I'm hearing the markets scream two things. Growth Scare policy Mistake. The Fed may be late. The Fed needs to get going soon, just given that we have seen, I think, some market deterioration in the jobs market. What we do know is that when momentum slows, it slows quite quickly. Certainly there's a signal that September will be the first cut, but I think the Fed will still move very cautiously. I don't understand the let's go really
slowly. If the economy is back to normal, get monetary policy to normalize quickly. This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowicz. It's an Annmarie Horden turn. Let's get your trading week started. Wow. Live from new york city this morning. Good morning.
Good morning for our audience worldwide. Bloomberg Surveillance starts right now. And just like that, the narrative flips. We said it on Friday of payrolls with the difference between the Fed having time and running out of it. At 830 Eastern time Friday morning, there was a stampede to the other side of the boat. And that stampede continues.
Your scores look like this. Equity futures on the S&P 500 negative by 2.5%. The NASDAQ down by four. The winner of July, the loser so far in August, the Russell two small caps down by 3.9. That's the price action at the index
level. Take the single names will pick out three in the video Microsoft Apple get an absolutely Habitat video down another 9%, Apple down eight, Microsoft down by more than four. That's the stock market. The good news in the bond market, the bond market is doing what it's meant to do. It's rallying. We had a two year the yield move, 50
basis points on the week last week. We're down another nine at the frontend, 379 on a ten year down three 376. So how did we get here? We know how we got here. The data was weaker than expected.
We had some manufacturing jobless claims on Thursday moving in the wrong direction on Friday, payrolls definitely moving in the wrong direction. So we have to ask the question, how vulnerable are we to this whole story? Flip it in the other direction. So look at the week ahead. I want to circle two things. I want to circle the ESM services read a little bit later on this morning at 10 a.m. Eastern Time. And I like to circle jobless claims on
Thursday for all this talk of 50 basis point cuts, the Fed delivering an emergency rate cut will put some real big question marks around those stories. And I have to say, Danny, we've got to ask ourselves at 10 p.m. Eastern time, if we get a ISM service, a good one, a good rate, how quickly does the story flip in the other direction? Well, the concern is that the liquidity squeeze is so bad right now, it's hard to actually know where reality is.
If people genuinely think we're going to get a Fed cut in one week, because that seems crazy. Just listening to the most recent Fed speech. The issue, though, is even though the move is unreasonable, it doesn't mean that it can't become reasonable If you have this feedback loop where the equity market sells off, people priced an emergency cut, the Fed emergency cuts. Everyone thinks that there's a recession, so they cause a recession. That's the fear I think is playing in
people's minds. But that will have to do with how long the sell off continues for. We've got to frame how quickly all of this happened, how quickly things have moved, and also how quickly things maybe if overshot as well. Think about where we were at the start of July, July 2nd, Central Portico. Chairman Powell, this was the quote,
because the U.S. economy is strong and the labor market is strong, we have the ability to take our time and get this right. That was July 2nd. The payrolls report dropped on August 2nd. Are we sitting here and saying things have changed that much in a single month? But the thing is, is that this market was so built up around that again, this is what I struggle with, what is reality in this market and what is just panic and what is just selling. Because by all accounts, the Fed in the
recent days has been very calm, too, not even just in July, but the presser. Powell was very calm, despite journalists lobbying, very dovish questions at him. You had Goolsbee talking to Mike McKee, saying that it's just one month. It doesn't make a difference. You have so many people looking at the jobs report saying something about it looks weird. Is this just the winter weather impact?
So, again, how much of this is just vast shocks, people getting stopped out and then you have these odd market moves speaking about market moves, nothing calm about what's been developing over in Japan. And I have to say that this is a continuation of the story that started last week on the Nikkei to 25. We closed lower by more than 12% overnight in Tokyo, Japan on the Nikkei to 25, the biggest one day move lower since 1987 and the market daily and we've gone from talking about the one six days to the 150 to 1 forties in just a couple of weeks.
We trade right now on that currency pair at one 4239. We're negative on the session by 2.8%. Some vicious yen strength in this market. The broader story looks a little
something like this, equities doing badly, bonds doing better, a rally in treasuries pulling yields lower by another three or four basis points on a ten year three 7547. The dollar weaker across the board, the euro stronger reclaiming a one of nine handle what a 941 that comes up firmer by a quarter of 1%. And just to underline the fact that we're talking about a growth shock here, we've got geopolitical risk on the table and yet still crude is pulling lower Dani Burger 7185 on WTI this morning.
It is remarkable because oil had somewhat held up last week. It was slightly weaker. But that geopolitical concern, to your point, made it go faster. And that's when you say out of all of
the things that can go wrong in this market, out of all of the things that we're worried about, it's clear that the growth scare is front and center. And that's an issue again, because you get this feedback loop going, especially with the yen. If you get the yen appreciating, you get rates coming down, the rate differential between the US and Japan shrinks and then that appreciates the yen even further.
You got to ask, how does it stop? It's taken on a life of its own and it's feeding on itself. What's a circuit breaker for all of this? Coming up this hour, we'll catch up with Roscoe Struck at BlackRock as the stock market sell off continues. All types of female when the potential for an emergency Fed rate cut. And later Richardson of ADP on why it's too soon to start talking about a hard landing. We begin with our top story US growth concerns igniting a global equity market selloff. Russ Koesterich of BlackRock writes in the following We've been trimming risk since June. For the time being, the market is likely
to treat bad news as bad news. And Russ Koesterich We got some bad news on Friday, so let's talk about it. I want to take a giant step back just away from all the drama, the frenzy, the hysteria, and go back to July 2nd.
Chairman Powell, Central Portugal, the economy is strong, the labour market is strong. We have the ability to take our time and get this right if things change that much. Friday morning at 830 Eastern time. Well, good morning, Jonathan. You know, I think this is the right question.
My simple answer is no, I don't think they did. I think Danny was right a moment ago. This is much probably much more about market positioning as it does about how much the economic data has changed to just to two things to consider. First of all, it wasn't that bad of a labor market report. It was only about a year ago that we thought the natural pace of job growth for this economy was maybe about 100,000 a month. And we've learned over the last year
it's higher than that because of the increase in labor supply from immigration. But the reality is we're still printing, call it, you know, an average of 140 hundred and 50,000 a month. That is above what we thought was a trend case just a year ago. So not not an awful number, a soft number, not awful. The other point in the in the bond market, more particularly the short end of the curve. Think about how much market expectations
have swung around the last seven months. We started the year with the market convinced the Fed was going to cut seven times. You go back a couple of months, the market was convinced the Fed wasn't going to cut at all. And now we've got a narrative built up where they're going to do an emergency cut or go 50 dips in September.
So I do think a lot of these gyrations are more about the market positioning than the change in the economic data. So, Russ, let's build on that just a little bit more. I went through the week ahead. I scored two things. Jobless claims on Thursday. I some services a little bit later this morning. Let's just say at 10 a.m. this morning we got a decent ISM
services print. Do you think that's sufficient? Is that enough to flip the story the other way all over again? Probably not one number, but I think it would definitely be a step in the right direction. I think you're exactly right. Also, to focus on the services number now, as you pointed out a few moments ago, this all began Thursday morning with a weak ICM number and it was weak.
But the reality is that was the manufacture and read we've already in the last few years had a pullback in the housing market. We know that consumer softening. But this is, as you know, a service led economy. So if we get a confirmation that the service sector is holding up okay, it doesn't mean that the economy is not moderating. It is. But it does start to undercut this narrative.
It's taking hold literally within 72 hours that suddenly we've gone from a soft landing to an imminent recession. Well, given that quick flip, Russell, what distinguishes the difference between a sell off that you want to step out in front of and one you want to let run? Well, I think there are a couple of things. I mean, the first of which is we do have to look at the data is the data confirming the market narrative. I think as you've both suggested right now, that, look, the market move looks very, very extreme. Positioning was extended. You've got to let that clear out.
But you've already seen pretty significant correction. And there are going to be parts of the market where there's long term growth that start to look attractive. You know, you've seen the Nasdaq already, correct, over 10% semis. And many of these things have corrected
20, 25%. Again, I wouldn't weighed in this morning with both hands, given how much we're going to see volatility until the market gets something to confirm that it's not as bad as it thinks. But some of the excesses, actually a lot of the excess that we were all talking about a month ago, that's starting to get corrected. If you think about the last time you had a market sell off to this magnitude, you have to bring up March 2020. Ross And in that period it was tech that acted as a ballast in the equity market. That's not happening this time around. You can argue that a lot of the sell off has started with tech and some of the disappointing earnings. So is it different this time?
Has the damage already been done in the sector when you see hundreds of billions of dollars in single stocks swinging around day by day? Well, I think it's reminded people that, look, you know, a lot of these names, they ran a tremendous amount, the air names, the semi names on the air theme, which got very, very crowded. You know, the tech thing is interesting. So tech is sold off. That, you know, first it began in mid-July. It was a funding source for the small cap. And the narrative then was the economy is great. We've got a Goldilocks soft landing.
Rates are going down. Let's buy the parts of the market, ie small cap that are most sensitive to rates going down. But the reality is tech is also rate sensitive. And in addition, if we do start to think that if nothing else, the economy is going to be softer, some of the trades that people were running into in July, the small caps, the banks, some of the lower quality trades, that doesn't make sense. And an economy that's moderating. If anything, you're probably would be more inclined to look for higher quality revenue, consistency, earnings, consistency.
Where do you find that? You find that a lot of the mega tech mega-cap tech names and some of the health care names. So I do think you're going to get to a point unless you do believe there's a recession where some of these names start to make sense. Again, it's a rush to understand you can't do single names. So I just do a couple myself. Jp morgan of the Free Market is down about three. Bank of America is down, cities down.
Regional banks had a tough time of it on Friday. That's the banking story. Techs getting hammered, too, out of these two industry groups at the moment. Russ, you saying look to pick up the
pieces in tech and avoid what's taking place in financials? Don't step in right now. Well, I'd qualify that a little bit. I do think some of the large money center banks are interesting. I think some of the smaller regional banks that I think the regional bank index at one point was up 22%. Again, that's a strange play to make.
If we think the economy is starting to soften. So I wouldn't necessarily be bottom fishing there. But yes, I do think some of the Mega-cap tech names, some of the high quality health care names, some of the pharma names that have really been beaten up, these are going to offer some good long term value because, again, all the trends we were talking about two or three months ago as trends that are going to go on for three, four or five years, they're still in place. We're still seeing tremendous CapEx spending. I don't think that necessarily changes. And these stocks are a lot cheaper than they were a few months ago. Russ, just before you go, I just want a
base case from you. Base case expectation now for the Federal Reserve. It feels like a very long road to September 18th, which is when the Fed Reserve next meets. That's the next scheduled meeting. Russ, what's the base case for you now even to say, look, I still think we were talking about 2 to 3 cuts. I think I would still keep that is our base case.
Obviously, if the data softens significantly in the next six weeks, they have the latitude to cut more given how high real rates are. But I wouldn't rush to assume that until we see some further deterioration in the data. Russ, it's good to hear from you, sir. Russ Constrictor. Thank you. BlackRock Following some of what moves in this market from equities to bonds to foreign exchange and worldwide into Japan, Nikkei 225 get an absolutely hammered. There's been some big calls in the last couple of days immediately after that jump sprint. Danny we saw Andrew Hong, the host of Citi, go to a 50 basis point cut call for September. So Mike Ferrari of Jp morgan, do the
same thing. We'll catch up with Andrew a little bit later this morning. You also had Goldman Sachs raising the recession probability from 15 to 25. But let's be honest, 25% is still not very high. And I think that's what we have to really coalesce around some of these calls. Sure. They're calling for 50, 50, 25 in terms
of cuts. But again, that's not something like an emergency cut. That's not something like the sky is falling. And I got to be honest on a lot of these moves this morning are just that the sky is falling type of trade. That's what it feels like. We're down by 2.7% on equity futures on
the S&P 500 just off session lows. Let's take the opportunity to get you an update on stories elsewhere this morning with your Bloomberg brief Ishihara hacker Sakura. Hi, John. We start with oil trading lower, extending its losses to a new seven month low. Brent futures are now trading below $76 a barrel, erasing this year's gains, while West Texas Intermediate is now below $72. This comes as the market braces for a possible attack from Iran and regional militias against Israel in retaliation for the assassinations of Hezbollah and Hamas officials last week. Cryptocurrencies are plunging this morning.
Bitcoin briefly traded below 50,000 earlier, the sell off adding to a more than 30 13% drop last week. That was the biggest plunge since the FCX exchange imploded. US exchange traded funds for Bitcoin suffered their largest outflows in about three months on Friday of last week and there's a debate about the next presidential debate. Donald Trump said in a social media post that the previously scheduled debates would be hosted by ABC News was terminated once President Joe Biden dropped out of the race. Trump presented a counter-proposal to Vice President Kamala Harris, the face off on Fox News six days earlier.
Harris says she plans to be at the ABC debate on September ten. That's the Bloomberg brief. John Harris, thank you. More from your hurricane in about 30 minutes time.
Up next on the program, the Japanese yen sinking Japanese stocks. If the Fed's cutting, I don't think we can be above 140 next year. If they're cutting a long way because there's a.
A serious slowdown then, then, yeah, we can go back to 120 and see where we go from there. But 140 already, 142 this morning, dollar yen gap and lower by 3%. That conversation, I'm next live from New York this morning. Good morning.
Live from New York City. Welcome to the program. Let's get you some price action. Equity futures looking like this with negative by 2.8% on the S&P 500, down more than 4% on the NASDAQ. The sell off continues on the Russell last week for the Russell. Worst week for the small caps going back to spring 23. Spring 23. You all remember March 23.
But we're talking about bank failures in America. That kind of shock growth, shock taking place this time around. Well, let's talk about equities just briefly. Stuart Kizer of Citi Reduce Exposure. Our established view has been to run
long US equity risk unless until the US labor market shows confirmed weakness. That is now under question. And that is the question. We get jobless claims later this week. It's the next stop for this conversation. I am Services later this morning, 10 a.m. Eastern time. I want to watch switch at the ball and turn the page and get to the bond market. Let's talk about this monster rally
we've seen at the front end of the yield curve, the two year making a move of 50 basis points plus Dani Burger just last week after a 50 basis point move. I think in the month of July, we're down another 12 this morning to 3.75. This pendulum swing in the market has been constant and painful. Russ Koesterich talked about it there. This idea that you entered the year thinking that we'd get six cuts, that was the extreme that you wanted to fade, and then we went to No Cuts. That was an extreme. You wanted to fade. Now we're in the land of talking about
50 basis points. Cuts in inter Fed meeting cut to 60%. Odds of that happening. So is this yet another extreme? You just want to fade? Some of these consensus traits over the last few months have unwound in such a vicious way. And I think the perfect example of that is dollar yen. It's a break of 142 briefly, one 4199 went down by three percentage points and we're seeing some vicious yen strength, a move of more than three percentage points on the session. That's the story in the market. And this event is this morning. The Japanese yen sinking Japanese
stocks. If the Fed's cutting, I don't think we can be above 140 next year if they're cutting a long way because there's know a serious slowdown, then then, yeah, we can go back to 120 and see where we go from there. This is very much a function of where U.S. interest rates are. This was possibly the biggest carry trade that we've ever seen because the Japanese kept still while the Fed hiking. I take note. So here's the latest. The yen extending its rebound against the dollar as concerns come out.
The Fed is behind the curve on supporting a slowing US economy. The move unwinding global carry trade and jolting markets around the world. Jeremy Stretch of CIBC joins us now for more. Jeremy, it's rare to sit here and look at any K to 25. That's down by two 12.4% at the close. But that's what's in front of me right
now. It's rare to see the moves. We've seen a dollar yen down from 160 to 140 and a very small amount of time. Jeremy, talk to me about the path of least resistance now, what positioning looks like now we've reset so aggressively and what the limits are to some of these trades. Good morning. Well, you're actually right. It is an unprecedented state of affairs
in the context of the move in those Japanese stocks that we have seen an aggressive reduction in position paring even before this week. So we'd already seen yen shorts effectively halved over the course of the last couple of weeks. And I think those have probably been cleared out now. So I think we've got a much cleaner market perspective in this particular juncture.
But obviously, as your previous contributor suggested, if there were to be a very aggressive path of monetary easing from the Fed. Now, I think, you know, I was listening to Danny just before we went to the break where she was talking about the markets being price of the sky falling in. Well, I don't think the sky is falling in. Yes. We see a slowdown in the US. Yes, we see a recalibration in terms of macro dynamics, but I don't think necessarily we should be getting carried away with that said pendulum effect and suggesting that we should be looking at intermeeting or 50 basis point moves. So I think we've cleansed markets and I
think once we get back to a sort of a 1 to 1 forehand, I think it's probably a sort of extreme or a support point at this particular juncture as we reassess the macro environment. And I think for today, services, I assume, is going to be particularly instructive as well as obviously Mr.. Mr.. GOOLSBEE from the Fed. Jeremy, if I can just push you on on the positioning point for just a moment and then we can move on to some of that. You say that some of the shorts have been washed out, but is there more that is structurally riding on shorts? And then we maybe be to appreciate things like using the end as a funding for going long tech things like people who are just more structurally short in.
That's true. I mean, and obviously when we do get some market dislocations, when we do see substantive pockets of weakness in various sectors, then clearly we often have to see a position cleansing in terms of sort of recalibrating those positions and dealing with with particular losses in certain sectors. So clearly it has been the case that we are part of the funding perhaps for the record surge in in tech stocks has been funded out of cheap yen. So in a sense, you know, there is an obvious dynamic in in that regard. I think there is, as I say, a story of a
slowdown effect, which obviously was the Fed's intention. But I think the market, as is often the case, is overblowing this situation in the near term. Yes, we're seeing a slowdown, undoubtedly. Are we seeing a recession in the US? I think it wouldn't necessarily there. Yes. And I think, you know, in terms of these recession probabilities, we should, you know, remember that 25% recession probability is 75%, no recession probability. And I think that's the way that we would
probably still view the market. But clearly, there is still some some dynamics which are playing out, and that will continue to oscillate in what are a relatively illiquid and thin summer markets. Sometimes, unfortunately, it's good to get a reminder of how percentages work. Jeremy I think the market needs that this morning. So what stops it? What stops this sentiment down spiral that we're seeing? Is it running out or as you mentioned, data coming in stronger this morning? Well, I think the data I think is going to be particularly instructive this morning because, of course, if we go back to the back end of last week, the start of the sell off was obviously precipitated by the weakness on the manufacturing, I assume, and I think the manufacturing data in the US is important. Of course it is. But I think we shouldn't lose sight of
the fact that the huge influence of the services sector. Now we have obviously seen some weaknesses in services over the course of the last couple of months. Now the market is anticipating a move back into an expansion dynamic in services, I assume. Now, will that be enough to arrest the downtrend? Perhaps not, but I think it will at least put an element of doubt in terms of this magnitude of recession risk, which has been amplified by that non-farm reading on Friday, particularly the uptick in the unemployment rate and the discussion regarding the Psalm rule, which obviously was mentioned in the Fed press briefing last week, and I suspect Mr.
Powell would rather have an opportunity to connect re correct some of his responses. But inevitably, I think we're now going to be watching and waiting for not only the data but the two and a half weeks until we get to Jackson Hole. We'll catch up with Tony Sam a little bit later on this morning. Jeremy, I just want to get to this quote
from no doubt, sir. I'd love your thoughts on out. I'm going to share with our audience. The Fed stepped on a nail. Thankfully, they've not stepped on a bed of nails.
What we are dealing with now is the result of monetary policy being too tight. This means the solution is quite simple. No doctor implies this is going to be easy to deal with. Jeremy The feds at 550 has got a big cash cushion it can use if it needs to.
How easy is it to address this situation? Well, I think that's true. And as with monetary policy, what we've seen from central banks is during the period that they've been building in a cushion in terms of a safety net to allow them to ease policy in a conventional fashion, not being forced into unconventional policy adjustment. I think the problem from the market's perspective is that we've just had a Fed meeting and there it does seem like an awfully long way away. Until that September FOMC meeting, as I say, that's why I think Jackson Hole cannot come soon enough for for the markets, because they would like to see some recognition from the Fed that policy easing is coming.
But clearly, there is plenty of latitude and scope for conventional policy easing. But in the context of the Fed pendulum, we are in very much in a scenario that at this particular point markets are getting very exercised not only about the scale of monetary easing in 2024, but the risks or the potential optionality of thinking that the Fed will be forced to move before the next scheduled meeting. But the Fed has a latitude. But I think we need to see some easing as some comments. The commentary from the Fed over the
course of the next few sessions that Fed get together in Jackson Hole, Wyoming, just a few weeks ago. Jeremy, thanks for jumping on the phone. Appreciate it. Jeremy Stretch there on that breaking news out of Japan, dollar yen with a move a 3% gain against favor and a move of 12.4% lower on the Nikkei to 25, the biggest one day loss going back to 1987. Suddenly now struck in this morning from the south side.
Plenty of thoughts. I'll share some of those thoughts with you. Miss Latham, take over at Jp morgan. Here's the take from the team over in London. The investor outlook is still overly complacent.
Concentration risk remains high. The VIX has not had a proper capitulation for quite a while and credit spreads are extremely tight. We continue to believe that international equities will be weakening during the summer. That's what's happening right now.
We're down another 2.9% on the S&P 500. NASDAQ futures down by more than four. And the loss is picking up by tapping on a small cap. So Russell is down by more than five full percentage points. Dani Burger. A long time to work through this this
morning, Danny. The losses last week on the Russell, we were down almost 7% on the week's terrible weaker losses, the worst going back to spring of 23. The Russell was up 10% in July. What's happened? How has the pendulum gone from here to here in just a week? And there are so many people who, after the Fed started to talk about cuts, were really excited after that Wednesday decision and just jumped on. There was a big rally in the Russell 2000 on Wednesday after that Fed meeting decision. So many people went long the Russell in recent times and just got smacked in the face. But John, I mean the move looking at a VIX that's at 50 right now after it was stuck below 20 for so long.
There are so many people who are getting hurt in today's trade and a lot of it, you just got to wonder how many people are just looking at their winners for the year and selling them because they can't face more losses. I'm not sure who's left in the bond market. It's still short treasuries because this would have been really painful the last week or so. The ten year the yield has been down for seven consecutive sessions and you can make it day. The ten year gilts down five basis points, but the bigger moves have been at the front end of the curve. We saw this develop in July, down 50 basis points in July and then it just happened.
So that last week delivered another 50 basis point move, 50 basis points on a two year yield in a single week. That was the move lower last week and we're down another 12 this morning, down to three 7541 on a two year at least. You can say bonds are doing what they're supposed to be doing that we have somewhere in this market we can go to for safety. But that's creating this environment where we're pricing in a Fed cut in the next week, which again, is kind of crazy considering the calm we've heard from the Fed and the fact that the data isn't that bad. If you look back to other crises in the market, you think about the quant quick LTCM when the Fed did step in. The difference that time was the sell
off was about the Treasury market. This time it's about equities. So I don't think we can be as certain that the Fed is going to step in this time around. These were shocks to the system. Think about the last big shock to the system in the last 18 months. You go back to spring of 2023, we have bank stimulus.
What did the Fed do? Fed carried on hiking interest rates. That's what the Fed did. Now, maybe you can sit here and say that inflation is so much lower now they've got a cushion. They should want to insulate the labour market. I want to go back to the Goldmans call and we'll spend some time on the Goldman call a little bit later. Yes, Goldman have lifted recession notes, but ultimately they think it's going to take another jobs number like the one we got on Friday before you really start having a real conversation about 50 basis point moves in September. I think the only argument you can have
today is just that the wealth effect is so bad that they have to cut that people believe that a recession is coming. They act like a recession is coming. So the Fed has to step in. And we can also debate whether a Fed stepping in would make things worse or better if they come in with an emergency cut, all of a sudden, people freak out more because they decide that the Fed is also in panic mode. I'm not sure that's a good thing for this market. But also you need just more than one day
of a big sell off to really say there's a wealth effect topic, but we've had some big moves into. And so let's talk about this move in in last Monday Oleanna opened up at one 5382 and here we are right now at 140 208 down by 3%. And if you thought that move was big, just check out Japanese equities overnight. We've got to keep going back to this move with 12.4% on the Nikkei to 25, the biggest one day loss going back to 1987. How many people have come on Bloomberg come on this program in the last few months and said I like Japanese stocks.
And we said to them what happens if dollar and goes from 160 to 1 50 to 1 40 to 1 30 to 120 and they said this is not about the currency. Yeah, they've come on and said that there is corporate reform happening in Japan. Companies are stronger, there are wages picking up and all of that is a good thing for Japanese companies.
But they overlook the fact that Japan's been used for funding currency for so many different trades that there is a systematic issue. If the Japanese yen does start to appreciate. It's not just about the fundamentals. The fundamentals, by the way, which were based on, I don't know, a lot of tourists coming to Japan. It's not exactly the strongest legs to stand on. A lot of trades built on top of that foreign exchange market in that currency pair. And this event is this morning.
The global market sell off accelerates its concerns over a US economic slowdown. Intensify mega-cap tech names bearing the brunt of all of this in video and apple both seeing some very sharp drops this morning. If you check out shares of in video, we're down by almost 10%. This note came out from Bank of America
over the weekend and they say this. We see any selloff in this name as an enhanced buying opportunity. We don't get the earnings and. So month end. It's scary to step out in front of these
right now because of just how long people have been and the fact that they are still up this year. Maybe not Microsoft. That's a racist games for the year, but from 2022, this is an S&P that still up some 20%. It's in video that's still up 833% from 2022. They're going to be people who are still
watching this thing and are still sitting on gains. That's not something that means that the sell off at this moment can stop. I mean, there are still plenty of people who could sell the sell off continues this morning. Let's get you an update on the politics as well coming on how is expected to announce her running mate in the coming days. People familiar with the matter saying Harris out of weekend meetings with Arizona Senator Mark Kelly, Pennsylvania Governor Josh SHAPIRO, Minnesota Governor Tim Walz as well.
Meanwhile, Harris and Donald Trump different go for a potential presidential debate. HARRIS Deferring a September 10th debate on ABC while Trump calls for a debate hosted by Fox News a little bit earlier. I think for the politics, you have to go back to Friday. This could well change the election if that unemployment story is real and not a head fake and it continues coming get to November, then the Democrats have got a bit of a problem. Yes, you can use a corollary for this on
the other side of things, when Obama was seeking re-election and they said, okay, the unemployment rate is really high, it's something like 8%. This is bad for Obama, but the trend was down. We have the opposite thing right now where you could say the unemployment rate, it's not that bad. On its surface, it is just 4.3%. But the issue is the trend is up. It's trending in the wrong way. And that's going to be an issue for this party if we've been heading in the wrong direction for a number of months now as well in that labor market, check out the bond market, Treasuries surging and growing.
Perhaps the US economy is slowing so quickly that the Fed could cut rates within a week. Davis of Pima is right in this. The weak employment data shows job growth slowing, but the economy remains solid. The Fed didn't cut rates in July, but a 50 basis point cut in September is possible due to the stimulative fiscal deficit. Joins us now for more. Let's get into this. Let's take a giant step back.
I did that with Russ Coaster Kelly this morning. I think we have to do that repeatedly throughout the whole of this morning. What happened on Friday? And did it change things enough for you to make some big calls like sometimes we're saying in this market currently? Yeah. What change in Friday is that the Fed
has been moving that now it's and it's all about employment, not inflation. So when we got the number that we got on Friday, people ran to the doors and the door is only so wide. So that's why you get this acceleration of the move. Has it changed things for us, different
on different timeframes? Yes. So let me tell you about the short term timeframe. Friday was a very good day for us as active fixing commanders. We were long, overweight duration heading into Friday. But not only did we cover that overweight, we started shorting the market now. So Friday, close to the lows we put on, let's call it one third of our Mac short today at 370 or better into the ten years we're going to put on another third.
And then we're waiting for that extension of the sell off due to stop loss selling. And we'll put on our last third. We anticipate that'll be this week. We have a high amount of confidence in shorting the markets at these levels for two reasons. One, obviously Treasury supply, but I was a bond trader for 12 years and what happens in this type of market is you get a lot of corporations looking to extend their issuance of credit of corporate bonds to ten years because they take advantage of this rally with lower funding costs.
Your credit spreads are still historically tight. It is an excellent opportunity for them to get involved in the market. So what happens is they make deal. They agree with dealers that they want to lock in these Treasury yields and dealers now start selling treasuries to lock in these low rates. That's how they lock in low financing cost before the bond issuance. Tremendous opportunity here to short the market. But it could extend it would just build
on that a little bit more because we've seen a ton of supply from corporate credit through the year so far already. What kind of numbers are you getting? Thinking about how much front loading for the rest of the year are we about to see? Well, it's a it's a great question. We haven't thought the exact number, but we do know and this has been some pushback that we've gotten from clients. And then after our response, they're good with it. We do expect it to be more than the existing demand for buying, which means your credit spreads will widen.
However, this is an important thing to remember when you have these risk of moments. What you have are people who who historically invest in equities start looking to diversify that risk, and they like corporate credit as well. So they mix both of those two things. So we believe there will be additional demand that comes in with with new corporate issuance. There are still trillions of dollars on the sideline as well, too, and the economy's doing well. Again, tremendous opportunity here from an active managers perspective to be selective on the corporates in the crisis that you go long. This is what we've been waiting for. We've had valuation discipline for the
past three months, but it's at these moments where we're like, we're adding to credit. We add into credit as well on Friday and we will continue to do so over the coming weeks. Well, does that mean the slight spread widening we've had? And I say slight, especially compared to other risk market moves, something like eight and 30 basis points for IG and Y respectively. That that's that's kind of it. But it won't get much worse from here. It will get much worse, but it is still opportunity.
It's positive carrying. You're doing well. The reason why it will get much worse is because a way to think of being long corporate bonds and long carry it. You're actually short vol. So in this markets when vol increases because of what's happening to the yen carry trades being put out, the equity indices are being rocked a little bit. What happened is vol increases, your credit spreads increases. So we do anticipate it to be more. But we do see because we don't
anticipate a recession either this year or next year, that will snap back in once the markets calm down. It's not immediate. And when it doesn't stand back and you're still earning a positive coupon, positive carry. That's why we're we're legging into it, so to speak. We're not going all in on on credit. But we have we are starting to add and we will continue to do so.
What distinguishes the difference between spreads widen equity selloff in the corporates having an impact, the corporates acting different and having to respond to that besides ones that can just sit still through the damage. But it's a great question. So there's two sides to the coin coin of corporate bonds. There's me an investor, so I am buy it, I invest. And then there's corporations who actually need to fund the company. So when you get these tremendous rallies
that you've been talking about, not only in year to year, but your tenure and your 30 year, this is the type of market where corporates like to fix in their financing costs for the next five, ten, 30 years. And the reason why is they've seen how high yields have been. And, you know, last year, the highs of last year, even like July 1st, I think ten year bonds in the US, we're testing for 50 now. We're testing through 70, 80 basis points of lower carrying costs or lower financing costs for ten years is significant for a corporation. So that's why they look at this side of the equation. And you know what? There will be a lot of dealers that are knocking the doors to highlight the benefits of this, and that's why they get involved. Just before you go, we're just trying to
gauge from investors, people in the market like yourself how vulnerable this market is to flipping the other way all over again off the back of a firm print on our services a little bit later this morning. How are you in the same frame in that data point later on today? Yeah. I don't think it's vulnerable to to flipping back, you know, but this is how you ask that question. The level in ten years that we see at the pivot point is 385. So any yield below 385, we are better sellers, you know, but underweight duration above 385, we start going long duration.
It is our full expectation that will test both ends of that. We'll go above 385, but the trend now is definitely lower, but we could see us going much higher as well before we ultimately hit new lows. And that underscores one thing. Our number one highest conviction trade for for 2024 coming into the year was volatility. That means and we're seeing it. And that means the path is more
important than the destination. So having ideas as to where pivot points are, where you're underweight, overweight is the key to making alpha. And that's why we were very bullish on Alpha in fixed income and active management. Oh, this is super smart. It's good to get your thoughts as always. Good luck this week out. Dave, is there a female kind of asset management after some big moves? He was long volatility.
That's exactly what he's got on these screens right now. Let's get you an update on stories elsewhere this morning with your Bloomberg brief. Hey, Sahara hackers. Hi, John. The prime minister of Bangladesh, Sheikh Hasina, has resigned and fled the country as anti-government protesters converged on her official residence. This according to local reports she had
faced pressure to resign for weeks following violent demonstrations that have killed more than 100 protesters. The nation is shutting down government and private offices, including banks, for three days starting today. And mobile Internet service has been shut off.
The country will now form an interim government with the backing of the military. Meanwhile, Israel is bracing for possible attacks from Iran and regional militias. This after the high profile assassinations of Hamas and Hezbollah leaders last week. Prime Minister Benjamin Netanyahu is saying over the weekend his country is in a, quote, multi-front war against Iran's axis of evil. Amid the escalating tensions, the US is moving a fighter jet squadron to the region and plans to keep an aircraft carrier nearby to help Israel. Still, the White House is urging them
and Yahoo! To redouble ceasefire negotiations with Hamas. And we're seeing shares of Apple tumbling down nearly 9% in the market as part of this global tech sell off. But we also learned over the weekend that warm Buffett's Berkshire Hathaway slashed its stake in the iPhone maker by almost 50%. This part of a second quarter selling spree that saw Warren Buffett's cash pile soared to a record nearly $277 billion. Still, analysts are urging Apple investors to remain calm despite the delay in the company's much hyped rollout.
That's the Bloomberg brief. John Harris, thank you. I guess the real question, Danny, is how much you'd like to buy this morning off the back of this move, I was thinking what great timing from Warren Buffett. I mean, I'm sure he didn't think this was going to happen, but good timing for him and maybe bad for everyone who bought what he was selling.
A maser. Uehara is going to join us again in about 30 minutes time. Up next on the program, the long odds for a soft landing. I'm hearing the markets scream Two things growth, scare, policy mistake. That is what I'm hearing.
It was screaming those two things loudly after that jobs report dropped on Friday. Still ahead, you're watching Bloomberg TV. If you are just waking up in the morning.
Welcome to the program. The skies look like this and the equity market. Equity futures negative by three percentage points. There's a rally at the bond market.
Ten year yield down by five, two year yields down by 13. The dollar is weaker, the euro stronger. The yen is much stronger. Euro dollar right now, one of 940 daily and one 4242 disadvantage this morning the long odds for a soft landing. I'm hearing the markets scream two
things growth scare policy mistake. That is what I'm hearing. The market now fully understands that the fed may be late in starting its cutting cycle. In the past, I kept on saying there's no reason for the US to fall into recession. I think people underestimated the lagged effects of higher interest rates and these are hitting in a much bigger way now, in a much bigger way. Here's the latest concerns of a US economic slowdown spreading worldwide. After the July jobs report reinforced worries the Fed had rates too high for too long. Neither Richardson of ADP writes this
It's too soon to talk about hard landing again. It is a bumping out's but safe landing for the US economy, where inflation continues to abate and hiring increases modestly. It may be the case that in July data the jobs market is reminding us what normal looks like. Nader joins us now for more on Nader. It's good to see you. Do you think we are confusing normalization with something more nefarious? Yes. And to answer that question, I'd like to
take you back to July of 2019. The US economy grew employment by 1.3% and created 90,000 jobs. Now let's fast forward to the present 114,000 jobs, employment growing 1.6%. This is normal and the risk of over exaggerating where we are, which is definitely a clue. Cooler labour market. But the risk of going too far in our sentiment is that we will have higher expectations for a Fed rate cut.
Then we're going to get the Fed will not deliver us from 4.3% back to three and a half percent unemployment rate. And if we think that going into that September cut, we're bound to be disappointed the markets and that that's the concern. Let's talk about a place where you have some confidence. Do you have some confidence we can stabilize at these kind of levels in this labor market, that we can deliver jobs gains that look like that for quite a while and we time to sort of head on this one way track towards negative numbers at some point in our future.
So I'm going to give you an insider's perspective of the labor market. I'm going to give you that perspective because I see about 25 million paychecks every single month, every single week. And we've been looking at the labor market in this really fine tune granular way. And what I will tell you is within all of this, hiring is different now than it was in 2022 and 2023. We are not just replacing workers in this labor market. Remember that revolving door of the
great resignation. Remember how hard it was to lure workers back into the space? Remember how quickly they left once they got there? Employers are not in that position anymore. They are hiring because and only when they are growing, by and large, yes, of course, some people leave the labor market, there's maternity leave, there's early retirements. But on net, it's real headcount growth, not just replacement hiring. It's a very different space than employers four two years ago. Does that also mean that the labor hoarding that we've seen from companies keeping on and holding on to employees for fear that they couldn't replace them, that that's over, which I think it's too soon to say that.
What we have seen in the data is that employees are not leaving as quickly as they used to, that they're staying put, that the turnover rate isn't there. You can see that in the JOLTS report. You can see it in the quits rate quits now or back to where they were pre-pandemic or even a little bit lower than they were pre-pandemic. So in that reality, when companies may have over hired thinking that some of their workers would have left, they are tweaking their headcount at the margins to correct for what may have been a bit of a rambunctious hiring a few months ago. I wonder, though, when you look at a market doing as it is today, when you look at sentiment turning, is there a fear that corporates are going to be more reactive this time around? That they do have for a large part, a large labor force because of some of the over hiring that they've done? So when they finally let people go, it's sort of like the beach ball that's been kept underwater and you finally release it and a lot of people are let go.
Well, to answer that question, let's go back to the data. Let's go to the labor force productivity numbers that were kind of lost in all of that labor data last week. You know, there are more workers and workers are becoming more productive. So in terms of a corporate earnings perspective, having more of a more productive workforce is actually helpful. It's helpful to earnings. So I'm still in the camp that these are minor tweaks. If you do see a reduction here or there, when we've seen large scale layoffs, they have typically. I've been in specific investments that
companies have made and maybe they've pulled back from. But by and large, in order to keep growing, in order to meet those earnings expectations, you have to keep your workforce and you have to make sure they're productive. And that's what we're seeing in the in the macro data. As you know, there will be a big get together in Jackson Hole, Wyoming, in a few weeks time, which then the tone of that get together is going to look like now, because we've said already this morning the road to September 18th for the next Fed meeting feels like a long, long way away. I think they're going to be able these policymakers, to come together and take a breath.
They've been so tactical data dependent. Okay. Not data point dependent, very data dependent. Now they can talk strategy and this sets them up for a conversation that they are going to need to have going into next year about the framework. Remember that the current framework that we've been operating under is it anticipates a very different inflation scenario than we're in now. That framework where we can let inflation be a bit above the 2% target, up to two and a half percent on average anticipates a very low inflation rate as normal. We're not in that world anymore. So they have to start going from the stated dependence, tactical maneuvers in the in the monetary policy to a more large scale big picture strategic framework. I think that starts in August.
Is there anything this market could do, though, whether it be wealth effect concerns, bond market, just running away from them that would make an emergency cut makes sense to you know they really can grow not a 4.3% unemployment rate. What that does is set a precedent that I don't think the Fed wants to deliver. Are we saying that every time that we see that unemployment rate below four and a half percent, the Fed is going to have to act like what is the framework? Maybe if there's a strategy around that, a long term perspective that we can reference. But if it's just a 0.2% move in the statistical estimate, then the Fed is really backed into a corner. As you look out over the course of next year when we know economic growth is slowing. And they did, this was great.
It's just fantastic to catch up with you. Just a cool, calm hand of what's happening right now in the labor market. Well, the Fed may or may not do in the future, they predict. Nayla Richardson of ADP. Danny, this reflects what we heard from Neil Dutta as well over a Renmark. They've stepped on a nail, not a better nous, and the response to this is an interest rate reduction and you'll get that interest rate reduction in September.
And it was view. You could even argue that in Wednesday in their Fed decision. We have to remember that just cutting rates is not the only easing tool that they have. Even just Powell sounding more dovish was enough to get rates to where they are at this moment with the help of some of a sell off of 3.8%.
You could argue that some easing has already been put in this market. They don't need to do an emergency meeting cut. Maybe they just need to some really dovish at Jackson Hole and that's enough. The schedule for Fed speak over the next few weeks is pretty light. I imagine there will be some speeches scheduled between now and the end of the close in the market.
We'll see. Coming up next, Sarah Hunt, about some words edgy. Aren't any of you have any research calling it some of new century advisors has become incredibly famous, popular over the last couple of days. We'll talk to some about the some role
and al-Hasani of Columbia Threadneedle all of that still to come, the second hour of Bloomberg Surveillance up next. I'm hearing the markets scream two things. Growth Scare policy Mistake. The Fed may be late.
The Fed needs to get going soon, just given that we have seen, I think, some market deterioration in the jobs market. What we do know is that when momentum slows, it slows quite quickly. Certainly there's a signal that September will be the first cut, but I think the Fed will still move very cautiously. I don't understand the let's go really
slowly. If the economy is back to normal, get monetary policy to normalize quickly. This is Bloomberg Surveillance with Jonathan Ferro Lisa Abramowitz and Annmarie Horden Hearn in the second hour of Bloomberg Surveillance starts right now live from New York city this morning. Good morning.
Good morning. If you were in this market, you haven't had much of a weekend. After Friday at 830 Eastern time, payrolls dropped and quite literally dropped.
A big downside surprise in a payrolls report. That upset a lot of people. And now we've got some because 50 basis point cut in September. Citi's Andrew Hong horse, 50 basis point
cut in September. Mike Feroli of J.P. Morgan, What a difference a payrolls report makes. Check out the price action. The negative follow through is real equity futures on the S&P down by 2.7%. On the Nasdaq were down by four on the Russell, we're down by 4.4. Taking to the Nasdaq, some of the biggest tech players on the planet drop in aggressively big moves on Apple online Nvidia and Microsoft in video right now down by 8.8%.
On Apple, we're down seven and a half. The big bull on Wall Street, the poster child for some of these tech names, Dan Ives of Wedbush. He joins us a little bit later this morning Dani Burger.
He says this We're getting impacts from investors around the world throughout the weekend, asking us if this tech bull market and a historic run for tech stocks is over. He says it's not. We view this as just another white knuckle moment in a multi-year bull run for tech stocks that need hand-holding. So no black suit for Dan Ives yet. We're not quite there, but you've got to talk about timelines here. If you're talking about the short term, it's really hard to step out in front of this when you have so many people who are long year to date and you have all of these short volatility trades have been putting put on, it's like picking up pennies in front of a steamroller. The steamroller has arrived by all
accounts, and it is painful. When it does. The question will be how much longer it lasts. We get to this bond market set up the bought two year ten, year 30. And let's just look at the difference between the two year and the ten year. Just in the commercial break down, he jumped all over this bond market and said, look, we're within one basis point of that yield curve. This inverting the two year right now at three 7581, the ten year Danny at three 7435. My favorite thing about this is all
those people who said, look, when the yield curve starts disinvesting, that's when you get recession. And everybody who's coming out now and saying, see, look, I was right, it's happening. There's some confirmation bias happening in this market because the data hasn't been that bad. The signal that this bond market is giving us that there's an emergency cut coming, that they're going to have to step in. Neal Richardson was just saying it.
If the Fed is going to do that, what are we doing here? What sort of framework are they working with that Just 4.3% in unemployment would mean an emergency cut That surely would confuse many
2024-08-08