Episode summary
Reacting to PCE and Market Look Ahead | Bloomberg Surveillance
Bloomberg Surveillance
· · 42 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr, Jess Menton · Guests: Vishal Khanduja, Michael Ball, Tobin Marcus, Ben Cook, Dan Tannebaum
Summary
The morning centered on a PCE report that was a little hotter than expected on the headline measure, with core PCE basically in line. The host and guests treated the inflation print as consistent with a market that still expects the Fed to hold, even as the 10-year Treasury briefly pushed higher and the 2-year remained near recent levels. One guest argued the more important backdrop is not just inflation, but a broadening economy with strong nominal growth, capex, and defense spending that is keeping rates sticky.
A macro discussion followed on whether higher yields are here to stay. One guest said the market may spike toward 5% on the 10-year but sees 4.75% as a key threshold, arguing disinflationary pressure should anchor yields lower over time. Another analyst said the latest GDP and inflation mix shows an above-trend economy, but consumer momentum may be softening into Q3 even as corporate investment remains strong.
The equity conversation turned to Nvidia, with the argument that the stock still looks relatively cheap on forward earnings and that its report matters less as a single event than as a signal for the broader AI trade. Later, policy guests focused on Bessent’s Iran and China strategy, saying sanctions may sting but are unlikely to change Chinese behavior quickly and are more likely to be used as leverage than as a decisive solution.
Key takeaways
- The host and guests said headline PCE at 3.7% keeps inflation sticky, while core PCE at 3.3% leaves the Fed with little urgency to cut.
- One guest said the 10-year Treasury could spike to 5%, but viewed 4.75% as a meaningful level that may hold over time.
- A macro analyst said Q2 nominal GDP running at 7.9% shows an above-trend economy driven by AI capex, reshoring and defense spending.
- The equities desk said Nvidia remains a key market test because its forward P/E is around 18.8, below the S&P 500 and even Hershey's.
- A policy guest said sanctions on Iran are unlikely to work without China changing behavior, and he does not expect that to happen soon.
Notable quotes
“I think the market would love to hear some reiteration of uh the target and then a little bit more about those five working groups”
“So what my point is right now when I'm speaking with portfolio managers, look look at the PE on Nvidia”
How the episode opens
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Had a broad market fixed income. He's in charge of yield for uh uh at Morgan Stanley Investment Management. Vicel Kanduja joins us. Do you and Jim Karen disagree? Like when you go to a meeting with Jim Karen, are you on the same page?
A lot of times you're on the same page, but there is uh quite a bit of times healthy disagreement that — Point because of time. What's the key distinction now in that disagreement at Morgan Stanley?
I think there are two key themes right now. I think Fed definitely was and remains to be the center stage. We'll find out more at 10:00 on Friday uh from Kevin Worsh.
A reiteration of the 2% and maybe a little bit more hawkish reiteration of of the same. I think the big thing now Scott Besson or the Treasury Secretary wants to take the center stage. So things that have not changed fundamentally we still don't have a very clear plan for deficit reduction.
They say that they're going to have some something for us in the next two weeks. things that have changed is now you have clearly gone out of your way to come out surprise the market and then give us you know a little bit more information that this is some sort of a brain threshold has been reached either it is the curve shape it is absolute level of yields or it is a worry that these higher yields are going to add to deficits even more.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- pce
- market outlook
- oil prices
- us midterms
- economic d-day
Companies and tickers mentioned
- MS
- Morgan Stanley Investment Management
- Bloomberg News
- Wolfe Research
- Hennessy Energy Transition Fund
- Hennessy Midstream Fund
- Oliver Wyman
Watch the episode
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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