Market and FX Moves

Summary

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Bloomberg Surveillance — "Market and FX Moves"

Date: August 4, 2026
Hosts: Tom Keene, Paul Sweeney, plus Lisa Abramowicz, Annmarie Hordern
Featured Guests: Cam Dawson (CIO, NewEdge Wealth), Stephen Englander (Standard Chartered), Damien Sasser (Bloomberg Intelligence), Sergey Guriev (London Business School), Stephanie Roth (Chief Economist, Wolfe Research)

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Episode Overview

This episode dives deep into current financial market dynamics, major corporate earnings, the impact of recent global IPOs, U.S. and Japanese monetary policy, FX interventions, the state of the Russian economy amid war, and the underlying health of the U.S. labor market and consumer. The hosts and expert guests provide both high-level analysis and granular breakdowns of data shaping markets and geopolitics.

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Section 1: U.S. Market & Earnings Breakdown

Guest: Cam Dawson (NewEdge Wealth)
Timestamps: 01:35–08:59

Key Discussion Points

• State of S&P 500 Earnings

  • "We're tracking at 47.4% earnings." (Cam Dawson, 01:49)
  • Roughly 20 points of that growth is from big tech (notably Amazon and Google) "paper gains", with the rest of the market still growing a robust 28.8%.
  • Rapid semiconductor margin expansion driven by operating leverage rather than a productivity boom.

• Revenue vs. Margin Growth

  • Large portion of earnings rise is tied to nominal GDP growth ("nominal GDP is 8%"), with companies benefiting from higher prices.
  • "Margins are expanding... up about 300 basis points net income margin overall for the S&P 500." (Cam Dawson, 02:47)

• Cyclical Peak Concerns?

  • The current environment might represent a cycle peak; the market only tends to react negatively if there’s a “second derivative slowdown” (47% turns to 30%, then 20%, then negative).
  • "The market cares when you have a second derivative slowdown." (Cam Dawson, 03:41)

• SpaceX IPO and Market Implications

  • SpaceX’s IPO highlighted valuation risks: originally trading at 85x sales, now down to around 25x.
  • Still, "25 times [sales] would be the third most expensive name in the S&P 500 if SpaceX was in the S&P 500." (Cam Dawson, 04:44)
  • The market’s reaction to SpaceX earnings is viewed as a signal for further large IPOs.

• Equity vs. Fixed Income Allocation

  • With strong growth and yields high, bonds could provide hedges if growth slows, but there's “no sign of a slowdown in growth in any of the data.” (Cam Dawson, 05:59)
  • Atlanta Fed GDPNow above 6%.

• The Role of Big Tech Capex

  • “It is ATLAS holding up the world and ATLAS... is the hyperscalers’ willingness to burn all of their free cash flow on this CapEx.” (Cam Dawson, 06:52)
  • Market resilience depends on relentless AI and infrastructure spending.

• Market ‘Wobble’: Resilience and Rotation

  • Cam calls it a “Weeble market”: Wobbles but doesn’t fall due to sector rotation between Mag 7 (biggest tech) and semis.
  • "Weakness within Mag7 was offset by strength in semiconductors...rotational nature of things has allowed us to have a much more resilient top line." (Cam Dawson, 08:19)

Notable Quotes

• “Weebles wobble, but they don’t fall down. And we’re saying it’s not a bull or a bear market. It was a Weeble market.” (Cam Dawson, 08:19)
• "If you are concerned about growth or want to hedge your portfolio..., that would certainly be in bonds." (Cam Dawson, 05:59)

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Section 2: FX Intervention & Global Macro — Japan, U.S., China

Guests: Stephen Englander (Standard Chartered), Damien Sasser (Bloomberg Intelligence)
Timestamps: 10:21–25:13

Key Discussion Points

• Why Should Americans Care About BOJ/Yen Intervention?

  • Weak yen is associated with higher Japanese yields and can spill over to U.S. yields, raising U.S. borrowing costs.
  • Treasury Secretary’s job: “keeping borrowing costs down.” (Stephen Englander, 10:58)
  • Unusual U.S. participation in Japanese currency intervention—first time in this form.

• Limits and Purpose of Interventions

  • "If nothing changes, it's really hard to keep spending the money that it takes.” Interventions are bridges, awaiting organic factors for sustained currency strength—e.g., lower oil or BoJ tightening. (Stephen Englander, 14:35)

• Structural Issues and Carry Trade

  • Japanese retail and institutions continue to export capital, not easily swayed by FX intervention.
  • The yen-dollar dynamic increasingly resembles a single currency block, intertwined through assets, trade, and bond auctions (Sasser).
  • Carry trade remains popular but "they can't do it forever though." (Stephen Englander, 24:57)

• Risks for Emerging Markets

  • Stronger yen could spill over into other Asian and EM currencies; dollar-yen moves shape regional monetary dynamics.
  • Chinese yuan (CNY) now an outlier—structurally strong due to surplus, but both Chinese and Japanese authorities intervene to maintain currency levels.

• Market Impacts & Policy Discussion

  • Higher Japanese yields are causing “reduced foreign participation in [U.S.] treasury auctions.” (Damien Sasser, 21:58)
  • U.S. government right to lend support to Japanese efforts, as their economies and assets are deeply linked.

Notable Quotes

• “The weak yen and higher Japanese yields occur together...Treasury Secretary...wants to be careful he doesn’t get blindsided by what’s happening in Japan.” (Stephen Englander, 10:58)
• "Yen and dollar are inexorably intertwined...they're two sides of the same coin." (Damien Sasser, 22:30)
• “They do have interests...they do have to place a lot of paper in the next few... the foreign bid for a lot of our paper has...been lacking.” (Damien Sasser, 20:32)

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Section 3: Russia — Political and Economic Fragility

Guest: Sergey Guriev (Dean, London Business School)
Timestamps: 26:18–31:36

Key Discussion Points

• Putin’s Leadership and War Impact

  • Regime is “stable until it is fragile and falls apart”; signs of unrest among elites and general public.
  • Russian casualties (killed and wounded): estimated at 1.3–1.5 million.
  • Putin previously shielded Moscow from the consequences, now "the war is being felt" with drone strikes in big cities and massive disruptions, e.g., a one-third drop in gasoline output.

• Demographic Catastrophe

  • Beyond military losses, approximately one million Russians (mainly young, skilled, entrepreneurial) have left the country.
  • “Russia has been hit [with a] very, very difficult blow in terms of its future.” (Sergey Guriev, 30:06)

• The Rise of Drone Warfare

  • Ukraine’s use of drones "a shock to every military" and equalizes some of Russia’s numerical advantage, also enables deep attacks within Russia.

Notable Quotes

• “His leadership is stable until it is fragile and falls apart. These regimes are very brittle...In public he seems to project confidence...He doesn’t listen to Bloomberg.” (Sergey Guriev, 27:05)
• “Amount of gasoline produced is now down by a third, which of course results in shorter and higher gasoline prices.” (Sergey Guriev, 29:36)
• “Russia has been hit [with a] very, very difficult blow in terms of its future...there is a huge demographic challenge.” (Sergey Guriev, 30:06)

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Section 4: U.S. Labor Market, Inflation, Consumer & The Fed

Guest: Stephanie Roth (Wolfe Research)
Timestamps: 33:18–40:40

Key Discussion Points

• Labor Market: Normalization

  • "The labor market seems to be largely normal." (Stephanie Roth, 33:38)
  • Deemphasized as a market mover because it’s well balanced.

• Inflation Trends

  • Underlying trend north of 2.5%, with tariffs boosting inflation by 60–70 bps—expected to fade as their effects roll off.
  • AI-related spending has added about 30 bps to inflation, mostly showing up in computer/software components.

• Consumption and Investment Boom

  • Wage growth is steady, but so is inflation; consumer remains resilient thanks to a strong labor market, some fiscal support (“one big beautiful bill”), and wealth effects from equities.
  • "The investment side of the backdrop is abnormally high driven by AI." Capex in AI is not sustainable at these levels and may eventually lead to malinvestment.

• Oil and Consumer Health

  • Oil price swings especially impact lower-income consumers, as seen in rising delinquencies and credit card use when gas prices spike.
  • "A combination of lower gasoline prices plus a pickup in wages...could mean an environment where this...pocket of the consumer does a bit better.” (Stephanie Roth, 37:59)

• The Fed and Policy Communication

  • Next Fed move depends on two upcoming inflation prints; if core PCE is above 0.25%, a hike is likely in September.
  • Market reacted poorly to perceived weak Fed communication: “He didn’t really answer the question... that was one of the most sort of troubling moments of conference...” (Stephanie Roth, 39:41)

Notable Quotes

• “I think the trend, the actual underlying trend in inflation is a little north of two and a half percent.” (Stephanie Roth, 34:31)
• “The labor market seems to be largely normal.” (Stephanie Roth, 33:38)
• "We're not in an environment where it's entirely irrelevant [gasoline]; it matters, especially for the low end consumer..." (Stephanie Roth, 37:59)

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Memorable Moments & Quotes

• "Weebles wobble, but they don't fall down. And we're saying it's not a bull or a bear market. It was a Weeble market.” (Cam Dawson, 08:19)
• "It is ATLAS holding up the world and ATLAS in this scenario is the hyperscalers’ willingness to burn all of their free cash flow on CapEx." (Cam Dawson, 06:52)
• "The market cares when you have a second derivative slowdown." (Cam Dawson, 03:41)
• “Yen and dollar are inexorably intertwined... they're linked in so many different ways... So, yeah, to look at as one system.” (Damien Sasser, 22:30)
• "Every military commander around the world now is watching this war [Ukraine/Russia] because it is changing the whole calculus of how we think about wars right now." (Sergey Guriev, 31:04)

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Key Timestamps for Reference

• U.S. earnings, market structure: 01:35–08:59
• FX, Japanese/US intervention, EM spillovers: 10:21–25:13
• Russia: political, economic, demographic fallout of war: 26:18–31:36
• U.S. labor, inflation, consumption, Fed: 33:18–40:40

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Overall, the episode delivers a rounded look at key drivers in global markets: strong but possibly peaking U.S. earnings, the pivotal role of tech capex, central bank FX maneuvers with global ripple effects, the macro risks of war in Russia, and the shifting sands of U.S. economic data and Fed policy.

Transcript

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[Paul Sweeney]

Cam Dawson does this word doc for me. It's just for me.

[Sergey Guriev]

Okay?

[Paul Sweeney]

And the font size is like six. It's like six point. It's like.

[Tom Keene]

No, we need it bigger.

[Paul Sweeney]

14 years old in middle school. When you can read the board from the back of the room, I can't read this note. Save me, Paul Sweeney.

[Tom Keene]

Cam Dawson joins us here. Cio, New Edge wealth here. Cam, what's the feel for earnings so far this year? We've had more than maybe two thirds of the S&P 500 reported. Seems pretty solid. Is it solid enough?

[Cam Dawson]

Of course it's solid enough. We're tracking at 47.4% earnings.

[Tom Keene]

Is that real?

[Cam Dawson]

So it's not real. Okay, so about 20 percentage points of that is coming from the paper gains from Amazon and Google. And that sets up for a very interesting dynamic as we get into 27, because it's unlikely those will, will, will repeat. But you still have the rest of the market growing at 28.8% earnings growth, which is absolutely incredible. Incredible given the fact that it's not as if we're coming out of an earnings recession. The last couple of years were strong, too.

[Tom Keene]

Yeah. So, I mean, is this revenue driven? Is it margin driven? What's going on?

[Paul Sweeney]

Stop, stop, stop, stop. CFA Sweeney just nailed it, folks. Where on the income statement is this happening?

[Cam Dawson]

So that's a. It's a really important point because, yes, there is a big revenue component, and that should not be a surprise because nominal gdp.

[Paul Sweeney]

Exactly. No, you're. You know where I'm going. Continue.

[Cam Dawson]

Well, it was 8%. Remember, revenue is nominal. So they benefit from this world where prices are still going up. And the other dynamic that's happening is that yes, margins are expanding. They're up about 300 basis points on a net income margin overall for the S&P 500. Now, a good portion of that, about half of that is those paper gains again from Google and Amazon. And the other, the rest of that is actually coming from semiconductors and not because of some kind of productivity boom. But we argue it's operating leverage. It's effectively you're growing revenues so much in a fixed cost business that margins are exploding for semiconductors.

[Paul Sweeney]

I just said to Robert Dahl, Let me say the same thing to you is, well, if we assume it's someday our China like nominal GDP ends, what's the analog here of what the stock market does is nominal comes down.

[Cam Dawson]

Yeah.

[Paul Sweeney]

Do we have a history?

[Cam Dawson]

Well, we do because we had a period of very strong nominal GDP growth in a year like 2021, and it certainly decelerated a bit in 20. And so we saw some dynamic of that reflect within the overall market performance. But it raises the question of is this as good as it gets? Second quarter earnings are so extraordinary. Is that going to be the peak for this cycle? And then the question is, does the market care? The market cares when you have a second derivative slowdown. So 47 turns into 30, turns into 20 and then eventually you go to negative. So that would be the concern is that if people see this as the peak and we descend from there, that could be a source of volatility for markets.

[Tom Keene]

We're going to get Space X after the close and it's kind of been certainly a seminal event for the equity markets. The largest IPO of all time, monster valuation trades up, now it's trading down. Should the market pay attention to SpaceX and its earnings after the close today?

[Cam Dawson]

Oh, I think we have to, just because it is the sign of a potentially all clear. If you have a good reaction to the earnings for some of these other big IPOs to come out, I mean, Space X has been a story about the perils of high valuation, right? So when they, when they IPO'd at 85 times current price to sales, 60 times forward price to sales, even if those sales deliver, you are going to see you have to grow into that multiple. And that's effectively what has happened. You see that price to sales ratio now fall to about 24,5 times price to sales. So effectively you've reset the valuation. The question is, is it enough? 25 times would still be the third most expensive name in the S&P500 if SpaceX was in the S&P500 which is not because it doesn't generate any profit.

[Tom Keene]

That's right. All right, allocation here. How are you thinking about equities versus fixed income here?

[Cam Dawson]

Well if you are concerned about growth or at all want to hedge your portfolio against a potential slowdown in growth which I will note there is no sign of a slowdown in growth happening in any of the data. Look at Atlanta fed GDP now over 6% for the third quarter.

[Paul Sweeney]

This is nuts.

[Cam Dawson]

But if you were to want to hedge yourself against growth then that would certainly be in bonds. A way to do it given how high yields are, that you are getting well compensated and the expectations you would see a rally in bonds if you were to see a slowdown.

[Paul Sweeney]

The difference here folks is if there's a 42 page report unlike the duration of AI CapEx. I'll read the first two pages and look for a chart to look at. Back deep Cam Dawson sits on the airplane and reads every single word of the report. How long does this keep going? I'm sorry Cam here in August of this year this is the arch question is if we assume this can't continue can we adjust in this market adjust in a measured manner before some correction or legitimate SPX bear market.

[Cam Dawson]

We truly are in an environment where it is ATLAS holding up the world and ATLAS in this scenario is the hyperscalers willingness to burn all of their free cash flow on this CapEx. We would not be seeing the nominal GDP growth that we are seeing. We would not be seeing the earnings growth we were seeing were it not for these companies willingness to spend all of their cash and all of their free cash flow generation be able to to spend on this capex. If there is anything that causes them to pull back on that and we are seeing no evidence of that that they're, that they're wanting to pull back on capex. That would certainly be a big market negative. I would flag you look at Microsoft people celebrating their capex discipline because capex slightly declined for 2026. It was just an accounting adjustment. They played some accounting games. They reclassified some of their their cash flows from operating into financing cash flows and this CAPEX fell. It wasn't actually so this is still an environment where companies willingness to spend is certainly what is driving and boosting both that GDP and earnings.

[Tom Keene]

I like in your notes you say this is a market that's wobbled but hasn't really fallen down yet. Even if you got semiconductors correcting. Even if you've got just some concerns out there in the Marketplace about the Mag 7, it doesn't fall down. I guess it all just comes back to earnings, right?

[Cam Dawson]

Yeah, we did that for the 70s babies.

[Tom Keene]

Remember the commercials Wobble, but they don't fall down.

[Cam Dawson]

Yeah, Weebles wobble, but they don't fall down. And we're saying it's not a bull or a bear market. It was a Weeble market. And so effectively we had this wobble in markets. But because it was so rotational under the surface, weakness within Mag7 was offset by strength in semiconductors and then weakness within semiconductors was offset by strength in Mag 7. Then you had continued strength in things like financials, for example. And so it's left us with a market that has been able to be so resilient despite the fact that large weights had really weak periods. Think about the Mag 7. A lot of these names were in bear markets just a couple of weeks. And so certainly the rotational nature of things has allowed us to have a much more resilient top line.

[Paul Sweeney]

Perfect. What a perfect sigewi. The rotational nature, yes. Kim Dawson, thank you so much for New Edge. Well, stay with us. More from Bloomberg Surveillance coming up after this

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[Paul Sweeney]

This is a treat. We're trying to parachute and Damien Sasser in a moment on a tag team here. Stephen Englander of the Standard Chartered bank and we hope Mr. Sasser with us. We're trying to find him within the building.

[Tom Keene]

Yeah, he's around. We'll track.

[Paul Sweeney]

Stephen, honored to have you here. You are definitive with your work at CITIGROUP over the years and now at the Standard Charter bank, you and I, we got it, folks. Lift the dialogue here on this. Why should the average American care that there's a third or fourth Japanese intervention? And now the Secretary treasury has to come to the rescue. What's the so what for Americans?

[Stephen Englander]

I think the problem for the US is twofold. The major problem is that increasingly when we see the Japanese yen acutely weak, it's associated with higher Japanese yields. The market is afraid that the fiscal situation in Japan is deteriorating. So the weak yen and higher Japanese yields occur together. But some of those higher Japanese yields spill over into US yields. Now, the Treasury Secretary, his only job description is keeping borrowing costs down. And so when he sees this kind of risk, especially in a week like this when they're talking about bond issuance and sort of giving the outlook for the future, he wants to be careful that he doesn't get blindsided by what's happening in Japan.

[Paul Sweeney]

To me, there's silence here. Jesper Cole is one of the great Japanese watchers. For years, Jasper Cole says there perhaps is tensions within the secondary bank system of Japan. Are there unknown unknowns we don't know about within the banking system with Japan, which makes the Secretary of Treasury want to parachute in?

[Stephen Englander]

You know, that's very hard to say, especially from this distance, unless you're watching it very closely, you know, and certainly the Japanese would be better placed to deal with their banking issues than the U.S. treasury. I mean, U.S. is a big country, but it can't solve everybody's problems.

[Paul Sweeney]

Okay, I want to get this in. Paul's lined up with eight questions smarter than mine, as simple as I can. You and I read Rudiger Dornbush, we read Rogoff, we read Opsfeld. You lived it as a PhD at Yale. Is there any likelihood this can work for Japan? I don't see an analog to the past.

[Stephen Englander]

You know, I think this is a bridge, you know, and they're hoping that something down the road happens that makes organically helps contribute to yen strength. So it could be, say there's a deal in the mid Mideast so oil prices come down. It could be that the bank of Japan sort of raises rates so that the pressures are are off. It's not a solution on its own. And we wrote a piece today and one of the issues with Japan is that retail is exporting capital. The man on the street. And they're not going to care that the US has intervened. The reasons for taking money out of Japan are very different than the reasons say a speculator would go short $yen.

[Tom Keene]

How significant is it that the US did join the bank of Japan in supporting the yen here? It doesn't happen very often.

[Jason Kelly]

No.

[Stephen Englander]

And it's the first time it's happened. It's the first time it happened in this form with the US sort of telegraphing what it was going to do in terms of intervention. You know, even intervening Friday afternoon when most people are heading to the beach is like, really?

[Paul Sweeney]

Come on. I loved it. You wrote all Friday night and Saturday, right?

[Stephen Englander]

Actually, not to be clear on that, it did write on Sunday. So I think there's a lot that's unusual here. And they intervened in 2011 after the earthquake. That was a special circumstance. You have to go back to 2001 and the intervention on the euro to find us coming in to directionally push another currency.

[Tom Keene]

Do interventions work in the intermediate to long term? This one seems to be beholding, but I don't know. Tell us about that.

[Stephen Englander]

Well, I mean, I work on the trading floor and my intermediate and long term is longer than 72 hours. The answer is that if nothing changes, it's really hard to keep spending the money that it takes. So far they've been dogged. Every intervention has tried to get yen stronger so that anyone who went short yen after the previous intervention gets washed out. But there's a limit to how long you can do that. And if organically people want to take money out of Japan at some point, it goes the other way.

[Paul Sweeney]

Robin Brooks just published this moments ago at Brookings. For years with Goldman Sachs, he's been really definitive within this debate. Folks, this is really complex. Inside Baseball. He publishes on higher yields, stronger yen. He assumes a normal place for the Japanese bond market. Now, is price down, yield up dramatically? Is that the end outcome here? Whatever they want to do, is it. There's going to be higher yields in Japan because they screwed this up so bad.

[Stephen Englander]

They are facing pressures, you know, they tried very hard over the last 10 years to stimulate the economy. You had, you know, the three arrows type of program, which had mixed success.

[Paul Sweeney]

Right.

[Stephen Englander]

If you can't get the growth on your own, right. And you're trying to use fiscal policy to do it, there's a limit to what you can do. And if the fiscal policy isn't completely successful, right. People look at the other side of your balance sheet and say, you know, maybe not so good.

[Paul Sweeney]

Worldwide Bloomberg surveillance with us across America. Stephen Englander with us, the Standard Charter bank. Good morning, 99 FM Boston 991 in New York and Bloomberg 113 oh, excuse me. In New York at 991 in Washington, what a joy. As we brief on a morning at 8:09am, Damien Sasser of Bloomberg Intelligence on EM with Stephen Engler. Damien, a question this morning for Dr. Englander.

[Damien Sasser]

So, Dr. Englander, do you remember when we were on that panel with the Chinese at the Harvard Club a few years back and we were, you know, because everything I'm seeing here with the yen flags, China yuan for me, flags other low yielders and the competition for funding currencies that's going on amidst the morass here. I mean, I think for me anyway it was kind of implicit that the dollar and Japanese yen were one currency block. Now that that's a little bit more explicit, what is yen strength? How does that weigh on other low yielding emerging market or developed market currencies out there?

[Stephen Englander]

Well, I think that that's secondary hope from the treasury that apart from sort of helping keep US yields down, that if the yen strengthens it will spill over into other Asian currencies. You know, if you're a Korea or Taiwan or Thailand, it's hard for your currency to go up when the yen is going down.

[Damien Sasser]

That's right.

[Stephen Englander]

And you know, they're hoping that this will sort of lever everybody else down.

[Damien Sasser]

Yeah. But the yuan is, is at an all time, not an all time high, it's at a cycle high here. So it's kind of that outlier. But then again, Chinese yields are lower than that of Japan right now. So, you know, how do you think the pboc, how will Beijing react to this sort of explicit sort of backing of, of the Japanese yen by the White House?

[Paul Sweeney]

We can't even tie your SHO places. Do you see how he does that? So on jpy, cny, what do you do?

[Stephen Englander]

You know, I think that they're very different structural situations like the one is strong. They have this enormous trade surplus, very insensitive to the strength of CNY governments

[Damien Sasser]

that are very willing to act and intervene. Both of them are similar in that respect, Stephen.

[Stephen Englander]

And sort of, you know, you can think of the government of Japan and many other finance ministers as having this illusion that all you got to do is get your currency weaker and you're going to have an export boom and it hasn't happened.

[Tom Keene]

Right.

[Stephen Englander]

And so I think that what you're seeing are different, very different from a

[Damien Sasser]

risk management and an investor standpoint. It's very difficult to bet one way or the other in those two currencies, even though they're low Yielders and you know, everybody wants to fund in them because of that threat that officials will intervene and prop up or bring down the currency level. Right.

[Stephen Englander]

You know, I think the Chinese have a lot more credibility because they're interesting payments is so strong.

[Paul Sweeney]

Stephen England, what you're getting there folks, for those of you immortals out there that didn't nail differential equations, you're getting a window there into how the adults talk about this. We're trying to do that on surveillance. Nothing cursory. This is a huge deal on the other side of the world. Stephen Englander, the Chance Standard Charter bank and Damien Sasser of Bloomberg Intelligence with Paul Sweeney.

[Tom Keene]

So Steve, I mean boy, before this intervention we were 164. We were all on a 165 watch. Why don't we head back there? I mean it kind of goes back to my first question. I mean it seems like this intervention is short term at best.

[Stephen Englander]

That's true. But if you've ever had the experience of losing money short term, it's not a very pleasant one. So you know, like, you know, people who, you know, professional traders, people who do this, you know, directionally, they're going to be wary.

[Paul Sweeney]

Right.

[Stephen Englander]

The one thing you do see is that the, you know, in the options market, the premium for buying negative skew way up.

[Damien Sasser]

Yep. Whereas they're going to hammer that skew

[Stephen Englander]

that's gotten way down.

[Paul Sweeney]

Right.

[Stephen Englander]

So it could be that people will start selling yen upside or then buying dollar yen upside.

[Tom Keene]

Typically the US I mean how committed are they to Japan and their efforts to try to strengthen their. I mean what do we know about the US role here?

[Stephen Englander]

You know, you have to take that with a grain of Salt. When the U.S. a year ago was talking about slapping 19, 29, 59%, you know, that didn't seem like a very friendly U.S. view of Japan. You know, I think that the, you know, they do have interests that we

[Damien Sasser]

were discussing foreign participation in U.S. treasury auctions. For me, that's what this comes down to. And I don't know Stephen, if you have an opinion on that. But for me, the reason the White House I think became so explicit here is because they're looking at they're going to have to place a lot of paper in the next few, if I'm not mistaken. Right. We got some auctions coming up and you know, the foreign bid for a lot of our paper has, it's been lacking.

[Paul Sweeney]

That's critical. And with Standard Charter Bank Third World, to Damien's point, do you see the mom and Pop Japan or even industrial Japan pulling away from full JGB where they are.

[Stephen Englander]

Yeah, I don't think that they're going to pull away from the States. I mean, especially, you know, we expect yields to continue to go up and it's going to be attractive to the rest of the.

[Paul Sweeney]

Okay, well, let's discuss that because it's nonlinear. Damien, help us out here as well. I'm going to say is a General statement where 2.70% Japanese yield worst in umpteen decades going back to, you know, whatever, the Ming Dynasty. I can't remember where nonlinearly does that relationship break. Price down, Japan yield up. It's a smooth curve until it isn't. How close are we to some form of jump condition in Japanese yields?

[Stephen Englander]

I'm the most critical of Japan, but I don't think we're that close. I mean, they, you know, their, their debt is very long term. They've been very careful in how they've placed it. I think that there may be gradual pressure. I don't think that there's going to be acute immediate pressure.

[Damien Sasser]

Yeah, I mean, I think the tick data shows a little bit of stealth repatriation. Again, it's backward looking. Right. I mean, we're a few months in arrears when we start talking about tic data. But it does show that rising Japanese yields are resulting in reduced foreign participation in treasury auctions. It's just a fact. And if it continues, I think that's exactly what we're going to see. People kind of drawing the US Dollar and the Japanese yen that much closer together. It is, it's one currency block.

[Tom Keene]

So Damian, what is it, the fact that we've got the US stepping in with Japan? What does it mean for your world here as some of these emerging marketing currencies?

[Damien Sasser]

I mean, truthfully, I'm a fan of Ed Yardeni and Mike Howell and a lot of people who for years and years and years, Paul, have been saying that. Exactly what I said. They're two sides of the same coin. The yen and the dollar are inexorably intertwined. They're linked in so many different ways, be it the assets that they hold in dollars, that we hold, that are in yen, the auctions, everything I'm talking about. So, yeah, to look at as one system. And I think the US government is right to, you know, lend support to what the Japanese officials and authorities are trying to do here.

[Paul Sweeney]

Stephen Englander, what does it mean for Toyota and all the Toyota symbolizes of industrial Japan, the stereotype coming out of World War II.

[Stephen Englander]

Well, you know, I think there are numbers, different stories here. The US has been pressuring every country to build more in the States, whatever the, you know, the name is. And I think we're going to continue to see that that's trade policy. They're using all these tariffs to try and push that forward. So far this is a lot of announcements, not huge, visible success.

[Paul Sweeney]

So I want to, I want to go back to Paul. The smartest question that I've heard so far. And it's basically yen comes down. I got the chart out here. 164. 164 yen per dollar, folks. The yen strengthens off 1, 2, 3, whatever, moments down to a 156. I think that's eight big figures. And now we come, we came halfway back, but now we're at 157. So 164 to stronger yen. 157. Do you predict, as Damian said, that that will be tested?

[Stephen Englander]

I think that if it's going to be tested, it's going to be tested gradually. I think that the authorities are going to be very careful. We're likely to see more interventions and they'll be. What they really don't want to do is see the yen back up to 160 very quickly after everything that they've done. So I think that what they're going to try and do is flush out everyone who's been trying to shorten.

[Damien Sasser]

That's exactly right. This is basically a perpetuation of the carry trade, which has just been a money machine, a cash register for a lot of investors and speculators for the better part of the last three to four years. And so that is just embedded leverage that banks and invest taking advantage of in the system. And this is a direct kind of, you know, striking a, you know, over their bow. Basically. They're trying, they're trying to go after those guys who say, oh no, I can, I can fund again and I can invest in dollars and Bob's your uncle.

[Stephen Englander]

They can't do it forever though.

[Damien Sasser]

Exactly.

[Stephen Englander]

And the US has not spent a

[Damien Sasser]

lot of money on this intervention and

[Stephen Englander]

doesn't want to spend a lot of money on this.

[Paul Sweeney]

Okay.

[Stephen Englander]

So I think if, if they do a couple more rounds and the money keeps going out, they're going to have a hard time continuing to do it.

[Paul Sweeney]

Stephen Engler, thank you for the last word there. He's with the Standard Charter Bank. A special moment, joined by Damien Sass, our of Bloomberg Intelligence. That's why Paul and I like to roll with Pro Conversation. Stay with us. More from Bloomberg Surveillance coming up after this.

[Jennifer Zabba]

A new chapter in global growth is being written and much of it is happening in Africa.

[Damien Sasser]

Africans need to invest.

[Tom Keene]

There are deals to be done and business to be won.

[Jennifer Zabba]

I'm Jennifer Zabba sa. Every week on the Next Africa podcast, we track capital flows and political shifts shaping the continent's future.

[Stephen Englander]

The digitalization of Africa is going to power its growth.

[Jennifer Zabba]

Ridding the world of something like HIV is possible.

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Population growth is so enormous in Africa.

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Listen to Next Africa on Apple, Spotify or wherever you get your podcasts.

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[Paul Sweeney]

The heritage of what we do, particularly on Russia, is centered around years ago, Jeffrey Sachs of Columbia, Marshall Goldman in Boston and Angela Stent in Washington. Many other good voices. No one is a more acute on his Russia than Sergey Guriev, dean of the London Business School where he is really jump started the enthusiasm and authority of that institution. We're honored that Sergey could join us this morning. I've been really remiss on this, Professor Gurivin. It's the basic idea what shape is Putin in? I get different cross currents in the Zeitgeist. How fragile is the leadership of Vladimir Putin right now?

[Sergey Guriev]

Thank you very much Tom and Paul for inviting me to the program. It's great honor and pleasure to be here. We don't know what shape Putin is in. His leadership is stable until it is fragile and falls apart. These regimes are very brittle now we know that there are a lot of unhappy people around him. Some of them are voicing their concerns. Russian public responding to various polls is calling for the end of hostilities. Putin in public says things are fine, I'm winning, let's continue. He recently said I don't even know what we should do once this war is over, suggesting that he has no agenda besides this war. So in public he seems to project confidence and we don't really know how well informed he is because of the situation on the battlefield and for that matter within Russia. When Ukrainian drones are attacking refineries and retail e commerce warehouses, situation is not great for Putin. But to the extent that he's not having independent news media, he doesn't listen to Bloomberg. So maybe he's not fully informed.

[Tom Keene]

Sergei we I think early in the war it appeared it seemed like the war was not really being felt too acutely by the average Russian on The street that seems to be changing as the war drags along. Casualty lists grow, it's, you know, drafts become more and more deeper. And then now we start to see real military incursions into the motherland of Russia. What does it feel like for the person on the street as it relates to this war these days?

[Sergey Guriev]

I think 2026 has made a whole lot of difference. Previously, as you rightly said, there were casualties probably we are talking about killed and wounded in the range of 1.3, 1.4, 1.5 million people, which is a huge number. Right. But what Putin did before, he would recruit those soldiers from the poorest parts of Russia trying to project normalcy of life in big cities, including Moscow and St. Petersburg, most importantly. But that is changing right now. He's still trying to protect Moscow from the war. But we've all seen those footages from big cities where you have a lot of smoke in Moscow, but also in other big cities. And now also Ukrainians attacking the e commerce and refineries have delivered this message to every single Russian. And amount of gasoline produce is now down by a third, which of course results in shorter and higher gasoline prices.

[Paul Sweeney]

Suji, I would think within the zeitgeist of America, we don't understand that. Different sources. CSIS, a steam think tank. 325,000 Russian military deaths. Ukrainian government estimates are 1.45 million, maybe 700,000 Russian soldiers. Russia, well, there's barely any releases. Do we understand the de peopling of Russia by this war?

[Sergey Guriev]

Yes, it's a huge, it's a huge impact. In addition to this 1.4, 1.5 killed and wounded, you have about a million Russians who've left. And these are probably the best killed, the most competent and Russians the most motivated and entrepreneurial Russians. So Russia has been hit very, very difficult blow in terms of its future. So there is a huge demographic challenge. We also see how shortages of labor are impacting civilian sectors. So no, it's not, it's not great to, to be in charge of Russian economy these days, if that is your question. And Putin is destroying Russia's future as we speak, in addition, of course, to destroying Ukrainian cities.

[Tom Keene]

And it also seems like this war has really shown the value of drone warfare. And boy, nobody's done it better than Ukraine. And they seem to be just offsetting whatever sheer numbers Russia can throw at it and men of materiel by this drone warfare. That's gotta be a shock to the Russian military.

[Sergey Guriev]

It's a shock to every military, every military commander around the world now is watching this war because it is changing the whole calculus of how we think about wars right now. You write Russia before the war was three times as big, four times as big in terms of manpower. And now Ukrainians have also lost a lot of mental refugees refugee flows. But Ukraine indeed stabilized the front line through using the drone technology and also using drones to attack deep inside of Russia. So it's a huge change in overall calculus how wars are now being fought.

[Paul Sweeney]

Sergey, we're going to leave it there. We have to go to breaking news, but we're really honored to have you with us. We didn't have time to talk about the incredible up up of the London Business School over the last number of years under Mr. Guriev tenure, Dean of the London Business School, Sergey Guri of there and his Russia. Stay with us. More from Bloomberg Surveillance coming up after this.

[Jason Kelly]

Have you ever wondered how Jesse Cole took the Savannah Bananas from this?

[Sergey Guriev]

We had a $6 million failure last year.

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We're going to have bigger ones as

[Stephen Englander]

we go to this. We've got shareholders, investors that reach out to us regularly and the answer is always no.

[Tom Keene]

Or why Elle Duncan would say this about a Netflix sports broadcast.

[Cam Dawson]

Sometimes we're going to take really big swings and we're going to frickin whiff.

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Then the deal is the show for you.

[Jason Kelly]

It's a Bloomberg podcast hosted by me,

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Alex Rodriguez and me, Jason Kelly.

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We talk to the biggest names in the world of sports and business, including NBA hall of famer Tracy McGrady on one of his biggest blunders.

[Stephen Englander]

I think I've created something magical.

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Mm.

[Jason Kelly]

Well, I struck out and you'll even get some of my baseball hot takes. I've had owners tell me it doesn't matter. The game has to be fixed. It's broken. If we have to lock out the

[Tom Keene]

whole year, we will. New episodes air every Thursday.

[Jason Kelly]

Don't miss out. Foreign.

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[Paul Sweeney]

Stephanie Roth here to synthesize at right now exquisite it Wolf research and bringing a huge statistical foundation to our economics. When you look at this, the screen of data on an Excel spreadsheet and you base off the central limit theorem. Are we normal right now?

[Stephanie Roth]

Yeah, I think we are. At least, well, at least from a labor market perspective. That I think is very fair to say. The labor market seems to be largely normal.

[Paul Sweeney]

The dynamics are normal around Some form of distribution.

[Stephanie Roth]

I think that's totally fair. And that's why there's not that much emphasis on the labor market right now because it seems to be in very good balance. And you know, of course we'll learn more on Friday. Our expectation is it will be a report that's not so interesting, where payrolls are solid, the unemployment rate ticks back up to where it's kind of been trending for a while. Next week's CPI report, however, speaks to the part of the economy that's a little bit less normal.

[Tom Keene]

Okay, so going to that inflation part of the economy, again, Tom's pointing out, we've got oil plunging here today down almost 5%, but that could go up 5 or 10% tomorrow depending upon social media posts. What is underlying inflation? Your perspective?

[Stephanie Roth]

Yeah, so I think the trend, the actual underlying trend in inflation is a little north of two and a half percent. Now there's been other things that have held up inflation to make it abnormally high. Tariffs have been one thing. We estimate that's been boosting inflation by about 60 to 70 basis points. That is going to roll off the data as you move through time and companies don't again raise prices from tariffs. The one piece of the inflation puzzle that is elevated, that we do have to keep a very close eye on is the impact from AI. Okay, so that's about adding about 30 basis points.

[Tom Keene]

How does that flow through the economy?

[Stephanie Roth]

So the way it hits the inflation data in particular is through computer software and accessories. This is the component that has held up, especially on core pce. So the two main measures of inflation on core pce, it's held it up more because it's a much bigger weight and cpi, it's a much smaller weight. And that's why those two have have had sort of a different readings in the last.

[Paul Sweeney]

Stephanie, we're off to this. Let me do a data check, folks. The markets are moving. Futures up 32. Dow futures up 700. Nasdaq up 1.2%. I don't have a good Vix reading yet. And we're watching a Brent crude $80.40 heading towards a lower $79 handle. Paul Sweeney with Stephanie Roth.

[Tom Keene]

So the average consumer out there has a job, 3 or 4% wage increase nominal, but inflation's up there too. So you put all that together. How is the consumer out there, do you think?

[Stephanie Roth]

The consumer is doing actually pretty well. And so right. If you look at income growth relative to inflation, the dynamic isn't that great today. It's okay but as you move through time, the picture's gonna get a little bit better because inflation's likely to slow down especially on a year over year basis. And by the way, you're starting to see the labor market get a little bit better. So at the same time inflation's coming down, wages are ticking back up at least modestly. So that supports a consumer that could still do okay. Now why has it done so well so far this year? It's not purely just what's going on in the labor market. You've had one big beautiful bill, has been pretty impactful and to be fair you've had some pretty strong equity gains and equity net worth is not nothing.

[Paul Sweeney]

How do you respond? John Riding and Breen wrote a brilliant essay. As is done for years, it is bear Stearns time. Ages ago he took the equation y equals c plus I plus g less exports and said look, the c plus I is 8ish percent. No one's ever seen this before. I mean this boom in consumption and investment, the combo AI caterpillar thing. Do you see us unraveling that smoothly without jump conditions? That could be painful.

[Stephanie Roth]

Yeah, I mean I think we're in an environment where consumption is trending a little bit, a little above 2%. I think it'd be better if we just kind of stabilize around 2%. The investment side of the backdrop is abnormally high driven by AI.

[Paul Sweeney]

But we see it's nuts is what.

[Stephanie Roth]

Okay fine, you could use your terminology but I think what we'll end up seeing is capex growth in the AI space will eventually slow down. Probably not so much in the next 12 months but in the next two years or so which is kind of what we need because it's an environment where you don't really want to see 40% continuous growth in AI related capex. That's not sustainable and you will end up with malinvestment.

[Paul Sweeney]

Stephanie Roth with us. Let me rip up the script here as we are one to do and it's just as simple as this. Oil comes down, gallon of gas comes down. I mean just is it old school to say that's good for America or we move beyond gas and oil affecting us?

[Stephanie Roth]

No, I think it matters especially for the low end consumer because this has been the part of the consumer that has been left out of the last couple of years. And this is the where we started to see, especially in the last couple of months when you really saw a big rise in gasoline prices, you started to see delinquencies pick up a little bit more Credit card usage start to pick up as well. So this, this would add a little bit of relief to this low end consumer which has been struggling for many years now. So a combination of lower gasoline prices plus a pickup in wages, especially for sort of blue collar lower end workers, could, could mean an environment where this, this, this pocket of the consumer does a bit better. So yeah, I think it, I think it matters. It's not, we're not in an environment where it's entirely irrelevant.

[Tom Keene]

What do you make of this Fed sitting here? Because we're gonna have another meeting coming up soon and you feel like this Fed has to move at the next meeting.

[Stephanie Roth]

I think it's gonna entirely depend on the next two inflation.

[Tom Keene]

Okay.

[Stephanie Roth]

If data dependent, data dependent core PCE is tracking below 0.25%, then the Fed can stay on hold and have good reason to do it and have the market supporting it and doing that. If it's running above 0.25%, I think there's very little chance that the Fed is not hiking in September.

[Paul Sweeney]

So the middle ground, not the drama of Chairman Warsh, but the middle ground which says simply, isn't it? Maybe his strategy was fine, but he didn't communicate it. What does he need to change in his communication if he has a strategy that you just outlined of quiescent inflation?

[Stephanie Roth]

Yeah, I mean, I mean, all he had to say at the meeting was, we're not hiking today because I think inflation is heading down in the next two prints. If not, then we'll hike in September.

[Paul Sweeney]

I think he said that in the first five minutes and then it fell apart, it unraveled.

[Stephanie Roth]

Well, when he was asked, why didn't you hike today, you know, you and the other eight members, why did you favor a hike? He didn't really answer the question. Yeah, that was one of the most sort of troubling moments of conference here.

[Paul Sweeney]

Colby Smith. I don't remember.

[Tom Keene]

It was right there.

[Paul Sweeney]

It was right there.

[Stephen Englander]

Yep.

[Stephanie Roth]

Yeah, I mean, that was a good question to be asking and he didn't have an answer. And all he had to say was something to the tune of, you know, we think inflation's heading lower and if not, we'll act.

[Creative Planning Announcer]

He didn't.

[Stephanie Roth]

He continued to sort of outsource the tightening to the markets and that's what markets clearly didn't like. Every time he said, made a comment like that, you just saw the 30 year yield continue to rise.

[Paul Sweeney]

Could you see Kevin Warsh statistics class with Stephanie?

[Stephen Englander]

Absolutely.

[Paul Sweeney]

She'll chew them up and spit them out. Stephanie, thank you thank you. Thank you so much for all you do for us. Stephanie Roth, chief economist at Wolff Research Just a really interesting, seriously, an interesting synthesis about the dynamics of where we are.

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