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Jobs Day, Markets, And Shinzo Abe (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. A change in non
0:22
Speaker 1: farm payrolls for the month of June came in at
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Speaker 1: three seventy two thousand. It's better than the consensus of
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Speaker 1: two and sixty five thousand, and it's a good news.
0:29
Speaker 1: Of bad news is it's less than uh the month
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Speaker 1: before and several months before. Let let's break it down
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Speaker 1: with Jay Brice, and he's a managing director and chief
0:37
Speaker 1: economists at Wells Fargo. I think he's also a multi
0:40
Speaker 1: time graduate of some small college or university in Chapel Hill,
0:45
Speaker 1: North Carolina, or something along those lines, but we'll bear
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Speaker 1: with that. Jay, Thanks for joining us. We really appreciate it.
0:50
Speaker 1: Would you make of the job's number here today? When
0:53
Speaker 1: kind of what's your take forward move? Yeah? So apaulogist,
0:56
Speaker 1: you know, go heels um uh, But yeah, so as
1:02
Speaker 1: as you just noted. So the good news is we
1:04
Speaker 1: created a lot of jobs in soon. You know, this
1:08
Speaker 1: is one of these good news is bad news sort
1:10
Speaker 1: of deals. I mean, I still kind of seals the
1:13
Speaker 1: case for the FED going in another seventy five UM
1:16
Speaker 1: at its meeting later this this week or later the
1:19
Speaker 1: sponsor rather so. UM. And that's you know, kind of
1:22
Speaker 1: why markets are you know, the stock market is off
1:24
Speaker 1: right now. Suddenly you know, recession fears are back if
1:28
Speaker 1: the Fed, you know, it gets really aggressive. So do
1:32
Speaker 1: we expect the Fed to get really aggressive? Um? Are
1:36
Speaker 1: you in the seventy five or the fifty camp for July? Yeah?
1:40
Speaker 1: So before this, before this number prints today, we were
1:43
Speaker 1: seven D five And I think there's just reinforces um
1:47
Speaker 1: to our belief that they're gonna go seventy five. I mean,
1:49
Speaker 1: I think the wheels would just have to come completely
1:52
Speaker 1: off between now and the end of the month. But
1:54
Speaker 1: I'm not to go seventy five, And then I think
1:56
Speaker 1: it's gonna be interesting where do they go from there?
1:58
Speaker 1: You know, if they get if they goes seventy five,
2:00
Speaker 1: then you're at a fit funds rate roughly two and
2:04
Speaker 1: a quarter that's starting to move into the range where
2:07
Speaker 1: most people in the f O m C would say,
2:09
Speaker 1: we're quote at neutral at that point, and so that's
2:13
Speaker 1: what they seem to want to be getting to where
2:16
Speaker 1: policy isn't stimulating the economy anymore. Some of the jay,
2:20
Speaker 1: how do you measure that? By the way, I mean,
2:22
Speaker 1: I know that it's not an exact science, but where
2:25
Speaker 1: where do you do you use the tailor rule or
2:27
Speaker 1: what do you do to what we do? Yeah, So
2:32
Speaker 1: what we do is we you know, we kind of say,
2:34
Speaker 1: so what do we think the uh, you know, the
2:37
Speaker 1: underlying real rate of the economy is, So that's probably
2:40
Speaker 1: somewhere where the real rate of the economy can kind
2:43
Speaker 1: of grow. That's probably somewhere around one and a half
2:46
Speaker 1: to two percent. Now, you don't want to real Fed
2:49
Speaker 1: funds rate at that high because you know, the yield
2:51
Speaker 1: curve is kind of upward sloping, so generally, so you know,
2:55
Speaker 1: we would put it somewhere around you know, two and
2:58
Speaker 1: a half to maybe three would be in nominal terms
3:02
Speaker 1: that we would think the neutral rate would be. But
3:05
Speaker 1: you know, as you just know, it's not it's certainly
3:07
Speaker 1: not an exact sort of sort of science. I'm just
3:08
Speaker 1: trying to on my Bloomberg I have t a y
3:11
Speaker 1: l go at the Taylor rule and you've got to
3:13
Speaker 1: plug in your own neutral rate. Um, no matter what
3:18
Speaker 1: I do, it seems like the estimate is way higher
3:22
Speaker 1: than anybody else's terminal rate expectation. Yeah, and you know
3:26
Speaker 1: the Taylor rule was, you know, John Taylor estimated that,
3:29
Speaker 1: you know, years ago, and the economy has has has
3:32
Speaker 1: changed over time, and so um, you know, I think
3:36
Speaker 1: it would be It's probably not as high as what
3:39
Speaker 1: you know, many people would would think it to be
3:41
Speaker 1: at this point. And terminal terminal rate, what do you
3:44
Speaker 1: think we get we get to here? Because with eight
3:46
Speaker 1: percent inflation, a terminal rate of four wouldn't be out
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Speaker 1: of this world, would it. Order. I think you're looking
3:53
Speaker 1: kind of around four. And I think what's going to
3:55
Speaker 1: happen as we go forward here is that the inflation,
3:59
Speaker 1: your all inflation rate in the space is the rate
4:01
Speaker 1: that it's going to plant. Next week for June is
4:04
Speaker 1: going to be another ugly print. But going forward you
4:07
Speaker 1: should see the rates start to come down. You know
4:10
Speaker 1: what what are the you know, we're looking at commodity
4:12
Speaker 1: prices down pretty significantly. That will eventually feed into goods prices.
4:17
Speaker 1: You know, the wage number that we saw today average
4:19
Speaker 1: hourly earnings only zero point three percent, So we're getting
4:23
Speaker 1: some deceleration in terms of wages that will feed into
4:27
Speaker 1: service sector sort of employment. So by the end of
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Speaker 1: this year, if you have the terminal rates roughly around
4:33
Speaker 1: four percent and the inflation rate, it's still gonna be
4:37
Speaker 1: higher than that. But as we move into next year,
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Speaker 1: you should start to see a positive real Fed funds rate.
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Speaker 1: And with all the other tightening that you're seeing in
4:47
Speaker 1: financial markets, credit spreads widened, the dollar stronger, stock bar
4:51
Speaker 1: stock indussees moving lower, that's all financial tightening. All those
4:56
Speaker 1: things put more headwinds on the economy, and we're afraid
4:59
Speaker 1: to lead to a modest sort of recession, you know,
5:02
Speaker 1: either late this year or early next year. So is
5:05
Speaker 1: that really the risk here, Ja, because we again, as
5:07
Speaker 1: you mentioned, we do have some inflation metrics to are
5:10
Speaker 1: in fact coming back down. So it appears that maybe
5:13
Speaker 1: that issue can be put on backburn. A little bit
5:15
Speaker 1: of a recession still on the table. I think I
5:18
Speaker 1: think it is. I just think it's it's becoming less
5:21
Speaker 1: credible to expect the SAIED to be able to engineer
5:24
Speaker 1: a you know, a soft landing here. And I'm not
5:26
Speaker 1: saying that's not important, is that that's impossible. I mean
5:29
Speaker 1: that certainly could happen. But whereas before we saw these
5:33
Speaker 1: nasty inflation prints starting, you know, about a month or
5:36
Speaker 1: two ago, you know, we would say the probability of
5:39
Speaker 1: recession or probability of a soft landing was, I think
5:43
Speaker 1: it's more like now, and so the probability of a
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Speaker 1: modest recession next year is kind of like, you know,
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Speaker 1: in the sixty sort of range. I think that's kind
5:53
Speaker 1: of what we're looking at. Just you know, given the
5:55
Speaker 1: defends aggressive here, given the amount of financial type mean
6:00
Speaker 1: that we're seeing, and the slowdowns in the rest of
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Speaker 1: the world, all those things pause. Um, you know, growth
6:05
Speaker 1: shers too slow significantly, And I think the turn you know,
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Speaker 1: negative on on a on a you know a few
6:12
Speaker 1: quarter sort of basis alright, good stuff. More importantly, I
6:14
Speaker 1: think you're looking at negative um employment prints. All right, Jay,
6:19
Speaker 1: good good stuff. You appreciate you taking the time on
6:22
Speaker 1: this job today. J Bryson, managing director and chief economist
6:25
Speaker 1: at Wells Fargo and a proud graduate of the University
6:28
Speaker 1: of North kind of former economist at Federal Reserve. Yeah,
6:32
Speaker 1: I know, these guys get around and then they got
6:35
Speaker 1: a strong resume. Does Yeah, very good. We love having
6:38
Speaker 1: him on. I don't know where you go in terms of,
6:43
Speaker 1: you know, a nice uh down middle market investor. Stocks
6:48
Speaker 1: down over so far in the first half of the year, Bonds,
6:52
Speaker 1: double digit declines pretty much everywhere you look, including treasuries.
6:55
Speaker 1: What do you do from here? Are we at a
6:57
Speaker 1: near a bottom? David Katz, President and Chief investment Officer
7:01
Speaker 1: Matrix Asset Advisors, David, what are you telling your clients
7:05
Speaker 1: here about where we go from here? Giving that brutal
7:08
Speaker 1: first half and both stocks and bonds after a miserable
7:13
Speaker 1: first half, we're pretty upbeat, surely in the stock market
7:17
Speaker 1: for the second half. Since nineteen thirty, there have been
7:19
Speaker 1: five periods where the market has opened down more than
7:23
Speaker 1: fifteen percent in the first six months, and five out
7:25
Speaker 1: of five the market was up in the following six months,
7:28
Speaker 1: and that was more than fifteen percent in most cases.
7:31
Speaker 1: So we're feeling pretty good about stocks and when we
7:33
Speaker 1: can go into that in a little bit, because there
7:34
Speaker 1: are a lot of other indicators that are pretty bullish
7:37
Speaker 1: on the bond side, after a very poor start of
7:40
Speaker 1: the year. We're still cautious about intermediate and long term
7:43
Speaker 1: bonds because we think that rates can move higher still.
7:46
Speaker 1: But for the first time in a long time, we
7:49
Speaker 1: are very positive on six months to two and three
7:52
Speaker 1: year bonds because you're getting about a three percent return.
7:55
Speaker 1: We don't think rates are going to move up that sharply.
7:57
Speaker 1: So you're finally getting rewarded, uh for we're owning bonds,
8:00
Speaker 1: whereas a year ago you were getting point two by
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Speaker 1: the way. Uh So, today we had this good news
8:09
Speaker 1: on on the job at least better than expected news
8:11
Speaker 1: on the jobs front, and I guess the market then
8:14
Speaker 1: thinks the Fed can get more aggressive. Does that affect
8:17
Speaker 1: your outlook for stocks? I mean, if the Fed goes
8:20
Speaker 1: seventy five and then you know, fifty and fifty, does
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Speaker 1: that hurt your outlook for stocks? If the Fed has
8:28
Speaker 1: to keep raising its seventy five and fifties, and definitely absolutely,
8:32
Speaker 1: but we don't think that's going to be the case.
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Speaker 1: We are starting to see signs that inflation is breaking.
8:36
Speaker 1: You just ran that story about San Francisco housing prices
8:39
Speaker 1: or apartments coming down. We're seeing lower labor pressure. What
8:44
Speaker 1: you saw today the walmarts and the targets of the
8:46
Speaker 1: world are discounting because they're overstocked in apparel and home goods.
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Speaker 1: So there you're starting to see some signs that inflation breaking.
8:55
Speaker 1: Commodity prices copper steel have sold off very significant. The
9:00
Speaker 1: we think if inflation comes down, it's going to allow
9:03
Speaker 1: the feed to be less aggressive in three For the moment,
9:06
Speaker 1: they've got to talk a very hawkish game, but we
9:08
Speaker 1: think they're going to be less hawkish next year. That's
9:10
Speaker 1: bullish for stocks, all right. So if we want to start,
9:14
Speaker 1: you know, maybe dipping our toe into this market, if
9:16
Speaker 1: we think most of the bear market maybe behind us,
9:19
Speaker 1: what are some of the sectors that you and your
9:21
Speaker 1: team are are kind of looking at. So we like
9:24
Speaker 1: a lot of things that have been beaten up this year,
9:26
Speaker 1: but we wouldn't be buying stocks just because they're beating up.
9:29
Speaker 1: But the sectors that we like most right now, or financials,
9:31
Speaker 1: consumer discretionary, we like select technology, communications services, medical technology
9:37
Speaker 1: and products, and some industrial, so pretty broad based. The
9:40
Speaker 1: one area that we're a little bit less enthusiastic has
9:43
Speaker 1: been consumers staples right now, and we've owned a lot
9:46
Speaker 1: of consumer staples going into the year. As they have
9:49
Speaker 1: done their job, as they have gone up when the
9:51
Speaker 1: market has gone down a lot, we've been scaling back
9:53
Speaker 1: on them and we think that at this point they're
9:56
Speaker 1: all about fully priced. We'd be taking that consumer staple
9:59
Speaker 1: money off the tap able putting it into the areas
10:01
Speaker 1: that I just highlighted. What about UM you know, the
10:04
Speaker 1: last couple of days and this is I guess this
10:06
Speaker 1: may be out of your universe, but we've seen Samsung
10:10
Speaker 1: UM beat on the revenue side, still margin pressure, t
10:14
Speaker 1: SMC beat on the revenue side, still margin pressure. Are
10:17
Speaker 1: we going to see that this earning season in the
10:18
Speaker 1: US texts as well? Well? You might continue to see
10:22
Speaker 1: some margin pressure, But the real key is going to
10:25
Speaker 1: be are they able to get their inputs and are
10:28
Speaker 1: they able to produce their product? And is their demand
10:31
Speaker 1: and if you can get through this quarter with a
10:33
Speaker 1: reasonable demand outlook, we think a lot of semiconductors that
10:36
Speaker 1: have been battered over the last six months are poised
10:39
Speaker 1: to do a lot better. So we like Qualcom. They
10:42
Speaker 1: just rebounded about twelve dollars in the last few days,
10:45
Speaker 1: so I wouldn't chase it today, but we think that's
10:47
Speaker 1: not goes a lot higher. Same thing with Texas Instruments.
10:49
Speaker 1: We think it's a hundred and eighty to two hundred
10:52
Speaker 1: dollar stock. You're getting a three percent yield. You're buying
10:54
Speaker 1: it at about a hundred and fifty so and we
10:58
Speaker 1: do like Cisco that that one has not moved yet,
11:00
Speaker 1: and we think it really is well positioned for the
11:02
Speaker 1: next twelve to eighteen months. It's a very inexpensive stock,
11:05
Speaker 1: has a good yield. We think management is very much
11:09
Speaker 1: on the ball in terms of maximizing shareholder value. And
11:11
Speaker 1: we think they demand is pretty good. And as all
11:14
Speaker 1: of a sudden their input costs come under control, which
11:17
Speaker 1: we're expecting to happen in the next three to six months,
11:20
Speaker 1: and they get more product and they're gonna be able
11:22
Speaker 1: to ship out and meet that demand. Uh. And it's
11:24
Speaker 1: at a really inexpensive price at about fourteen times earnings.
11:27
Speaker 1: And David, you've gotten Meta on your list as well,
11:29
Speaker 1: formerly known as Facebook. So much noise around that name.
11:32
Speaker 1: How do you get comfortable with that? Well that that's
11:35
Speaker 1: a great point. So we do not like Meta management.
11:39
Speaker 1: We don't think Ziggerberger is a particularly good guy. We
11:41
Speaker 1: don't like their uh ethics. However, it is one of
11:45
Speaker 1: the most powerful brands in the world. You know, half
11:48
Speaker 1: the population uses it every month. They have a great
11:51
Speaker 1: advertising model. They also have a lot of levers to
11:55
Speaker 1: control costs. Is advertising slows down this period and and
11:58
Speaker 1: this is you know, the most critical factor. It tells
12:01
Speaker 1: it about twelve times this year's earnings and that those
12:03
Speaker 1: earnings that we think are understated. So powerful franchise, good
12:07
Speaker 1: long term prospects at a great price. Uh, and we're
12:10
Speaker 1: willing to put up with management that were a little
12:12
Speaker 1: bit less enamored with that's uh. That's certainly a call
12:15
Speaker 1: from some of the folks that are looking at that name.
12:18
Speaker 1: David Kat's president and chief investment officer of Matrix Asset
12:21
Speaker 1: Advisers that joins us. Well, the world, at least in
12:27
Speaker 1: the Western world awoke to news of the horrific assassination
12:30
Speaker 1: of former Japanese Prime Minister Shinzo abe Um, and I
12:35
Speaker 1: think the market is trying to get a sense here
12:37
Speaker 1: of what, if any, are the implications for Japanese policies,
12:41
Speaker 1: politics and markets, and get some perspective there. We welcome
12:44
Speaker 1: Ben Emmons Medley Global Advisors, Managing Director of Global macro strategy. Ben,
12:49
Speaker 1: you're out with the note this morning after the news
12:53
Speaker 1: became public. What are your thoughts there's relates to Japan
12:56
Speaker 1: and its policies and politics. Hey, Paul, thanks for having me. Uh,
13:01
Speaker 1: first of all, it's obviously an horrific event and it's
13:03
Speaker 1: something that you don't wishue anyone to happen. Right, So
13:07
Speaker 1: created Javan being in a major morning this today is
13:11
Speaker 1: is you know, really a shock for that nation that
13:14
Speaker 1: that that happens, because that doesn't as I actually had
13:16
Speaker 1: happened at all or rare this this sort of event.
13:20
Speaker 1: But yeah, there are implications, um, you know in in
13:24
Speaker 1: Japanese politics, Abby was obviously significant influential of last decade.
13:29
Speaker 1: His three arrows policy was really trying to move the
13:32
Speaker 1: country out of the moon term slump of deflation with
13:36
Speaker 1: some success, you know, because they actually are out of deflation.
13:39
Speaker 1: But I think as as this unfortunate passing has happened, Um,
13:43
Speaker 1: you know, you could at least think that Kashia, the
13:46
Speaker 1: current Prime Minister, has more leeway within within this government
13:50
Speaker 1: also towards the Little Democratic Party. What did they clash on, Ben?
13:54
Speaker 1: What what did which direction did Kashida want to go
13:58
Speaker 1: that Abbe was kind of hearing him away from Yeah,
14:02
Speaker 1: I think it was all about like pro growth policies
14:05
Speaker 1: and and versus redistribution of wealth. That that was the clashing.
14:09
Speaker 1: And most of all that of course you have really
14:12
Speaker 1: up lose mounetary and fiscal policy on the Abbe and
14:15
Speaker 1: on the Koshibashi Kashida. That's say, could potentially be a
14:19
Speaker 1: different tone, a different shift there in terms of like direction,
14:24
Speaker 1: because there's a lot of disaffection now with with inflation
14:28
Speaker 1: and the weekend in Japan. So will will she that
14:32
Speaker 1: could uh be successful now and you know moving to
14:35
Speaker 1: the Bank of Chipan and Ministry Finance into different directions
14:38
Speaker 1: that's to be seeing because they do have policy discretion,
14:41
Speaker 1: but that the influence will become greater now because you
14:44
Speaker 1: know that still had too much rely on Abby's political
14:48
Speaker 1: support for what he was doing. And that's I think clear.
14:51
Speaker 1: So the end yesterday did rally on that that unfortunate
14:55
Speaker 1: news somewhat of in the small indication of yes, there's
14:59
Speaker 1: going to at some point a real policy effort here
15:03
Speaker 1: to get not let the end get so weak that
15:06
Speaker 1: it would lead to inspiring inflation in Japan. So what
15:10
Speaker 1: is the economic outlook ben for UM Japan we've seen
15:14
Speaker 1: just obviously you called out the weakness in the end
15:16
Speaker 1: that that we've all seen here. I mean, is there
15:19
Speaker 1: what are the growth prospects for the Japanese economy over
15:21
Speaker 1: the next several years. It's it's not a good prospect
15:25
Speaker 1: because Japan is dealing with what we say in terms
15:29
Speaker 1: of trade shock, because of the energy situation and the
15:32
Speaker 1: weakness of the end. Right, you're getting important inflation plus
15:35
Speaker 1: high energy, and in addition to that within Japan there's
15:40
Speaker 1: a natural caution, right, and particularly prices start to rise.
15:44
Speaker 1: So I think it's it's a very modest outlook, if
15:47
Speaker 1: not negative outlook. And therefore this and then if you're
15:52
Speaker 1: going towards the direction that you're going to restrain fiscal
15:55
Speaker 1: policy over time, then it's going to be a weak,
15:58
Speaker 1: weak growth outlook, which could lead to return of disflation
16:02
Speaker 1: in Japan. One of the key questions that investors probably
16:06
Speaker 1: have is will the Bank of Japan stick to zero
16:10
Speaker 1: point to five um? You know, because we've seen a
16:14
Speaker 1: lot of shorting of the yen and of jgbs to
16:17
Speaker 1: try and push the Bank of Japan. Maybe the betting
16:20
Speaker 1: that they can't hold, what do you think. Yeah, so
16:24
Speaker 1: far they have been able to uh keep that twenty
16:27
Speaker 1: five basis points right where it is because of that
16:31
Speaker 1: unlimited operation that the market doesn't seem to be able
16:35
Speaker 1: to really conquer that Rsian. They can't fight as and
16:39
Speaker 1: not with enough fire power which as yet. But it
16:42
Speaker 1: comes down to Matt that that s c EN continues
16:45
Speaker 1: to weaken because they haven't drawn any red line at
16:50
Speaker 1: five and the en maybe not even a one forty
16:52
Speaker 1: two to the yen two dollar. It could lead eventually
16:56
Speaker 1: that yen to the dollars. You really should change on
16:59
Speaker 1: the bank event policy that they're going to change yoko
17:02
Speaker 1: control or does it mean likely means the midpoint of
17:05
Speaker 1: that range will shift to a positive number and as
17:08
Speaker 1: a result, they're going to let that band maybe wide
17:11
Speaker 1: into and then you get that change. I don't expect
17:15
Speaker 1: that they will do what the Swiss Central Bank did
17:16
Speaker 1: in twenty fifteen. Suddenly you know that that the your
17:20
Speaker 1: Swiss back the couple, right, It's not like that that
17:23
Speaker 1: they're more cautious. So it does take us to a
17:26
Speaker 1: weak again to altoly get a change in BUJ policy.
17:30
Speaker 1: It's just that this political change is maybe happening as
17:33
Speaker 1: a result of the horrific event good potentially influence that
17:38
Speaker 1: that path to to that change of the Bank of
17:40
Speaker 1: Javan policy of Yoko control. And then let's switch gears
17:43
Speaker 1: to the US had some job numbers out today better
17:47
Speaker 1: than expected in non farm payrolls, although showing the client
17:51
Speaker 1: from the prior month. What's your takeaway and and what
17:54
Speaker 1: it might mean how the Federal Reserve might interpret these numbers? Yeah, this,
17:59
Speaker 1: this means all that the fact must go on, right,
18:02
Speaker 1: There's no reason to think of any pause or any
18:05
Speaker 1: downshifting and tightening whatsoever. Definitely not between now and September.
18:09
Speaker 1: And if anything, the wage pressures in in this report
18:13
Speaker 1: are solid, right, and if it continues to be confirmed
18:15
Speaker 1: by employment costs in the action on the measures that
18:18
Speaker 1: they're off, then the possibility of even a larger hike
18:22
Speaker 1: in September is there, right, The market is carefully pricing that. Um.
18:27
Speaker 1: It also means that they, as they minute is outlined
18:30
Speaker 1: that they could move to even more restrictive stands if
18:33
Speaker 1: it warranted. So having strong payballs allows them to do that. Right,
18:37
Speaker 1: We're not actually in the stagflation environment, so to speak.
18:40
Speaker 1: Like from the seventies, we're more in environment of yeah,
18:43
Speaker 1: economy cooling off and high inflation, but pay all strong,
18:47
Speaker 1: so not a session therefore enough room to putie with
18:50
Speaker 1: these large rate highs of seven by base points. So
18:53
Speaker 1: the cements July seven by base points certainly fifty base
18:56
Speaker 1: points in September or perhaps more given that at you know,
19:00
Speaker 1: the momentum the label markets in Mainstrem, how far do
19:03
Speaker 1: you think they're gonna go? Ben and uh, you know,
19:06
Speaker 1: could they turn around and be headed back down by
19:09
Speaker 1: the end of next year. That's what the market tries
19:12
Speaker 1: to price. But I think that's actually a technical reason.
19:14
Speaker 1: It's more like the markets actually priced in complete front
19:17
Speaker 1: loading of this fat policy that we're in right now,
19:20
Speaker 1: meaning we're bringing up the funds rate as fast as
19:22
Speaker 1: possible to three three and a half percent um, and
19:25
Speaker 1: therefore you seeing that mechanicals slide down in the EU
19:28
Speaker 1: at all the futures. So I think it's more that
19:30
Speaker 1: we have to get to three three and a half percent.
19:32
Speaker 1: That's what they have indicated a few is restrictive policy.
19:36
Speaker 1: From there, it would be that even more restrictive as
19:38
Speaker 1: the minutes outline, would that be four percent? That's still
19:41
Speaker 1: a bit open question, but they're keeping that clearly on
19:43
Speaker 1: the table. So I think three three and a half
19:45
Speaker 1: per cent is your initial target, which maybe as early
19:48
Speaker 1: as September, right, if we're going to stay in this
19:51
Speaker 1: strong labor market. All right, Ben, great stuff. Really appreciate
19:54
Speaker 1: getting your perspective there. Ben Emmons Medally Global Advisors. He's
19:58
Speaker 1: a managing director of a global macro strategy. All I
20:05
Speaker 1: want to get back to this news coming out of Japan,
20:07
Speaker 1: the assassination of Prime Minister Shinzo Abe. Andrew Monaghan, he's
20:14
Speaker 1: the Asia Credit Managing editor for Bloomberg News. He's based
20:19
Speaker 1: in Hong Kong. Andrew, thanks so much for taking the
20:21
Speaker 1: time to join us here. I just give us our
20:24
Speaker 1: listeners here in the US and around the world a
20:26
Speaker 1: sense of how profound this event is in Japan. Sure,
20:32
Speaker 1: good morning there. I happened to be in Tokyo this week,
20:36
Speaker 1: and it's really a tragedy that's all the more striking
20:39
Speaker 1: because of the rarity of this kind of violence here.
20:44
Speaker 1: I think that's the first thing that stands out so
20:47
Speaker 1: much to so many people in Japan. Gun violence and
20:50
Speaker 1: political violence is exceedingly rare. There were no gun related
20:55
Speaker 1: injuries or deaths in Tokyo last year, which is really
20:59
Speaker 1: strike zero. I mean, that's that bears repeating. There were
21:04
Speaker 1: no gun deaths in Tokyo last year. UM, And I
21:08
Speaker 1: don't know how it is nationwide, but I think you
21:12
Speaker 1: could still count them on one hand. And meanwhile, in
21:15
Speaker 1: this country, and obviously we have a history of um,
21:19
Speaker 1: you know, gun violence, but we're looking at something like
21:21
Speaker 1: forty five thousand. Yeah, it's just really unbelievable. And there
21:30
Speaker 1: was no assassination attempt that killed the Japanese prime minister
21:35
Speaker 1: since World War Two as well, So all these things
21:38
Speaker 1: together made it really something that no one could What
21:41
Speaker 1: about whatever happened here? What about um the man himself, Andrew.
21:46
Speaker 1: I mean, I know you're a credit guy, so you're not,
21:50
Speaker 1: you know, a political scientist, but this the Hobby family
21:54
Speaker 1: and his maternal grandfather I think was prime minister as well,
21:58
Speaker 1: they're just a dynasty in terms of politics and his
22:06
Speaker 1: his specifically Shinzo Abe's policy. Larry Summers said, we're going
22:10
Speaker 1: to be studying this for for years, um in terms
22:14
Speaker 1: of you know, just cutting edge, trying out something new, um,
22:18
Speaker 1: and the amazing effects that it had. Yeah, he really
22:23
Speaker 1: had a vision that was singular. He was a a
22:31
Speaker 1: security hawk. But I think what he'll be remembered even
22:35
Speaker 1: more for is the fact that it was a fiscal dove.
22:39
Speaker 1: He had his policy Albonomics, which relied on massive fiscal
22:46
Speaker 1: spending and very cheap money that the micro Japan was
22:52
Speaker 1: was able to provide after the appointment of Colvoda, and
22:58
Speaker 1: you know, it just was a a real epic change
23:02
Speaker 1: for Japan after two decades of stagnation economically. The Bank
23:06
Speaker 1: of Japan had been trying to achieve to percent inflation,
23:10
Speaker 1: which in the context of two sounds almost quaint in
23:15
Speaker 1: a sense, but it was so hard in Japan for
23:18
Speaker 1: so long because prices had been following it was the
23:21
Speaker 1: opposite problem, and they really wanted to have companies raise wages.
23:27
Speaker 1: That's something that even though he did achieve some measures
23:31
Speaker 1: of success stimulating the economy, the wage growth never was
23:36
Speaker 1: quite there. But the you know, the lasting political influence
23:41
Speaker 1: itself that he has as the leader of the largest
23:43
Speaker 1: faction of the ruling LDP party meant that he continued
23:49
Speaker 1: to exert a lot of influence politically even after he
23:52
Speaker 1: stepped down. Do we expect or does the region expect
23:56
Speaker 1: any change in Japanese policies at an AMICA. Otherwise with
24:01
Speaker 1: this event, it's hard to say. I think people are
24:05
Speaker 1: still digesting the tragedy first of all, but you know,
24:09
Speaker 1: as as traders are looking at what they're going to
24:12
Speaker 1: do next week and in the week at weeks ahead,
24:14
Speaker 1: there's a camp that seems to think that in the
24:19
Speaker 1: loss of this voice, it was such a huge supporter
24:22
Speaker 1: for the super easy monetary policy, could have some effect
24:27
Speaker 1: in an error in which inflation globally is such a
24:30
Speaker 1: serious problem in central banks are getting increasingly forced to
24:34
Speaker 1: raise rates. The Bank of Japan has been a kind
24:37
Speaker 1: of hold out, and that's called the huge turbulence here
24:40
Speaker 1: in the financial markets in recent months, with a lot
24:44
Speaker 1: of traders betting that the Bank of Japan won't be
24:47
Speaker 1: able to hold out too much longer. And so one
24:51
Speaker 1: view is that with a sadly gone that the Bank
24:56
Speaker 1: of Japan could could say it's a little bit more
24:59
Speaker 1: pressure now. There is another view, though, and this assassination
25:04
Speaker 1: came before the Upper House elections this weekend. He thought
25:08
Speaker 1: they was out campaigning for them, in fact, and that
25:11
Speaker 1: is that there could be a kind of sympathy vote
25:14
Speaker 1: for the party that already been expected to women the
25:17
Speaker 1: Upper House anyway, and if that should happen, then the
25:21
Speaker 1: view that that, you know, the Abanatics style of policy
25:25
Speaker 1: could continue particually as it pretends the monetary policy could
25:28
Speaker 1: hold sway. Sure. I mean, look, after Kennedy was assassinated,
25:32
Speaker 1: LBJ pushed through the Civil Rights Act that was so
25:35
Speaker 1: important to JFK. And but we had yachm Fell's on
25:40
Speaker 1: earlier Andrew from from HIMCO and he said it wouldn't be. Uh,
25:47
Speaker 1: it is a possibility that the Central Bank, at least
25:49
Speaker 1: the b o J lets the they have a twenty
25:52
Speaker 1: five basis point cap and they let it rise to fifty.
25:56
Speaker 1: That wouldn't be I'm hearing from so many people today
25:59
Speaker 1: as sort of earth shattering as when the s n
26:03
Speaker 1: B let their pegs slip. Do you agree that's right? Yeah?
26:07
Speaker 1: I think there has been a lot of sense among
26:11
Speaker 1: bond traders in particular in the past few months that
26:15
Speaker 1: this would be coming at some point. Um, so you know,
26:20
Speaker 1: the sequence of events I guess is is that you know,
26:25
Speaker 1: the market has kind of been preparing itself at least
26:28
Speaker 1: in pockets or something like this, or the possibility of it.
26:31
Speaker 1: And if you you are as a view that the
26:33
Speaker 1: said turn of events, they could increase the chances that
26:40
Speaker 1: then you know, you may be expecting that the end
26:43
Speaker 1: would bounce back that the end has has fallen dramatically
26:47
Speaker 1: in recent months in this year, and for you know,
26:53
Speaker 1: for an expert driven economy, obviously that has a lot
26:55
Speaker 1: of consequences. All right, right now, let's appreciate it. Andrew Monahan, Asia,
27:00
Speaker 1: Credit Managing Editor, Bloomberg News journing us giving us the latest.
27:08
Speaker 1: I want to kind of get back to this job
27:10
Speaker 1: number because again better than expected, although showing some some
27:13
Speaker 1: slowness since prior numbers. Joanie Bailey, chief workforce analyst at
27:18
Speaker 1: Employee Bridge Joint looks pretty good, still pretty good, let's
27:22
Speaker 1: be fair. I mean, if I type in, I usually
27:25
Speaker 1: do ECO US or type W E C O and
27:27
Speaker 1: just punch up the American flag. Um, we were looking
27:31
Speaker 1: at three seventy two thousand jobs added, Joanie. That's way
27:35
Speaker 1: better than the two sixty five and the survey and
27:37
Speaker 1: the whisper number was even lower. But it's only a
27:40
Speaker 1: little bit off from the three ninety that we had
27:44
Speaker 1: in the previous month. UM, and that was revised up,
27:47
Speaker 1: so How does it look to you? I think this
27:50
Speaker 1: was a really strong report. You know, the labor market
27:54
Speaker 1: continues to be the right spot in the economy. That
27:58
Speaker 1: demand is so strong for workers. Um. You know, eleven
28:02
Speaker 1: point three million open jobs in the United States, so
28:07
Speaker 1: there's really like two jobs for every one person that's
28:10
Speaker 1: out there looking. But we have a challenge. We have
28:13
Speaker 1: a big challenge that we can't get people back to work. UM,
28:17
Speaker 1: and I think that will flow us down. UM is
28:21
Speaker 1: the labor participation rate we continue to just cover at
28:24
Speaker 1: that sixty two. We're really not seeing much movement in
28:29
Speaker 1: that area, and that's a big challenge. How about that
28:33
Speaker 1: five point one percent wage year a year number? How
28:36
Speaker 1: did you What did you make of that? Yeah, you know,
28:39
Speaker 1: I think we've seen that kind of as a steady mark.
28:43
Speaker 1: Uh in recent reports. You know that we're looking at
28:46
Speaker 1: five percent year every year. Uh. The challenges is that
28:49
Speaker 1: wages are still lagging, you know, consumer inflation. However, I
28:55
Speaker 1: don't think we're going to see much movement with wages.
28:59
Speaker 1: Companies are certainly focused on their earnings, even though they
29:03
Speaker 1: have job openings and they're trying to recruit talent. We're
29:07
Speaker 1: not seeing a lot of upward movement in wages right now.
29:12
Speaker 1: So my prediction would be that we'll just continue to
29:15
Speaker 1: see wage growth kind of stay at these levels, um,
29:20
Speaker 1: just due to the uncertainty in the economic um, you know,
29:25
Speaker 1: conditions with the market and um, you know, just everything
29:30
Speaker 1: else that's going on even in our world. UM, that
29:32
Speaker 1: does create some uncertainty for employers. So I don't think
29:35
Speaker 1: we're going to see a lot more movement in that area.
29:38
Speaker 1: So not keeping up though with inflation, right, I mean,
29:41
Speaker 1: we we've seen decent gains five percent, but we're looking
29:44
Speaker 1: at eight nine percent inflation right. Definitely not keeping up.
29:49
Speaker 1: And I think that's a real challenge for workers, UM
29:52
Speaker 1: is that they are feeling it, you know, at the
29:55
Speaker 1: gas pumps, at the grocery store, you know, going out
29:59
Speaker 1: to eat or grab something. Everything is costing more, so
30:02
Speaker 1: their dollar isn't going as far. And UM, I guess
30:07
Speaker 1: that leads me to the point of questioning why we're
30:10
Speaker 1: not seeing more people enter back into the workforce. I
30:15
Speaker 1: would think that that would be a trend to watch
30:18
Speaker 1: for in future reports. If wages kind of stay the
30:21
Speaker 1: same but inflation continues to climb, I would expect that
30:26
Speaker 1: I would participate in the labor force and actually want
30:29
Speaker 1: to catch work. So that's something I'm going to be
30:32
Speaker 1: paying attention to in in future reports. But right now
30:37
Speaker 1: that remains a pretty big challenge for us. So we're
30:40
Speaker 1: gonna have a company earnings and started in earnest next week,
30:43
Speaker 1: Joy And I wonder if we're going to still hear
30:46
Speaker 1: CEOs lament the fact that they can't hire, attract, and
30:51
Speaker 1: retain the workforce that they need. Is that still a
30:56
Speaker 1: big big issue for the companies you talk to? Yeah,
31:00
Speaker 1: definitely is UM. There is a strong demand really in
31:04
Speaker 1: all sectors UM. Though we have heard over the last
31:08
Speaker 1: thirty days. You know, certainly some rumblings about layoffs in
31:12
Speaker 1: the tech sector, UM or automotives, but I think those
31:17
Speaker 1: UM are unique and you know, unique circumstances across the board.
31:23
Speaker 1: The demand for workers is very strong and they're continued.
31:28
Speaker 1: You know, employers are really continuing to have challenges with
31:31
Speaker 1: finding workers and retaining their current staff. You know that
31:36
Speaker 1: the actual quits rate is still at a pretty all
31:40
Speaker 1: time high. People realize there are a lot of jobs
31:42
Speaker 1: out there, thinking the grass might be greener, maybe they
31:45
Speaker 1: could go somewhere else, make a little bit more money.
31:48
Speaker 1: They're not afraid to quit their job because there's there's
31:50
Speaker 1: a lot of opportunity. But but there's still a disconnect
31:54
Speaker 1: to with the skills gap in our country. Many of
31:58
Speaker 1: the jobs that exist today require specific education, skills training, UM,
32:05
Speaker 1: and that's something that we need to get workers, you know,
32:08
Speaker 1: up to speed with in order to meet that demand. UM,
32:12
Speaker 1: not only for today but certainly in the future. Johnny,
32:14
Speaker 1: where the biggest where the biggest holes when you look
32:18
Speaker 1: out there at UM what employers want and what employees
32:23
Speaker 1: potential employees don't have. I mean I look for example,
32:27
Speaker 1: at UM you know, job sites, and see that coders
32:30
Speaker 1: are making four hundred, five hundred thousand dollars a year
32:34
Speaker 1: and they're not even bosses. UM. But obviously I can't code,
32:40
Speaker 1: but you could learn how to code. There's lots of opportunities,
32:44
Speaker 1: old chick up a new skill. Coding is a great
32:47
Speaker 1: field to get into. I I spend some of my
32:50
Speaker 1: time talking to high school students and college students and
32:54
Speaker 1: giving them advice on you know, what fields are going
32:57
Speaker 1: to be good. Of course it needs to align with
32:59
Speaker 1: your interests. But voting UM anything really in the I
33:02
Speaker 1: T or the STEM field. My interests are getting paid
33:05
Speaker 1: for dollars a year for typing all day. That's an
33:10
Speaker 1: interest of mine. But but you might never have that
33:12
Speaker 1: job satisfaction if you don't love to do it. So
33:15
Speaker 1: you've got to find that combination right of both. Um,
33:19
Speaker 1: But there's a you know there are there isn't demand
33:23
Speaker 1: in so many sectors. You know, truck drivers, they're making
33:27
Speaker 1: very good earnings and income, and we can't find enough
33:32
Speaker 1: truck drivers. UM, trade and transportation, that sector has two
33:38
Speaker 1: million open jobs. I mean truck truck driving literally aligns
33:42
Speaker 1: with my interests. But again it's not as easy as
33:46
Speaker 1: it sounds. I mean, getting a commercial driver's license is
33:50
Speaker 1: and driving a truck around with a big trailer is
33:53
Speaker 1: hard work. I can't even tew a lawnmower. Yes, it
33:57
Speaker 1: might be challenging, but there are opportunities. There is training
34:01
Speaker 1: health care. Again you need specific training, education, experience. But
34:05
Speaker 1: such a great field to be in and obviously not
34:09
Speaker 1: going away. UM as we have an aging population. Um,
34:14
Speaker 1: you know, the construction jobs have been picking up. I
34:17
Speaker 1: was looking at the data on construction jobs and there
34:20
Speaker 1: are more construction jobs today than there were this time
34:25
Speaker 1: last year. So um, really it's all across the board.
34:30
Speaker 1: The professional and business sector obviously has a tremendous amount
34:34
Speaker 1: of opportunity, but there are also jobs, you know, the
34:38
Speaker 1: hourly jobs and leisure and hospitality, retail. You're not going
34:41
Speaker 1: to make five hundred thousand a year in those roles,
34:45
Speaker 1: but there are opportunities out there that don't require a
34:47
Speaker 1: lot of skills and can get you back to work too,
34:50
Speaker 1: so um, you know, just tremendous opportunity. We really need
34:54
Speaker 1: the workers absolutely, all right, Jonny, thank you so much.
34:57
Speaker 1: We really appreciated. Johny Vilely, chief workforce Analysts at employ Bridge,
35:04
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 1: at Matt Miller at on Ball Sweeney I'm on Twitter
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