Latest / Bloomberg Intelligence / Bofa's Harris Says Bond Market Has Been Too Optimistic (Audio)

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Bofa's Harris Says Bond Market Has Been Too Optimistic (Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York Bloomberg eleventh, Rio to Washington,
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  Speaker 1: d C. Bloomberg to Boston, Bloomberg twelve hundred to San Francisco,
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  Speaker 1: Bloomberg nine to the countries es Exdam General one nine
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  Speaker 1: and around the globe the Bloomberg Radio Plus happened. Bloomberg
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  Speaker 1: got gone. This is taking Stock. I'm Kathleen Hayes along
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  Speaker 1: with pim Fox. The payroll pop, that's what they're calling
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  Speaker 1: it over at Bank of America Merrill Lynch. Enough to
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  Speaker 1: relieve fed policymakers that the economy is not losing steam
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  Speaker 1: as that may number may have suggested, but not enough
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  Speaker 1: to eliminate worries about global downside risk. PIM yes, and
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  Speaker 1: non farm payrolls rising by a seasonally adjusted two hundred
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  Speaker 1: and eighty seven thousand in June. That's the strongest month
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  Speaker 1: of hiring since last October. Right now, let's go to
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  Speaker 1: Charlie Pellart in Bloomberg whose room for a Bloomberg business flat,
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  Speaker 1: and thank him, Thank you, Kathleen, all about jobs are
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  Speaker 1: Coverage continues right here on taking Stock, but markets responding
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  Speaker 1: best level of the day right now, the now at
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  Speaker 1: eighteen thousand, one hundred forty nine. It's up two hundred
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  Speaker 1: fifty three points now again of one point four percent.
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  Speaker 1: SMP five hundred index up thirty one again also of
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  Speaker 1: one and a half percent, and has stack ups seventy
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  Speaker 1: seven points again there of one point six percent. The
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  Speaker 1: tenure of five thirty seconds yield one point three six percent.
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  Speaker 1: As you guys mentioned, the Labor Department said employers added
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  Speaker 1: two hundred eighty seven thousand jobs, far more than the
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  Speaker 1: economists survey by Bloomberg were expecting. The jobless rate rose
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  Speaker 1: to four point nine percent as more people entered the
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  Speaker 1: labor force. Wages did advance less than projected. Bill Gross,
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  Speaker 1: his fund manager at Janis Capital, He says June's strong
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  Speaker 1: job report probably won't change the Federal Reserves decision on
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  Speaker 1: when to raise interest rates. You know, they still have
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  Speaker 1: Brexit to look into the eyes of the whites of
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  Speaker 1: the Brexit eye. I guess they have problems with Italian banks,
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  Speaker 1: so the Fed doesn't, but the uh, the e c
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  Speaker 1: B and the you do, the problems with the UK
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  Speaker 1: property mutual funds. Uh. You know, there's a sense of
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  Speaker 1: illequdity and markets and and the Fed of course is
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  Speaker 1: very obsessed and concerned with markets, and right now markets
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  Speaker 1: are with the Dow Industrials up to sixty a gain
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  Speaker 1: of one and a half percent, Gold down by a
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  Speaker 1: dollar to thirteen sixty one to drop there of point
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  Speaker 1: one percent. Crude oil holding about forty five dollars a
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  Speaker 1: barrel up twenty one cents now forty five thirty six
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  Speaker 1: on West Texas Intermediate, a gain of point five percent
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  Speaker 1: to thirty two on Wall Street. Now, let's take a
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  Speaker 1: look at other news from around the world. Thank you,
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  Speaker 1: Charlie from the Bloomberg news room. I'm Ramy in a Cento.
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  Speaker 1: One of the suspected gunmen in an ambush that left
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  Speaker 1: five Dallas police officers dead has been identified as twenty
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  Speaker 1: five year old Micah Xavier Johnson. That's according to reporting
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  Speaker 1: in multiple media outlet. Johnson reportedly served in the Army
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  Speaker 1: Reserve as a carpentry and masonry specialist. He was killed
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  Speaker 1: by an explosive strap to a police robot after hours
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  Speaker 1: of negotiating with police. Three other suspects are being detained
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  Speaker 1: by police. Texas Attorney General Ken Paxton is calling the
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  Speaker 1: attack on Dallas police calculated. He told ABC News people
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  Speaker 1: should be on the lookout for potential copycats. People need
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  Speaker 1: to be on guard for potential attacks and other places
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  Speaker 1: and and maybe here, So I think we're definitely on
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  Speaker 1: a higher alert here and around the state. President Obama
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  Speaker 1: is in Poland, where he commented on the shootings is
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  Speaker 1: that there has been a vicious, calculated and despicable attack
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  Speaker 1: on law enforcement. Police and ballast were on duty during
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  Speaker 1: doing their jobs keeping people safe during peaceful protests. Mr
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  Speaker 1: Obama also called last night a wrenching reminder of the
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  Speaker 1: sacrifices law enforcement officers sometimes have to make. Five officers
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  Speaker 1: were killed and seven others were wounded. A judge in
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  Speaker 1: the George Washington Bridge Lane closing case has ruled against
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  Speaker 1: providing access to Governor Chrissie's cell phone as part of
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  Speaker 1: pre trial preparation. The U. S. District judge granted a
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  Speaker 1: motion by the law firm representing Chrissy's office to quash
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  Speaker 1: a subpoena by former allies Bill Brownie and Bridget Kelly.
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  Speaker 1: Global News twenty four hours a day, powered by more
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  Speaker 1: than twenty journalists and analysts in more than one under
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  Speaker 1: twenty countries from the Bloomberg News Room. I'm Rami in
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  Speaker 1: a centio Charlie, and we thank you, and again recapping
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  Speaker 1: down industrials up two hundred sixty one points, a gain
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  Speaker 1: of one and a half percent, SMP five hundred index
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  Speaker 1: advancing thirty two points again narr of one and a
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  Speaker 1: half percent. I'm Charlie Pellett, and that's a bloom Bird
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  Speaker 1: business flash during listening to taking Stock with pin Box
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  Speaker 1: at Gatlee Hayes on Bloomberg Radio at tightening job market,
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  Speaker 1: it's put up with pressure on wage growth as employers
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  Speaker 1: compete for an ever smaller pool of a A level workers.
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  Speaker 1: Average hourly earnings for private sector workers rose by a
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  Speaker 1: modest two cents two cents in June dollars and sixty
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  Speaker 1: one cent satis of about two and a half percent
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  Speaker 1: compared to a year earlier, but the wages were up
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  Speaker 1: two and a half percent compared to matching the fastest
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  Speaker 1: annual growth rate since July two thousand nine. Here to
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  Speaker 1: tell us what this means for markets in the economy,
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  Speaker 1: Ethan Harris, Head of Global Economics, Bank of America, Merrill
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  Speaker 1: lynch Ethan Harris, thanks for being with us, so I
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  Speaker 1: give us your impression of the wage growth and what
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  Speaker 1: that would mean for GDP growth in the United States. Well,
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  Speaker 1: I think what we're saying now is the beginnings of
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  Speaker 1: the end of the job recovery. In other words, the
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  Speaker 1: beginning of a period where workers get a little bit
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  Speaker 1: of negotiating power, a way to start picking up a bit. Um.
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  Speaker 1: You know, we've been stuck at two percent wage growth
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  Speaker 1: for years now. Now we've moved up to about two
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  Speaker 1: and a half. I think it's going to take a
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  Speaker 1: couple more years of health jobs to get into more
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  Speaker 1: normal three and a half percent or so wage games.
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  Speaker 1: But you know, I think we're finally there at that
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  Speaker 1: late stage of the cycle where workers get get a
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  Speaker 1: more balanced relationship with their employers. Um. This is good
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  Speaker 1: news for the economy. UM. It's telling you that there's
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  Speaker 1: been a real healing process here. It's taken a long time,
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  Speaker 1: but UM, you know, FED policy is working. It's just
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  Speaker 1: working very slowly. So basically, um uh Ethan, when you
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  Speaker 1: look at the trajectory of jobs growth, it was stronger
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  Speaker 1: at the end of by a good margin. And that's
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  Speaker 1: why the FED. One of the reasons when they came
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  Speaker 1: in looking to high grates four times this year, UM
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  Speaker 1: by Marcia, was all the market and certainty right, and
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  Speaker 1: they cut back, but that the pace of job growth
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  Speaker 1: is also lost momentum. This was not a particularly strong
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  Speaker 1: it wasn't such a weak quarter for jobs growth, but
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  Speaker 1: it's one of the least strong we've had in some time.
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  Speaker 1: How are you sure that there isn't a loss of
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  Speaker 1: momentum here? That is going to be vulnerable too, As
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  Speaker 1: you point out in your your note today global downside risk,
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  Speaker 1: you say that things will be watching that well. I
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  Speaker 1: think if you look at broadly at the data in
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  Speaker 1: the last few months, actually there's been a slight pick
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  Speaker 1: up overall, So I think you're right that payrolls have
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  Speaker 1: slowed down fundamentally. I mean they're now running it about
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  Speaker 1: a hundred and fifty thousand a month on average, and
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  Speaker 1: they were running and well above two hundreds. So there's
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  Speaker 1: been some loss of momentum there. I don't think that
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  Speaker 1: that was sustainable to be creating that number of jobs
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  Speaker 1: in an economy growing two But if you look at
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  Speaker 1: the rest of the economy, you look at better retail sales,
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  Speaker 1: better survey measures like the Purchasing manager survey, um overall
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  Speaker 1: g d P in the second quarter looks like about
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  Speaker 1: two point six percent growth. So you know, there's a
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  Speaker 1: little bit of improvement going on in the underlying data,
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  Speaker 1: even with the labor market slowing down a bit. All right,
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  Speaker 1: so improvement there. But tell us about the manufacturing sector
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  Speaker 1: and inventory bills, because it seems as other manufacturing sector
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  Speaker 1: has been moving in a different direction than the service economy. Yeah,
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  Speaker 1: I mean we're still feeling the effects I think of
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  Speaker 1: the strengthen the dollar last year. Um, I mean, this
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  Speaker 1: is a tough environment for manufacturing. You had very sharp
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  Speaker 1: move up in the dollar, making us products less competitive globally.
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  Speaker 1: It was also an environment where you had a collapse
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  Speaker 1: in the mining sector, which uses a lot of manufactured products.
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  Speaker 1: So the mind of the manufacturing sector is kind of
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  Speaker 1: in a very slow motion recession. The rest of the
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  Speaker 1: economy is doing fine though, and remember manufacturing is only
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  Speaker 1: a little over ten percent of the economy, so it
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  Speaker 1: doesn't normally drive the economy, even though it can be
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  Speaker 1: quite volatile. Even uh, speaking of the feder Reserve, the
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  Speaker 1: Marcus don't see a rate height the rest of this year.
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  Speaker 1: And you get this this September on our our w
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  Speaker 1: I r P page on on the Bloomberg and there's
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  Speaker 1: still not an implied probability that gets to is the
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  Speaker 1: market wrong or are we in some kind of stasis
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  Speaker 1: where yeah, jobs are growing and maybe we just will
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  Speaker 1: rise a little bit more, but inflation is not going
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  Speaker 1: to rise much, and the Fed's going to look every
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  Speaker 1: month and say, dang, we'd like to move right set,
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  Speaker 1: but we don't, we can't or we don't need to. Yeah, well,
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  Speaker 1: maybe you need to rename that the r I P.
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  Speaker 1: Because it seems like the FED is dead. But all right,
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  Speaker 1: pretty good joke there, right, Um, But I would say
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  Speaker 1: that the market is slightly under pricing the Fed. I mean,
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  Speaker 1: we think the Fed by December will be ready to
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  Speaker 1: do another hike. Um, so you know they'll move. Well,
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  Speaker 1: that sounds like a big difference from the markets, but
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  Speaker 1: it's not that big a difference. What's going on right
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  Speaker 1: now the FED is that they want to be able
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  Speaker 1: to check all the boxes before they move. They want
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  Speaker 1: to be able to say the job markets okay, the
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  Speaker 1: economy is okay, inflation is picking up a bit, and
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  Speaker 1: they want to be able to say there's no systemic
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  Speaker 1: problems in the global economy or markets. When they feel
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  Speaker 1: comfortable with all three of those things, then they move
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  Speaker 1: ahead and hike interest rates. And that's why I don't
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  Speaker 1: think they're likely to hike in the next few months,
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  Speaker 1: because they really wanted some time to kind of get
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  Speaker 1: get these wounds behind us um. But I do think
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  Speaker 1: eventually they'll hike again. The bond market. I think, you know,
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  Speaker 1: it's a little too optimistic about the Fed being completely
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  Speaker 1: out of the picture. All right, Heathen here, thank you
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  Speaker 1: so very much for joining us today. Head of b
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  Speaker 1: of A Maryland Global Economics even says the economy, this
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  Speaker 1: is a good news report today in jobs, solid footing,
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  Speaker 1: moving ahead, a little bit, better wages, and he's looking
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  Speaker 1: for that interest rate increase from the Federal Reserve in December.
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  Speaker 1: This is taking stock and this is Bloomberg. The Hampton's
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