'Bloomberg The Open' Full Show (03/06/2023)
Let's get the wake started. Live from New York City this morning. Good morning. Good morning. Equity futures positive, two tenths of one percent. The countdown to the open starts right now. Everything you need to get set for the start of us trading.
This is Bloomberg, the open with Jonathan Ferro. Live from New York coming up, champ, Palin payrolls just around the corner. China's growth target disappoints big expectations.
And Credit Suisse losing one of its biggest backers. We begin with a big issue, a market defining week. We have the payrolls report on the 10 non-farm payrolls.
A big important friend, Chair Powell this this week, Chairman Powell appear in front of the Senate banking on Tuesday and the House financial services on Wednesday. I think they'll stick to the script. We expect him to deliver the messages that he has been. We still have a high inflation environment.
He will underscore the fact that inflation continues to be there. Their main objective. Whether you get enough of the information or before the next Fed meeting, what actually happens in terms of the questioning of power is another thing. We just have to see how the data develops.
We've got key data coming up. We're certainly all beholden to the data at this point. The proof is going to be in the pudding. The Fed is data dependent. We are data dependent.
The market is data dependent. We are data dependent. Joining us now is New IBEX, Eric Knutson dances. And he advises chancellor both here. Thanks for being with us, Cedric. I want to begin with you, Jason Furman in The Wall Street Journal, suggesting we should go 50 at the March meeting to you. Agree? Now, I think the Fed can stay on on the track, they're on 2 3 more a 25 basis point hikes and continue to watch the situation unfold. I think that that a 50 basis point rate would show a level of kind of concern, potentially panic that would potentially frustrate, frustrate markets at this point.
And they don't need to add volatility in the system. There's going to be plenty of volatility associate with short term data. Donna, one family, the late you say people are way too focused on the fat. Why is that DAX? Yeah, I think, John, I mean, the Fed was the story of last year. Right. The market was mispricing inflation and
mispricing the Fed. I think a lot of that heavy lifting has been done. So, you know, all those clips that you just played about the Fed being data dependent. I think we've got to recognize that the Fed at this point is not in the driver's seat. The Fed is going to respond, you know, to the macro data and ultimately it's going to be growth. So if you think that growth is going to slow, that's going to determine what happens to rates, the Fed earnings, et cetera.
Conversely, if you're bullish on growth, you know, you should think that rates are going to go higher. So I think that's going to be the ultimate driver of things. And we think, you know, at least on the data we see now, that growth is going to slow. Well, let's talk more about that data. I said a few times we've had two years
with the narratives in two months, January and February, when you get to March 14th, that CPI print and you get to eight thirty one Eastern Time. Does that narrative switch back again? It could. I don't think it's going to change in a big way. I mean, I think that, you know, the market is intensely focused on sort of what the the Fed has outlined is their focus, which is sort of services, not ex shelter. And I think it doesn't look like you're
going to see any big change there. So I think, you know, we have to recognize that inflation has shifted from, you know, the leading volatile components now to the lagging sticky components. And the fact that they're sticky and lagging means that they're probably going to be with us for a while. And you're not going to be a to see a dramatic fall off anytime soon, especially with the labor market as tight as it is. So I think, you know, that's not going to be a big game changer in my mind. Eric, how do you think the chairman's
going to approach some of this later this week, tomorrow in front of the Senate, in front of the House on Wednesday, had a payroll on Friday and CPI next week. He's going to continue to try and walk a tightrope that he's been on. You know, with the gradual increase in rates. Now the moderate, moderate and measured pace while they wait for the data to unfold, I completely agree with our other panelists that, you know, the Fed being data dependent is now reactive, given that monetary policy works with significant, significant legs and risks in terms of what's priced into the market are really around inflation being higher than what's priced. And also that growth is slower than what's priced in the market. And that's what we're focused on.
Well, let's talk about what's priced right now in the rates cast. Dance is a key. It's about five 40s, a peak, right? Late summer September. Would you take the under? You know, John, I think maybe I take the under, but I don't think it really matters really that much. You know, I think again, I think the Fed is more or less fairly priced in some markets here.
So at this point, whether it surprises the upside or to the downside, but 20, 25 or 50 basis points, I think that's missing the point. I think that more or less, you know, that's good. That doesn't really change the fundamental story. So then the fundamental story is going to come down to if it's not going to be the surprise coming from the Fed and where interest rates are. I think it's going to be ultimately earnings growth. I think that has more risks in the markets.
Give me credit for. Well, Don, I think J.P. Morgan agree with you, Miss Lafontaine, in writing this morning that that call for you is to the current activity upswing is unlikely to develop into a fully fledged acceleration in the second half. They're advising their clients and advocating for a reduction in exposure off the back of this Q1 strength. Something you are discussing, though? Dan, I think is important here. There can be a difference between what
the economy does and what you can already see and antics. How big is that divide right now currently for you? Oh, it's huge. It's huge if you think about, you know, the economy. Remember that when you buy the stock market, you're not buying GDP, you're buying corporate profits. And there's a huge disconnect because if you think about the economy, it's just got a lot more supports and balance right now.
The economy, as we all know, is, you know, much more consumer and household driven. You think about the household, you think about the consumer. It's boosted by the tightest labor market in decades. It's brewed by the excess savings that they built up and strong balance sheets. It's boosted by the fact that gas prices have come down a lot. And until recently, mortgage rates are
coming down. So all these things are very, very supportive of the household and the economy. But the debate is out the window when it comes to corporate profits, because we're already in a corporate profits recession. And that's the bigger important indicator for the markets. Mark McKay, we get another look at the labor market, that tight labor market a little bit later this week before we get them.
We've got to talk about Chairman Powell on Capitol Hill. Yeah, I think Dan's Suzuki put it very, very well about where the economy is now. You take a look at a picture being worth a thousand words. Take a look at a chart of where we are at the moment with inflation and the Fed.
Inflation was coming down as the Fed raised rates. And then all of a sudden that progress has stalled out. And you can see the yellow line there. That's where the market thinks the Fed is going to have to go. And historically, the Fed has always had to go above the inflation rate in order to achieve its goals. So then the question becomes, as Jay Powell heads to Capitol Hill, how far do they go? They're going to release a new forecast, a new dot plot on March 22nd. But does he give us any hints about how
high that's going to be? Right now, 5.1 percent is the consensus terminal rate. How much above that will the Fed go? Will he put that 50 basis point move on the March table? Some members have talked about it, a lot of people leaning against it. But that may be dependent on the data later this week. What does he say about the unemployment rate? You can bet that Elizabeth Warren and perhaps some others are going to give him a hard time about the idea of raising the unemployment rate, putting people out of work in order to bring inflation down. And then what kind of fiscal policy questions does he charge and how, you know, he's going to be asked about the debt limit and perhaps the idea of a government shut down. Also, bank capital requirements.
There are a lot of things out there that are not going to be number one on the list for the markets. But here's the thing. You mentioned this. We have Paul on Tuesday and Wednesday. Wednesday, we also get the JOLTS report. It's for January. It'll tell us how many job openings there are.
There are questions about how accurate it is, but that's been what the Fed has hung its strong labor market view on. So we'll get that report just before he testifies and then Friday after he testifies. The February jobs report. So I think right now you really can't say what the result of Paul's testimony is going to be for the markets until we get that number. And, of course, as you pointed out, get the CPI the following week because a data dependent Fed has to have the data.
Well, Mike, let's talk about that data and go through the Canada together. You've mentioned, Chairman, past two appearances this week on Capitol Hill. Payrolls on Friday, CPI next week on the 14th. Mike, do you think it's significant that the CPI print drops in the quiet period for Fed speakers just in terms of how they might tailor their message this week? Well, it's significant in the sense that it makes it more difficult for both the Fed in sending a message, although they can pretty much stick to their script so far higher for longer.
But we don't tell you how much it really makes it difficult for the markets because they're going to be trying to guess what the Fed is thinking about the CPI report. And if we get a significant move one way or the other, it's definitely going to affect where people think the markets are going to have to be on March 22nd. The option, of course, still available just to kind of link the decision ahead of time. But we won't get there again. Mark McKay, thank you, sir.
As always, I'm sure you will know what. Talking about hope. Here's one take. Things right now is good news, just good news. This is due at Kaiser, a city he says we remain in the camp, that good growth is good for stocks, particularly against the backdrop of slightly higher inflation data of late.
Here's the projection from the economics team over a city for what they expect on pay rose to fifty five this Friday, zero point four percent average hourly earnings and chairman power to leave all options open, but indicate a preference for 25 basis points. That mix, according to Stuart Kaiser, would be a net modest positive for equities. Eric Knutson Is good growth good for stocks? Well, generally, yes, of course. But if good growth means that rates are going to be higher and for longer, then ultimately that has to get priced into into equities. And so far this year we've seen rates rise. We've finally seen the market kind of line up with the Fed dots. And yet you haven't seen that have an
impact on corporate on PS where PS have actually gone up over that time period. And not just that, but the best performing stocks have been the growth stocks, the longer duration assets. And we think that that needs to start to shift that earnings quality is at a secular low in the S&P 500, and that's true in Europe as well. And that is as investors begin to
realize that rates are going to be higher for longer, even if the economy is reasonably good, they're going to have to start repricing equities to reflect that earnings growth is going to be coming down. It's already come down somewhat and that you need to discount those huge earnings at a higher level. That leads us to more value stocks, high quality stocks, higher income stocks and less into the long duration portion of the equity market. All right. Let's go through U.S. equity views right now. I've got large caps, underweight, smaller midcaps underweight.
You mentioned what you don't like. Which industry hoops do you look at the moment? We want, as I mentioned, we want to be oriented towards the highest quality names from an earnings quality standpoint, we want to be biased towards lower beta names who want to be biased towards quality value names and higher dividend yielding. And so that keeps us out of, you know, some of the more speculative areas of technology, the more richly valued growth areas of the market. And then finally, we do think that that there will be a demand for commodities.
And so we do still like energy and materials within the context of the overall quality value theme. Well, I mean, she'll point you don't like sack dances, okay? You don't like take it. So is that view changed? No, not at all, John. I think, in fact, you know, with NASDAQ getting close to where it was a year ago in terms of valuations, I think the risk war has actually gotten worse. So I think, you know, we've talked about this many times in the past. Bear markets always signal a change in leadership.
We've had the signal. I don't think that they're going to be the leadership. And it's still the most expensive part of the market yet has some of the worst earnings growth out there. So I think that combination is never an attractive combination.
I think there's much more attractive areas both for the near term and the long term. If you move outside of tech and outside of the United States, might be as well. We're going to talk about that a moment. Dennis Su Keenan. And sticking with us, equity futures right now of two tenths of one percent with some movers gone into the open about this topic. Hey, John.
Well, we are looking at the possibility of three up days in a row, the first time that we have seen that in more than a month and a big piece of it. Apple Apple is popping, of course, as Goldman Sachs is positive on the shares. And your analyst is in town for Goldman Sachs, the first time that they're putting a new buy rating on this stock in six years, as analysts are saying that companies large user base for the iPhone will help them expand its services business. They're looking at a price target of one hundred and ninety nine dollars, suggesting that there could be more than 30 percent upside. CNN having its best day since December
of last year, up nearly 12 percent, a very strong quarter and 80 percent beat on the bottom line. They also beat sales by about 10 percent, putting that number above one billion dollars on the quarter. And they're seeing now greater than 20 percent growth for revenues in the current year. Investors liking it. Again, that stock up sharply. And then finally, Merck up about six tenths of one percent. It has a new buy rating at Jefferies on
valuation. Plus, the analysts at Jefferies saying that the street may be mis modeling its key cancer drug, key truth to this analyst. And Jeffrey sees that 17 percent upside for the shares of Merck up a little bit this morning John. Thanks for that. The broader market just about positive coming up. China setting a five percent growth
target. It's not great news, but I don't think we'd been expecting much more, frankly. And 5 percent that's actually delivered would be better than a sort of bogus conversation.
IBEX. There will be a recovery in China relative to what we've seen over the last year, and so whether that's 5 percent or kills about 2, that figure for markets is still will be a recovery. Do need policies support, you'll need the consumer to be supported. But we are seeing angles of those hand
out in policies. China sending one of its lowest growth targets in decades. The announcement coming as the nation kicks off its annual National People's Congress. The outgoing premier, Li Ka shing, saying, quote, We are confident and capable of ensuring the implementation of policies to promote consumption this year. So then it will make a greater
contribution to achieving the GDP growth target of around 5 percent. Glenn Beck's statement since then joins us now for more. Damon, I've heard some people call that disappointing. Yeah. What's your take?
Well, I mean, five as the new five and a half percent, down from 7 percent in 2013 when when Jake Ballard was last in power. Right. And so obviously, growth targets have come in in China. You're looking for now 5 percent with 3 percent inflation. Nothing's really changed.
I mean, that was kind of the target going into last year so that we underperformed. We came in at 3 percent full year. I mean, Jonathan, again, this kind of speaks to the fact that Beijing is trying to prepare the markets, that this is not going to be up to hard and fast reopening. It's going to be slow. It's going to be methodical and it's going to take all year until the housing market comes back. We really see the consumption at households really kind of snap back, which is what this economy needs to hit that target. It's I mean, that was the question over the weekend as to whether this more modest growth Tom Keene opens the door to the reintroduction of the so-called she regulatory volatility. What do you make of that? Yeah, no, I mean, I think there is going to be a lot of uncertainty surrounding how.
I mean, look, just what the topics in party Congress, the fact that they want private enterprise to be more party oriented. You know, there's a lot of that talk going on, just the fact that all the new people in power are not nearly as market friendly as those were outgoing just speaks volumes to what she has planned over the course of 2023. But again, you know, when you have to ask, dance is icky.
This I'm sorry, but, you know, dance a fan of Chinese equities because of all the markets globally. Jonathan, you are entering a proper recession. China may be that one economy that's exiting. And so, you know, there are some places in China that investors are indeed looking at. You've already picked out my first question. But before I get to dance is okay with that diamond.
Just a final one for me. 2023 was less interesting to me. That's the snapback re-opening kit. It's 24 25. What is the glide path look like for GDP after this year? Like I said, the direction of travel is lower, right? We were at 7 percent in 2013, were at 5 percent.
Now, if you listen to the IMF work somewhere in the force, I mean, look, again, I think the IMF even says it's for every 1 percent an additional GDP growth in China. The rest of the world grows by an additional 30 basis points. So, you know, look, this is not good for the rest of world. It's certainly not good for emerging markets writ large. Dimas, thank you.
And for the takeoff as well. Appreciate. It's an easy one. DAX. Su Keenan where I'm going. You like China? Don't get. Yeah, that's right. That I think, you know, long time, Damien. Long time no speak. Yeah, absolutely.
So if you think about the lens with which we view things, it's always comes down to corporate profits, liquidity and sentiment. If you just look through that lens, you know, it's actually a pretty good outlook. People everybody knows all the problems that China's been dealing with over the past year, few years. They've been in a profits recession. They've had a self-inflicted regulatory issue. They've had a self-inflicted property
crisis. And they have self-inflicted zero Covid policy. All those things are well known to the markets and well discounted going forward. They're easing up on those things and looks like we're exiting a profits recession, as Damian said, just as the rest of the world as the rest of the world is entering one. I think that's a great combination,
especially if you pair it with liquidity where they're lowering rates. They're telling their banks to lend and nobody wants to invest in China. Eric, none of us develop stocks. You wonder why stocks. You wonder why are you taking the other side of this? Well, we've actually been adding to stocks and getting exposure to China through this year so far, reducing that underweight towards a neutral position. We remain underweight, non U.S. developed, particularly Europe. We actually like Japan. I'll take the other side of Dan's
position. We don't want to be overweight China right now. We want to get back towards more of a neutral position. China is a policy driven market. It is also an incredibly inefficient market. So we want to have exposure in client portfolios, particularly to be able to take advantage of security selection in the market. But we're still we're still cautious. So moving back towards that neutral
weight and not ready to go overweight, yet we see more attractive opportunities from a growth standpoint in India, although valuations are full and frankly in Japan, which will benefit from China's opening and has other positive dynamics. So, you know, strong stimulus bill weekend, an improving corporate governance, creating opportunities in Japan. Don, how would you convince Sarah to do more? Well, I think, you know, the concern that a lot of people have here is, is the geopolitical right. And I think that, you know, the geopolitical is tends to be overemphasized in the headlines and overpriced into valuations. That's why, you know, China trades is essentially single digit, multiple and a half U.S. multiple here.
I think if you just focus on corporate profits, which is going to be the most important driver, you know, you're going to see improving corporate profit trends for the at least the next four quarters. And I think that, you know, when you think about the new growth forecast that came out, you know, they should be surprising to anyone. If you look at a chart and I think Bloomberg published one year earlier this morning of all the annual targets over the last 10 or 20 years, you know, this lot dot fits right in line with that historical trend of slowing and moderate growth, but not falling off a cliff and not spiking up higher either. And I think that's just to be expected. But again, you've got to separate out, you know, GDP from corporate profits.
I think the outlook there is much more rosy. And when you say Chinese equities, can you be more specific about what you mean? Because I think for a lot of people, when they hear Chinese equities, they're thinking of these big tech names that have ideas in the United States. What do you mean by Chinese equities? Well, I think, Jonathan, those those areas will participate as well.
I mean, if you think about, you know, the difference between U.S. tech versus Chinese tech is, you know, you have a profits recession and tighten liquidity here. Well, if you think about if you turn those on its head, you know, China is actually seeing accelerating corporate profits and improving liquidity. That's actually a pretty good environment for tech stocks as well as the broader economy.
And if you look at the performance, you know, Chinese tech stocks have gotten absolutely demolished over the last few years. You know, much, much worse than what we've seen in the U.S. I think, you know, all these things represent a better risk reward for even that part of the market. But I think it's going to be a much more
broad than that, John. And I think if we're right in this, it's re acceleration, this broadening out of growth in China, then all areas of the economy are going to participate. So I wouldn't want to leave any of those major components out, highly dependent on whether you can tolerate the prospect of reckons these risk materialize. And I guess dance is key. Thank you, sir. As always, alongside Derek Knutson, fantastic pairing kind into the iPhone and Bath. I'm next on this program. The morning calls and lights out in
Europe over the United States. That's the view from Goldman Sachs as Sharon found. Looking forward to that conversation with European banks this year. Absolutely. Ripping features right now, up two tenths of one percent. You're up in about seven minutes away. You are going to be told about a thousand times over the next couple of days that you have a big week ahead because you have a big week ahead.
Chairman Power coming up tomorrow to speak again on Wednesday on Capitol Hill and is sending annual testimony going in to Pete Rose on Friday. Then on to CPI next week. Features going into the open about to begin trading this week. Positive two tenths of 1 percent on the Nasdaq, a four tenths of one percent switch at the board and get to the bond market. Yields look like this, retreating from
last week's high levels cycle high on a two year yield on a 10 year yield, the highest since November. We were north of 4 percent, was up 4 percent, now 390 to 44, down about 3 basis points on a two year. At the front end, we retreat as well by two basis points to 4 338, about 11 basis points below the highs of last week. In the SFX market, Eurodollar ones are ISE 659 by two tenths of one percent. Mr. Philip Lane over the ECB talking up more
rate hikes. Maybe, maybe we talk about another 50 after this month's 50 from the ECB. And just finally crude just below seventy nine eighty ish. Seventy nine fifteen. At the moment we're negative seven tenths of one per cent on WTI crude. About 45 seconds into the session, we are positive just about two tenths of one per cent on the S&P, on the Nasdaq up by a half of 1 per cent. One stock to watch at the open is Apple. Goldman is shedding coverage on the
stock with a buy rating 199 price target, expecting the company's large user base to fuel growth in its services business and has more happy. Hey, John. Well, yeah, this is the big call because, of course, Goldman being one of the premier investment banks in the world now making a big call on one of the premier companies in the world, the largest company in the world, in fact. But you can see over the last year, this
stock has basically been stuck in a range on the year. It's up about 18 percent, but over the last year down just a little bit. So we have this new analyst in town at Goldman who is taking a more constructive view. This is their first buy rating. And this stock, really many years after having been on the sidelines actually for many years, the last buy rating six years ago, now they are positive on the mix shift. You were just talking about that user
base. What it means is they might be able to diversify away from the iPhone. We've been hearing a lot about this over the last several years, more into services, which is about 20 percent of the business to bring that part of the pie up so you'd have that old legacy business, but then you could layer on the new growth. Now, the firm's one hundred and ninety nine dollars price target suggests about 30 percent upside from current levels since the last buy rating. This is really incredible. Apple is up 300 percent.
The S&P 500 is up 60 percent. But the thing that they both have in common clearly are big, big gains. The S&P 500 being up 60 percent, seems small relative to that 300 percent gain. But that's nothing to sneeze at at all. So as much as I call as this is done on Apple, you could also make the case that perhaps it's also a call on the market for 2023. Interesting point. Abby, thank you. Apple is up by about 2 percent, as you pointed out.
That's the first buying recommendation on Apple from Goldman in nearly six years. Just to bring you a little bit more of that note, just an extra flight for Ralph in Apple. Success in premiere hardware design and resulting brand loyalty has led to a growing installed base of users. We should more than offset cyclical headwinds to product revenue. That call from Goldman stock's up by about 2 percent this morning. Another wants to look at Tesla cutting prices on its two most expensive U.S. vehicles for a second time in just a few
months. Elon Musk saying the following. It says This Investor Day, we found that even small changes in the price have a big effect on demand. Category I found has more. Like I say. Hey, John. Well, actually, if Tesla shares down slightly on that news, they've been bouncing back and forth. We'll continue to keep an eye. But this latest round of cost cuts comes just seven weeks after they cut costs on these models back in January. In addition to the quote you just read, Elon Musk also said last week that demand will, quote, go crazy as the company makes its cars more affordable. So let's get into some of the numbers
here. The models and questions are the Model S and the model X that includes the high performance versions of those cars as well. You can see the Model S now starts at ninety thousand dollars. That price tag was six figures coming into 2023. The basic model X now starts at one hundred thousand dollars. And again, the fact that we're seeing
price cuts again so soon after the latest round suggests that these models maybe got less of a sales boost from that other round of cost cuts than expected. And we know that Tesla needs to boost demand, even though Elon Musk again said last week that the desire to own Tesla's was, quote, indistinguishable from infinite production has outpaced sales for three quarters in the fourth quarter. You can see there that Tesla made 34000 more cars than it actually sold and that ratio has been getting worse. John? Candy, thanks for that. Stocks just a little bit lower.
Is it a case of our sales prices, our cuts, your problem, maybe 10 ISE of Wedbush says this. Tesla cutting Model S and X price is another smart strategic move by Musk and Co.. He says Tester is in a position of strength on price cuts. We know Dan's bullish, so that's the bullish. Take some things for you right now. Here's another take is Morgan Stanley.
They've removed Tesla as their top pick in U.S. autos. They've replaced it with Ferrari. The analyst writes in, quote, Building on their learnings from hybrids and applying that racing DNA. We believe Ferrari can offer a Navy that
will be just as high in demand. I can't get my head around, Ferrari said he thinks. But that's a story for another day. Another blow for Credit Suisse. Let's talk about that bank beleaguered. The effort to win back clients is a struggle. One of the bank's biggest backers, David Harrow, has sold his entire stake in the lender. This is what Harrow told the Financial
Times over the weekend. The plan to restructure the bank is cumbersome and far more costly in terms of cash burn than we expected. We were also not satisfied with what we were getting in terms of proceeds from the Santa securitized products Chanel. He's been following this story, Sonali. Finally, some good news for this company right now.
Listen, this is the sale that you're thinking of here. The securitized product group. These are what happens when you sell things in a down market. John, you're just not going to get what you get when you try to sell things when things are good. Now, remember, David Harrow in particular has held the bull by the horns for a very, very long time. Credit Suisse never regained the former
glory of the pre 2008 era. And remember, even now, he's selling at historic lows. He told the Financial Times he started selling around October when the Saudi National Bank took a stake. If you take a look now, what's interesting about the top shareholders of Credit Suisse, you are looking at a group that is largely contained in the Middle East. That is the Saudi National Bank.
That is investment vehicles tied to Qatar. Q ISE. And now the alliance group with the exit of David Harrow also becomes a top five shareholder. So as the bank shifts towards international, well, they now have a hefty group of Middle Eastern bankers on their side. Now, I also want to take a look at a popular trade here, because more than the shares, you are looking more at the credit default swaps of Credit Suisse trading more actively because you are looking at. Yes, that has widened pretty meaningfully this year.
It's not at the Y that you saw early this year or even last year. It's not a meaningful risk of default you're seeing here in the bank's shares and CBS. But what you're seeing is a concern among investors that is reflected by David Harries view that it's not a risk of crashing. It is the risk of limping along. The question now with potential outflows this year is how long do they limp along for? And do they meet the new goals that they've set for just as the rest of the industry recovers in a major way across Europe? Sonali, thank you for that. And I'm talking specifically almost exclusively about the stock price over in Europe right now. Look at Credit Suisse year today, date
negative on the year. Look at UBS up close to 20 percent. Look at the overall universe of eurozone banks outside of Switzerland, up 24 percent on the euro stocks, 50 for the European Bank names right now. Yeah. Today and over the last year, even bigger moves than that. David Harrow spoke to this in the FTSE said Rising interest rates means lots of European financials are headed in the other direction. Why go for something that is burning capital when the rest of the sector is now generates and get to discuss? Shery Ahn Sachs joins us right now. Sharon, wonderful to catch up with you.
I remember you said a number of months ago on this program you liked European banks. It's working out what's great about them. Yeah, but it's been the perfect, perfect environment for European banks. You've had growth pick up in Europe.
We've had higher interest rate expectations and banks enjoy an environment really of higher interest rate expectations increases their net interest margins. So it really has been a kind of a perfect recipe for the bank sector and they started off in quite low valuations. The earnings season was extremely good. Both the third quarter one, the fourth quarter one was really above expectations. So it's absolutely been perfect. European banks. We've had this story of a valuation gap between Europe and the United States beyond the banks of the index level for quite a while. It was a valuation trap for quite a
while. I take from your stance, Sharon, you think that's really changing, that that valuation gap is not warranted or deserved? I was going through your work and you said you were looking across utilities, staples, energy and banks. What do you see there across those four areas? Yes, quite a few sectors in Europe. So first of all, I would say, yes, there is a big gap between us and European valuation. Do I think it should close in Cali and Europe to trade on the same PE multiple as the US? Absolutely not.
The US has high growth companies that has a much bigger tech sector that tends to attract a higher valuation. So I wouldn't expect it to disappear. But yes, every single sector in Europe trades on a discount to its peer sector in the US and that discount is generally quite big versus the past. Consumer staples, which perhaps aren't in fashion Amanda Lang defensive area and growth is improving a little bit, but they trade on a big discount in Europe relative to similar names in the US, the energy sector is one of the ones with the biggest gap. You mentioned that sector.
It trades on a much lower multiple in Europe than it does for its counterparts in the US. And really they're in a very similar business. So we do see the gap to close a little bit for quite a few different sectors. Interest on energy specifically. Can you explain that valuation gap because of a windfall tax, a regulatory push in Europe that maybe doesn't exist here in the United States? Does that explain it? Yes. So there's a little bit of that. I mean, bear in mind that the companies
in Europe, the large European energy majors, make their profits globally and they will pay the windfall taxes when they make a profit. So some of these windfall taxes will be put on U.S. companies that also make money in Europe and elsewhere. So, yes, I think a little bit for the windfall tax risk, an imposition.
I think also quite a bit for the fact that ESG funds tend to have very low weights if they invest a tool in the big energy majors in Europe, whereas obviously those funds have grown everywhere, but particularly in Europe. So I think those are the factors that keep European energy stocks at a big discount. But in terms of who wants to buy energy stocks at the moment in Europe, actually, you don't really need a buyer outside of the sector itself. The energy sector is buying back shares. So we've seen huge buybacks in the last year. I expect them to continue this year. They're the biggest bar at the moment of
energy stocks. For a long time, we talked about the index level, Europe versus the United States. And the easy explanation for the discount was just the sector mix that existed in the United States, much heavier in terms of tank, which explained that valuation premium. Sharon, do you think then looking at the
sectors adjusting for that, that it goes beyond that? They actually do so every sector in Europe is on a discount to its US sector. So even if you do put them on the same same weights, use perhaps global sector weights to weight up the valuation of US sectors, do the same for Europe. He's still got a big gap. You can perhaps close about a third of the gap difference between the US and Europe. Just putting them on the same sector. But still, two thirds remains. Some of that Europe's typical discount
to the US. And I understand why you should be on on a bit of a discount. Lower growth economically in Europe, perhaps a little bit more sovereign risk in Europe better. But the discount at the moment is particularly large.
And it's true across lots of different sectors. And tech is a good example that there's a discount for Europe, a very small one between European tackled US tech that in the next couple of years, based on the consensus, European tech has a better growth forecast than us. So should it really trade on that type of discount still? Interesting. That's why I wanted to talk about just to finish on it the next year or so. So, Sharon, yet today great call is materialize. I can see the moves front center this
morning. Another record intraday CAC. Forty year today are up 14 percent, Germany up twelve percent, Spain up 15, Italy up almost 18 percent year to date. There might be some people who weren't in this trade, Sharon, that saw that and just thought, okay, I've missed it. I don't know that what you say back to them. Yes, I think Europe can outperform the US, but I wouldn't expect super strong returns from here for either side of the Atlantic. I think the problem is we've already priced in a lot of sort of the potential improvement in growth. We've already priced in a lot of that.
And of course, interest rates are rising. Those rising interest rates, expectations mean that's another asset class could potentially invest in and get a risk free or close to risk free return in bonds. Sovereign debt in cash. Even so, I think the attractiveness of equities relative to those has come down a bit. Given the performance. But having said all of that, I do think Europe looks cheap, as is the US. You still get a good income and dividend from Europe.
You still kicking off quite a lot of cash. The companies are buying back shares and European growth has improved quite a bit. All of those things mean Europe probably outweighs the US in taxes of investor our returns this year.
My view just massive moves already year to date. Sharon, thank you as always. Sharon Bower there of Goldman Sachs on the European story and the outperformance we're seeing in Europe. Yet today, so far, higher rates have gone up. The big banks at some point, even higher rates become a problem.
I have no idea how far or how close we are to that moment. The S&P 500 positive, four tenths of one percent, about 13 minutes into the session. The Nasdaq up by half of 1 percent. Coming up next, U.S. lawmakers taking aim at second China in terms of foreign technology coming into America.
We've got to have a systemic approach to make sure that we can ban or prohibit it when necessary. That conversation. Still ahead. This is Bloomberg's The Open. I'm Lisa Mateo, live in the principal
room. Coming up, an exclusive interview with JP Morgan chairman and CEO Jamie Dimon. That's at eleven forty a.m. in New York for 40 in London. This is Bloomberg. In terms of foreign technology coming into America, we've got to have a systemic approach to make sure that we can ban or prohibit it when necessary.
One hundred million Americans on tick tock in 90 minutes a day. They are taking data from Americans, not keeping it safe. But what worries me more, what tech talk is that this can be a propaganda tool. U.S. lawmakers stepping up the push to ban tech sales. President Biden closing in on an
executive order to restrict U.S. investments in China. Tack the administration writing in a report seen by Bloomberg that the objective is, quote, preventing US capital and expertise from being exploited in ways that threaten U.S. national security while not placing an undue burden on U.S. investors and businesses. Same coverage starts right now with Bloomberg, Sam Murray and CAC lights down in D.C. and makes talk to us about what's on the table here. Well, Jonathan, you just see Washington
continue to address the Chinese Communist Party and adding more tools to their toolbox. One comes from the White House and the other is from the other side of Pennsylvania coming from lawmakers. So first you have the White House. This is really a long time coming, reports for months about this executive order. But what would it do is restrict investment into certain parts of the Chinese economy. These parts, the administration think
that this advanced technology that these this investment would go to could enhance either the Chinese Communist Party military or as well as their intelligence capabilities. And we may get more details about it today, because Biden will be unveiling his budget on Thursday, sorry, this week. And then the second part of this is just another bill that either it names ticktock or not. It will go after ticktock of Senator Warner on Fox News on Sunday, saying that this has broad pipe heart bipartisan support. He's working with South Dakota Senator John Thune. And this would basically ban this kind of technology in the United States.
But this has to be the sixth or seventh bill that is going after ticktock. So at some point, one of these you imagine is going to get across the finish line. And I just wonder how narrow this might be. Emory just reading that language technologies that could enhance China's military and intelligence capabilities based on what they've been saying is ticked off part of that.
Well, that's a great question. If you think about intelligence capabilities, ticktock could potentially be part of that because many view it as the Chinese Communist Party is able to because ticktock is owned by Byte Dance, a Chinese company is able to gather at Intel and data on these users in America. But we should note, Jonathan, and at the end of the month, the ticktock CEO will be in Congress. He will have a hearing and he will be testifying. They are spending millions and billions of dollars really on this project called Project Texas. They're working with Oracle.
What they want to do is make sure they can show what U.S. lawmakers that there's a way that they could still remain active in the US and keep the U.S. data safe in United States and working with the European Union as well. For something similar in Europe, it can be two words hit a stand down capital expertise that notes that's not just money, that's town and say. Yeah.
Exactly, John. But the money, of course, is ultimately a good deal of what matters to the markets, and when you talk about technologies that could limit that advanced military and intelligence capabilities of China. This could reach into a lot of different areas of Chinese technology, including chips and chip makers, makers of manufacturing equipment, anything related to A.I. and chat and quantum computing as well. So as a result, you are seeing this show up in the 80 hours of some of those companies, the likes of Alibaba and Baidu, BDD. All down this morning even.
About 2 percent in the case of Haidi Lun PDT. And when you look at that Golden Dragon China index, which of course, tracks a basket of those stocks, it is down about one point three percent. All of these, of course, listed here in the US. John, we had seen years ago a big boom in IPO goes up.
Chinese technology companies here stateside. Alibaba, of course, back in 2014. That has started to trickle off in 2022. There was only about five hundred million dollars worth of IPOs here and has gotten a lot more difficult due to the headwinds around geopolitics. And, of course, a lot of questions around auditing as well. This now would add another layer on that investment difficulty and adds another layer perhaps of difficulty for these stocks. Because we know, John, over the last several years, these have been underperformers. Yes.
The Golden Dragon, China Dragon China Index is up about 70 percent from its low back in October. But still over the last two years, it's down roughly 57 percent in Chinese stocks as a basket dramatically underperforming the rest of the world, down about 40 percent over that time compared to the old country world index, down just about two point three percent. Well, I am I just want to give you the final word away from the equity market just for a moment. Just on the politics, we heard from the former president, Donald Trump over the weekend campaigning. We heard from the governor of Florida. I won't say campaigning, but certainly
on the media tour still ahead of potentially announcing he's going to make a run. Is China going to be a big feature of this upcoming election in 18 months time? Well, it absolutely is. What did you see this morning with The Daily Mail, an opinion piece from the former president Trump talking about Covid and how he wanted to go after the World Health Organization because he thought they were deferential to China in the beginning of this, because also we've had recent reporting coming from the Department of Energy that they say this was a lab leak potentially. So, Jonathan, China, whether or not it's Covid, whether or not it's investment, whether or not it's the data. Many lawmakers say they are harvesting in this, quote unquote, Trojan horse, the United States, through tick tock. China will become this number one enemy for lawmakers, not just in the GOP, though.
This is going to be as well for President Biden, who's expected to make his campaign as well. He is going to show all that he's done while he was in power to try to make sure that they are competing with China and keeping American data and money safe and sound. The White House, thank you, Candy, lines down in D.C.. Thanks to you, too. Big story over the next 19 months. That's for sure. Potentially, anyway, into the equity
market. Twenty three minutes in. We are positive by a third of 1 percent. This case, some sector price action is epic. Yeah, John. And that is the first three day upswing for the S&P 500 that we've seen in more than a month, the most that we've seen the S&P 500.
So not surprisingly, we're looking at bullish sector action. Tech really helped out by Apple. We also have some of the other mega caps following along communication services. And just to tie the bow on the bullish
year so far, take a look at technology, the best sector, the three down sectors this year, John. They're all defensive, I think. Thanks for that. Up next, a training diary. Almost 26 minutes into the session this morning, good morning to you, equities broadly positive by four tenths of one percent on the S&P and the Nasdaq up six tenths of one percent. Let's get you to the trading diary, what you need to be looking for. Top of the hour. U.S. factory orders and durable goods.
On Tuesday, Fed Chair Jay Powell kicks off two days of testimony on Capitol Hill. ADP numbers monthly jobs report coming up on Wednesday. President Binder releasing his budget proposal on Thursday. And finally, the big one on Friday.
The payrolls report to round out the week. A sneak peek of our survey. A moving target, but a median estimate so far. Two hundred and 23000 for Friday's payrolls from New York. This was the countdown to the open.
This is pulling back.
2023-03-08 13:05
