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  • 00:00. . LET'S START WITH THIS FED CONVERSATION. IT DOES SEEM AS IF MARKET EXPECTATIONS ARE SETTLING ON OR AROUND 25 BASIS POINTS. FROM PREVIOUS CONVERSATIONS, YOU WOULD HAVE THOUGHT ANY MORE THAN THAT WOULD HAVE BEEN AN UNREALISTIC EXPECTATION. >> YOU PUT IT RIGHTLY, IN THE SENSE THAT EXPECTATIONS ARE NOW SETTLING, AND THAT'S AFTER LAST WEEK WHEN WE ACTUALLY SAW FUTURES MARKETS BEING QUITE VOLATILE. PARTICULARLY AFTER MR. WILLIAMS' COMMON SCUM THE HEAD OF THE NEW YORK FED, THAT FUTURES MARKETS WERE STARTING TO DISCOUNT A 50 BASIS POINT CUT -- PARTICULARLY AFTER MR. WILLIAMS' COMMENTS , THE HEAD OF THE NEW YORK FED. THE PHILLY FED INDEX JUMPED VERY SIGNIFICANTLY INDEED. THE NEW YORK FED, EMPIRE STATE MANUFACTURING INDEX HAS RECOVERED. >> SOME OF THIS DATA HAS NOT BEEN THAT BAD. >> WHAT WE SAW VERY CLEARLY WAS IN APRIL AND MAY, THAT THE U.S. ECONOMY CERTAINLY SLOWED DOWN, BUT AS WE GO INTO THE THIRD QUARTER, THE EVIDENCE IS THAT CONSUMPTION IS HOLDING UP WELL. THE NONFARM PAYROLL NUMBERS OBVIOUSLY WERE STRONG. AS I MENTIONED, THESE FORWARD INDICATORS HAVE SHOWN AN IMPROVEMENT. THE ATLANTA FED GDP NOW INDEX, THEY HAVE UPGRADED IT TO 1.6% FOR THE SECOND QUARTER FROM A RECENT LOW OF 1.3%. THE CONSENSUS ACTUALLY IS SOMEWHAT HIGHER THAN THAT. THE SECOND QUARTER, POSSIBLY 1.8 PERCENT. I THINK THERE IS A STRONG CASE FOR A 25 BASIS POINT CUT. I REALLY STRUGGLE TO SEE THE CASE FOR A 50 BASIS POINT CUT. ANNA: THE COMMENTS BY THE FED'S JOHN WILLIAMS, WHICH WERE DIALED BACK. THE EXCUSE FROM THE FED WAS HE WAS TALKING ACADEMICALLY ABOUT HOW IT PAYS TO ACT QUICKLY IN TIMES OF ECONOMIC DISTRESS. THAT MIGHT SEEM SENSIBLE AS AN ACADEMIC NARRATIVE, BUT DOES IT FEEL LIKE ECONOMIC DISTRESS RIGHT NOW? WHY DID THE MARKET JUMP SO WILLINGLY ON THE EXPECTATION? >> A THINK THE MARKET JUMPED FOR THE SIMPLE REASON IT WAS NOT DISCOUNTING A 50 BASIS POINTS CUT. NOW, AS YOU SAY, IT HAS BEEN DIALED BACK. ACADEMICALLY WAS ABSOLUTELY CORRECT, THAT IF YOU DO HAVE PERIODS OF STRESS, YOU DO NEED TO ACT QUICKLY, BUT THAT IS AN ACADEMIC JUDGMENT. IN TERMS OF WHERE WE GO FROM HERE, I THINK THE MARKET IS FOCUSED ON WHAT IS THE POSSIBLE -- PROBABILITY OVER THE REST OF THE YEAR OF 1, 2, OR THREE FED CUTS? BE MAIN CASE IS WE WILL GET TWO CUTS, AND ARGUE LEE, PERIPHERY YIELDS TRADING AT ABOUT 1.8%, THE 10-YEAR TRADING AT JUST OVER 2%, I WOULD ARGUE THAT IS DISCOUNTED, SO THERE IS A RISK THAT NEXT WEEK, THE MARKET SAYS WHAT HAPPENS NOW, AND THE ECONOMIC DATA FOR THE THIRD QUARTER, AS I WOULD ARGUE, IS STARTING TO IMPROVE. THEN YOU ACTUALLY COULD HAVE EXPECTATIONS THE IN RATHER DAMPENED AS TO WHERE THE FED GOES FROM HERE. >> WHERE STOCKS GO? I HAVE A CHART THAT SHOWS THE MODERN-DAY VERSION OF THE DOUBT. A NEW AGE THEORY SUGGESTS SEMICONDUCTOR STOCKS ARE THE MODERN-DAY VERSION IN THE NASDAQ, SO YOU NEED THE RALLY IF YOU ARE GOING TO SEE THE NASDAQ SUSTAINABLY RALLY. WHERE DOES THIS LEAVE US IN U.S. EQUITIES? >> I THINK THE FIRST POINT TO MAKE IS YOU HAVE A STATEMENT TO THE OBVIOUS. HERE TO DATE, THE S&P IS UP CLOSE TO 20%. SAME FOR THE NASDAQ. THE PRICE TO EARNINGS RATIO HAS INCREASED ON THE S&P TO OVER 17. I THINK LOW EXPECTATIONS ARE AT THE MOMENT THAT WE WILL SEE A REBOUND IN 2020. FOR THIS YEAR, THE EARNINGS OUTLOOK DOES NOT LOOK VERY GOOD. SECOND QUARTER, QUARTER ON QUARTER, WE COULD HAVE A SMALL DECLINE IN EARNINGS. TO ANSWER YOUR QUESTION, MY VIEW IS WE HAVE HAD A STRONG ADVANCE IN JUNE AND EARLY JULY. I THINK PROBABLY WE CONSOLIDATE
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I Struggle to See the Case for a 50-Basis Point Cut, Says Quilvest’s Parker

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July 22nd, 2019, 8:20 AM GMT+0000

Bob Parker, investment committee member at Quilvest, discusses Fed policy and his outlook for U.S. equities. He speaks on “Bloomberg Markets: European Open.” (Source: Bloomberg)


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