Episode summary
The Market Rally and NATO Summit | Bloomberg Surveillance
Bloomberg Surveillance
· · 32 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Steven Major, Michael Darda, Michael Green, Rose Gottemoeller
Summary
The discussion centered on a market setup where falling inflation expectations, not stronger growth, are driving higher nominal and real yields. The host and Steven Major argued that the bond market is increasingly pricing disinflation, helped by lower energy prices and a shift in Fed expectations from possible cuts to even a hike. Major said the clean trade is in TIPS and the belly of the curve, and that the dollar remains structurally supported even if its cyclical momentum fades later in the year.
Michael Darda made the case that nominal GDP has been remarkably steady despite supply shocks from tariffs and energy, and he credited the Fed with avoiding the kind of overly restrictive response that worsened past downturns. He argued that labor markets remain resilient, inflation should keep easing as shocks unwind, and the central bank is likely to stay patient rather than tighten aggressively.
Michael Green warned that the AI boom may resemble the late-1990s Cisco cycle, with vendor financing and capital spending inflating demand before profits prove durable. He also said affordability has deteriorated even when year-over-year inflation looks tame, because households experience prices at the level of the price run-up, not just the change rate. Rose Gottemoeller shifted the focus to NATO, saying the alliance remains central to European security, Ukraine’s defense, and the long-term balance of power with Russia.
Key takeaways
- Steven Major said the market is pricing disinflation because inflation expectations fell faster than nominal yields, making TIPS in the 5-year area attractive.
- The host and Michael Darda argued that U.S. nominal GDP has stayed unusually stable around 5.4% despite tariff and energy shocks.
- Darda said the labor market remains historically strong at about 4.2% unemployment, giving the Fed room to be patient.
- Michael Green compared today’s AI investment cycle to Cisco in the late 1990s, warning that financing and hype can mask weak end-demand.
- Green said the affordability problem is worse than headline inflation suggests because households feel the price level, not just year-over-year changes.
- Rose Gottemoeller said NATO still matters most for Europe’s security and for resolving the war in Ukraine before any new security architecture can emerge.
Notable quotes
“the market's belief in disinflation and clearly clear clearly that's coming from the sharp drop in in energy prices”
“the market is priced for a much higher higher neutral rate than we've had in previous cycles”
“we've been moving through a blizzard of supply side shocks. tariffs last year, a big energy spike this year that's now fortunately unwound”
“This is the same phenomenon we saw in the late 1990s with vendor financing from Cisco”
“The problem is once you're underwater, once your spending exceeds your income, if your income and inflation match”
How the episode opens
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Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Steven Major is global macro advisor a tradition.
Uh he is absolutely on the high ground of a broader disinflationary tendency. Stephen, thank you for your patience and waiting at the NATO meetings. Do we still have in place a disinflationary tendency or is it unanchored?
Well, it looks from the basis of the break evens that that there is the the market's belief in disinflation and clearly clear clearly that's coming from the sharp drop in in energy prices or at least from the oil price first of all. So that is disinflationary and it goes against the main mainstream consensus view that was for higher inflation. Now I think that that's why it's so powerful for markets Tom because everyone was positioned for higher inflation and higher inflation risk premium but you just don't see it happening that the market is going the other way.
Now I think that's interesting. Not everyone's agree agreeing with me because what's happening is people are reading the higher nominal and real yields which which are a function of the dropping inflation expectations and thinking that means the economy is going gang busters.
Well, it might be, but that's not what the data is telling me. So, it's it's a different story. I think I think the market is is calling out the consensus view that we have strong growth forever and ever.
I mean, this is the heart of the matter. I'm going to go to uh Yan Hatsius here at Goldman Sachs who's really established a disinflationary trend.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- yen trap
- real yield illusion
- labor market stability
- fed patience
- nato summit
Companies and tickers mentioned
- Tradition
- Roth Capital Partners
- Simplify Asset Management
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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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