FED, United States, ADP discussed on Bloomberg Markets
Numbers from the federal government. And that comes on the heels of surprising week, ADP job data that came out yesterday. So to get a sense of where we are at the jobs market, where we are with the fed reacting to the jobs numbers. Let's bring in our next guest Andrew surrou- ski support folio manager for the shirt short duration government income fund at Eaton Vance based in Boston. Massachusetts. Andrew, thanks so much for joining us. Let's take a look at the jobs picture. It's generally been very strong. Kinda got that rarely very strange very weak number out of ADP recently. What do you make the current state of the jobs market? Thanks for having me. I mean, I think at the end of the day we had a week ADP number that came out yesterday. But we've had some pretty strong, Princeton labor market this year. The US if you look at the nonfarm payrolls, we've averaged two hundred and five thousand job gains per month year to date, which is actually pretty remarkable considering a three point six percent unemployment rate. And so obviously as unemployment rate, shrinks, the actual supply of kind of workers is kind of diminishing, and we really only need somewhere between seventy five hundred thousand to keep up with the growth in the labor market. So as we get later in, in the cycle, we shouldn't really be expecting these two hundred thousand Princeton to go on forever. But, but I think that one month AT number was a kind of an aberration. And I don't think it spells kind of doom in the labor market at this point. We still have roughly seven point five million job openings in this country, according to the jolt survey. And so I think there's still a lot of job openings. There's only five point eight million workers unemployed, if anything, I think we have we still have a labor shortage more than anything else. So I wouldn't draw. Too many conclusions. Obviously, it came at a bad time, you know, win in the kind of heightened trade war, and this kind of fear mongering, it's been going on. And so, I think that's why the market kind of overreacted to it one thing that I find kind of interesting injuries. We are seeing increasing volume of money flowing into short-term debt ETF's right now. And we did see this earlier in two thousand eighteen but it was for a different reason that it is for now. Because right now, we're looking at three month treasury yields at the lowest since October twenty eighteen if the fed does cut rates and creates less of a value proposition with short term debt. Do you expect these flows to continue or reverse? He made a great point that what's happened in two thousand nineteen is completely different from two thousand eighteen in two thousand eighteen everyone was scared of writing rates in two thousand nineteen. I think the case for short duration funds has been well, we have an inverted yield curve. And so if you can get a yield higher a t Bill, then you can get in a ten year treasury at this point. I think that's the case for short duration. The short duration government income fund. I run we invest in agency mortgage backed securities. So you get a spread over treasury, and so yields, and that's still around three percent, which, you know, if you go out to thirty year treasury, you can't get that kinda yield until I think from where I stand running a government funds. We'll still continue to see flows because it's kind of if the economy if people do believe the economy's rolling over you're going to get this kind of flight to quality bid, and so we'll see money continue to come in. It'd be one thing. If the longer end yields in the yield curve is upper sloping inverted yield curve takes away. One of your big sources of return in a in a fun. That's. That's taking on duration. That's actually you're kind of rolled down. Have you're carrying your roll down from rolling down the yield curve. You're not gonna get that right now. You're when you're actually rolling up yield curve in curves inverted, it's actually a negative carry trade. So it looks like the bond market is trying to affect strong arm the fed into cutting rates, maybe a couple of times this year, but it seems like just judging by the comments from chairman pal this week and others that the fed is standing, Pat here. What do you think? How long do you think they can sit on the sidelines? The fed really wants to see a little more data. Come in. I mean, they, they haven't even kind of revise their plot to the point. That's, that's not showing a hike in the future. So to go from projecting still one or two more hikes in the future to, to cutting fifty basis points like the market once by the end of the year. I think they really wanna see the data at this point, I think they obviously know, there's, there's kind of heightened uncertainties in the trade war is certainly a big cause of that. But, you know, at the end of the day, the if you look at, you know, some of the data the US consumer actually remained relatively resilient all that's going on here from the manufacturing numbers are rolling over. But I think it's important to understand the US economy is not manufacturing oriented, not that it's not going to have some impact, but, but the fed really wants to wait a little longer wants to see that the slowdown is actually starting to kind of gain momentum. And at this point, they also know that, look, unlike past cycles, fed only has kind of nine rate cut bullets in their chamber. We're not starting. From a base rate of five or six percent or ten percent like in, in some other cycles. And so if you cut fifty basis points you've just chopped off to two of your nine bullets. And so, I think they really want to get more time before they really kind of overreact to something that could be over in two weeks or could be over in two months. And so, I think they, they wanna see where this goes and get a little more data to show that it's, it's really having a, a large enough impact on the US Konami that requires cutting rates. I mean keeping keeping mind we just grew three percent in two thousand eighteen we know grow slowing in two thousand nineteen, but the first eight years of economic recovery. We only grew two point one seven percent so it's still pretty fast and they will have to look at that, that strength when they decide whether or not to cut rates interests, or Ascii. Thank you so much for being with us portfolio manager for the short duration government income fund at Eaton, Vance from overseas four hundred sixty billion dollars, right now, the market fed funds futures are price, again, two point seven. Cuts by the end of December. This is Bloomberg right now. Let's head toward one studios in Washington DC Nathan Hager with world.