Instant Reaction: Employers Unexpectedly Shed Jobs; Unemployment Rate Falls

Summary

Podcast Summary: Bloomberg Talks – "Instant Reaction: Employers Unexpectedly Shed Jobs; Unemployment Rate Falls"

Date: August 7, 2026
Host: Bloomberg (Tom Keene, Alexis Leondis, Damien Sass)
Featured Guests:

• Claudia Sahm (New Century Advisors, economist)
• Constance Hunter (Chief Economist, EIU)
• Christina Katmanian (Invesco)
• Andrew Holland Horst (Citigroup)
• Stephanie Roth (Wolf Research)

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Episode Overview

This episode delivers immediate analysis of the July U.S. jobs report, where the labor market surprised economists by shedding jobs instead of adding them. Hosts and a panel of top economists dissect the implications for markets, the Federal Reserve's policy outlook, and broader economic trends. Discussion centers on what the disappointing employment figures mean for interest rates, wage growth, inflation, and political realities.

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Key Discussion Points & Insights

1. Breaking Down the July Jobs Report

(02:13 – 04:18)

• Report Highlights:
  • U.S. economy lost 23,000 jobs in July; consensus expected a gain of 80,000.
  • June was revised down to +20,000 jobs from +57,000.
  • Unemployment rate unexpectedly dipped to 4.1% from 4.2%.
  • Labor force participation dropped to 61.4%
  • Wage growth: up just 0.1% month-over-month; up 3.2% year-over-year (below expectations).
• Immediate Market Reaction:
  • Equities rallied as investors bet on a lower-rate environment.
  • Two-year Treasury yields fell sharply, highlighting rate cut speculation.

Notable Quote (Damien Sass, 02:13):

"Again a big surprise to the downside, the economy losing 23,000 jobs in the month of July. The expectation was for an addition of 80,000."

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2. Implications for the Labor Market and the Fed

(04:19 – 07:33)

• Downward Revisions & "Noisy" Data:
  • Seasonal adjustment issues, especially in education, contributed to weak print.
• Wage growth softness is critical for the Fed.
• Fed unlikely to hike in the face of such data; a cut is more plausible if softness persists.
• Panel sees a "signal" despite noise—potential inflection in labor market strength.

Notable Quote (Claudia Sahm, 04:52):

"There's probably a fair bit of noise and some seasonal issues that we'll look through. The unemployment rate did tick down... for the Fed that may be of most interest is wages coming in soft."

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3. Consumer Resilience and Inflation Dynamics

(06:33 – 07:33)

• Consumers are adapting: Using more debt, shopping more often, but buying less or cheaper alternatives.
• Soft wage growth may help contain inflation, giving Fed further reason for patience.
• Fed will watch upcoming inflation prints closely before acting.

Claudia Sahm (06:52):

“On the consumer side this, this is not good news... this is a soft, a soft reading... This really takes like the labor market isn't pushing up inflation and frankly if it softens might help hold down some of that inflation."

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4. Political Context and the "Two Americas"

(07:33 – 10:04, 17:18 – 17:51, 37:14 – 38:32)

• Sluggish job growth (20,000/month three-month average) is “unacceptable” for politicians.
• Labor market division persists: “haves and have-nots” economy.
• Those with secure jobs fare well; job seekers are struggling, and wage growth lags inflation.
• Data likely to fuel partisan debate; policymakers mostly limited to “jawboning” (pressuring) the Fed.

Notable Quote (Tom Keene, 07:33):

"Politically in America, in defense of the President, that's an unacceptable statistic for America to see a three month moving average of 20,000 jobs per month. It doesn't get it done."

Claudia Sahm (17:51):

"There's a lot of division in the labor market... For people trying to get in for the first time, this is tough and this wage growth is not keeping up with the price growth and that's a bigger problem."

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5. Fed Policy Outlook: Hold or Cut?

(10:15 – 13:09, 33:42 – 36:16)

• Markets betting against a September rate hike; panel believes a “hold” is now more likely.
• Fed's dual mandate re-enters discussion: inflation still above target, but jobs weakness cannot be ignored.
• Upcoming inflation data (CPI) remain critical for Fed’s next move.
• Fed must “wait for data” due to persistent uncertainties.

Constance Hunter (10:35):

"The market will begin to price September out of the equation. I think Claudia is right... you saw the unemployment rate fall for bad reasons, not good reasons, because participation fell."

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6. Structural Labor Market Issues & the Role of AI

(14:18 – 16:20)

• Longer-term concerns: Aging workforce, falling labor force participation, impacts of new technology (AI).
• Economists warn it's not just a cyclical downturn—foundational labor trends are shifting.

Claudia Sahm (14:18):

"I worry more right now about the structure underpinning the economy than maybe the cyclical, the boom bust, the reset. It's like things are moving under the hood of the labor market and I think that's the labor force growth, population aging, what's happening with AI."

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7. Global Perspective & Fiscal Policy

(15:05 – 17:18)

• Other central banks face similar demographic pressures.
• Fiscal space (ability to borrow/spend) under scrutiny worldwide, not just in the U.S.
• Market largely ignores rising U.S. debt/GDP and fiscal deficits... until it can’t.
• AI-driven corporate bond issuance likened to government-scale debt issuance.

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8. Marketplace Impact: Yields, Credit, and Currency

(21:03 – 25:56)

• Fixed income strategies shifting: Flattening curves, tight credit spreads, currency risk in focus.
• AI and “hyperscaler” bond issuance putting pressure on credit markets.
• A "multipolar world" increases FX volatility and makes emerging market (EM) carry potentially attractive.
• Disinflationary trends support lower yields, but event risk lingers (e.g., geopolitical shocks).
• Dollar weakness follows soft data; intervention in global currency markets is a response.

Christina Katmanian (21:12):

"If we go back to this new regime from the Fed... I think that introduces a lot more volatility and especially in the back end of the curve."

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9. Political and Policy Dilemmas: What Can Washington Do?

(27:49 – 29:43)

• Most solutions for deep-seated economic trends are long-term and bipartisan—difficult in a divided system.
• External shocks (AI, oil prices) are outside political control and hard to manage in the short term.

Andrew Holland Horst (29:43):

"These are just powerful external forces. Right. Where you have a new technology, you have really strong demand associated with it around AI, oil prices that are fluctuating... a lot of the shocks and the trends that affect the economy are things that aren't under the control of politicians."

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10. Divergences Between Market Expectations

(35:14 – 36:16)

• Bond market was more hawkish than equities before this print; after the report, bets shift to "hold."
• Fed has little reason to hike; if data force a move, it will come, but for now, caution prevails.
• Real yields and growth expectations at the heart of yield curve shifts.

Stephanie Roth (33:48):

"No, I think it's that this supports the Fed and staying on hold. How can they possibly be hiking into this in an environment where inflation is likely also heading."

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Notable Quotes & Timestamps

• "The economy losing 23,000 jobs in the month of July. The expectation was for an addition of 80,000." – Damien Sass (02:13)
• "This is exactly the opposite of overheating. We hadn't seen wage growth really picking up, but we really haven't seen it slowing down much." – Claudia Sahm (06:52)
• "That's an unacceptable statistic for America to see a three month moving average of 20,000 jobs per month. It doesn't get it done." – Tom Keene (07:33)
• “I worry more right now about the structure underpinning the economy than maybe the cyclical, the boom bust, the reset.” – Claudia Sahm (14:18)
• “The market will begin to price September out of the equation... you saw the unemployment rate fall for bad reasons, not good reasons, because participation fell.” – Constance Hunter (10:35)
• "You have this changing regime which should mean higher even government bonds. It's not the end of the issuance out of these issuers." – Christina Katmanian (22:24)
• "I don't think that it's an acceptable long term job growth number." – Andrew Holland Horst (27:07)
• "How can they possibly be hiking into this in an environment where inflation is likely also heading." – Stephanie Roth (33:48)

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Segment Timestamps of Importance

• 02:13 – 03:57: Initial breakdown of jobs data and immediate market reactions
• 04:18 – 07:33: Deep-dive on implications for Fed and labor market structure
• 10:15 – 13:09: Dissection of market pricing/outlook for Fed moves
• 14:18 – 16:20: Structural labor market challenges, global perspective
• 21:03 – 25:56: Fixed income market implications, credit, and currency discussion
• 27:07 – 29:43: Political realities and limits of policy response
• 33:42 – 36:49: Fed expectations, yield curve, and real yield analysis

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Tone and Style

The conversation is brisk, data-driven, and analytical, balancing technical detail with accessible explanations. Panelists are candid about uncertainty, often referencing both headline data and the nuances and “noise” behind the numbers. Humor and skepticism surface throughout, especially in Tom Keene’s exchanges.

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Summary for New Listeners

This podcast episode offers an in-depth, real-time analysis of a significant downside surprise in U.S. job creation—prompting debate about the health of the economy, the Federal Reserve’s likely response, and structural versus cyclical trends. Listeners will come away understanding why markets cheered "bad" economic news, how employment and inflation data interact for policymakers, and the pressing labor and demographic challenges that underlie short-term volatility. The episode brings together leading economists to parse what the latest numbers mean for everything from household wallets to global monetary policy.

Transcript

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[Bloomberg Audio Studios]

Bloomberg Audio Studios Podcasts Radio News

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this

[Alexis Leondis]

is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000

[Tom Keene]

journalists and analysts around the world and

[Damien Sass]

the July jobs report crossing the Bloomberg terminal right now and it shows that US economy actually lost 23,000 jobs in the month of July. This is a lot less than the 80,000 we were expecting to be added. We added 57,000 in the month of June. Moving to the unemployment rate, it dipped to 4.1% versus the prior month's 4.2%. The expectation was for 4.2%. Labor force participation rate coming in at 61.4%. The month before it was 61.5% and that's a bit lower than the expectation. Want to move over to the wage component Here which provides more clues on inflation. Average hourly earnings month over month up just a tenth of a percent. A scant tenth of a percent. Average hourly earnings year over year up 3.2%. The expectation was for three and a half percent. So again a big surprise to the downside, the economy losing 23,000 jobs in the month of July. The expectation was for an addition of 80,000. Want to take a quick look at how the market is reacting here? Looks like futures guys, at least for the moment hanging on to those earlier gains.

[Tom Keene]

Back over to you Alexis, thank you so much. The markets move as you can imagine. Equities lift here, thinking free money will be out there in a lower rate environment. The yield space is the most elastic and you see it in the two year yield in a solid nine basis points 4.16%. Basically halfway back to that coveted 3.99 30 year bond doesn't come in as much as you'd expect but nevertheless from a 522 into 5.19%. Damien, your thoughts on the set of numbers here? The revisions extraordinary.

[Alexis Leondis]

Yeah, yeah. No, I mean exactly. We have a revised down for last for the last print to 20,000 from 57. And this negative 23 print you would think would get some people's attention. But to Alexis's point it looks like equities are kind of looking through it for the minute. And I don't want to call this a nothing burger by any stretch. I mean, Claudia, I mean, you know, I wonder if it's going to move markets.

[Tom Keene]

Well, we'll have to see your Claudia Sommer letting her digest the data here a little bit. I do want to with the eco screen that we have at Bloomberg. The change in Nonfarm payrolls was minus 23 versus a survey of 80. Some people were there. But the two month payroll adjustment and negative 103, that's combined negative 126. I think we've given her enough time. Claudia joins us here to provide perspective. Claudia, this must change the debate at the Fed.

[Claudia Sahm]

So first, does this remind you of anything? I mean a year ago exactly this employment report was when we had the very large downward revision. The downside surprise, the downward revisions. And the BLS commissioner lost her job. Right. So now just looking quickly and I can't do all the details of this government education. Government education was a big decline and one of the things that happens in the summer it can be really tough with like the school calendars and if things slip a little bit with the seasonal adjustment you can get some Kind of squirrely numbers in terms of the education that certainly is at play for the downside. Ms. Today that was something that was very clear in last year's numbers as well. So I don't want to dismiss this. And of course that was a shift from we'd had a strong labor market to like whoa, maybe it's not so strong. So I do think there is signal here. There's probably a fair bit of noise and some seasonal issues that will look through. The unemployment rate did tick down right. I think the one thing that for the Fed that may be of most interest is wages coming in soft.

[Tom Keene]

I'm getting out my HP12C calculator because Constance Hunter, I wouldn't do this for Claudia, but Constance Hunter jumped in. Here's what you can we do this in the control room? Can we rip up the script and have Claudia and Constance together? Is that, did you check with their people?

[Alexis Leondis]

Yes, and they say it's okay.

[Tom Keene]

Getting wired up right now Again folks, futures up 32, they advance NASDAQ lifts double up 810 of a percent here and the yield again the two year yield is the most elastic in at a 4.16%. Damien, ask a smart question to Dr. Sam while I figure out the three month moving average on my HP12C.

[Alexis Leondis]

Well Dr. Sam, I mean average hourly earnings down 0.1% month over month. I mean, you know, you mentioned the beige book before the break, right? And you know, what did the beige book show us? That consumers are adjusting by taking on more debt, buying less but shopping more frequently, trading down to cheaper alternatives. Is this really wearing on them now? I mean what does this all mean for the consumer?

[Claudia Sahm]

So certainly on the consumer side this, this is not good news. I mean paychecks are such a key driver of consumer spend and not the only driver. But this is a soft, a soft reading. I think the one where, you know, the implications maybe come out the strongest for this is on the Fed side. You know the thing that would get the Fed moving towards rate hikes the the fastest were if there was any sign of overheating in the labor market. This is exactly the opposite of overheating. We hadn't seen wage growth really picking up, but we really haven't seen it slowing down much. And so this really takes like the labor market isn't pushing up inflation and frankly if it softens might help hold down some of that inflation.

[Tom Keene]

We are so advantaged. Claudia Sumner Sentry Advisors and joining us now, Constance Hunter, Chief Economist eiu. The two of them together, commercial Free across America this half hour on yield. Christina, Kat, many of Invesco will join us here in a bit. Constance Hunter, you're over there working on the terminal looking at the numbers. I got a 90 day average, a three months moving average subject to revision of 20,000 per month on jobs. You can give me all your academics. CLAUDIA Samek, I don't care politically in America, in defense of the President, that's an unacceptable statistic for America to see a three month moving average of 20,000 jobs per month. It doesn't get it done.

[Bloomberg Audio Studios]

Well, we don't think it gets it done. I'm going to take off my headphones.

[Alexis Leondis]

Please take, please take your time.

[Tom Keene]

Okay.

[Bloomberg Audio Studios]

I'm echoing in there.

[Tom Keene]

Oh, you're echoing.

[Bloomberg Audio Studios]

I mean, I'll put them back on to here. Claudia.

[Andrew Holland Horst]

Okay.

[Bloomberg Audio Studios]

But in any case, you know, last year when we had changes to immigration, when we were deporting a number of people, there was widespread spread speculation that actually the monthly requirement had fallen. This year, what we saw with, with jobs, with payroll numbers increasing monthly, but the unemployment really not coming down significantly is that, well, maybe it's higher this year. These, this 20,000 over the last three months and then that fall in the unemployment rate. That is not, that is not a good look for the president. You're right. And it bolsters his case to cut rates. He's going to keep beating that drum. I think this bolsters our call for a hold.

[Tom Keene]

Right?

[Bloomberg Audio Studios]

This is, this is definitely warrants a hold.

[Tom Keene]

Does, does this study that we're seeing right now, can government officials in the Fed get out front or are they colossally ex post where they just have to wait for the data before they go flat or cut rates?

[Claudia Sahm]

So I mean, policymakers never have a full picture of the economy when they make a decision. It just, it takes too long and there's always, we always want one more piece of data, one more piece of information. But when you have enough questions or you have enough tension that can, that certainly can be a reason to move a little more slow until you get a decisive signal. I mean, I don't, I don't think today's data are decisive and reshaping that. We've had a largely balanced labor market so far this year, but they raised some concerns and we'll, you know, get more on inflation. We'll see if the disinflation is sticking or not. So you get what you have and you have to make a decision.

[Tom Keene]

Yeah, she did, she did. She's such a pro. Today's data wasn't decisive. Is there ever an economist who's ever said that today's data decided. Damien Sass our with Constance Hunter and Claudia.

[Alexis Leondis]

Well, Constance, I mean I'm just looking at so for futures here. I mean I see whites up a tick to a tick and a half, reds are up two and a half, three ticks. I mean so you know, obviously what we're seeing here are yields down, price up. And is that the right, you know, is that the right reaction to this? And just how much do you think the market's going to rush to price September out of the equation? Is that what we're looking at here?

[Bloomberg Audio Studios]

I think the market will begin to price September out of the equation. I think Claudia is right. Tom, I was almost going to say to you, you never look at just one number and of course you don't, but you preface your question on the three month moving average, right? And I think that's, that's what we're talking about here. One piece of concern, right, is you saw the unemployment rate fall for bad reasons, not good reasons, because participation fell.

[Tom Keene]

People flunk exams. Who would that be, folks? Because of that, where the unemployment rates goes down for bad reasons? Discuss, Dr. Hunter.

[Bloomberg Audio Studios]

Well, certainly if you see that participation rate decline, it's only 1 10, but it's enough that we saw this low growth of jobs and we saw the unemployment rate fall. It suggests to you either there's low supply along with low demand, that is not a robust labor market situation. And you know, I was looking before I came on last night, I was, I got buried in data as I, as I sometimes do. And if you look at the Fed's financial conditions index, they are, it suggests, it suggests that we have tailwinds. Now those tailwinds are diminishing, but it suggests that monetary policy is loose here. And if we have loose monetary policy and a budget deficit of 6% and this is the best we can do, I think it begs asking some questions about the underlying economy.

[Alexis Leondis]

Yeah, I mean, look, Constance, and the equity market agrees with you. I mean it is rallying here. I mean they see exactly what you see. This is an excuse for them to price out rate hikes to basically get dovish and that is great for high risky assets. And so, you know, shifting to you, I mean, Claudia, just talk to us a little bit more about what's the, I mean, does this take some of the balance out of what next week's inflation print is going to look like? I mean, what are you looking for next? What's the next big figure that you're going to lean into data wise?

[Claudia Sahm]

Well, absolutely. The inflation data are front and center and you want to see we got a very soft inflation read for June. We don't expect that to show up again in July exactly that way. But you want to see some softness or at least getting back to something that's consistent with target.

[Bloomberg Audio Studios]

Right.

[Claudia Sahm]

And so there'll be a lot of attention to the cpi. The cpi, the import prices. I mean inflation is still front and center because inflation is still very far from the Fed's target. And you need if nothing else you want to see it moving in the right direction. Today seeing employment move in not the right direction. Maybe next week we'll get some better news on inflation but I don't think this takes any pressure off of the cpi. And before the Fed meets again, we're going to get one more payroll and we've got next week's CPI and another one. There's a lot of data to come

[Tom Keene]

across America a real treat together. Claudius with us today from New Century Advisors and constance hunter of EIU off the shock report. We're up to futures up 39 now. Nasdaq is up a solid stick 1% on the Nasdaq futures is even Bitcoin vaults up $700 constant demand that I quote you 157 on Brent crude right now in the most elastic yield, the 2 year 4.15% in a solid 9 basis points. I'm going to call that a ginormous move and even the 10 year in 7 basis points I want to go to your two wheelhouses. Claudia, let me begin with you with all of your deserved acclaim over recession we've had a popping nominal GDP. John writing over Breen notes consumption and investment 8ish percent like a banana republic. Do you just assume that if we have a tepid job economy and we don't cut rates fast enough that nominal, the animal spirit comes down to a more lower normal rate.

[Claudia Sahm]

So I am concerned if the labor market isn't firing on all cylinders and certainly if it weakens that would be an issue. And we've seen we got recent data again. I mean the labor share continues to drop like the share of the income in the economy going to workers. That does not feel like a good situation. And I think to Constance's point, I worry more right now about the structure underpinning the economy then maybe the cyclical, the boom bust, the reset. It's like things are moving under the hood of the labor market and I think that's the labor force growth, population aging, what's happening with AI. So there's some really big themes that I think we should pay attention to and maybe less to the boom, bust cycle.

[Stephanie Roth]

Right.

[Claudia Sahm]

Because I'm not sure that's the biggest thing happening right now.

[Tom Keene]

Since the EIU remit is a wonderful global remit. What does this jobs report signal to other central banks? I mean, it, it simply takes away the effervescence, doesn't it?

[Bloomberg Audio Studios]

You know, I would say other central banks are going to look much more closely at CPI data next week than they are the jobs data.

[Tom Keene]

Agree.

[Bloomberg Audio Studios]

But of course it does, to Claudia's point, right. It's what's going on under the hood here. And, and, and we have an aging labor market, we have an aging population, we're seeing people age out of the labor market. That is not a unique problem to the United States. Right. We see this around the world. This is a challenge for central banks, and one could argue that is the biggest challenge for Japan. And one of the reasons why we have the situation in Japan where they have a very high budget deficit or debt to GDP ratio. Right. And there's concern about that fiscal situation and it was getting expressed in the currency and we had the intervention that we had last week. So this theme of, you know what, how do you grow an economy with an aging population? Does AI help or hinder that? These are existential questions. I think that all economists, central bankers or not, are looking at when they're looking at economies right now.

[Alexis Leondis]

And yet there's a desire to keep financial conditions loose here in the US like you rightly point out. I mean, talk to us about what you learned from yesterday's refunding announcement. I mean, they just, in my mind, kick the can down the road again, right. I mean, like, so, you know, you're right to focus on fundamentals like debt to GDP here in the US but the market has not paid attention to that for so long. You know, at what time, you know, the things at least start to flash. Amber to you, Constance.

[Bloomberg Audio Studios]

So Warsh has his task forces, we have our task forces. So there's a few things we're looking at that we felt we had to really do a deep dive. And to your point, Tom, a cross country comparison right up there is what is fiscal space? What constitutes fiscal space? When does it get tricky? Obviously we see it's not uniform across countries. And so, so I think one of the things we have to think about here is, is what are, what is expected inflation and how does that feed into term Premia. And then what's that feedback loop to funding the government?

[Tom Keene]

Christina Katmanian does her people are quite upset, you know, I mean, she needs more airtime. Claudia Sahm, last question to you. With immense respect for your academics and it's just simply you're launching forward, I guess in the end of August, Jackson Hole, April and into September as well. It's still two Americas. The political reality. Kevin Hassett with bloomberg in the 10 o' clock hour, folks. Michael McKee and Danny Burger. I'm sorry, Claudia. And an economics on a jobs day. It's two distinct Americas, isn't it?

[Claudia Sahm]

There's a lot, there's a lot of division in the labor market. I mean the division I like to focus on is this low hire, low fire economy. Right. For workers have a job like their job, it's a good job. This is, this still is a pretty good labor market today' numbers notwithstanding, for people trying to get back in, trying to get in for the first time. This is tough and this wage growth is not keeping up with the price growth and that's a bigger, that's a bigger problem. So yeah, there's a lot of divisions here.

[Tom Keene]

I love the wage growth idea. This is, this is why we do this, why we do this.

[Andrew Holland Horst]

Good.

[Tom Keene]

This is Hunter, thank you so much. Thank you, Dr. Sam, thank you so much. New Century Advisor. Both of them very active on LinkedIn. Look for their publishing out here today. We have also. I love it when world class talent calls in and says, me, me, me, me, me.

[Alexis Leondis]

Comes together.

[Tom Keene]

Tentative. Stephanie Roth scheduled to be with us. And from Citigroup, Andrew Holland Horse, who nailed this call. We're trying to line them up right now. We have to go through a, I mean, I mean Holland Horse is like great. You just call a cell phone, he picks right up. Stephanie Roth. You've got to go through like six, six layers of compliance.

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[Tom Keene]

Joining us right now, Christina, thank you for being patient. Off the shock economics. How does this economics play into a two year full faith and credit market?

[Christina Katmanian]

Look, I mean the market is sitting here and we've been all trying to understand what is the new reaction function of the Fed Chair of the Fed committee under wars and he wants it to be data. I don't know if we know what he wants it to be quite yet. I think the jury is still out there and I think July was very different than June. So we'll see. But the market is grappling with all of these data prints and we've taken out certainly pricing for September. And you're pricing now what, just about one full hike only by December. So.

[Alexis Leondis]

So I mean I know you guys are short duration over there at Invesco, I know you like steepness. Talk to us about how does this change the, you know, your outlook at all over the near term?

[Christina Katmanian]

Look, I think there are a few things. Again, if we go back to this new regime from the Fed and talking about letting the market do the work, I think that introduces a lot more volatility and especially in the back end of the curve. So I think that still means that you are looking for higher yields, higher yields out the curve and steeper curves. We haven't broadly this year you've seen a lot of flattening of the curves. So I think that that still holds and the tremendous amount of AI and hyperscaler issuance weighs on that too. And I know you guys have been talking about that today and it's been a theme, but you have these companies that are issuing the size of government bond deals weighing on the market. So I think we are still warranting needing higher yields out the curve.

[Alexis Leondis]

So Christina, you know I'm an emerging market fixed income guy. I look at EM credit, I look at the basis to investment grade spreads and I look at it and I say, wow, 10 basis points, wow, that is as tight as I have ever, ever seen it. And I think you're absolutely right to hit on that. I think, think year to date, what 300 billion in hyperscaler call it AI issuance going forward. I mean it's not going to go away, right? I mean they just roll this over, add to it. I mean at what point do you see the crowding out effect that many, many strategists and analysts are calling for here?

[Christina Katmanian]

So we have been again, when we look at our portfolios, we manage global portfolios, we have the three levers of rates, credit and effects. Credit is where we've leaned on the lease just because of how tight spreads are. And I know that's kind of been unpopular opinion and corporates have continued to perform well and stay tight. But I think that's where there's the most kind of jump risk and concern. And I think it's been supported by this appetite for all in yields just given levels. But like you have to take a step back and say you have this changing regime which should mean higher even government bonds. You are, it's not the end of the issuance out of these issuers. So there's more to come. And we've been at some such compressed yield levels for so long. So talking about can a ten year be at five and a quarter? Sure. Is that in the potential?

[Alexis Leondis]

So you know, we talk about the different factors which drive total returns and fixed income. You've got duration, you've got spread, you've got coupon income, you have fx. Right. So talk to us about, you know, exactly what you do. If you, if you, if you don't like duration and you don't like spreads, does that mean you're shifting and you're kind of leaning into currency risk here?

[Christina Katmanian]

So currency risk has definitely been kind of top of mind I'd say of the last two years. It's certainly, I know something Tom and I have been talking about. It's like Asia is so mispriced. Asia and it's that kind of what has been most mispriced has been frustrating and obviously has gotten more play in the last week and a half with official yen intervention and the Korea move. But yeah, I think we are sitting in an environment where people even coming out of the July meeting say okay, from an affects perspective, we're in this multipolar world, there are different things driving it. So can we lean into em carry and at least until we get music to my kind of to the to the next Fed meeting we have this holding period we have a lot of data this is obviously a shift but like let's take a step back too and say when we came to the beginning of the year people were talking about is breaking in payrolls 0, 2550 so yes this is a big reset from where we were running the first three months of the year but maybe that thesis actually hasn't changed so it's not as robust but this is not

[Tom Keene]

this is just wonderful folks. Claudia somewhere there's some hundred a Christina Catman who looks at yield where their global reach and we've got scheduled Stephanie Roth and Andrew Hollandhorst we're working on right now it's Citigroup. I want you to take the yield show up here. Too many economists lined up we've got to get some real conversation And Christina Katmani as well. Do you have an underlying disinflation and real GDP growth vectors that are lower that will support a lower yield environment?

[Christina Katmanian]

Look I think that there are disinflationary trends that were in place at the beginning of the year. Again if you zoom back to where we were in January before Middle east situation kind of became front and center that was the thesis housing to come down like a lot of these things to come down again we're back in a world with a lot of uncertainty. We don't know what the situation in the Middle east is. We don't know where oil will end up. It has been choppy it has come down I think at crude sitting at 80 is something that the economy can sustain at 120. That's very different and I think what the Fed is trying to to weed through and all of us in the markets and all the economists are what is most concerning most likely for the Fed is the kind of COVID style rollover that you're seeing it into wages and into pricing power in the economy and that which we haven't seen yet but it's something that people are concerned about.

[Tom Keene]

It's nuts. It's not is what it is My scientific analysis Christina Kenmany thank you so much for the Invesco with great perspective there. Again that benchmark 2 year yield for 4.17% now in 8 basis points some perspective from Andrew Holland Horst who has to publish into Friday and more importantly get a research note ready for Monday morning. What paragraphs will you change most abruptly Andrew of a Monday research report?

[Andrew Holland Horst]

Yeah so I think the big thing I'm going to be emphasizing is that we are running Slower job growth on an underlying average basis. We have a lot of noise around that. Yeah. Looking at these numbers, that's kind of, kind of what we thought was happening. It's the second month, Tom, that we've gotten these huge downward revisions the last two months. So two months ago we were sitting at 188,000. Three month moving average job growth.

[Tom Keene]

Yes.

[Andrew Holland Horst]

That number this morning, just 20,000. So it's come down quite substantially.

[Tom Keene]

And given your study of that, the political realities of Kevin HASSETT in the 10 o' clock hour this morning, that number and a three month moving average is completely inappropriate for any politician in America.

[Andrew Holland Horst]

Yeah, I don't think that it's an acceptable long term job growth number. There is a question about, you know, is population growth just so slow now that you can reconcile that with keeping the unemployment rate relatively unchanged? Did come down this morning with the participation rate falling. But this is, this is where it gets tricky for the Fed.

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[Andrew Holland Horst]

We're used to hearing over the last few months a Federal Reserve that could almost operate as a single mandate Fed. And we just heard a lot about inflation and inflation being above target. That discussion of downside risk to the job market had really kind of left the conversation. So I'm interested to see now after this report, do we start to get a little bit more of that trickling back in?

[Alexis Leondis]

Andrew, I have just, I mean like this looks like a perfect report for the Trump administration. Right. I mean you had positive construction and manufacturing figures inside the data and you basically got, you know, the data kind of determined, do a bit of washing, heavy lifting for him. Right. And price out some of these hikes. I mean, talk to us a little bit about where the White House stands with this.

[Andrew Holland Horst]

It really, really takes the pressure off in terms of a September rate hike. It would now look a bit strange. I think it will look even strange after he had some cooler inflation data. Let's see how that plays out. We have a big report next week. But this, this jobs report in and of itself, I think there's a very reasonable case you could make now to wait and see because you are balancing these two mandates. And that is interesting. What, you know, what we're seeing in some of manufacturing construction and we had manufacturing ism that was up at a multi year high earlier this week. And you do see that it's this A.I. boom, right, which is really affecting the economy. And there are some sectors that are really benefiting from it. There are other sectors that aren't seeing much of the uplift from it. So so it's a shifting economy.

[Tom Keene]

Why is. Let me do this, folks. Let me tell you. Across America right now, we're so honored on short notice. Andrew Holland Horse with us of Citigroup leading all of their US Economic coverage. Stephanie Roth I believe is on deck here in a moment. We are commercial free to the top of the hour. We thank so many people, including interactive brokers, Cone Resnick and others that support us that we will continue forward here. Commercial free. We do it with futures doubled up 41. The Nasdaq continues to put on a bid here on futures up 1.2% this morning. Two years subsides down just a little bit. 4.17% in a solid 7 basis points. Andrew, if there's two Americas and there's a job summary that's inappropriate, what can the politicians do short term besides jawbone the chairman of the Fed?

[Andrew Holland Horst]

Yeah, I don't know if this is something that can be addressed in the short term politically. Right. We can talk longer term and I think actually most of the longer term solutions for the economy, the deficit, the debt, a lot of those are probably bipartisan and that's something that's hard to see a lot of in our current political system dynamic. But in terms of this, this data that's coming in now, these are just powerful external forces. Right. Where you have a new technology, you have really strong demand associated with it around AI oil prices that are fluctuating. Right. This is the reality is that a lot of the shocks and the trends that affect the economy are things that aren't under the control of politicians. It's very difficult for them, Andrew.

[Alexis Leondis]

I mean, the dollar is selling off on this news. But I mean, it's the. Yes. I mean, I think if you look at G10 here, it's Nokia and then the yen, they're both up, you know, six point, 6.7% here. You know, on the session, talk to us a little bit about the, the reaction here in the dollar. I mean, do we see, you know, scope for dollar weakness to continue here?

[Andrew Holland Horst]

Yeah. So I mean, we were talking about taking the pressure off the Fed to hike rates, also taking a little bit of pressure off of Japanese monetary policymakers and looking at that currency this morning. Yeah, it is, it is an interesting situation. Right. In terms of how are the monetary policymakers going to respond both in the US as well as globally. We obviously had that intervention in the currency last week. Everybody is still watching that. You know that you have, you have two things that are going on. Right. When you think about the strength of the $1 is what's the relative strength of the US economy? Quite strong. Right. Really benefiting from the tailwind. And then where relative interest rates in the US Economy? Well that is where we've had the ECB that hiked rates. You've had expectations that, you know, the BOJ could hike. And we have the boj, of course that is on some kind of a hiking cycle. So you know, those things together have kind of kept us more neutral on the dollar thinking, you know, stronger growth, stronger dollar. On the other hand, lower rates in the US that should be weaker dollar

[Tom Keene]

and you're a trooper. Veronica Clark never would have come on, you know, I'm with Citigroup. Thank you so much. Andrew Holland. Or look for his work as he publishes Friday and into Monday.

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

[Alexis Leondis]

We had a $6 million failure last year. We're gonna have bigger ones as we go to this. We've got shareholders, investors that reach out to us regularly and the answer is always no.

[Andrew Holland Horst]

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

[Christina Katmanian]

Sometimes we're going to take really big

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[Andrew Holland Horst]

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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.

[Tom Keene]

I think I've created some magical.

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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

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[Andrew Holland Horst]

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Don't miss out.

[Tom Keene]

Stephanie Roth joins us Wolf Research here as we are commercial free as well. What are you going to lead with on a Friday?

[Stephanie Roth]

No, I think it's that this supports the Fed and staying on hold. How can they possibly be hiking into this in an environment where inflation is likely also heading.

[Tom Keene]

What's the opportunity then for Chairman Wash to reset after that disastrous press conference? This a real window for him to reset.

[Stephanie Roth]

Yeah, it is. And I mean we saw to some extent that the FTSE article is maybe some hints that, that, you know, he'll reset to some extent. On the communication front, I think we'll have to see what happens next week with cpi. Our expectation is it will come in on the softer side which will then just continue to feed into this narrative which by the way, often happens in the summer because seasonals tend to move in that direction that the economy, the labor market is a little bit softer than it previously appeared.

[Alexis Leondis]

Well, Stephanie, the market clearly agrees with you. I mean, just a few minutes ago we were talking about whites and reds. Whites were only a ticket tick or two. Now September, the U26 sofa contract up five, five and a half ticks. So they are pricing really price starting to price it out right now. I mean the reds are up eight to nine ticks. I mean the front end of the curve is rallying and rallying hard. Does that make sense to you? I mean, should we be feeling this more on the front end? I mean, what do you think about, you know, the shape of the yield curve?

[Stephanie Roth]

Yeah, I think we should. I mean, the immediate reaction is that they're less likely to be going in September. Does that mean the inflation problem is solved? We're going to have to see to some extent. That's going to take some time. Our expectation though is that we have a combination of tariffs, the Iran war and AI which has been boosting inflation by about 100 basis points points as those move through the data. And you have seasonals that will support slower inflation from here.

[Tom Keene]

Neil Dutta with us at 7am and he's been very cautious on the labor front. Quote, the economy is not nearly as strong as everyone seems to think. The jobs data are not as important as inflation, so that it's not exactly good. Bond market is misreading the Fed. Is the bond market out front here on gloom given that the inflation reports are still to come?

[Stephanie Roth]

Yeah, I mean, I think that the bond market was certainly a lot more hawkish than investors. When we surveyed our own clients of equity investors, for the most part they were expecting the Fed to stay on hold. So it's interesting that just the divergence that you saw in terms of how bond markets are pricing versus expectations from equity investors and in this environment it might prove to be the case that the Fed is just able to stay on hold from here. And now we've learned that Bush and Trump are in much more communication than many people previously thought, which kind of shows his cards to some extent that he is. Would certainly prefer to do nothing in September. If the data force him to, he will. But this certainly gives him an opportunity to stay on hold and do it credibly.

[Alexis Leondis]

Stephanie, what does this imply for real yields? I mean, what do you, I mean, we see 10 year real yields kind of come in. Yeah, I mean, they must come in off the back of this news, right?

[Stephanie Roth]

Absolutely, yeah.

[Alexis Leondis]

I mean, so then my question really is just how much are yields reflecting growth expectations? Right. I mean, so and if they are, I mean, shouldn't we be seeing, you know, a rally further out along the curve? I mean, it seems like as you get out to the greens and, and the blues, things start to trail off here. I'm just looking again at the front end of the US yield curve here. I'm looking at futures contracts which are trading here. And you know, it just seems to me that a lot of this move is concentrated in the very, very ultra front in the whites and the reds here.

[Stephanie Roth]

Yeah, I mean, I think that's the initial, that's the, that's this sort of knee jerk reaction. It's okay, well, the immediate response is, is okay, well, the Fed is obviously a lot less likely to be hiking in September. But does that solve a lot of the other problems? There's also the supply demand issues at the longer end of the curve, which exactly helps to sort of, you know, keep the longer end of the curve a little bit more elevated than would otherwise be the case. But you know, we might be in an environment later in the year where you actually see the long end come down a bit more.

[Tom Keene]

But into the election and I go back to John Edwards standing on a lawn. I think it was in New Orleans, Netherlands, a million years ago, identifying two Americas. I get more response from people. Stephanie Roth on the split the divide in America. And there's, you know, the politics and culture wars and all that. Forget about it. I got a three month run rate of 20,000 per month, which is totally unacceptable. And I got bidding on properties. You're looking out in San Francisco, aren't you? You were looking at seven.

[Alexis Leondis]

I'm looking at Coral Gables.

[Tom Keene]

Stephanie, how does the Fed manage an economy that is so divided between the haves and the have nots?

[Stephanie Roth]

Yeah, I mean, that's been the case for a number of years now. It's been this K shaped economy, which is a problem. I mean, I don't think it's fair to say to look at the last three month average in payrolls. I don't think it's fair to look at the prior three month average.

[Tom Keene]

You don't think three months average, 20,000 nonfarm payrolls is a valid statistic for Kevin Hasett?

[Stephanie Roth]

No, I don't, I don't think, I don't think it's, I don't think it's a fair reflection of what's actually happening in the labor market.

[Tom Keene]

Do you think it's more buoyant?

[Stephanie Roth]

I think it's more buoyant similar to how we were feeling months ago when fair. When it was well over 100,000, almost 200,000.

[Tom Keene]

Fair. Okay.

[Stephanie Roth]

So I think it's just an environment where you have to smooth through a lot more of this and there's seems to be more seasonality problems in the data than were with where of a combination of World cup and some issues within leisure. It's just been a, you know, an environment where there's been a lot of sort of quirks in the data. When you smooth through it, it tells you the market is fine, it's not overheating. But it probably doesn't suggest there's an urgent need for cuts either.

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