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Markets don't like Israel's and Iran's conflict · The Financial Exchange Show

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Speaker 2: Chuck, Mike and Tucker with you here, and our top
1:13
Speaker 2: story for the day is obviously the market and economic
1:18
Speaker 2: reaction to the news out of the Middle East. Last night,
1:21
Speaker 2: around seven forty five pm Eastern time, we started receiving
1:26
Speaker 2: word that the Israeli Air Force had made a series
1:30
Speaker 2: of strikes into Iran, and we continue to get news
1:34
Speaker 2: over the course of the night giving us more information
1:40
Speaker 2: on exactly what has been happening there. And unlike what
1:45
Speaker 2: we saw in twenty twenty four, where in April there
1:49
Speaker 2: were some munitions that were lobbed back and forth that
1:52
Speaker 2: ultimately didn't cause you any major damage to either party,
1:58
Speaker 2: same thing happened in October of last year. This, according
2:03
Speaker 2: to all indications from the Israeli government, is a far
2:09
Speaker 2: grander operation in scale, likely to be a greater one
2:14
Speaker 2: in duration, with the indicating that this could last weeks
2:18
Speaker 2: or potentially even months, and also in terms of the
2:22
Speaker 2: targets that it is targeting, specifically going after Iranian governmental
2:28
Speaker 2: government leaders as well as the Iranian nuclear programs. So
2:34
Speaker 2: those are kind of the broad strokes of what we
2:36
Speaker 2: learned last night. We can obviously dig into more detail,
2:40
Speaker 2: but what I can tell you is that the market move,
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Speaker 2: you know, not unexpected. Oil prices up meaningfully with West
2:46
Speaker 2: Texas Intermediate at one point last night and you know
2:49
Speaker 2: what is obviously a more thinly traded overnight session up
2:53
Speaker 2: you know, twelve thirteen percent now up around six and
2:55
Speaker 2: a half percent and kind of settling in that range
2:58
Speaker 2: for the last couple hours, and US equity markets down
3:02
Speaker 2: about one percent, and so to this point, Mike, I
3:07
Speaker 2: think that the market reaction can best be described as
3:12
Speaker 2: paying attention but still not believing this is going to
3:16
Speaker 2: be a longer term thing that is, you know, significantly
3:20
Speaker 2: disruptive to the world economy in any way, shape or form.
3:25
Speaker 3: Yeah, wait and see approach from equity investors, I think
3:27
Speaker 3: most certainly, and to be fair to them, that has
3:30
Speaker 3: been the playbook for the last twenty years. If you
3:32
Speaker 3: followed it, you made a lot of money. I think
3:35
Speaker 3: everybody knows the basics here. A third of Middle East
3:38
Speaker 3: oil approximately flows through the straight offord moves.
3:41
Speaker 2: Iran controls a lot of that.
3:43
Speaker 3: It would be to their detriment to cut off oil
3:45
Speaker 3: supplies because that's where pretty much all of theirs goes through,
3:49
Speaker 3: and they need the dollars to continue to support what
3:51
Speaker 3: is a much weaker economy. But that's you know, that's
3:54
Speaker 3: obviously the threat when we talk about Iran is a
3:56
Speaker 3: boatload of oil moves through their or their borders in
4:01
Speaker 3: order to get to markets. And the question is does
4:05
Speaker 3: this escalate in a different way than previous previous tensions
4:09
Speaker 3: and flare ups, And to be fair, this is a
4:12
Speaker 3: much more significant flare up than what we've seen for
4:13
Speaker 3: the last several years.
4:15
Speaker 2: Yeah, it's it's basically the only question that matters is, hey,
4:19
Speaker 2: what does this mean for again in terms of how
4:23
Speaker 2: this impacts the United States? That there are few things
4:27
Speaker 2: that matter. The biggest one in kind of the first
4:29
Speaker 2: order one is, hey, what happens with oil prices depending
4:32
Speaker 2: on the combination of iranium production and transport through the
4:36
Speaker 2: straight offor moves as you mentioned, So that's kind of
4:38
Speaker 2: the first thing that you sit there and you watch.
4:42
Speaker 2: The second piece on this is does anything larger happen regionally?
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Speaker 2: And gut feeling is there's not much juice there simply
4:55
Speaker 2: because I don't think I don't I don't think think
5:00
Speaker 2: there are many parties in the region that are truly
5:05
Speaker 2: sympathetic to the Iranian government. There are ones that you know,
5:10
Speaker 2: certainly kind of play both sides. The Qataris obviously are
5:13
Speaker 2: kind of front and center in that respect, and that
5:15
Speaker 2: they basically act, as you know, kind of brokers between
5:18
Speaker 2: all these different parties that don't really like each other
5:20
Speaker 2: throughout the Middle East. But you'll get the actual governments
5:24
Speaker 2: that are in power, and most of them A have
5:26
Speaker 2: enough problems of their own right now that they're dealing
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Speaker 2: with and B you know just kind of say okay, fine,
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Speaker 2: like maybe maybe we just don't have to deal with
5:34
Speaker 2: this now, like you guys handle this, and and we'll
5:37
Speaker 2: go from there.
5:38
Speaker 3: Obviously, the hothis a you know, Iranian backed militia and
5:42
Speaker 3: Yemen significantly weakened recently, so their willingness and ability to
5:45
Speaker 3: strike back against anyone as a result of this is questionable.
5:50
Speaker 3: The other thing that you know, far from the foremost
5:54
Speaker 3: Middle East expert over here, but what others have been
5:57
Speaker 3: talking about, is the the Joint Comprehensive Plan of Action.
6:02
Speaker 3: The agreement on ran nuclear deal that was signed by
6:07
Speaker 3: President Obama withdrawn from by President Trump is due to
6:11
Speaker 3: expire in October of this year, at which point, again
6:14
Speaker 3: the United States isn't participating in this. But you know
6:17
Speaker 3: what some positive here was. You know, if they can
6:20
Speaker 3: hold out until October, which is only four months away,
6:24
Speaker 3: the idea of Iran wanting to develop weapons and furthering
6:29
Speaker 3: their nuclear ambitions, they may still be subject to strikes
6:32
Speaker 3: from Israel, but there's not going to be that snapback
6:35
Speaker 3: of sanctions that you would have had during this ten
6:38
Speaker 3: year deal that was in place.
6:40
Speaker 2: So yeah, I don't know. So I think again, it's
6:44
Speaker 2: all going to depend on what happens in the coming
6:46
Speaker 2: days and weeks as it relates to Iran's capabilities to retaliate.
6:53
Speaker 2: You know how this affects broader commerce in the region.
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Speaker 2: What I can tell you, and again this is you know,
6:59
Speaker 2: in the first well fifteen hours since this has happened,
7:04
Speaker 2: by and large that the take that I'm seeing from
7:06
Speaker 2: people that do know way more than I do on this,
7:12
Speaker 2: there has not been any meaningful retaliation from Iran to
7:15
Speaker 2: this point, which has surprised observers pretty significantly. The expectation
7:21
Speaker 2: was that shortly after any major Israeli assault, you would
7:26
Speaker 2: be seeing dozens, if not hundreds of ballistic missiles in
7:30
Speaker 2: the air heading towards Israel. And all Iran did was
7:34
Speaker 2: basically launched, you know, one hundred drones towards Israel last
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Speaker 2: night after this that basically were all shot down and
7:43
Speaker 2: had no meaningful impact. Part of this is likely due
7:48
Speaker 2: to the fact that the Israeli military, in addition to
7:53
Speaker 2: going after these nuclear targets, also went after you know,
8:00
Speaker 2: high level Iranian government officials, to the point where the
8:03
Speaker 2: tally that I've seen is anywhere from fifteen to twenty
8:07
Speaker 2: five senior Iranian military members were killed in the initial
8:13
Speaker 2: wave of strikes, including the head of the basically the
8:16
Speaker 2: Iranian Army, the head of the Iranian Air Force, the
8:19
Speaker 2: head of the Iranian drone program. I mean, you go
8:21
Speaker 2: down the list near like who's left? Okay. I could
8:23
Speaker 2: see how this could, you know, really cripple any potential response,
8:27
Speaker 2: and Israeli attacks continue over the course of the day.
8:30
Speaker 2: Today You've got Israeli refueling planes that are basically operating
8:36
Speaker 2: unchecked in Syrian airspace right now, and so it's pretty
8:41
Speaker 2: clear that Israel has control of the skies at this
8:45
Speaker 2: point and is continuing to lean on Iran and in
8:49
Speaker 2: order to attempt to you know, prevent any kind of
8:54
Speaker 2: large scale response if possible by further targeting airfields and
8:58
Speaker 2: you know, suspected missile sites and things like that. So
9:02
Speaker 2: I think we're gonna have to see what kind of
9:03
Speaker 2: response Iran is capable of. I will be the first
9:06
Speaker 2: to admit I have no idea at this point, and
9:08
Speaker 2: none of us do, because we don't know how much damage,
9:11
Speaker 2: you know, the Israeli attack has done. But the big
9:14
Speaker 2: thing that I think everyone's gonna watch over the next
9:17
Speaker 2: five six days is, Hey, what kind of retaliation can
9:21
Speaker 2: Iran actually mount if it's not sizeable? Do we see them,
9:26
Speaker 2: you know, heading you know, making signs that they want
9:28
Speaker 2: to negotiate more quickly and get some kind of quick
9:31
Speaker 2: end to this, And then is is real going to
9:35
Speaker 2: allow that to be you know, the case where this
9:37
Speaker 2: can be a negotiated end or are they looking for
9:41
Speaker 2: some type of regime change that typically requires a far
9:43
Speaker 2: larger operation, including ground troops, and what would that potentially
9:47
Speaker 2: mean for the regions? So that there are a ton
9:49
Speaker 2: of unanswered questions. Again, I don't think we know a
9:53
Speaker 2: ton right now, and there's still you know, a lot
9:56
Speaker 2: that can happen in a short period of time. We're
9:59
Speaker 2: gonna i know more as each day goes by here,
10:03
Speaker 2: but right now, this I think is the key story
10:07
Speaker 2: that is driving questions about, you know, where where markets
10:11
Speaker 2: go and what we're seeing on that front. Anything else
10:14
Speaker 2: to add in general there, Mike, No, not a ton.
10:18
Speaker 2: I think you just have to wait and see on this.
10:20
Speaker 2: Just take a quick break here. When we come back,
10:22
Speaker 2: I do want to talk about now specifically what this
10:25
Speaker 2: means and kind of what what that oil impact means
10:28
Speaker 2: on US markets and the economy. So let's take a
10:32
Speaker 2: quick break here, and when we return we will discuss
10:36
Speaker 2: that right after this.
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Speaker 2: Mike, So, let's talk about you know, kind of day
11:45
Speaker 2: to day for us in the US, both as you
11:48
Speaker 2: know humans and as investors, because those are not always
11:51
Speaker 2: the same thing. True occasionally you have robot investors, especially
11:55
Speaker 2: in today's day and age. But let's talk about this
11:58
Speaker 2: from kind of day to day life of an average person.
12:03
Speaker 2: The only place, assuming that this stay is relatively contained,
12:05
Speaker 2: that you see a potential that I see a potential
12:08
Speaker 2: impact from immediately is at the pump. And what I
12:13
Speaker 2: have is Patrick de'han who is he runs gas buddy.
12:17
Speaker 2: Does that mean he is the gas buddy.
12:19
Speaker 3: Yeah, he's your personal gas buddy. And he his name
12:21
Speaker 3: is Patrick. His name's Patrick.
12:24
Speaker 2: And he basically said, look, assuming that I'll quote him, Actually,
12:28
Speaker 2: gas prices will likely start to rise across much of
12:31
Speaker 2: the country later this evening in response to Israel's attacks
12:34
Speaker 2: on Iran, which have caused oil prices to surge for
12:37
Speaker 2: now I expect the rise to be noticeable, but limited
12:40
Speaker 2: approximately ten to twenty five cents a gallon thus far.
12:43
Speaker 2: But this could change, and basically it's going to change
12:46
Speaker 2: depending on how the next week or two goes where Hey,
12:50
Speaker 2: if it looks like the Iranian response is going to
12:53
Speaker 2: be muted either by their desire or lack of ability
12:56
Speaker 2: to mount any kind of counterattack, then you're, you know,
13:01
Speaker 2: towards the lower end of that range. Otherwise, you have
13:03
Speaker 2: the potential to go higher depending on exactly what they
13:06
Speaker 2: do and how they respond. But ten to twenty five
13:09
Speaker 2: cents a gallon, it's not, again, a huge price increase,
13:12
Speaker 2: but it's something that if you're filling up, you know,
13:15
Speaker 2: a fifteen gallon tank, you're talking about anywhere from a
13:18
Speaker 2: dollar fifty to an extra five bucks in order to
13:21
Speaker 2: do so. Definitely noticeable. In the United States, the our
13:29
Speaker 2: demand for gasoline. I looked this up this morning just
13:31
Speaker 2: because it's always good to have like the facts when
13:34
Speaker 2: you're trying to figure this out. Mike, do you know
13:36
Speaker 2: how many gallons of gas the United States uses a day?
13:39
Speaker 2: Don't make me guess, No, I want you to guess.
13:42
Speaker 2: I want to see like I want you to on
13:44
Speaker 2: the spot. I'll give you five seconds. I'm gonna continue talking,
13:47
Speaker 2: but now I want your answer for how many gallons
13:49
Speaker 2: of gas the United States uses a day.
13:51
Speaker 3: Umm, I'm gonna go to the tune of fifty million.
13:56
Speaker 2: Four hundred million. So you were off by a factor
13:58
Speaker 2: of ten. Yeah, not great, but it's it's fine, like it.
14:02
Speaker 2: Put it on the So the US uses four hundred
14:05
Speaker 2: million gallons of gas a day. American adults are there
14:11
Speaker 2: probably two hundred and fifty million. Yeah, okay, ballpark. You're
14:17
Speaker 2: talking like a gallon and a half per person per day,
14:20
Speaker 2: which like, okay, like I buy that. So four hundred
14:23
Speaker 2: million a day. So if you do the math out,
14:26
Speaker 2: if it's a ten cent let's take the middle of
14:28
Speaker 2: the range. It's say it's like a twenty cent price increase,
14:31
Speaker 2: you've got eighty million dollars a day that now has
14:34
Speaker 2: to go to gas rather than going to other stuff.
14:38
Speaker 2: And if you extrapolate that out over three hundred and
14:41
Speaker 2: sixty five days, it's about twenty nine billion dollars that
14:44
Speaker 2: has to go to buying gas as opposed to other stuff. Now,
14:48
Speaker 2: remember this is not just four individuals, this is you know,
14:52
Speaker 2: corporate use of gasoline as well. And so I think
14:55
Speaker 2: the place that I land is, Hey, if it's you know,
14:59
Speaker 2: again a twenty cent increase, it's uncomfortable. But I don't
15:02
Speaker 2: know that that's enough to really skew the US economy
15:05
Speaker 2: in any way, shape or form, given just the overall
15:08
Speaker 2: dollars that we're talking about here. If this gets worse,
15:12
Speaker 2: like you say, okay, like how bad could it get?
15:15
Speaker 2: And Iran closes the straight of horror moves because of
15:18
Speaker 2: you know, they dump a bunch of you know, old
15:20
Speaker 2: ships in there and sink them. Are they mined or
15:22
Speaker 2: whatever it is they do. And you've got oil prices
15:25
Speaker 2: that go from you know, seventy three on West Texas
15:27
Speaker 2: Intermediate up to ninety three. Okay, now we're talking you know,
15:31
Speaker 2: four dollars and twenty five cents a gallon. It's a
15:33
Speaker 2: dollar increase, you know, it's five times this size. Now
15:36
Speaker 2: it's one hundred and fifty billion dollars being sucked out
15:39
Speaker 2: of the US economy and having to go to you know,
15:42
Speaker 2: pay for these higher prices at a time when individuals
15:46
Speaker 2: are already saying that they're stretched, you know, as far
15:48
Speaker 2: as how much they can spend and companies are already
15:51
Speaker 2: fighting tariffs as far as they're pricing. That starts to
15:54
Speaker 2: look a little more concerning to me. But at this level,
15:57
Speaker 2: I'm not sure that there's a huge impact on the
16:00
Speaker 2: US economy, especially because I only told you the bad
16:03
Speaker 2: side of things. The good side is, Hey, all the
16:05
Speaker 2: oil companies that produce a bunch of this stuff domestically,
16:09
Speaker 2: not so much in the New England region, but you know,
16:11
Speaker 2: Texas and Pennsylvania and Colorado and the like, Okay, they
16:14
Speaker 2: end up making more money when these prices are higher
16:17
Speaker 2: as well. And we do export a bunch of oil,
16:19
Speaker 2: so higher oil prices are not the net drag that
16:22
Speaker 2: they were previously. The only reason that I'm even, you know,
16:25
Speaker 2: kind of remotely concerned about them now is just because
16:28
Speaker 2: companies and people are potentially heading into a summer of
16:31
Speaker 2: higher prices otherwise, and this could just be more fuel
16:34
Speaker 2: on the fire and no pun intended.
16:36
Speaker 3: Yeah, puts a little bit more focus on trade deals
16:39
Speaker 3: in whether or not we have increased tariffs in the
16:40
Speaker 3: second half of this year. Yeah, you get those two combined,
16:43
Speaker 3: and you could have a real inflation problem and a
16:45
Speaker 3: real consumer spending problem.
16:48
Speaker 2: Other interesting things Just that I'm noticing looking at markets today, gold,
16:51
Speaker 2: as you would expect in a time of crisis, getting
16:54
Speaker 2: a little bit of a short term bid up forty
16:56
Speaker 2: nine dollars announced to thirty four to fifty one. The
17:00
Speaker 2: SAI that interest me is not what's going on with gold,
17:01
Speaker 2: but rather what's going on with the ten year treasury.
17:03
Speaker 2: And granted this is something that is not unique to
17:05
Speaker 2: the US ten year treasury. It's happening across the world
17:08
Speaker 2: today with yields moving up, but the ten yuere has
17:10
Speaker 2: moved up by five point six basis points to four
17:13
Speaker 2: point one point three I'm sorry, four point four to
17:15
Speaker 2: one three percent. And so this is something that you
17:19
Speaker 2: kind of look at and you go, okay, Like, yields
17:22
Speaker 2: are moving up around the globe, but the US used
17:24
Speaker 2: to kind of have this unique place where bonds would
17:27
Speaker 2: get bid, you know, during a flight to safety. Is
17:31
Speaker 2: there something different here? I don't know, but I at
17:33
Speaker 2: least take note that this is the US bonds are
17:36
Speaker 2: not getting the bid on flight to safety here.
17:39
Speaker 3: Right, I guess last like non market reaction to all
17:43
Speaker 3: of this that I think is worth mentioning. By all accounts,
17:46
Speaker 3: President Trump didn't want to see these strikes go forward.
17:49
Speaker 3: We can't know definitively, but he made some direct statements
17:52
Speaker 3: on the fact and was intending to send negotiators to
17:54
Speaker 3: to around this weekend to continue you know, nuclear talks
17:58
Speaker 3: and arrangements with Iran. The fact that Israel went through
18:03
Speaker 3: with this in spite of President Trump's best efforts and
18:05
Speaker 3: his you know, seemingly increased influence and better relations with
18:10
Speaker 3: Israel compared to President Biden. I find interesting. Don't know
18:14
Speaker 3: what to make of it. But is it as big
18:18
Speaker 3: a frustration for President Trump as it seems to be
18:21
Speaker 3: on the surface is a question that I have.
18:24
Speaker 2: There are two ways to read this, and I think
18:27
Speaker 2: I don't have strong feelings as to exactly which one's
18:31
Speaker 2: right today. The first is and looks it's very clear
18:35
Speaker 2: that the United States knew this was coming, Yes, from
18:39
Speaker 2: the area. They sent out notifications you know, two days
18:41
Speaker 2: ago basically saying like, yes, we want to evacuate you know,
18:43
Speaker 2: some personnel from the area. So it's clear that the
18:46
Speaker 2: United States knew this was imminent. There's a difference between
18:52
Speaker 2: knowing and giving your blessing, and I think this is where,
18:54
Speaker 2: you know, the question is, Hey, is the US trying
18:56
Speaker 2: to play the good cop and letting Israel play the
18:58
Speaker 2: bad cop in Iran. Right possible? Yep. The other possibility
19:03
Speaker 2: is and look, I tend to think that President Trump
19:09
Speaker 2: by and large wants to avoid armed conflict where possible.
19:13
Speaker 2: Like that's it's it's kind of been the general tenor
19:16
Speaker 2: of his first term, and you know how he's approached
19:18
Speaker 2: things this term. If Israel actually you know, openly defied
19:24
Speaker 2: the United States rather than kind of following suit with
19:29
Speaker 2: what the US is typically guided, that has potentially significant
19:35
Speaker 2: geopolitical implications over the next decade or so. Let's take
19:38
Speaker 2: a quick break Wall Street Watch next.
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20:01
Speaker 4: Markets are in sell off mode following Israel strikes against
20:04
Speaker 4: Iran overnight, sending oil, gold, and geopolitical uncertainty higher. Right now,
20:09
Speaker 4: the Dow is off by one point five percent, or
20:13
Speaker 4: six hundred and seventy seven points. SMP five hundred is
20:16
Speaker 4: down by just over one percent or sixty two points,
20:19
Speaker 4: and the Nasdaq is down one point two percent or
20:22
Speaker 4: two hundred and forty six points. Rusted two thousand is
20:25
Speaker 4: off nearly one and a half percent, or thirty one points.
20:28
Speaker 4: Ten year Treasure reeled up by five basis points, now
20:32
Speaker 4: at four point four to one percent. In crude oil
20:35
Speaker 4: jumping over seven percent higher now trading it just below
20:39
Speaker 4: seventy three dollars a barrel. With oil price is spiking
20:43
Speaker 4: due to concerns over the supply outlook. Chevron, Conico, Phillips,
20:46
Speaker 4: Occidental Petroleum are up anywhere between one and three percent.
20:51
Speaker 4: Defense stocks are also seeing gains on the day. Lockheed,
20:54
Speaker 4: Martin and RTX are up by about three percent. Several
20:58
Speaker 4: airline stocks are seeing losses on the prospect of higher
21:01
Speaker 4: fuel costs and slower demand due to the rising tensions
21:04
Speaker 4: in the Middle East. United Airlines in Delta down over
21:07
Speaker 4: four percent now. Cruise lines and crew, including Carnival and
21:11
Speaker 4: Royal Caribbean and off anywhere between three and five percent
21:15
Speaker 4: due to heightened risks possible including possible deterring vacationers and
21:20
Speaker 4: increasing oil prices outside of the Middle East. News Adobe
21:25
Speaker 4: posted stronger than expected second quarter earnings and revenue, and
21:28
Speaker 4: also raised its annual outlook. Whoever, analysts say Generative AI
21:33
Speaker 4: could take away from Adobe's business if it doesn't move
21:36
Speaker 4: to keep up. Adobe's stock is down by seven percent.
21:42
Speaker 4: According to the Wall Street Journal. Walmart and in Amazon
21:45
Speaker 4: have recently explored whether to issue their own stable coins
21:49
Speaker 4: in the US, and shares in furniture retailer RH jumping
21:53
Speaker 4: by over eleven percent after it swung to a quarterly
21:57
Speaker 4: profit despite tariff uncertainty and a shaky housing market. On
22:02
Speaker 4: Tucker Silvan, that is Wall Street.
22:03
Speaker 2: Watch, Mike, anything else that we want to add as
22:07
Speaker 2: it relates to what's going on between Israel and Iran
22:12
Speaker 2: At the moment, I think we've covered a decent amount
22:14
Speaker 2: of ground. But is there anything that I left out?
22:16
Speaker 3: Not that I can think of. Let's let's move along
22:18
Speaker 3: and if there's any break news, we'll be sure to revisit.
22:21
Speaker 2: Okay, This morning at ten am, we got the University
22:25
Speaker 2: of Michigan consumer sentiment data that showed a notable uptick
22:29
Speaker 2: from the month of May. This as tariff news has
22:33
Speaker 2: kind of, you know, i'll say, improved, taking a back seat. Yeah,
22:39
Speaker 2: it's you know, obviously it's still there. And I think
22:41
Speaker 2: we're all kind of just sitting there waiting, like okay,
22:43
Speaker 2: like when's it really going to show up? So you've
22:46
Speaker 2: got sentiment improving a little bit, inflation expectations improved as well.
22:51
Speaker 2: And I guess I was talking with I think it
22:55
Speaker 2: was Mark Fandetti who was on yesterday, and he mentioned
22:57
Speaker 2: University of Michigan consumer sentiment because of the inflation numbers
23:01
Speaker 2: there that have just been like sky high in the
23:02
Speaker 2: last reading, and I kind of made the point like,
23:07
Speaker 2: I'm not sure that university the University of Michigan sentiment
23:11
Speaker 2: is valuable at this point, simply because it's so divorced
23:18
Speaker 2: from what we've actually been seeing in inflation numbers. And
23:24
Speaker 2: I spent some time like thinking about this actually this morning,
23:28
Speaker 2: just because like I saw this in the stack, and
23:30
Speaker 2: I was like, is that, like, is that a viable
23:34
Speaker 2: opinion to have or am I just you know, trying
23:38
Speaker 2: to toss out a set of data that I don't
23:40
Speaker 2: want or I don't like for some reason. And I
23:44
Speaker 2: think ultimately I just came back to it's not telling
23:49
Speaker 2: us something as far as what we should realistically expect
23:53
Speaker 2: inflation to be. But it's still I guess can maybe
23:57
Speaker 2: have like some kind of vague directional value as far
24:00
Speaker 2: as hey, people expect inflation to be higher or lower
24:04
Speaker 2: than it is today. But I'm not sure that you
24:06
Speaker 2: can take much more from it than that.
24:08
Speaker 3: Yeah, And I'm not even sure you can say they
24:10
Speaker 3: expect it to be higher than it is today. From it,
24:13
Speaker 3: I would maybe look at it more as an expression
24:16
Speaker 3: of frustration about the economy as a whole, could be.
24:20
Speaker 2: Yeah, I don't know.
24:23
Speaker 3: I mean, how many people when we were talking about
24:25
Speaker 3: inflation of twenty twenty two, right June of twenty twenty two,
24:28
Speaker 3: when inflation printed at nine percent, how many people wrote
24:32
Speaker 3: into this show and said that ain't right, My inflation's
24:35
Speaker 3: fifteen percent year over year, right? And so I think
24:39
Speaker 3: we always have a bit of a disconnect between, you know,
24:42
Speaker 3: what the government reports on inflation versus what individuals experience.
24:46
Speaker 3: So I'm not sure I would read into it as, oh, yeah,
24:48
Speaker 3: inflation is going to go to what was the most
24:50
Speaker 3: recent twelve month read five something?
24:53
Speaker 2: Well, I guess not so much that, but just more
24:55
Speaker 2: more along the lines of again, we didn't get like
24:59
Speaker 2: high inflation expectations back in the twenty tens, And I
25:04
Speaker 2: think that meshed with you know what we saw, which
25:06
Speaker 2: was not much inflation actually, right, I think what I
25:10
Speaker 2: guess what I'm getting at is, hey, I don't buy
25:13
Speaker 2: that inflation expectations are actually you know, seven percent or
25:17
Speaker 2: you know, like wherever, just because I don't think, especially
25:22
Speaker 2: given like how on the inflation data more so than
25:26
Speaker 2: other places. Now there's just this this clear partisan bias
25:29
Speaker 2: that shows up. Yep. You know where there was one
25:32
Speaker 2: reading in the last couple of months where I think
25:34
Speaker 2: Democrats said, like inflation was gonna be like nine percent,
25:36
Speaker 2: Republicans said it was zero yep, And it's like and
25:40
Speaker 2: immediately flipped after the election, by the way, right, well, no,
25:42
Speaker 2: So the consumer sentiment thing I get when it comes to, hey,
25:46
Speaker 2: you want your guy in office, of course you're gonna
25:49
Speaker 2: say things are better. I get that we hadn't seen
25:53
Speaker 2: this kind of polarization on the inflation numbers previously, and
25:58
Speaker 2: so I kind of look at that and I'm like, okay,
25:59
Speaker 2: like what do I even do with this?
26:01
Speaker 3: Yeah, I think the way that I would treat it
26:03
Speaker 3: would be there are consumers out there who are worried
26:08
Speaker 3: about inflation running hotter, and so if there is an
26:11
Speaker 3: actual cause for it to do so, it could.
26:14
Speaker 2: Become a bit of a self fulfilling prophecy.
26:17
Speaker 3: But in and of itself, I don't think expectations are
26:19
Speaker 3: going to start moving inflation immediately, because what's been pretty
26:22
Speaker 3: clear is that in spite of those inflation concerns, those
26:26
Speaker 3: same consumers are not really pulling purchases forward like you
26:30
Speaker 3: would anticipate if they truly believed the prices were going
26:33
Speaker 3: to go up, right. I mean, I've seen no evidence
26:36
Speaker 3: other than cars occasionally in the.
26:39
Speaker 2: Retail numbers for February and March. We're pretty convincing in
26:43
Speaker 2: that fashion.
26:43
Speaker 3: I thought, Yeah, but it didn't last, and it didn't
26:47
Speaker 3: really cause a bunch of inflation.
26:52
Speaker 2: Here and there. Yeah, I mean, you've seen some things.
26:54
Speaker 2: I guess we'll see. I guess My big thing is
26:58
Speaker 2: I'm kind of I've just kind of soured on this
27:02
Speaker 2: University of Michigan survey, especially since they moved into the
27:04
Speaker 2: last year I don't know the exact date to being
27:07
Speaker 2: an online survey, which is also seemingly brought out some
27:10
Speaker 2: of these wider outcomes that they're saying now. And so
27:15
Speaker 2: I wonder if the methodology change has, you know, affected
27:18
Speaker 2: what they're getting for one reason or another, I don't know.
27:21
Speaker 2: Either way, we report it when it's bad.
27:24
Speaker 3: The news here is that it improved dramatically month over month,
27:28
Speaker 3: by a significant change in terms of both the outlook
27:32
Speaker 3: on the economy as a whole as well as inflation expectations.
27:35
Speaker 3: And so I don't want to undermine that the report
27:38
Speaker 3: for June was a market improvement from where we were
27:42
Speaker 3: in May. It's just still a fair bit worse than
27:44
Speaker 3: where we were in December of last year.
27:46
Speaker 2: Let's take a quick break. When we come back, we'll
27:48
Speaker 2: talk about whether or not the case for rate cuts
27:51
Speaker 2: is growing.
27:53
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28:25
Speaker 2: Mike, we got a piece in the Wall Street Journal.
28:26
Speaker 2: It's titled the Case for Rate Cuts is Growing. And
28:29
Speaker 2: this is something I talked about with Mark Fandetti yesterday
28:31
Speaker 2: a little bit, which is, look, we've gotten some really
28:35
Speaker 2: good inflation data for the last four months or so.
28:38
Speaker 3: Now, yeah, fine, including yesterday's yeah yeah, really good inflation data.
28:43
Speaker 2: And at the same time, you're starting to see some
28:46
Speaker 2: signs under the surface that the labor market is weakening.
28:51
Speaker 2: It's I'm I struggle to find areas where the labor
28:56
Speaker 2: market is strengthening right now. It's I see, you know,
28:59
Speaker 2: it might be thirty to fifty percent, you know, forty
29:03
Speaker 2: to sixty percent of the labor market data is kind
29:06
Speaker 2: of the same, and forty to sixty percent is worsening
29:09
Speaker 2: in fairly noticeable ways. And so given that backdrop, you'd say, Okay,
29:14
Speaker 2: if we're sitting here right now on you know, the
29:16
Speaker 2: thirteenth of June twenty twenty five, and I've got CPI
29:21
Speaker 2: year over year at two four, I've got core CPI
29:25
Speaker 2: at two eight, pcees at two two, core pc is
29:29
Speaker 2: at two five. Yeah, it's not two percent inflation, but hey,
29:32
Speaker 2: we've never gotten two percent inflation, and I can't let
29:34
Speaker 2: unemployment go to five Okay, Like, yeah, maybe we start
29:37
Speaker 2: a cutting cycle here, but and this is the the butt.
29:45
Speaker 2: You got all these tariffs out here that you don't
29:47
Speaker 2: know how long they're gonna be in place. You don't
29:48
Speaker 2: know exactly what the impacts are going to be, and
29:51
Speaker 2: so you look at that and you say, I can't
29:54
Speaker 2: cut until I see a little bit more data, which
29:57
Speaker 2: is why first cuts from the FED. According to the
30:00
Speaker 2: CME's Fedwatch tool, first cut for the FED is realistically
30:05
Speaker 2: being priced in September October right now. Yeah.
30:08
Speaker 3: Well, and this piece from Greg Yip, by the way,
30:10
Speaker 3: written at five thirty three pm yesterday, kind of flips
30:14
Speaker 3: on its head when you have tension in the Middle
30:16
Speaker 3: East and oil prices spiking. I know, the FED discounts heavily,
30:20
Speaker 3: you know, and strips out the stuff like oil prices.
30:23
Speaker 3: But let's be clear, energy prices feed into everything that
30:27
Speaker 3: the FED looks at on inflation.
30:28
Speaker 2: Well, and this also, the energy price thing, does reinforce
30:32
Speaker 2: the idea that, hey, maybe the FED shouldn't be moving
30:35
Speaker 2: right now. And the reason for that is that energy
30:38
Speaker 2: prices have been a net positive positive. Energy price have
30:42
Speaker 2: helped inflation numbers to the downside over the last year
30:46
Speaker 2: and net positive to the decline in inflation that was. Yes,
30:49
Speaker 2: their net positive negative is what I'm trying to say. Yeah,
30:53
Speaker 2: And so ultimately the case that I made and I've
30:56
Speaker 2: said this before. Hey, if you've got Core CPI at
30:59
Speaker 2: two seven seven in headline at two three, the only
31:02
Speaker 2: difference between those is that gas prices have come down
31:06
Speaker 2: twelve percent in the last year. If they go up
31:08
Speaker 2: twelve percent, now you got inflation running at three five?
31:12
Speaker 2: Do you feel comfortable with that? And you got Core?
31:15
Speaker 2: Because remember, even though you know, even though Core doesn't
31:18
Speaker 2: directly include fuel, it gets incorporated into all these other things,
31:21
Speaker 2: it gets incorporated into airfares and stuff like that, like
31:24
Speaker 2: all this stuff that ends up you know, being in
31:28
Speaker 2: CORE still reflects gas prices. And so you look at
31:32
Speaker 2: this and you're like, okay, so suppose that the next
31:35
Speaker 2: you know, six months, we see headline end up at
31:39
Speaker 2: you know, back at three, and Core goes from two
31:41
Speaker 2: to eight up to you know three one. This is
31:44
Speaker 2: without even you know, any tariff effects. Okay, you incorporate those.
31:48
Speaker 2: Now you're saying, do we have you know, Core CPI
31:50
Speaker 2: at three and a half and headline you know at
31:53
Speaker 2: four because oil prices have gone up. Okay, I understand
31:58
Speaker 2: why the FED maybe a little bit hesitant to cut.
32:00
Speaker 2: I'm not saying that they should, you know, factor oil
32:02
Speaker 2: prices in the and they don't. But part of the
32:06
Speaker 2: reason why all these numbers look so good is because
32:09
Speaker 2: oil prices have fallen and if that reverses, which, by
32:12
Speaker 2: the way, look at the reversal on oil over the
32:15
Speaker 2: last month or so. May let me get the exact date,
32:20
Speaker 2: just because I want it. I want to be precise. Here,
32:23
Speaker 2: May fifth Sick go to MYO oil West Text Intermedia
32:28
Speaker 2: close at fifty seven to thirteen today it's at seventy
32:33
Speaker 2: two seventy two. It's a twenty seven percent jump in
32:37
Speaker 2: a month for oil. Now, gas prices haven't moved that
32:41
Speaker 2: way because you know, the refining cycle changes and this
32:43
Speaker 2: and that. But you're gonna have this incorporated. Gas prices
32:46
Speaker 2: are gonna move probably from the three twelve range up
32:49
Speaker 2: into the three twenty five to three forty range, and
32:52
Speaker 2: that's going to have an impact on everything. So I
32:57
Speaker 2: said yesterday, Look, if you didn't have this tear situation
33:00
Speaker 2: out there, I think the FED could be justified in
33:03
Speaker 2: starting a cutting cycle in June. With the tariff situation
33:08
Speaker 2: out there. The only way they go before September is
33:12
Speaker 2: if the labor market data over the next month gets
33:17
Speaker 2: notably worse. Prior to that, July meeting. You gotta have
33:22
Speaker 2: like weekly unemployment claims heading close to three hundred thousand.
33:25
Speaker 2: You gotta have probably a jobs report that shows, I
33:31
Speaker 2: don't know, under fifty thousand jobs created. You gotta have
33:35
Speaker 2: continuing claims heading north of two million, from one point
33:38
Speaker 2: nine to five million. Like those are the things that
33:40
Speaker 2: you would need to see in order to maybe justify
33:43
Speaker 2: a a cut in July now, because you can say, hey,
33:46
Speaker 2: once you start seeing this stuff, it usually accelerates. If
33:50
Speaker 2: you're just gonna wait until you're already in recession to cut,
33:53
Speaker 2: then what are you doing anyways? Which I get.
33:56
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35:04
Speaker 3: Chuck, I want to keep on the labor market for
35:06
Speaker 3: a little bit here because you mentioned it.
35:09
Speaker 2: We talked a little bit about it.
35:10
Speaker 3: But if you're not looking at the economic data and
35:13
Speaker 3: just paying attention to the political announcements, I mean, just
35:17
Speaker 3: yesterday quote from the President, our great farmers and people
35:19
Speaker 3: in the hotel and leisure business have been stating that
35:22
Speaker 3: our very aggressive policy on immigration is taking very good,
35:25
Speaker 3: longtime workers away from them, with those jobs being almost
35:29
Speaker 3: impossible to replace. You combine that with the piece that
35:33
Speaker 3: we're in cover later about big numbers of people filing
35:36
Speaker 3: for Social Security, oftentimes at sixty two years old. And
35:41
Speaker 3: it leads you to wonder, like, Okay, what are these
35:43
Speaker 3: weaknesses in the labor market that you're talking about, Chuck.
35:46
Speaker 3: If you know, immigrants aren't able to fill these same jobs,
35:50
Speaker 3: hotels and farms are looking to hire to replace them,
35:53
Speaker 3: they can't find those people to replace them, and baby
35:56
Speaker 3: boomers are retiring. Where's this weakness coming from? And there
35:59
Speaker 3: are signals of it that we're seeing in the government
36:02
Speaker 3: data of weakness on the job side of things.
36:04
Speaker 2: Yeah, I mean, so if you're talking about the area,
36:07
Speaker 2: there's two great questions there. Actually, I'll try to wrap
36:09
Speaker 2: this up as quickly as possible. The first is the
36:12
Speaker 2: areas of weakness that we're seeing continuing claims continue to
36:15
Speaker 2: rise at a more rapid pace year over year.
36:18
Speaker 3: With continuing claims are the filing for unemployment and people
36:21
Speaker 3: staying on those unemployment claims.
36:22
Speaker 2: Yes, and so generally that's in a healthy place if
36:26
Speaker 2: they're rising like two to four percent, because the population grows,
36:30
Speaker 2: you know, a percent or so a year, And okay,
36:32
Speaker 2: like you can make this work. We're now at a
36:35
Speaker 2: point where continuing claims for unemployment are rising north of
36:38
Speaker 2: seven percent year over year, and generally once you get
36:40
Speaker 2: close to ten is where things start to get pretty
36:43
Speaker 2: dodgy for the labor market. Another one that we're seeing
36:47
Speaker 2: normally at any given point in time, anywhere between eleven
36:51
Speaker 2: and seventeen percent of workers report no increase in pay
36:55
Speaker 2: in the prior year. This is from a survey that
36:57
Speaker 2: the Atlanta Fed does. We bottom did around eleven percent
37:00
Speaker 2: in late twenty twenty three. We're now up to around
37:03
Speaker 2: thirteen and a half percent of workers reporting no increase
37:06
Speaker 2: in pay. Because remember, no no boss comes here and says, hey,
37:09
Speaker 2: great job, Mike, here's a ten percent pay cut for
37:11
Speaker 2: next year. Instead they might say, hey, things are tight,
37:14
Speaker 2: we can't raise your salary. This is something that correlates
37:17
Speaker 2: pretty strongly with a rise in unemployment. Normally it has
37:21
Speaker 2: not at this cycle to this point. But I think
37:24
Speaker 2: we're more towards a balanced labor market now where it
37:26
Speaker 2: starts to correlate again potentially. So you've got some things
37:29
Speaker 2: under the surface that are dodgy. And the other thing
37:32
Speaker 2: that I'll add, just in terms of economic growth. Remember,
37:35
Speaker 2: economic growth is two things. It's hours worked times how
37:38
Speaker 2: much stuff you produce during those hours. If you got
37:41
Speaker 2: a bunch of baby boomers retiring, and you got a
37:44
Speaker 2: bunch of people who are not in the country legally
37:47
Speaker 2: that are either being deported or or are afraid to
37:50
Speaker 2: work for fear that they may be deported, you've got
37:53
Speaker 2: a bunch of people being sucked out of the labor force,
37:55
Speaker 2: and that is not good for GDP. NO. So that's
38:00
Speaker 2: something that I think we really need to pay attention
38:03
Speaker 2: to as far as how it can affect these things
38:06
Speaker 2: going forward. Let's take a quick break here. We still
38:09
Speaker 2: got a lot to come on the financial exchange. To
38:13
Speaker 2: stick around