Latest / Bloomberg Intelligence / Nomura's Goncalves: Jobs Report Boosts Bullish Bond Run (Audio)

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Nomura's Goncalves: Jobs Report Boosts Bullish Bond Run (Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York, Bloomberg eleven rio to Washington,
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  Speaker 1: This is Taking Stock, coming up on Taking Stock. Supply
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  Speaker 1: and demand rule the day. US debt increasingly the only
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  Speaker 1: debt available with a plus side yield. We'll talk about
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  Speaker 1: US debt and the demand for U. S. Treasuries, and
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  Speaker 1: then later in the half hour, we're going to look
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  Speaker 1: at the stock market jobs report, hitting it square in
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  Speaker 1: the nose. We're gonna find out what's next for stocks
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  Speaker 1: as well. Now let's go to Charlie Pellett. He's in
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  Speaker 1: the Newstom with the Bloomberg Business Flash, and I thank
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  Speaker 1: you Kathleen, thank you him. Let us begin with crude oil.
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  Speaker 1: Oil explorers put drilling rigs back to work in US
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  Speaker 1: fields for only the second time this year. The supply
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  Speaker 1: and demand began to come closer into balance. Baker Hughes said.
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  Speaker 1: Riggs targeting crude rose by nine to three twenty five
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  Speaker 1: after two were dropped last week. Crude oil today is
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  Speaker 1: down forty two cents. West Texas Intermediate seventy apparel, a
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  Speaker 1: drop there of nine tenths of one percent. The argument
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  Speaker 1: for a June interest rate hike from the Federal Reserve
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  Speaker 1: has evaporated. After today's jobs report. The US economy added
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  Speaker 1: just thirty eight thousand new jobs. The unemployment rate fell
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  Speaker 1: to four point seven percent in May from five percent
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  Speaker 1: the month before. Walmart shareholders are meeting today. Bloomberg's Shannon
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  Speaker 1: Petty pieces covering the gathering in Fidville, Arkansas, and we
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  Speaker 1: asked her about the implications of today's jobs report on
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  Speaker 1: walmart sleet. It never looks good for a company when
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  Speaker 1: people are out of work, when people have less money
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  Speaker 1: in their pocket. But Walmart historically done very well in
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  Speaker 1: a down market. Earlier this year, They're stock did really well.
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  Speaker 1: When we were there were all these jitters. If we're
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  Speaker 1: entering another a recession, I'm looking at their stock today,
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  Speaker 1: it's not really down that much. The company has a
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  Speaker 1: defensive play because as people see their way just get down,
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  Speaker 1: they get worried about their job security, they trade down.
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  Speaker 1: They look to a retailers like Walmart, Dollar General, Um
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  Speaker 1: Aldia rather than Macy's Target Nords from those are the
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  Speaker 1: companies you're going to see more jitters about here the
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  Speaker 1: ten year up, thirty second Zeal There one point seven percent,
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  Speaker 1: gold surging thirty two dollars y ounce to twelve forty four,
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  Speaker 1: a gain of two point six SMP down four to
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  Speaker 1: want to drop a point two percent. We're brought to
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  Speaker 1: prepares leaders in law, technology and business to face tomorrow's
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  Speaker 1: greatest threats. And now let's take a look at some
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  Speaker 1: of the other stories making news. Thank you Charlie from
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  Speaker 1: the Bloomberg Newsroom. I'm Scarlet Foo. This news update is
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  Speaker 1: brought to you by the keep Grand Cherokee, the most
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  Speaker 1: Drive one at your local jew dealer Today. Chicago's troubled
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  Speaker 1: police Department is releasing three hundred video clips from about
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  Speaker 1: one hundred incidents. Under a new policy, the department will
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  Speaker 1: release any videos of a police encounter within sixty days
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  Speaker 1: of the incident. It is the city's latest attempt to
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  Speaker 1: regain public trust in its local law enforcement. Sharon Fairley
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  Speaker 1: is the chief administrator of Chicago's Independent Police Review Authority.
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  Speaker 1: Those include officer involved shootings, any discharge of a taser
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  Speaker 1: and that results in death or great bodily harm, and
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  Speaker 1: incidents that occurrent police custody that resolved, and death or
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  Speaker 1: great bodily harm to a citizen. The Police Union opposes
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  Speaker 1: the policy, saying the videos don't tell the entire story.
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  Speaker 1: Mayor Ram Emmanuel says there's a lot more work to
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  Speaker 1: do on the issue of transparency. Nearly the entire half
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  Speaker 1: of Texas is under a flash flood watch or warning.
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  Speaker 1: Days of heavy rains are lingering in creeks and reverse
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  Speaker 1: and storms off the Gulf of Mexico are threatening to
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  Speaker 1: worsen flooding. Near Houston. Three Texas prisons how been evacuated.
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  Speaker 1: Texas Governor Greg Abbott is visiting the area today. Michelle
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  Speaker 1: Obama delivered her final commencement speech as first Lady today.
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  Speaker 1: She was at City College, where she addressed more than
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  Speaker 1: three thousand members of the class of Mrs. Obama also
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  Speaker 1: received an honorary Doctorate of Humane Letters from the one
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  Speaker 1: D sixty nine year old public institution Global News twenty
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  Speaker 1: journalists and more than one hundred fifty news bureaus around
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  Speaker 1: the world. From the Bloomberg Newsroom, I'm Scarlett Food, Charlie,
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  Speaker 1: and we thank you and again recapping the SMP five
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  Speaker 1: index down four points now to one d a drop
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  Speaker 1: of two tenths of one percent. I'm Charlie Peloton. That's
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  Speaker 1: a Bloomberg business flash you're listening to taking stock with
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  Speaker 1: bio Box and Kathleen Hayes on Bloomberg Radio. Debt. US
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  Speaker 1: treasury debt. Consider this. There is about forty trillion dollars
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  Speaker 1: worth of outstanding debt among the G ten nations. How
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  Speaker 1: much of that can be found in US bills and notes? Well,
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  Speaker 1: of the thirty five percent that isn't overseas, about six
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  Speaker 1: of it is in the United States. Let's find out
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  Speaker 1: more from George Canvas. He is the head of the
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  Speaker 1: United States interest rates strategy at Nomura Securities. George, thanks
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  Speaker 1: very much for being with us, Thanks for having me
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  Speaker 1: so I pick on this issue having to do with
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  Speaker 1: the negative yields because about thirty of all the outstanding
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  Speaker 1: debt in these G ten nations bears a negative yield,
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  Speaker 1: is that what continues to entice investors to buy US treasuries,
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  Speaker 1: particularly at the short end of the curve. But I
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  Speaker 1: think there's a combination of what we saw today in
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  Speaker 1: the data for the metals obviously are still not strong
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  Speaker 1: enough for the FETE to really embark in a fast
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  Speaker 1: hiking campaign, and that, you know, further lends itself for
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  Speaker 1: people to be comfortable holding the front ends of the
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  Speaker 1: yield curve. But you're absolutely right, the fact that you
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  Speaker 1: know global rates are lower, in many cases negative really
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  Speaker 1: makes our paper attractive. And so I think that the
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  Speaker 1: anchoring effect that which is been with us really since
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  Speaker 1: the b o J and the ECP started these massive
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  Speaker 1: q programs in negative rate stories for the last couple
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  Speaker 1: of quarters, has really helped our paper trade well. And
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  Speaker 1: in fact, that's probably one of the reasons why the
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  Speaker 1: tenure note has stayed in this range right Actually today
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  Speaker 1: it's a one point seven. Oh so it's if you
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  Speaker 1: thought the bottom of the range is one point seven
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  Speaker 1: five in the top was two, it's it's broken through
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  Speaker 1: that again. Uh, what about that? Is the if the
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  Speaker 1: if the economies is weakening we know it was only
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  Speaker 1: one job support thirty eight thousand net new jobs. Maybe
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  Speaker 1: it gets revised up, maybe the next one goes up
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  Speaker 1: closer to two hundred thousand. And this is a fluke.
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  Speaker 1: But if it's not, does that mean that this rally
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  Speaker 1: continues even at the long end. Could that tenure note
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  Speaker 1: break below one point seven towards one point six or
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  Speaker 1: one point five. It's possible, man, I think you have
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  Speaker 1: to take a step back and realize that. Yeah, the
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  Speaker 1: first the first initial move this morning was a steepening
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  Speaker 1: of the curve where the actual fund end shorter dated
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  Speaker 1: securities did better. Brought out the course of the day,
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  Speaker 1: ten your treasures are now downtown basis points and as
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  Speaker 1: you said, through one seventy five and we kind of
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  Speaker 1: look at a broader range. We've been really stuck between
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  Speaker 1: a one fifty two percent. I mean, it's a I
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  Speaker 1: think like the levels where people either find interest or
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  Speaker 1: start to get get um concerned about the market's game
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  Speaker 1: too rich. But I think you know there's definitely scope
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  Speaker 1: for a slightly little lower yields from here. And I
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  Speaker 1: think you know, although the jobs data, you know this
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  Speaker 1: is one that print. I mean, the backward revisions were
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  Speaker 1: not great and definitely doesn't suggest that there's momentum. In fact,
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  Speaker 1: that were revised down, and it's typically not customary to
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  Speaker 1: see the revisions up again after such backward revisions were
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  Speaker 1: put down, and the weak print like this, so in
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  Speaker 1: jobs data typically the lagging indicator. It looks like it's
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  Speaker 1: caught up with the weakness in the mixed economy that
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  Speaker 1: we've had all throughout Q one and Q two. George,
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  Speaker 1: I'm going to bring up a corporate bond issue just
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  Speaker 1: to maybe add some context to this. Bank of America
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  Speaker 1: recently issued a one billion dollar bond priced in yen,
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  Speaker 1: designed obviously for Japanese investors. The coupon was zero points
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  Speaker 1: re nine per cent. And this seems to be appearing
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  Speaker 1: what regardless of the risk, because I mean movies SMP
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  Speaker 1: they've both given Bank of America the third lowest investment
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  Speaker 1: grade score. Are these European and Japanese pension funds or
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  Speaker 1: anyone looking for positive deal, They're can get hurt later.
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  Speaker 1: Look I think, um when you look at it from
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  Speaker 1: a local currency domination, and those are very unique issues. Uh.
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  Speaker 1: In general, I mean this low rate environment, you know,
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  Speaker 1: eventually will is coiling up for some sort of repricing
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  Speaker 1: in the future. But in order for that to really happen,
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  Speaker 1: we need to see an impulse higher in inflation. It
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  Speaker 1: really started hopefully in the US, and you would hope
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  Speaker 1: that Japan and in Europe can get some some action
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  Speaker 1: there as well. So unfortunately, you know, the deflationary tides
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  Speaker 1: have been strong, and and really fixt income has been
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  Speaker 1: supported by all that and all these flows in combination.
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  Speaker 1: It's at some point there will be a day of
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  Speaker 1: recomming for the bomb market, just the people have been
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  Speaker 1: calling for for the last seven years and have missed
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  Speaker 1: out a lot of opportunities. Well, so I think that
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  Speaker 1: stuff the real issue here. Jenny Allen speaks on Monday, George,
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  Speaker 1: and I know you and your team where you're all
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  Speaker 1: you're all ready for that job support today. What are
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  Speaker 1: you looking for on Monday? Is? Is is it all
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  Speaker 1: kind of priced in? Now? Does it not matter what
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  Speaker 1: she says? Because this jobs report was so weak, you say, hey,
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  Speaker 1: June's off the table, maybe July two or not. Look,
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  Speaker 1: I think June is now clearly off the table. I
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  Speaker 1: think the best that we can expect for is just
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  Speaker 1: to kind of see some qualifiers of why you know,
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  Speaker 1: this sort of slowdowns happening, But yet how come they've
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  Speaker 1: lowered their bar I mean, the last two or three
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  Speaker 1: weeks they went on us almost on a land page
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  Speaker 1: of Sammy Hawker's that they were trying to push back
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  Speaker 1: on the market and really challenged the market because the
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  Speaker 1: market was basically pressing them out all throughout this year.
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  Speaker 1: They managed to get probabilities back up again, but then
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  Speaker 1: the data hasn't cooperated. I think like that the challenge
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  Speaker 1: will be to, you know, to make the case that
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  Speaker 1: they're still engaged, that the the their hurdle rate is
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  Speaker 1: probably lower, But is it thirty eight thousand? I highly doubted.
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  Speaker 1: I I think because most likely they'd like to see,
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  Speaker 1: you know, jobs bounced back in the hundred hundred fifty range,
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  Speaker 1: maybe comfortable hiking if that's the case. But I don't
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  Speaker 1: think that, you know, what we should expect from her
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  Speaker 1: on Monday, you know, I don't think a complete one
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  Speaker 1: eight because I think they they they kind of now
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  Speaker 1: boxed themselves in a little bit by by sounding so hawkers.
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  Speaker 1: I think what we should expect is like, look, they're
• 10:19
  Speaker 1: they're mindful of the outlook. They know there's some risks
• 10:22
  Speaker 1: around the UK referendum. They're gonna at least sound positive
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  Speaker 1: at the Tune meeting, but that the outlook looks better.
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  Speaker 1: I think she has to deliver a message consistent with that,
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  Speaker 1: because she's basically bridging the gap between recent Hawkers speech
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  Speaker 1: and the upcoming meeting. George Gonkovis thank you so very
• 10:38
  Speaker 1: much for joining us on this Friday on taking Stock,
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  Speaker 1: George's managing director and hit a US rate strategy and
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  Speaker 1: more securities, saying the jobs report was a week indeed
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  Speaker 1: one of the big reasons we see bond yields falling
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  Speaker 1: even further today, rally at the short end as well.
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  Speaker 1: This is taking Stock on Bloomberg Radio. Yeah, coming up
• 11:02
  Speaker 1: on taking Stock, Bank stocks, treasury yields, and the dollar
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  Speaker 1: all dropped today after the week job's report. We're gonna
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  Speaker 1: find out where to put your money next with Scott
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  Speaker 1: Wren of Wells Fargo Investments