waiting for more clarity. But the thing is they are investing in include technology and human capital, and it's really not the case and not hearing that companies are looking to offshore people. They're trying to find people right here in the US. And certainly the companies that are benefiting from industrial policies around pips and infrastructure and factories are doing quite well. They're giving us the good story.
Now it's the.
Companies that are more consumer facing where they see, you know, risks of consumers really pulling back. They're much more worried, especially since consumers are still buying a lot of services.
But we're noticing that as goods.
Price fall, consumers are running out there and they're buying cars. So we're not getting that sense that companies are either looking to layoff labor or.
Even move them abroad. It's a very different story.
Then, Unpleased that you joined the program today, because I'm sure you've got a lot of phone calls this week. Danny Peterson at the conference book John Guess Now is Christina Hoope of Investgo. Christina is going to see you. Welcome to the program.
It's great to see you too.
Is this the real deal a game changer in China this week?
I think it could very well be.
I mean, certainly the initial reaction suggests that it could be. That it's certainly more than was expected, and seems like there's a real commitment to follow up with more as a needed.
Talk to me about what changes for you, because a lot of people are waking up thinking I've been over a whit US runners sis to the rest of the world for a long long time. Does that need to change?
I do think it needs to change somewhat. But I would say where the bigger overweight is is still cash, and so there's an opportunity to deploy and get one's portfolio more into balance, but not necessarily take away from US equities, but just build up exposures to other areas like European equities, like Chinese equities instead. And I think there's a real argument to move more into China because valuations are very attractive. We've just been waiting for that catalyst. It seems to have rived.
I love this people, person after person who comes in the show get out of cash. Why are you in cash? There's so many other things.
To invest in.
Lock in these yields. Go to China, go to equities in the US, go to Europe. And what did we see over the past week the biggest weekly flow into cash funds into money market funds going back to March of twenty twenty three. How do you understand that?
Well?
I think there's certainly a lot of nervousness out there. There is an excitement about rake cuts and the opportunities that they bring, but there's also this trepidation that what if that fifty basis point cut was a crisis cut, what if the economy is on worse footing than we think, and let's face it, what if other areas of the world are on worse footing than we think. So I think there's certainly a bit of a split personality for markets right now, where there are those that are hedging their bets look at the kind of money that's going into gold as well. But at the same time, there's an excitement about equities, and I think that is rightly placed, because I do believe my base case scenario is the US does see a soft landing, and that we see a pretty brief soft landing with an economic reacceleration to follow.
There's a real question here about whether that soft landing can come with a rally and everything. The sort of soft landing nirvana that supports bonds as much as it does stocks as much as it does is broadening out trade well.
I think of it as almost the opposite of twenty twenty two, where virtually everything sank, and so you can have a year where you have an everything rally. You can have an everything bagel. Why can't you have an everything rally?
I love that everything bagel on and everything rally well potentially, and your notes put it, the markets are still swimming in a sea of uncertainty. Out of all those uncertainties, what ranks number one for you whether or.
Not the US has a soft landing. Let's face it, we're certainly getting data that tells us that the economy is in fairly good shape. But there is that fear that, because of the long and variable legs of monetary policy, that aggressive tightening cycle, that restrictive monetary policy environment catches.
Up with us.
And so that's why I think we follow consumer sentiments so closely, and that's why we had in reaction to the Conference Board consumer numbers the other day. But I would argue, when you actually delve into the information, once you saw where's consumers got much more negative on economy, but they still want to spend, they still want to go out to eat, they still want to go to the movies. So I think of it more as an e or economy where consumers are worried, but they're not necessarily acting on their worries.
It's America, we can't share with the Conference Board a little bit later. Isn't that America? But still spending? Anxious but still spending.
Well, you know, to me, this is the sort of big million dollar question everyone's been saying, you're running out of savings. Americans just go and they're reckless, ruthless, they spend anyway, they're going to borrow to spend. But actually the savings rate it was potentially highed that we previously reported in new data, So maybe people actually haven't been imprudent. Maybe Americans were smartly spending on things that matter to them and trips, and you know.
They still have credit cards. So even if you're worried about losing your job, you might as well yolo, go out to dinner, go to the movies, go on a vacation, have some fun.
And Donald Trump's going to camp the interest rate on the credit cards, right, potentially? What did you make of that? Can I just pick up on that? I think it's really important. We talked a lot about price controls coming out of the Harris campaign. We haven't told enough about this camping interest rates on credit cards? Can you mution what would hapen? And if we did that, we'd basically only have credit allowed for people who had high fight host scores, and I mean really really high credit scores, there'd be a lot of people locked out of credit markets.
Two things, One again, is Donald Trump or Bernie Sanders brow like literally a Bernie brow because this is what the progressives have been talking about, but at a fifteen percent cap AOC and Bernie Sanders. But what was interesting so we heard from mister Moultpass was a serious immediate step back. I'm not one of those people. He doesn't really think that that should be happening.
All I can say is, think about all the money in private markets. It would come up with creative ways to give credit in other or more punitive rates later in some other views. So I mean, it's not that they'd be locked out, it's just, you.
Know, you really want to borrow.
Come on over here, I've.
Got a price for you.
Don't underestimate innovation in financial markets in America. Christina is going to see it. Thanks for being here, Christina Hoop there of Investco. Marvin Low of State Street stain bullish ris in this. The FED is alive and well. The Fed's willingness to start with a fifty basis point RATECUN while remaining data dependent, essentially hands the market the option to push the Fed towards fifty on any sign of economic weakness. Smuth and Low joined us now for more, Marv and I've said this a few times out of the last week. Does it get much better than this?
You know what, it's a pretty good time right now with the stories coming out of China. Certainly the global cutting cycle and discussions.
That it might accelerate is just good for risk assets. And you know, let's not look that gift towards in the Mount Marvin.
The mans are up, luxuries up, Chinese tech is up by almost twenty percent so far this week. We've seen this movie before you get Hitts the stimulus out of China, We rip for a little bit and then we roll over. Is it different this time?
You know, it's pretty significant.
Certainly, it does seem as if the central government is looking to stabilize at least the economy through the financial markets. It's a real question to us whether or not, you know, similar to whether or not Wall Street can make it way into Main Street, whether or not these actions can once again drive a more active consumer that has really had problems feeling comfortable with the economic situation there. So that's to be seen, but from a market's perspective, it certainly is supportive.
There's a broader theme here, and this, I think is what really got people's attention this week, which is maybe the market underestimated just how much the FED cutting cycle would open the floodgates to the rest of the world also taking easing steps. How much is that what we're seeing and basically paving the way to a global easing cycle that really fuels more growth than people previously expected.
You know what, I've always been of the thought that while everyone expected the FED to cut, it really took a view of how the cycle was going to evolve in their minds, in the fomc's minds, to get investors comfortable with how that might domino.
Through the rest of the world. So, yeah, there is a bit of that.
Even though everything has been you know, fairly well priced, a looser monetary policy coming out of the US just makes it a lot easier for the rest of the world to ultimately follow along.
Is it now just a potential policy error waiting for the ECB not to hike, not to cut rates in tandem with the FED more aggressively, just simply because they have inflation below two percent, they have growth rolling over, They've got a whole host of potential challenges. There is no argument for them to keep rates where they are. Am I missing something?
Yeah? I agree with you completely.
What is going to be interesting, I think as we go into next year, our potential changes in our star kind of if you will, this neutral rate where in Europe it looks like there are star could potentially be lower than what it was before the pandemic.
Where in the us.
We're still debating whether or not kind of this two and seven eighth neutral rate, which is, you know, almost fifty basis points above where it was before.
The pandemic started, makes sense, you know, does it need to be even higher than that?
And that's kind of the Monte policy diversion, a dispersion that we had been expecting really for the last year year and a half, which is now finally playing out.
Marvin leaving the ECB to one side. How promising is it for Europe basically only dependent on how well China goes with these new stimulus measures.
I mean, I mean, for sure we have to look underneath the covers there and wonder what that economy looks like. It's again part of that r Star discussion I'm talking about. It's Germany's really real inability to kind of get out of its dulgrums. I do think it is a sick type of economy that takes a lot more than just this one sugar dose.
It'll help, for sure, but there's still a lot of underlying concerns.
How difficult does understand the German economy when you see the headlines coming out of say the auto industry, but then you look at where the decks has been trading.
Yeah, I mean, I mean, for sure, again it's the separate between Wall Street and Main Street to a certain degree. You know, Germany has really benefited from a pre pandemic world which was much different from a geopolitical perspective, which is, you know, certainly impacting Europe a bit more than it might be the US economy. And we really need to think through that as a potential headwind as we go into an environment where geopolitics potentially becomes a much higher headline concern than it really had been in the you know, mid twenty tens, if you will.
Okay, putting aside potential geologic political shocks, you are potentially much more bullish than you were, say a week ago. Is that an accurate characterization?
No, no, no, I mean I really did feel that the cutting cycle was something that was underappreciated. You know, I do think that the tailwind globally is pretty significant. So you know, I've been I've liked stocks for the better part of the summer.
Okay, so you've been bullish for a while, and that's what a lot of people have been saying. They're getting more bullish as the cutting cycle goes on. Maybe you've always been this bullish. People are saying, get out of cash. It is the time to start going into other assets, into stocks, into longer term bonds. Yesterday we got data from ICI showing the biggest weekly inflow into money market funds. Jerome Schinder yesterday of PIMCO is telling us this is not really going to be the best place to be. It is actually accelerating the flows into these asset classes. Six point four trillion dollars now in money market funds. How do you explain the fact that people are still rushing to cash at a time where you're hearing the increasing cries to get out.
Yeah, you know what. We were having that exact same discussion on the desk yesterday.
There are a lot of things that don't necessarily package well in terms of the flows and liquidity. I do think it speaks to the amount of liquidity that remains in the system, which ultimately supportive until we really start to worry about liquidity, if you will. At the same time that that's happening, we've got this Treasury conference that's going on at the New York Fed where they're talking about thinking what the liquidity situation will look like as QT kind of goes on. So for the moment, it is a tailwind. There is a lot of liquidity in the system. I think it speaks to the growth that we have in the US and that potentially either supports retail and or supports the market.
But QT will continue to operate in the background given.
That there's so much liquidity out there, and we do need to think through into the second half of twenty twenty five, which feels like a lifetime away, when maybe all of these talmans we have really start to die.
Down twenty twenty five, I think we've got to talk about the policy anxiety around the election. Mavin. Do you think we can avoid that kind of gambler in the equity market as we anticipate what may or may not happen November fifth.
I mean, you know what, there's so.
Much that's going to happen in early November, you know, certainly the elections, hoping that we actually have an answer, if you will, after the elections.
The FED is that week.
Also, you know, the risks that I would look at in terms of top priority to to you know, getting a little bit lesser. Number one is whether or not we can call it, you know, who the president is comfortably. If we can't, that is an absolute risk premium that the market needs to absorb. In terms of policy itself, there's going to be an intric reaction where Democrats are viewed less uh, you know, less cooperative to the markets, if you will, But policy itself that gets.
Put in place, you know.
I think we need to figure out who Congress is and what they can actually get done, if anything. Really the deficit discussion remains top and center.
However, as we go through this, which really.
Formulates how you want to look at longer treasure yields as we kind of go into the end of the.
Year, be on the bond market though month and I think this raises really important questions about the character of the current rally. We've seen China absolutely rip this week. How vulnerable would it be this rally to a Trump presidency come November?
Oh, you know, for for sure.
Again, I do think that a lot of what we're seeing in China is market supportive but not necessarily economically supportive.
We've had head fakes before.
It takes the real economy in China getting firm footing to really justify the kind of rally that we've been seeing.
Marvin enjoyed this. Thank you, Sarah. As always, Marvin lode at State Street. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am 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.
