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This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.
Roosevelt Bauman of Bernstein Private Wealth Management writing, we anticipate weak U.S. growth in 25 of about 0.5% given the current higher cost of capital and the uncertainty around tariffs. Roosevelt joins us now for more. Roosevelt, good morning. It's good to see you. Good morning, John. Good morning, Lucy. Thank you for being here. A step down in U.S. growth from around 3% to 0.5%. Can you walk us through how well-priced bond markets are at the moment for a world of growth, in the U.S. at least, of 0.5%? Sure.
I would argue not very well priced at all. I mean, I think when we look at where growth is likely to move over the next couple of months and really without policy support, you know, we're talking about the tax bill not quite there yet. And when you think from a monetary policy standpoint, the Fed not ready to cut because we haven't seen enough progress on the inflation front.
you're likely to see some weaker labor and consumer data over that time that eventually pushes yields lower. I think the reason we haven't seen that yet is certainly that policy volatility. When you think about some of the potential legal challenges replacing the Fed chair,
Thankfully, that rhetoric has pulled back. But that's certainly kept yields, I think, elevated above levels that you would anticipate given the growth outlook going forward. What are your assumptions on inflation with the growth outlook you're expecting? So, I mean, our assumptions are inflation kind of remains elevated over the short term. But that when you look more six to 12 months out, that you don't have the kind of high inflation, even the stagflation that's talked about a lot. I think from our perspective...
The reason that so many people are worried about it's understandable. You think about tariffs pushing up prices. But from our perspective, that only happens if consumers can meet the higher prices. And I would challenge the consensus view that we've seen this dichotomy of soft data has been really weak and that the hard data is still coming fine. When you kind of look at some of the high frequency consumption data, credit card transactions, the ticket sizes associated with them,
It's shown some real weakness in the consumer over the past couple of months. We're seeing that weakness in labor demand as well. When you look at online job postings, the salaries associated with them, they're both at 15-month lows. You look at Atlanta Fed wage data, that spread between those that are staying in their job and those that are leaving their job, it's just absolutely collapsed. So you're not getting any premium
for leaving your job. The kind of the leverage has shifted from the employee back to the employer. That speaks to lower wages going forward, lower consumption, consumers not meeting those higher tariff induced prices. - So this morning it seems like there are a couple of schools of thought among investors who've come on the show
you've got Steve Chivro and saying that actually he sees equities as a better bet than bonds right now because he does think that growth is going to reignite later this year. It sounds like, and correct me if I'm wrong, you actually prefer bonds later this year to equities if you do see growth meaningfully slowing and sending people back to what has been and maybe will continue to be a haven asset. I actually think, Lisa, there's a pathway for both to kind of do better towards the end of the year. So to your point, once we have some
slowing growth over the near term, I think that, and once we have policy kind of more sort of knowns about what the tax bill looks like, then you have the pathway cleared for bonds to do well. I think equities, you're going to take some type of stimulus and support, and that's more likely to be, I think, from the Fed than necessarily the tax bill.
And that's more of a kind of fall and winter story where the Fed actually has a green light to cut from both the inflation standpoint and the weakening economic data. - So we were talking about this with Robert Salkin, just how quickly we can see the negativity bleed into data that has been very distorted by front loading and a whole host of other factors before people start to question this theory of a rolling over in an economy that has been incredibly resilient with companies adapting and adjusting and figuring out ways to keep on keeping on.
Well, I think we're starting to see some of that, as I mentioned, from both the consumer and labor standpoint. And as people are still concerned about their job prospects going forward, they're likely to pull back on their consumption. That's typically what we've seen in history. Even if we haven't observed so much of that in retail sales, there's been some weakness there. And again, I think the high frequency data have shown that consumers actually are pulling back and are not as quick
quite as resilient as maybe the top line figures have suggested. - So there's also this theory underpinning what you're talking about, which is that eventually money will go back into the US and US assets that have traditionally been havens. Why do you have that conviction at a time where people are selling the dollar and you are seeing a move out of US assets, particularly among European and Canadian investment firms? - Well, I think we can separate kind of fixed income and equities for a moment. So if you think about fixed income,
Understandably, there's been a premium there because of the policy volatility. So you may not see the size of the rally in bonds that you would normally anticipate with slower US and global growth. I think equities from a long-term perspective, that is a tougher short because you're not just taking a geographic position, you're taking a sector position as well given the US leadership and technology.
So, you know, we talk to our clients and saying, hey, do you want to be short technology for a five, 10 year period? The answer is a resounding no, understandably. So I think that is where we have confidence that yes, there is a risk premium for US assets that was not there before because of the trade and monetary policy volatility. But the idea that we have this mass divestment into other options, you know, that's not our view at all. And I think that's, you know, I think number one,
the depth and size of the US bond market. And number two, the leadership and technology says that both US fixed income and equities will be attractive going forward, just not as attractive as before. What do you think the dollar weakness speaks to then? What do you think is ultimately behind it over the past few months? I mean, I think in terms of the dollar weakness, for sure, that is where you can express more of that concern about policy volatility. And if you think, when you look at the dollar, it's undervalued
over the short term, kind of based on nominal interest rate differentials. But for longer term measures, you could argue that it's been overvalued for a while. So I think it's a combination of long term overvaluation, short term undervaluation, and you end up with some dollar weakness. I think the other part of it too is that the Fed
when you think about the range of outcomes for Fed policy, you're more waiting for them to cut. You don't have the other side of the distribution where you're saying, oh, could there be price pressures that would have hikes that would really widen the interest rate gaps enough to overcome the policy volatility? So you end up with the dollar weakness that we're seeing right now. They've certainly taken those hikes off the table, that's for sure. Roosevelt, this was great. Let's do it again soon. Absolutely. Good to see you. Thank you, sir. Roosevelt Bowman there at Bernstein Private Wealth Management.
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There's no business like small business. Hiscox Small Business Insurance. To extend the conversation, Terry Haynes of Pangea Policy. Terry, welcome back to the program, sir. Why have the Europeans found themselves in such a difficult spot?
There's a couple of reasons, John. One is just the nature of their federation. Those of you who are American history buffs consider the EU much closer to the Articles of Confederation, where, as one of your correspondents said, every major decision has to go back and be played through each of the 27 member countries.
So, you know, the structure's not great. There's also tensions between the European Commission, kind of the supremos in the Burle Mountain, Brussels, and the 27-member nation. So that makes for a very complicated group. You know, and just about every other negotiation that the United States is pursuing, whether it
it be with the UK, whether it be with India, whether it be with Japan, let's say, or even China, you know who you're dealing with and you know what kind of response you're going to get. So this is uniquely difficult. Terry, do we have an understanding, a better understanding after this weekend of what the ultimate goals are with these negotiations, what the desired outcome looks like? On the EU, I don't think we do. But I would
My view of this is that, you know, Lutnik and his people at Commerce had gone out before, even before the April 2nd date and had given various countries wish lists of things that they wanted. So whether or not somebody in the Burleymont got a list,
I think is beside the point because a lot of the member countries did, almost certainly. Germany did, France did. I mean, the main countries in the European Union know what the United States ask is generally, but the EU as a whole has to get down to it. And the scheme of the EC is always to delay, delay, delay, as any British prime minister in the last 10 years well knows.
Do we get a sense that the one big beautiful bill and the fact that it did pass in Congress gave ammunition to the administration to focus back on trade and that we can expect a lot more headlines to be made about trade over the next few weeks?
Well, I think they've been doing both, but I think there's probably a lot more headlines on trade to be had simply because the Senate negotiations on the tax bill are kind of much more in the can. They're much more baked. Everybody knows what they are.
But the expectation is that over the next month, you're going to see a lot of those major deals. And one of those is India, where the Indians have said quite publicly that they expect a deal to be done in the first phase by July 9th with 18 more sectors by October. Whether or not the United States agrees with all those deals,
that framework or not is another thing. I doubt that they hugely disagree with it. But there's a lot of optimism coming from India. And, you know, I've always thought that's exactly how you have to read what's going on with Apple is through the Indian trade negotiations, not as anything that's been going on with Apple. And Terry, just build on that. What do you mean by that?
What I mean is that people tend to look at, you know, look, I'm not an Apple analyst, okay? I'm not saying buy or sell Apple. What I am saying is that the markets tend to look at Apple or, you know, Tesla or, you know, whatever in a very siloed sort of way. What's going on? Trump's mad at them. Trump loves them, whatever it is. What's going on here? I almost certainly, I think, and this is instinct.
But, you know, there's U.S.-India negotiations way down the track. India is a major beneficiary of offshoring from China, in this case iPhones to India.
Trump likes to shake up negotiations. It's a standard negotiating tactic, not just for him. And the shakeup, part of the shakeup is, well, I'll introduce something new into the mix. Let me remind you, India, that you're the beneficiaries of United States policies here. So I'm going to put that one on the table, too. And then we'll figure out where our negotiations go from there. So-
Yeah, I'm just looking at Apple as a bargaining chip in the larger trade negotiations with India, frankly. Terry, there's also a foreign policy wrinkle in the mix as well, the threat of secondary sanctions against Russia and what that could mean for India, for China. How's that going to play out in the next few weeks and months?
You know, I think it matters. It matters in the U.S.-EU negotiations too, John. It matters greatly because what you're going to have is a situation where, you know, this is a classic watch what they do, watch not what they say. The European Union heaped a lot of scoring on the Trump administration and Trump personally and Vice President Vance personally.
for their remarks over the winter, and they're going in position on Ukraine. But now we're in a situation where the geopolitics are...
And the United States, as well as the European Union, are taking the shackles off the use of weapons that are provided to Ukraine by all of those countries. You know, what you're going to see in the success of weeks, I think, is a geopolitical ramp up that's designed not just to put more pressure on Ukraine,
Russia, but more importantly, put more geopolitical pressure on China to get their client state, Russia, to the table. So this is yet another example where the geopolitics is driving the economic policy. Terry, it's good to hear from you, as always, smart. Terry Hines there of Pangea Policy.
Joining us now, the president of the New York Stock Exchange, Lynne Martin. Lynne, it's good to see you. - Great to be here. - Before we get to these trading debuts and maybe some IPOs coming through, I just want to talk to you about the amount of volume that's come through your business through the year so far. Just walk us through it. - Yeah, if I look back on this year, it's been a year unlike any other, both from the demands on our system
and the liquidity in our system manifesting itself in trading volumes. Now if you look at that period between Liberation Day and the pause, we saw records in terms of messaging traffic
hitting around 1.2 trillion incoming order messages that we processed with 30 microseconds median response time on two of those days. And then if you look at the amount of transactions that occurred on our platform and the equity markets as a whole, I mean, an average day is around 16 billion trades. And now...
during that period, we had 30 billion. It's just unprecedented. It's more than two times the amount of volume, both from execution, from actual trades, as well as from messaging than we saw during COVID. Now, you remember how active COVID was. There's been a variety of reasons why we've seen that, I think. Do you think it's something we take for granted?
the infrastructure holding up in the way it has done? I think it's something that we at the NYSE spend a tremendous amount of time thinking about and planning for. We hope you take it for granted because that means we're doing our job. Our job is to ensure that the markets are open and efficient so you can manage risk, particularly during those incredibly uncertain times like we saw in April.
We saw an incredible amount of volume on the secondary markets of existing companies that have existing shares. This was supposed to be the year of IPOs, of deals, of all sorts of capital markets activity. Where are we in that? Are we seeing a revival of that?
that as people get a little bit more confidence around trade or is it still really kind of being iced? Yeah, so initially this year when I was with you both in Davos, I was incredibly excited. You know, I still am really excited about the IPO markets. I think Mountain and Hinge last week going.
and doing so incredibly well, both pricing at the high end of the range, both up significantly over their IPO prices just in their first two days of trading.
are the sign of what I was talking about with you both in Davos, and that there's a tremendous amount of demand for new issuance in the market. Portfolio managers I talked to, long-only funds I talked to, they want new issues in the market. So I think you're starting to see these companies now come to market. Now that the VIX has come back to earth, come back to that 20-ish
and you're not seeing as much of the intraday swings as a result. - You talked about Davos. I'm just wondering, the enthusiasm you had then, can you give a sense of how much lower the volume of IPOs or deals you expect to be for the remainder of this year now
than say in January based on the uncertainty and based on what hasn't gotten done over the first half of the year? I'm actually still optimistic that the same amount of IPOs will go. It's just shifted out. If I look in the case of Mountain and Hinge, they were targeting early April. You've seen StubHub flip. You've seen Klarna flip. Circle went on the road this morning, which is an IPO we're incredibly
excited about happening just next week. So I think you're starting to see that group of companies that was public market ready get out of the gates. So I'm optimistic. I'm optimistic that the second half of this year is going to be when you start to see these bigger names come to market. Do we need clarity on the policies in Washington first?
And how disruptive has that been for your business? I remember the president on the stock exchange floor. Yeah. Alongside you. Yeah. This is not what we all expected. This has been chaotic for a lot of people. Do we need some clarity on those issues to see the Canada play out in the way that you expect? So I think there's just been some uncertainty in the market. You can't argue that. If you're a good company, though, if you're a company that has made the...
the plans to go public, which many have their public company ready. I think they can go in any market, particularly when you look at certain sectors. Crypto is certainly a sector where there's a lot of optimism still.
Some companies are still trying to weigh the benefits or the issues associated with tariffs, and that's going to be a movable feast throughout the course of the year. Everyone around this table is incredibly pro-America. You and I were on a panel together. You mentioned Davos, and we were talking about American exceptionalism.
and then all of a sudden people are talking about peak American exceptionalism and the rest of the world. Can we have a final word from you on that? The future of America and American exceptionalism? There's nothing that beats our capital markets. There's no substitute for our capital markets. They're the deepest, most liquid...
in the world. They continue to be the envy of a world. The geopolitical situation, though, is a conversation. I think that's where I'll leave it. That's a diplomatic way of putting it. Lynn, it's good to see you. Good to see you too. Thanks for being here. Lynn Martin there, the president of the New York Stock Exchange.
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There's no business like small business. Hiscox Small Business Insurance. Amanda Line of a BlackRock joined us around the table. Amanda, good to see you. Good morning. Thank you for having me. You've been focusing on the interplay between margins and the labor market. Let's get an update. Where are we now? Yeah, I think Neil Kashkari said it well to your colleagues over in Asia. Their time is of the essence here. Companies are in a bit of a wait and see mode. This is something that's been coming up in our
client conversations over the past few weeks, including some conferences. Corporates are signaling that they're in a wait-and-see mode, but there's an expiration date on that wait-and-see, and I think that's really what we're focusing on. This really just hinges on the labor market. You heard Stephanie say consumers can spend so long as their employment situation is solid. It's really that interplay between margins and the layoff rate that I think is going to determine the path from here.
So when's the expiration date? Well, I think the Fed is almost laying the groundwork for focusing the market on September and even going forward from that. I think if we can get through the next earnings season, this earnings season I think positively surprised. If we can get through the next earnings season, I think that will provide some clarity. But I kind of
take a step back, if I'm a corporate CFO, and I thought your conversation with Lynn Martin was great, at some point they just have to move on with it and go through the strategic initiatives that they need to enact. So for example, we've actually seen strategic M&A rebound a bit. It wasn't that depressed to begin with, but I think corporates that are looking to do transactions to bolster their business are actually moving ahead with it
Where we've seen some lagging is on the private equity sponsor related M&A, where financial economics are a bigger part of the equation. But I think to a certain extent, there's almost a level of optimism that no matter the path, corporates can manage through it. And to a certain extent, we're actually, I think, starting to see a bit more of that. So if you talk to corporate executives, you get a sense of optimism. You get a sense that they're going to keep on going, that there's certain levels of demand that are just going to be sticky and that they can plan their business around that.
where the cracks are going to come is the consumer. That's what everyone has been saying. How much do you really believe in that, given that you see real contradictory types of data on that? Yeah, and I think it's a great point. Sometimes folks describe it as mixed signals to us, but what I actually think is happening is that just like there's been dispersion in corporate
credit, liquid, private, commercial real estate, there's also dispersion in the consumer. One of the things that's jumping out in the recent data is that those consumers with student loans, now that those are actually impacting their credit scores and the delinquencies, are coming under more pressure. So there's a bifurcation that has always existed amongst consumer income cohorts, but we believe in this cycle it matters more because the rate environment is really a
forcing factor for affordability. So if you have floating rate exposures, you have high mortgage rates, these I would say differences in consumer strength are becoming more prominent in this cycle versus previous cycles. I think what we really need to focus on is does that weakness that is so far confined to the low-end consumer extend more broadly up into the higher income consumer? We're not seeing it yet, but that doesn't mean that that risk isn't out there. So we're finally attuned to kind of what does that labor market dynamic look like?
And if we see that migration, that certainly poses a threat to the headline data, that's for sure. I wanted to talk to you about the price of credit at the moment. We've had a lot of guests come on and talk about the riskiness of government debt and hardly any talk about the riskiness of corporate credit. How are the two trading relative to each other at the moment? So I would say, let's use high yields as an example because it's a bit more growth sensitive. The tights for high yield spreads were 256 earlier in the summer. We're at 330. So we're not back to that kind of euphoria
period of mid-February, but we're certainly well below the post-financial crisis average. So I think where there is for sure some room for spreads to widen, I think going back to your point, Lisa, though, there's almost a sense of front-footed behavior amongst investors as well, that they're cognizant of the fact that they cannot
time these developments. I think what happened over the weekend is a great example. We left Friday. It seemed like a bit of a risk-off tone. We come in this morning, it's very risk-on. Corporates, just like investors, don't want to be on the sidelines. And so there's almost a kind of just move forward and kind of invest with the assumption that there will be some volatility from here. Bank of America pointed out that some Microsoft credits, some maturities are trading through
the treasuries and I want to understand from your perspective whether you are seeing some investors begin to treat certain corporate credits as more safe
than maybe the U.S. Treasury, which sounds bizarre saying it out loud. So you've seen that take place. So I would say that part of the market, so when I started in corporate credit in 2005, there were actually a fair amount of AAA corporates left. There are really only two AAA corporates and then a handful of universities. That whole segment of the market is about $90 billion, AAA-rated corporates. It's very technical. It trades very tight. It also depends upon where our
Are you on the curve where your spread is getting calculated? So I wouldn't take that as an arbiter of this is a better credit than the U.S. I think what it is is just the fact that over time, over the past 15 years, there's been a migration down in credit quality in the U.S. A lot of corporates are just happy to be triple B. They don't need to be double A or triple A anymore like they were in 2005. And I think that's really what you're seeing. Is there a lesson also, though, about who the buyers are?
at any given time of the treasury market versus the corporate debt market, that they're two distinct buyer bases with different metrics to understand when to come in and when not to. Absolutely. I do think that there's a healthy amount of market segmentation that has been in place and remains in place between those two market cohorts.
I really just think, though, if I'm an investor looking to deploy money in the corporate credit market, I see more scope for balance sheet deterioration amongst AAA and AA-rated corporates in this environment than I do in BBBs. And you know our view. We like selectively moving down in credit quality. So for choice, I would prefer to be in the low end of investment grade, where I'm pretty sure those companies will want to stay investment grade. To your point, though, is that by design, that deterioration? Is that because someone in the C-suite has said, we should do this? Yeah.
actually the historical experience shows that your cost of capital as a double-a rated corporate isn't that much less expensive or isn't that much cheaper than a triple-b rated corporate and so I think over time there's been a steady migration now I think corporates use that prudently they're not going to lever up just to do a run-of-the-mill buyback they'll wait for the right acquisition they'll wait for the right time to ask
add that debt to the capital structure. But that's been a long-term trend that's been in place for the past 10, 15 years. And I think actually those triple B corporates are just fine. And even some of those high yield, high end of high yield corporates are just fine as well. Amanda Lynham of Blank Rock. Thank you. Good to see you. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6 a.m. to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen.
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