Bloomberg Surveillance: US Economy, Tariffs, and AI Investment Risks

Economic Outlook and Fed Policy

• 💡 Morgan Stanley economists maintain a call for a 25 basis point rate cut in December, contingent on data availability, with a prolonged government shutdown posing a risk.
• ⚠️ Michael Gapen suggests that if the shutdown prevents data collection, the Fed might still cut rates due to potential zero growth and spillovers.
• 📈 The bond market is pricing in a gradual easing cycle, but a government shutdown could influence the Fed's decision-making process.
• 📉 The labor market shows tension, with activity data solid but labor market data suggesting a cooling trend, potentially leading to a higher unemployment rate.

Supreme Court and Tariff Legality

• ⚖️ The Supreme Court is hearing arguments on the legality of President Trump's tariffs imposed under the International Emergency Economic Powers Act (IEEPA).
• 💰 If overturned, the government could face refunding billions of dollars, impacting the deficit and potentially reawakening "bond vigilantes."
• 🏛️ The core question is whether IEEPA grants the president sweeping authority to regulate imports through tariffs, or if Congress holds that power.
• 🛠️ Regardless of the ruling, the administration has other tools to implement its trade agenda, though they may be less direct.

New York City Mayoral Election and Business Impact

• 🗳️ Zohran Mamdani won the New York City mayoral race with a high voter turnout, reflecting frustration with the cost of living and previous political disappointments.
• 🤝 Kathryn Wylde of the Partnership for New York City emphasizes that the election's impact on business depends on the new mayor's appointments, particularly regarding public safety.
• 🏢 Concerns exist about potential tax increases, with a significant tax differential between New York City and states like Florida or Texas.
• ✅ The mayor-elect has indicated a focus on reducing government costs and bureaucracy, which could signal a more business-friendly approach.

Investment Trends and Risks

• 🚀 Jim Zelter of Apollo Global Management highlights the firm's focus on origination as a key attribute, emphasizing proprietary, scalable deals over just assets under management.
• 📊 Apollo sees strong origination across investment grade and non-investment grade credit, with a focus on principal-based models rather than agent roles.
• ⚠️ Zelter warns of a scary allocation of resources into AI and data centers, leading to high valuations and increased risk for investors, advising caution and a preference for senior, secured debt.
• 🌐 The firm is focused on financing global industrial renaissance projects, seeking safe, robust, long-duration yield rather than speculating on short-term market movements.