'Bloomberg Real Yield' (08/26/2022)
>> FROM NEW YORK CITY FOR OUR AUDIENCE WORLDWIDE, I AM TAYLOR RIGGS IN FOR JONATHAN FERRO. BLOOMBERG REAL YIELDS STARTS NOW. COMING UP, JAY POWELL PUSHING BACK AGAINST THE PIVOT, SIGNALING HIGHER INTEREST RATES TO STAMP OUT INFLATION AND IT IS SENDING STOCKS LOWER AND MAGNIFYING THE INVERTED YIELD CURVE. WE BEGIN WITH THE BIG ISSUE, CHAIR POWELL CENTERSTAGE IN WYOMING. >> RESTORING PRICE STABILITY WILL LIKELY MAINTAIN -- REQUIRE MAINTAINING A POLICY STANCE FOR SOME TIME.
THE HISTORICAL RECORD CAUTIONS STRONGLY AGAINST PREMATURELY LOOSENING POLICY. THE COMMITTEE'S OVERARCHING FOCUS RIGHT NOW IS TO BRING INFLATION BACK DOWN TO OUR 2% GOAL. PRICE STABILITY IS THE RESPONSIBILITY OF THE FEDERAL RESERVE AND SERVES AS A BEDROCK OF OUR ECONOMY. WITHOUT PRICE STABILITY, THE ECONOMY DOES NOT WORK FOR ANYONE . IN PARTICULAR, WITHOUT PRICE STABILITY, WE WILL NOT SUSTAIN A STUDENT -- HAVE A SUSTAINED PERIOD OF CONDITIONS THAT BENEFIT ALL.
THE BURDENS OF HIGH INFLATION FALL ON THOSE LEAST ABLE TO TAKE THEM. WE WILL KEEP AT IT UNTIL WE ARE CONFIDENT THE JOB IS DONE. TAYLOR: JOINING US NOW IS JP MORGAN'S KELSEY BARROW OF MORGAN STANLEY AND TWO OTHERS. I KNOW WE ARE ALWAYS FOCUSED ON THE RATES MARKETS. I AM LOOKING AT AN EQUITY MARKET THAT APPEARS TO BE CAUGHT OFF GUARD. WHAT DID YOU GLEAN FROM POWELL
TODAY? >> HE BASICALLY UNDID THE MISTAKES HE MADE ON JULY 27 AT HIS PRESS CONFERENCE. THEN HE SAID THE FED WAS ODDLY CLOSE TO NEUTRAL AND THEY WOULD ABANDON FORWARD GUIDANCE AND THE MARKET TOOK THAT AS A SIGNAL THE FED WAS GOING TO PIVOT. THAT THEY WERE EVENTUALLY GOING TO RAISE RATES A COUPLE MORE TIMES, STOP, THEN CUT RATES IN 2023, LAUNCHING THE BIG RALLY WE SEE OVER THE LAST SEVERAL WEEKS. I THINK WHAT HE DID WAS PULL BACK THAT TODAY. HE SAID WHEREVER WE ARE GOING
TO GO, WE ARE GOING TO STAY THE COURSE. SO MAYBE THEY RAISE RATES 75 BASIS POINTS MORE, MAYBE THEY RAISE 200 BASIS POINTS MORE, WE CAN DEBATE THAT. THEN THEY WILL STAND AND HOLD ON THAT FOR A LONG PERIOD OF TIME, IN OTHER WORDS NO PIVOT. THE MARKET I THINK WAS TAKEN IT
BACK THE FED IS NOT GOING TO BE AS ACCOMMODATIVE AS THEY THOUGHT 48 HOURS AGO. TAYLOR: DO YOU AGREE, IS THIS A MARKET THAT IS SORT OF GETTING NEW SIGNALS, NEW CLARITY, NEW GUIDANCE TODAY OR WAS THIS SPEECH A HAWKISH FED COMING OUT FOR LAND FRONT? >> I THINK THAT INVESTORS WERE SNIFFING THIS OUT A LITTLE BIT OVER THE PAST WEEK AND SO I DO NOT THINK THIS WAS A TOTAL SHOCKER FOR INVESTORS PAYING ATTENTION. I DO THINK THERE WERE DEFINITELY SOME MORE HAWKISH ELEMENTS TO THE SPEECH. AT THE END OF THE DAY, THESE WERE REMARKS HE WANTED TO GIVE.
THERE WAS NO Q&A SESSION, THERE WAS NO OPPORTUNITY FOR HIM TO BE PULLED OFF COURSE. THIS WAS AN INTENTIONAL MESSAGE. REALLY PLAYING UP UNDERLYING STRENGTH OF THE U.S. ECONOMY AND PLAYING DOWN THE MYTH OF -- AFTER THE LAST CPI REPORT. THIS WAS AN INTENTIONAL MESSAGE AND I THINK IT WENT OFF REALLY WELL. I THINK HE DID A GREAT JOB. TAYLOR:
KELSEY, HOW ARE YOU THINKING ABOUT HAWKISH FED TODAY FIRMLY BOASTING AHEAD AND I VERY MUCH FOCUSED ON INFLATION. >> WE AGREE CHAIR POWELL'S SPEECH WAS GENERALLY SUCCESSFUL. INTO THE SPEECH, WHAT I WAS LOOKING FOR WAS FOR THE MARKET PRICING FOR SEPTEMBER TO REMAIN AROUND 50-50 PROBABILITY. HALF A PERCENT ON 50 BASIS POINTS, HALF ON 75 BASIS POINTS AND WHERE THE CHAIR POWELL NEEDED TO PUSH BACK WAS ON THE IDEA THERE WOULD BE RATE CUTS IN 2023 AND I THINK HE RESPECTFULLY DID THAT. ONE OF THE OTHER OBSERVATIONS I NOTE, RIGHT NOW THE FOCUS IS STILL ON INFLATION.
I COUNTED THE NUMBER OF TIMES HE SAID INFLATION, 47, COMPARED TO SIX TIMES HE MENTIONED EMPLOYMENT OR LABOR. IT SHOWS WHERE HIS MIND IS AT. WE THINK THAT IS APPROPRIATE. THE REACTION IN THE BOND MARKET, THE CURVE FLATS AND OR I SHOULD SAY, HIGHER RIGHT END YIELDS AND LOWER RUNG IDEALS IS THE REFLECTION OF THE FED CONTINUED RESOLUTION TOWARD THIS OUTCOME. TAYLOR: AT THE TOP OF THE PROGRAM, YOU SAID WE COULD DEBATE THIS IF WE WANT. LET'S DEBATE IT. IT IS INTERESTING. BANK OF AMERICA SAYS BOND
YIELDS THEY HAVE NOT PAID ADDING A HAWKISH FED IS BULLISH AND A DOVISH FED IS BEARISH. FED FUNDS LIKELY NEED TO BE EXCEEDING 4% BY 2024 AND THE SOONER THE FED [INDISCERNIBLE] THE BETTER FOR MACRO AND THE BETTER FOR MARKETS. HOW ARE YOU THINKING ABOUT A 4% FEDS FUND RATE TO THAT? JIM: I BROADLY AGREE WITH THAT THAT YIELDS HAVE PROBABLY -- ARE GOING TO HAVE TO GO HIGHER. THE TWO YEAR YIELD IS A COUPLE BASIS POINT AWAY FROM A NEW HIGH OF THE YEAR AND THAT SEEMS LIKE IT IS ALMOST A LAY UP THAT THAT WOULD HAPPEN. I THINK REALLY STEPPING BACK FROM ALL OF THIS, WHAT IS THE PROBLEM WITH INFLATION? WHY DO WE HAVE 8.5% INFLATION? IS IT A ONE-OFF REASON BECAUSE
OF THE POST-PANDEMIC REOPENING? THE FED RAISES RATES, WATCHES DEMAND, INFLATION GOES TO 2%, STAYS THERE FOR THE NEXT GENERATION? OR IS THIS AN ERA OF MORE PERSISTENT INFLATION? THAT IS WHERE I AM. IF SO, THE FED IS NOT GOING TO STOP AT .5 TO THREE -- AT 2.5% TO 3.5%, THEY WILL TAKE IT TO THAT THEY NEED TO GO 50 BASIS POINTS ABOVE REAL. IF THE RATE SETTLES AROUND 4% AND 5%, THEY HAVE MORE WORK TO DO. IT COMES DOWN TO WHERE DO YOU THINK THE SECULAR MOVEMENT OF INFLATION -- SOMETHING CHAIRMAN POWELL HAS NOT ADDRESSED -- HE ALWAYS TALKS ABOUT THE SHORT-TERM THINGS, PULLING BACK THE PIVOT, WHAT WE DO AT THE NEXT MEETING, BUT WHERE IS INFLATION GOING TO BE IN FIVE YEARS. ASSUMING HE THINK STUFFING HAS BEEN CHANGED IN THE PAST FOR YEARS AND WE WILL JUST GO BACK TO 2%. TAYLOR: ON THE TERMINAL RIGHT FED FUNDS
LOOK LIKE, WHEN WE GET THERE, AND REALLY TO GAUGE POWELL'S COMMAS THIS MORNING, HOW LONG WE STAY THERE. MATTHEW: I THINK OUR ECONOMISTS SEE THE FED'S FUNDS RATE PEEKING SHY OF 4% BUT IT IS A VERY UNCERTAIN OUTLOOK, AND I THINK THE RISK AROUND THAT FORECAST IS FOR EVEN HIGHER SHORT-TERM INTEREST RATES THAT MAKES COMPLETE SENSE TO ME. IN TERMS OF THEIR PATH, IT WAS CLEAR THE FED IS NOT DONE FRONTLOADING. I DID NOT GET THE SENSE THAT THEY WERE READY TO PULL BACK ON THE PACE OF TIGHTENING NECESSARILY. OBVIOUSLY THEY NEED TO SEE MORE DATA. THEY DO NOT KNOW WHAT THE NEXT PAYROLL NUMBER WILL SHOW OR THE NEXT CPI REPORT OR NEXT RETAIL SALES NUMBERS WILL SHOW, BUT IT IS PRETTY CLEAR THAT THEY ARE NOT THERE YET.
THEY ARE NOT READY I THINK TO PULL BACK. SO WE COULD GET THERE RELATIVELY QUICKLY STILL I THINK. TAYLOR: KELSEY, WHERE DO YOU FALL ON THE FED'S FUNDS RATE AND QT. IN SEPTEMBER, WE ARE LOOKING AT RAMPING UP QT, 60 TO 65, MAYBE $95 BILLION A MONTH IN TERMS OF A ROLLOFF. WHEN YOU THINK ABOUT PEAK QT, HOW MUCH HAVE THE LIFTING IS THAT DOING IN ORDER TO TIGHTEN FINANCIAL CONDITIONS? KELSEY: THAT IS A GREAT OBSERVATION AND I WOULD NOTE, IF YOU LOOK THROUGH CHAIR POWELL'S SPEECH, THERE IS NO DISCUSSION OF THE BALANCE SHEET. THERE IS NO DISCUSSION OF QUANTITATIVE TIGHTENING. I ADMIT, IF YOU ARE CHANNELING
YOUR INNER VULGAR AND I THINK THAT IS WHAT CHAIR POWELL WAS TRYING TO DO, VULGAR WOULD HAVE TO DEAL WITH THE BALANCE SHEET. TODAY WE ARE IN A DIFFERENT SITUATION. I THINK WE NEED TO BE SENSITIVE TO THE FACT THAT THE BALANCE SHEET RUNOFF IS GOING TO BE STEPPING UP. THEY ARE DRIVING LIQUIDITY AND MORE BROADLY, I THINK THE CHALLENGE PARTICULARLY FOR RISK ASSETS AND CREDIT SPREADS IS THE FACT THIS IS NOT JUST GOING ON IN THE U.S..
THIS WILL DRAIN AND LIQUIDITY GLOBALLY AND WHAT WE SAW IN THE LAST WEEK, REALLY THE SHOWSTOPPER WAS NOT THE U.S.. IT WAS WHAT WAS GOING ON IN EUROPE AND GOING ON IN THE U.K.. THEY ARE REALLY LOOKING TO RAMP UP THEIR RESPONSE FUNCTION AS WELL. THE TWO YEAR YIELD IS I THINK 110 BASIS POINTS HIGHER THAN IT WAS AT THE START OF THE MONTH.
TAYLOR: JIM, QUICKLY WAY IN WHEN YOU THINK ABOUT FED OFFICIALS TALKING ABOUT HIKING AT THE EXPENSE OF A LABOR MARKET, THE LABOR MARKET THAT IS STRONG, THAT THERE MIGHT BE PAIN IF INFLATION IS FIRST AND FOREMOST. WHAT DOES LABOR MARKET PAIN LOOK LIKE TO YOU IN ORDER TO TACKLE INFLATION? JIM: IT WOULD LOOK LIKE HIGHER UNEMPLOYMENT, LOWER EMPLOYMENT, AND BY AND LARGE WE DO NOT HAVE THAT RIGHT NOW. JUST FOR MEMBER TOO, I THINK THE FED'S RIGHT, INFLATION A FLEX 100% OF THE POPULATION -- AFFLI CTS 100% OF THE POPULATION. ON EMPLOYMENT IF YOU GET IT AF
FLICTS A SMALL PERCENT OF THE POPULATION. THEY LOOK AT INFLATION AS A SMALL SCOURGE FOR THE POPULATION. THEY CANNOT EMPLOYMENT BECAUSE THE EMPLOYMENT STATISTICS WE CAN FOR A FEW MONTHS OR SO. I THINK THEY HAVE GOT THE RIGHT APPROACH, THEY ARE JUST -- IT IS JUST THEIR COMMUNICATION GETTING ACROSS TO THE MARKET IF WE ARE IN LATE AUGUST AND THEY ARE TRYING TO CONVINCE THE MARKET WHEN THEY RAISED RATES SIX MONTHS AGO. TAYLOR:
WE APPRECIATE IT. EVERYONE IS GOING TO BE STICKING WITH ME. UP NEXT, THE AUCTION BLOCK, PRIMARY MARKETS ACTING ON A SUMMER LULL REMAINING ON HOLD. THAT CONVERSATION IS NEXT. THIS IS BLOOMBERG. ♪
TAYLOR: THIS IS "BLOOMBERG REAL YIELD." I'M TAYLOR RIGGS IN FOR JONATHAN FERRO. TIME FOR THE AUCTION BLOCK. WE WILL BE KICKING THINGS OFF IN EUROPE. WITH THE SUMMER SLOW, ISSUERS ACROSS ALL SECTORS FACING COME BACK, PUSHING WEEKLY SALES ABOUT 30 BILLION. IN THE U.S., HIGH-GRADE BOND SALES ENDING A BUSY MONTH ON A QUIET NOTE.
AUGUST ISSUANCE POPPING $110 BILLION WITH THREE SMALL DEALS THIS WEEK. ONE OF MY FAVORITES, JUNK BOND MARKET, THOSE ISSUANCE SAID TO REMAIN CLOSED THROUGH A MONSOON. I WANT TO STICK WITH CREDITS. JP MORGAN, BOND MARKETS ARE
STILL MISPRICED. TAKE A LISTEN. >> I'M LOOKING NOW AT CREDIT SPREADS IN THE MID-FOR HUNDREDS, AND THEY JUST LOOKED TOO EXPENSIVE TO ME. THEY DO NOT SEEM TO ADEQUATELY PRICE IN RECESSION RISK.
I THINK WE, BY YEAR END, WILL GO BACK UP TO THE OLD HIGHS OF AROUND 600 OVER. I ALSO DO NOT THINK THE MARKET IS ADEQUATELY PRICING IN QUANTITATIVE TIGHTENING. I WOULD LIKE TO SEE A COUPLE MONTHS OF THAT'S, SEE WHAT THE UP THE APPETITE FOR THE MARKET DID I JUST BONDS WHEN THEY ARE COMING OUT OF THE FED LEFT RIGHT AND CENTER. TAYLOR: KELSEY BERRO, MATTHEW HORNBACH, JIM BIANCO STILL WITH US. IT IS INTERESTING BOB MICHELE PULLS IN DIMENSIONS AND PULLING -- HOW ARE YOU THINKING ABOUT THE LACK OF SPREADS WIDENING APPROACHING QT AND HIGH-YIELD MARKETS SIGNALING TO THE EQUITY MARKETS THINGS MAY NOT BE THAT BAD? KELSEY: YEAH, SO WHAT WE ARE THINKING IS SPREADS IN THAT 400 RANGE IS NOT APPROPRIATELY COMPENSATING YOU FOR THE RISK OF A RECESSION OR LANDING.
THAT, EARLIER IN THE SUMMER, PRESCOTT AS WIDE AS 600 TO 650 AND AT THAT POINT WE SAID OK. THERE IS A BIT OF CUSHION IN THERE FOR A RISING DEFAULT WHICH ARE GOING TO PICK OUT EVEN THE BIT BECAUSE OF HOW LOW THEY STARTED AT. WHAT WE ARE SEEING TODAY I THINK IS A VERY HEALTHY REACTION TO CHAIR POWELL'S SPEECH, CREDIT SPREADS ARE WIDER, AND THE PRESSURE IS LIKELY TO CONTINUE INTO THE FALL. TAYLOR: WHAT ARE HIGH-YIELD CREDIT SPREADS AT 450 TO 480 S, CLEARLY SOME 500, SIGNALING TO YOU? MATTHEW: I THINK THE DIFFICULT PART ABOUT QUANTITATIVE TIGHTENING AS WE KNOW WHAT INVESTORS WILL HAVE TO BUY. THEY WILL HAVE TO BUY MORE TREASURIES. WHAT -- WHAT WE DO NOT KNOW IS WHAT THEY WILL HAVE TO SELL IN ORDER TO RAISE THE CASH TO BUY THE NEW TREASURES. I THINK THAT IS WHERE IT IS
CHALLENGING FOR THE RISK ASSETS, LIKE IN GENERAL TO UNDERSTAND WHAT THE EFFECT WILL BE OF QUANTITATIVE TIGHTENING. YOU KNOW WHAT IT WILL BE IN THE TREASURY MARKET, WHICH IS WHY THE TREASURY MARKET IS PRICED -- HAS PRICED IT IN ALREADY. ALL THESE RISK ASSETS LIKE HIGH-YIELD BONDS, WE JUST DON'T KNOW WHO WILL SELL THEM, WHEN WILL SELL THEM BUT SOMETHING WILL HAVE TO BE SOLD AND THAT IS WHERE QUANTITATIVE TIGHTENING CAN HAVE AN ADDITIONAL NEGATIVE IMPACT ON RISK ASSETS APART FROM JUSTIFIED CONTINUING TO RAISE RATES EXTRAORDINARILY QUICKLY. TAYLOR:
A QUICK FOLLOW ON THAT, WHAT ABOUT THE LARGEST BUYER OF NCS, WHEN THEY TAKE THEIR HEAVY FOOT OFF, WHAT DOES THAT MEAN FOR THE MBS MARKET? MATTHEW: THIS IS WHERE IT GETS INTERESTING. FOR AGENCY MORTGAGES, WE KNOW THAT MORE MORTGAGES MIGHT COME TO THE MARKET IF THE FED IS NO LONGER BUYING THEM BUT WE HAVE TO REMEMBER RATES ARE UP QUITE A BIT, SO THE SUPPLY OF MORTGAGES IS ALSO GOING TO BE MUCH LOWER. FOR AGENCY MORTGAGES, IT IS A BIT DIFFERENT. WE DO NOT KNOW EXACTLY WHAT THE
SUPPLY WILL LOOK LIKE, OTHER THAN IT IS PROBABLY GOING TO BE LOWER THAN IT WAS AT LOWER RATE LEVELS. HE ALSO KNOW THE FED WILL BE BUYING LESS. THAT IS A MORE DIFFICULT TO GAME FOR THE MARKET TO PLAY. FOR TREASURIES, WE HAVE A GOOD SENSE -- A SENSE OF WHAT THE DEFICIT WILL LOOK LIKE AND WE HAVE A SENSE OF HOW THE U.S. TREASURY WILL FINANCE THAT IN THE ABSENCE OF FED SUPPORT.
FOR AGENCY MORTGAGE, IT IS MORE DIFFICULT BUT THEY HAVE REPRICED QUITE A BIT. TAYLOR: TAKING A LOOK AT THE TERMINAL CHART, ONE OF MY FAVORITES, INVESTMENT GRADES SPREAD IN CYAN AND HIGH YIELDS IN WHITES. WE SO THE LACK OF WIDENING, OR HUNDRED 46 BASIS POINTS OF TREASURIES. WITHIN YOUR BALANCE SHEET ANALYSIS, ARE THESE COMPANIES, GIVEN THE RECORD I FINANCING RATES THEY HAVE HAD, IN BETTER SHAPE AND THAT IS WHY WE DO NOT SEE THIS BREAD WIDENING OR IS THIS THE MARKET THAT IS COMPLACENT? JIM: I THINK IT IS A DIFFERENT COMPOSITION. THE HIGH-YIELD MARKET HAS A BIGGER PERCENTAGE OF ENERGY AND INDUSTRIAL COMPANIES THAT SAY THE STOCK MARKET AVERAGES HAVE.
THOSE COMPANIES ARE BENEFITING FROM THE PERCEPTION INFLATION WILL STICK AROUND AND PRICES ARE GOING TO GO UP, ESPECIALLY AT THE ENERGY SECTOR. IT IS ALMOST 13% TO 14% OF THE HIGH-YIELD MARKET WHERE IT IS A COUPLE PERCENT IN THE STOCK MARKET. THEY ARE FROM THAT. I AGREE WITH BOB MICHELE THAT THESE MARKETS ARE EXPENSIVE AND YIELDS HAVE TO GO HIGHER, IT IS JUST KEEP IN MIND WHO IS A HIGH-YIELD BORROWER.
VERY LITTLE TECHNOLOGY GROWTH COMPANIES BORROWING IF ANY IN THE YIELD MARKET AS THEY ARE IN THE STOCK MARKET. THERE ARE NO BAD BONDS, THERE ARE ONLY BAD PRICES. I CAN MOVE YOU AS MANY TREASURIES AS YOU LIKE. YOU MAY NOT LIKE THE PRICE I MOVE THE MAP.
WE WILL HAVE TO FIND OUT WHAT PRICE WE MOVE THE EXTRA TREASURIES THAT THE FED USED TO BUY THAT WILL NOT BE BOUGHT STARTING NEXT WEEK. TAYLOR: I WANT TO GO DURATION. MANY WOULD ARGUE THE THING ABOUT HIGH YIELDS IS IT HAS A SHORTER MODIFIED DURATION RELATIVE TO INVESTMENT GRADE. WHEN YIELDS ARE RISING, YOU WANT TO THAT SENSE OF DANGER. EXCEPT YOU ARE HIGH-YIELDING ON INVESTMENT GRADE. WHAT IS THE NEW DEFENSIVE NATURE MEANING TO YIELDS? KELSEY: SO WE AGREE YOU DO WANT TO MAINTAIN A DEFENSIVE BY CONSIDERATION THAT YIELDS IN THE FRONT END CANNED CONTINUE TO RISE BUT HOW WE HAVE BEEN PLAYING THIS IS WE HAVE BEEN WATCHING THE RALLY, USING THAT OPPORTUNITY TO TAKE RISK IN HIGH YIELDS AND REALLOCATE THAT TO OTHER AREAS THAT HAVE THE BREAKEVENS YOU WERE MENTIONING, THE HIGHER YIELDS WITH A LOWER DURATION THAT HAVE A BETTER SPREAD CUSHION SO THINGS LIKE SECURITIZED CREDIT WHERE YOU CAN GET A AUTO ABS LOAN FOR INSTANCE WITH A 5% YIELD.
TAYLOR: KELSEY BERRO, MATTHEW HORNBACH, JIM BIANCO, EVERYONE STILL STICKING WITH ME. STILL HAD, THE FINAL SPREAD OF THE WEEK AHEAD FEATURING MORE FED SPEAK GIVEN THE U.S. PAYROLLS REPORT AND THOSE CONVERSATIONS NEXT. THIS IS BLOOMBERG.
TAYLOR: THIS IS BLOOMBERG POSITIVE REAL YIELD FINALLY, I AM TAYLOR RIGGS IN FOR JONATHAN FERRO. TIME FOR THE FINAL SPREAD, LOOKING AT THE WEEK AHEAD. COMING UP, THE FED IN FOCUS. TAKE A LOOK AT THE FED SPEAK WE ARE GOING TO BE GETTING. SPEAKING EARLIER ON IN THE WEEK, WE GET CONSUMER CONFIDENCE, THOSE NUMBERS OUT IN EUROPE AND THE U.S. TUESDAY. WE GET ANOTHER READ ON EUROPEAN INFLATION WEDNESDAY AND OF COURSE ISM AND INITIAL JOBLESS CLAIMS THURSDAY. FINALLY, THE BIG DATA POINT OF
THE WEEK, ANOTHER U.S. PAYROLLS REPORT AND THAT COMES FRIDAY. KELSEY BERRO, MATTHEW HORNBACH, JIM BIANCO STILL WITH ME. MATT, HOW IMPORTANT IS ANOTHER DATA POINT THAT IS THE U.S. PAYROLLS? MATTHEW:
IT IS VERY IMPORTANT. I THINK IT IS PROBABLY THE MAKE OR BREAK BETWEEN 75 AND 50 PERSONALLY. OBVIOUSLY THE CPI REPORT IS ALSO IMPORTANT, BUT THE REALITY IS THE UNDERLYING STRENGTH OF THE ECONOMY SHOWS UP IN THE PAYROLLS NUMBERS AND IF THE PAYROLLS NUMBER AND STRONG AGAIN, WHAT THAT IS TELLING THE FED IS THEY'VE GOT TO REALLY WORRY ABOUT UNDERLYING INFLATIONARY PRESSURES THROUGH THE FILLER CURVE FRAMEWORK AND THAT IS SOMETHING I THINK WILL RESONATE WITH THEM AND COULD VERY WELL MAKE THE DIFFERENCE BETWEEN 50 AND 75 IN THE MARKET I AS WELL. TAYLOR: ARE YOU LOOKING AT THE PAYROLLS AS THE DIFFERENCE BETWEEN 75 -- 50 OR 75 IN SEPTEMBER? JIM: I AGREE WITH MATT.
IT IS A BAD NEWS IS GOOD NEW SCENARIO. 70 OF THE LAST -- 70 OF THE LAST 80 MONTHS, CONSENSUS WAS BEATEN. IF WE SEE THE PATTERN OF STRONG PAYROLLS, THE MARKET WILL PRICE IN 75 RIGHT AWAY.
THAT IS THE BAD NEWS -- GOOD NEWS WOULD BE BAD NEWS FOR RISK MARKETS. SO THAT IS UPSIDE DOWN. I AGREE THAT IS GOING TO BE A MAKE OR BREAK REPORT. THE FEDERAL RESERVE CHAIRMAN WARNED US IF WE WERE TO SEE A SLOWDOWN IN PAYROLLS, THEY WOULD NOT DETERRED FROM HIKING. WE HAVE NOT EVEN SEEN THAT YET. IF WE GO ANOTHER MONTH WITHOUT SEEING IT, WE ARE THAT MUCH FURTHER AWAY. TAYLOR: KICK US OFF NICELY INTO THE RAPIDFIRE AROUND. MY FIRST QUESTION FOR KELSEY, I WILL START WITH YOU, 50 OR 75 IN SEPTEMBER? KELSEY: 75.
TAYLOR: JIM? JIM: I WILL GO 75. TAYLOR: MATT? KRITI: THE HOUSECALL IS FIT -- MATTHEW: THE HOUSECALL IS 50 BASIS POINTS. TAYLOR: WHEN I THINK ABOUT A RATE CUT IN 2023, WHAT YOU THINK? KELSEY: NO. JIM: EMPHATICALLY NO. MATTHEW: I DON'T SEE IT HAPPENING. TAYLOR: THREE FOR THREE. FINALLY HERE, YOU GET THREE 50'S ON THE INNER MEDIUM PEAK ON THE 10 YEAR YIELD? KELSEY: WE CAN HIT IT BUT THAT IS THE HIGH FOR THE YEAR. JIM: I WOULD AGREE WITH THAT AND I
THINK IT MIGHT GO HIGHER, 24. MATTHEW: I AGREE WITH KELSEY, I THINK 350 IS PROBABLY THE PEAK IN THE CYCLE BUT WE COULD GET BACK THERE. TAYLOR: SO MUCH CONSENSUS. I LOVE IT. I VOTED JOHN SHOULD TAKE OFF MORE OFTEN SO I SHOULD DO THE SHOW AND LETS EXTENDED TO AN HOUR BECAUSE WHAT A PLEASURE THIS WAS FOR ME. KELSEY BERRO, MATTHEW HORNBACH, JIM BIANCO, AS WE ARE ALWAYS SO FOCUSED AS WE ARE ON FRIDAY AT 1:00 ON REAL YIELDS AND NOMINAL YIELDS, THEY MIGRATE HIGHER ON THE FRONT END OF THE CURVE WE ALSO FOCUS ON THIS EQUITY MARKET THAT SEEMS TO BE TAKEN A LITTLE BIT SURPRISED BY JAY POWELL'S COMMENTS THIS MORNING. WE ARE ROLLING OVER ANY S&P OF
2.2 PERCENT AND NASDAQ, THE BIG TECH HEAVY STOCKS OFF 2.8%-TWO .9% AS WELL. YOU HAVE AN EQUITY MARKET ON THE MOVE IN A BOND MARKET RETHINKING THE PATH FORWARD FOR THIS FEDERAL RESERVE. FROM NEW YORK, THAT DOES IT FOR US.
2022-09-01 10:36
