Bloomberg Markets (02/09/2022)

Bloomberg Markets (02/09/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the US trading day on Wednesday February 9 here in the top market stories we're following for you at this hour. The calm before the storm. Equities add to gains in the bond market stabilizes ahead of tomorrow's U.S. CPI print. But the inflation data changed everything or nothing at all. Nina left left shares drop and analysts cut their price targets after writers come up short due to the crisis. It sets the stage for

ISE results. Post market with Disney. Also on deck. And ships and ships. We're taking a deep dive into supply side challenges. This hour we'll speak to Gene Sorokin director of the Port of Los Angeles and have an exclusive conversation with us. Commerce Secretary Gina Raimondo from New York on Kailey Leinz with Guy Johnson in London. Alix Steel is off today. Welcome to Bloomberg Markets. Guy get the sense you like my Rym.

Yes very good. Chip chips and chips. You want to make sure you say that properly don't you. Yes. It basically sums the show up doesn't it. We're doing an awful lot of that port of L.A. We're focusing there. You've got the AP. What are most numbers out today as you say. We're talking to the commerce secretary a little bit later on. I think we've got Expo on as well. So we're definitely in the in the shipping trucking kind of genre today. But I guess it's front and center as we wake up make our way towards that CPI number tomorrow. These are areas in which the bottlenecks have been really quite significant. Kelly we're just getting the the wholesale in-between numbers coming through.

The headline number is is the wholesale in Mitre month on month number. This is the December final number. It's actually a little bit stronger than the preliminary number. So we're in a two point two. So we're seeing continuing strength continuing pickups in terms of the inventory that we're seeing in terms of where it's held within the supply chain. Wholesale trade sales month on month coming through a little bit weaker which is interesting actually. But I think the inventory number is really fascinating

because we are well above the historic norms. Companies clearly have decided that supply chains are a major problem as a result of which continue to hold significant amounts of inventory. And this kind of leads us on to our question of the day. Would hot or cold CPI brought up a bigger storm in these markets. Again hat tip to Kailey Leinz. She came up with the with the story that I think I started off with the hot and cold thing but I think you finessed it as ever. TMF Let's bring in senior Tim game definitely a team game. Let's bring in Mike NIKKEI talking of the Team Bloomberg's international economics and policy correspondent and Bloomberg Markets. Pretty good sir. Mike let let's kind of set it up. What

do you think we're looking at here. What is the bigger risk. Hot or cold when it comes to that figure tomorrow. Well hot for the figure but I'm not sure that's going to be the reaction in the markets. We are expecting seven point two percent annual rate for the headline CPI. Five point nine for the core. And as I put it to John Farrell since we always are so U.S. centric on these programs I will say that is going to be the hottest inflation since Margaret Thatcher was prime minister in Great Britain. But does the Fed pay attention to the CPI this month. Maybe not because they've got another CPI reading and a P.C. reading coming up before their next meeting. And we are thinking that we might see inflation start to fall before that because the base effects in the next month. And because some of the effects will work through even with inflated energy prices those

won't be going up forever. And if they start to flatten out then that brings down the month over month number. All right. So that's the implication for the Fed. Christine what about the implication for a market that already has priced a great deal of rate hikes. Yeah. Well let me throw you some numbers here because Mike is absolutely right. We continue to see these beats on weak economic figures come out the CPI out of the last 12 data points. Only one has actually been a negative surprise. So

for the markets are kind of fine tuned to the idea that CPI is going to beat despite how high those kind of estimates are. What's scary for the market here is that they've come to expect it. So now if to answer your question of the day essentially what's going to brew a bigger storm. I think a CPI miss would brew a bigger storm especially when it comes to simply the fact that the market is so priced and they are expecting a hawkish pivot from the Fed. And of course a very aggressive rate policy

when it comes to March. So that would be a bigger kind of driver to the downside. Let me also bring up the point though. It's all about what's actually driving the inflation because it's not just goods not just services it's energy inflation. We actually look at the sensitivity in the stock market to oil in particular. That seems to be the bigger driver. That seems to be what spooks it instead of yields. OK well let's just come back. You took my sensitivity in markets to this prince. Let's talk about where we could see the biggest sensitive. It's easy say energy sector one to watch out for but I'm assuming the banks are front and center and this whole kind of narrative around the valley rotation. So just give us your say if we get a cold. No

tomorrow. It comes in under let's say we get a six handle tomorrow. Chrissy where do we get the biggest reaction not just the headline level of index level but further down into the sectors in the stocks. Yeah well a myth essentially for the CPI number would probably fold best into the likes of big tech because at the end of the day even though you do see yields and tech moving together on an intraday basis directionally they are diverging. So that was probably a sigh of relief that you would

see especially for those investors who are saying that a more hawkish policy would would take two to tango would impact tech the most. But I think once again we have to talk about energy because I think when we talk about the value trade potentially making a reemergence in 2022 while we've talked about the leader in that value trade which isn't financial which it was for just a hot month in the last quarter it's actually energy which it seems like is the sole pocket the stock market that isn't that reactive to CPI anyway. So if you're looking to hedge for example it's diving into the commodity market for that kind of inflation hedge a safer bet might simply be going into the stock market because it kind of prevents you from all the volatility of the commodity market. Mike let's continue to talk about the implications for the Fed as well. Could tomorrow's print make or break the 25 or 50 basis points in March. No. For the same reasons that I mentioned about the hot and cold is the Fed's got more inflation numbers coming out between now and then and they'll look at the next CPI print which will come out on March 10th and their meeting's not till the 16th. So they will have time to digest a whole new set of numbers. This is really kind of a question of not whether it's hot or cold in terms of the reaction but at who's in the bathtub at this point because some people like it colder some people like it hotter. It's a question of what you're going to buy not whether you're going to

buy a broad long a tight enough. They have this one ready to go here. But basically you look at what happened the last time in 2008 and they did cut rates and then started raising them again. When you got to 2015 the market just kept going up and they tapered and the market just kept going up and they cut rates again for the pandemic and the market just kept going up. So I

don't think the Fed is going to have as much of an impact. It's just on the overall market. It's just going to be on individual sectors and what you decide to buy. Mike can I take you back to your first answer. You talk there about the possibility of of maybe inflation tapering off from here. Could tomorrow's number be the peak number of this cycle. It could. When we get into February and March February is still a chance for maybe a little bit higher but it could start to

roll over both because of the energy reasons and because of base effects. And then the question is are we still seeing companies raising prices in the same way that they have been or does that slowdown. Because you looked at that inventory number at the top of the show because inventories are starting to build and supply chains are starting to ease a little bit. OK so if it's not going to necessarily be the peak though in terms of the market reaction greedy it could be peak inflation. But we haven't seen most strategists think a peak in terms of the 10 year yield. We're now seeing the likes of Goldman

revising up their forecast now to two twenty five. How soon could two percent become a reality. What was suppose to become a reality yesterday. Right. That's what the market was expecting. Those must be in the rearview mirror. But I mean it could happen any day now. You are seeing a little bit of a retreat. And I think that has also breathed. There's a little bit of a sigh of relief when it comes to equities because when you get closer and closer to that 2 percent level in the 10 year yield it is going to spark just a little bit of volatility. But I think to to Mike's point the stock market tends to look through these things

even in 2013 2017 when it did go through that 2 percent level on the upswing. You saw the stock market kind of shiver just a little bit and then continue climbing higher. So it's going to be a similar story when it comes to finally hitting that 2 percent yields going to be a little bit of a convexity hedging story that gets real nerdy real quick. But essentially at the end of the day it is going to just be higher yield up probably higher stock market simply because of the messaging that we have received. A lot of the pricing for the bond market arguably for the equity market too has happened in the rearview mirror. I think going back to the CPI print though and I think Mike is 100 percent right on this. Look at the input costs. Right. Because

we've talked about energy. Talk about services. But I don't think we've talked a ton about food inflation for example. Chipotle Late was a great example today. They were actually able to pass on some of those costs to the consumer. But if you continue to see say higher avocado prices higher meat prices and that show up in the CPI numbers well that's going to impact your of course your food sectors your restaurant sectors and other companies that are far more dependent I should say on those price increases. Higher avocado prices. Now we know things are getting serious. A final quick question final quick question to you. Pretty race is the issue of food. Let's talk about which areas of the basket are going to continue to increase. What's happening with rents for instance. Well rents are going to be something that will be

with us for a while. Increases because we've seen home prices go up so much through November 17 and a half percent. And because of the way they calculated it takes a long time for that to get into the CPI. They are going up at about a half percent a month. So that should still continue to put pressure on the overall inflation number. Food is an interesting question because it's dependent on so many things that are beyond the control of anybody. The weather not just here but around the world. Suppose

we have a problem with Ukraine and Russia. Russia's the world's biggest wheat exporter. So it's kind of hard to make predictions. But right now it looks like food inflation maybe sort of topping out. And of course that's why we strip out food and energy both of which are more volatile and look at that core metric. But the fact of the matter is that is what at the end of the day people feel when they go to the grocery store or go to the gas station. Thank you so much to Bloomberg's Michael McKee

as well as Creative Gupta. And coming up she's betting on higher oil prices. Speaking of prices at the pump she's also betting on higher rates but still more consumer spending. We'll speak with Nadia Level of UBS on her sector picks next. This is Bloomberg. Let's check in on the Bloomberg Markets. These numbers you can get to Hong Kong reported a record of more than eleven hundred new Corona virus cases today. Many were linked to family gatherings during the Lunar New Year. Emergency services are said to be overwhelmed. Meanwhile here in New York the state reportedly will drop its

stringent indoor moss mandate. That's according to The New York Times. The mandate requires businesses to ask customers for proof of flu vaccination or require moss wearing. A New York judge has granted bail to two people charged with trying to launder billions of dollars worth of Bitcoin. The cryptocurrency was stolen in a 2016 hack of the Big Fine X currency exchange. Alia Lichtenstein and Heather Morgan were arrested yesterday. The government says it seized about three point six billion dollars worth of crypto currency from the couple. Global news 24 hours a day on Adam Bloomberg Quicktake. Powered by more than twenty seven hundred journalists and analysts and more than one hundred and twenty countries members can get to. This is

Bloomberg Kelly. All right Rick NIKKEI thank you very much. Now let's get back to the markets and back to our Question of the Day. Has a little something to do with weather and temperature. What hot or cold CPI brew a bigger storm for these markets. How much will that inflation data tomorrow make an impact. We're joined now by Nadia Level UBS Global Wealth Management senior U.S. equity strategist chat strategist. Nadia given how much has already been priced in is there even room for there to be a surprise to the upside on inflation that makes a difference for this market. I don't think so. You know the market is already looking for something what a 7 percent handle and that's priced in. So if we

get something much hotter than that it could see a bit of a choppy in front of pivot into the areas of market yet that will benefit from higher rates and high inflation. So that's financial and energy. We saw that happen with the better than expected job numbers on Friday. But if you get something much lower than 7 percent that might say to a market that maybe inflation is starting to moderate and maybe the Fed doesn't need to be as hawkish. So you could see an uplift to areas like technology that is under pressure as we know due to high real yields. But I don't think that the market will lead too much into that narrative just yet. It's a bit early. The market one month does not make a trend. The market will want to see a

couple more months of moderating inflation to really get confirmation that maybe we have turned a corner. What are you expecting Nadia. What do you guys think is going to happen tomorrow. How are you positioning round. One of the more important inflation prints that we're watching as we march our way towards that next Fed meeting. Yeah. So we think that you do get something in the 7 7 percent handle range. And so from a position standpoint we have continue to like value as a result of that. We continue to like financials and energy. We do however do think that inflation will peak in the first half of the year. So probably this February March we will see the peak and then sort of moderate

and we had to back half of the year or more looking for inflation to settle around 2 percent by the time we get to the end of the year. And you obviously like the consumer discretionary sector here and I'm wondering what bearing inflation has on this because Guy and I were just talking about avocado prices which are up something like 38 percent in a very short amount of time is a lot more expensive to get your walk at support like the consumer has to be able to tolerate that. They have to have the spending power to tolerate that. What gives you the confidence in discretionary and that they're going to be able to continue to do so.

You know there's still consumers balance sheet are still looking good. Still flush with cash. And like I said I do expect inflation to moderate companies continue to see their purchasing power. But one of the reasons why we also like to see consumer discretionary sector is as we know this is one of the sectors most disrupted by the pandemic and the restriction. So we think spending will start to broaden out the travel and visa areas of the sector and that should be a tailwind around vaccine boosters antiviral pills. All of that should help improve consumers comfort level and the economy and the service side of the economy to over more broadly. And that should be a lift for the consumer discretionary sector.

Nadia you guys have got. The end of the year on the S&P with a five handle 5000 1100 a June to December you varying in terms of your targets. You think we get to December 5100. What gets us that. Economic growth continues to remain above trend. We think that that will continue in the back half of the year. And when you look at the earnings season you know we've had some high profile amnesties but we've had a lot of beats as well. Right. In fact

the average beat rate has been about 6 6 percent or so. That's above the historical averages to be earnest pitchers still looks good. We are expecting EPS growth of twelve percent this year. Congrats to your work particularly as the service side of the economy reopens more broadly. And so we do think that value regional sales don't come in enough. And with that earnings growth really our price target is reflective of the earnings growth expansion that we look for this year. On the subject of valuations not yet. How much higher can yields go before you start to get nervous about some areas of the equity market.

I think if you start to see the 10 year shoot through two point five percent then you might start to see some jitters in the market. But our expectation is for the 10 year to get to 2 4 1 percent by the end of the year. We could see some bouts where the 10 year gets to two point three percent in the first half of the year. But I think as you know PMI is sort of moderate in the back half of the year. Still remain in expansionary territory where we're likely to see yields as they have historically come down more to about two point one percent. But I don't think that that that there will be too problematic for valuations until we get into that to two and a half to 2 7 5 range. Nadia what would you avoid right now. I think it's a bit early to pivot like defensively and so that's an area that we would we would not look to to add to this more we would continue to favor the more value in cyclical areas of the market. Also tech I think you have to be very selective in

check. Yes tech valuation has come in quite a bit as really yields move high. But we do expect a real we'll see moving even higher than where they are now. And so that could also continue to be a headwind for tech valuation. But there are some parts of Texas that we continue to like victim physically in the mid-cap space. And some of those tech companies I speak to more like artificial intelligence big data and cyber security as this continue to be demands in those areas. Nadia a really great to

see you. Thanks for joining us on the show. Really appreciate it. As ever. Nadia Level UBS Global Wealth Management senior US equity strategist. Thank you very much indeed. Elizabeth Isabelle Schnabel from the ECB from the Governing Council of the Executive Board is doing a Twitter Q and A right now. We find it on Twitter. Let me bring you the headlines from it. She's talking about inflation. She's saying that the risk is that inflation continues to rise in the near term. Roommates inflation to remain high for longer for longer than anticipated. She is a hawk. She comes from the the more cautious wing of the ECB. Let's put it that way the more hawkish wing ECB certainly accounting for

uncertainty in decision making. Projections are always surrounded by uncertainty but there remains a high degree of uncertainty around the inflation outlook. We have seen a bed coming back into particularly the periphery today. We've certainly seen beekeepers after being badly beaten up over the last few days. At least today catching a bed. But again tomorrow's CPI prints out of the states could be an important factor here as well. We're going to talk about

next. IBEX certainly putting a significant dent in left ridership in the fourth quarter. We'll find out later if Uber did any better. We also got Disney coming up. We'll talk about all of this next. This is Bloomberg. OK so let's talk tech lift reporting fewer riders overnight than analysts had been expecting in the fourth quarter Omicron dampening travel demands. We've got Uber coming up. What's the read across one to the other. Joining us now to try and answer that question from San Francisco is Bloomberg's Ed Ludlow. Ed walk us through the numbers from left and what they mean for Uber. Yes a ridership depressed right. Depressed year on year depressed vs. kind of pre pandemic levels. And it's because of Omicron. That was kind of the pain point in the fourth quarter.

Also the company saying that the outlook for the first quarter was where they'd feel the brunt of it. But what's interesting is some green shoots right left saying that the revenue per rider is really on the up. And part of that of course is the more expensive rides to the airport. So the reason I say green shoe is it looks like kind of business travel premium segment travel is returning. The difference between the two left and Uber is that left core businesses ride share and that's it. Uber has the delivery business and other mobility platforms to leverage while Lyft doesn't. Yeah. So it's kind of both sides of the stay at home versus re-opening trade when it comes to Uber another company that really exemplifies that is Disney. In that on the reopening side you have theme parks and the actual movies. On the other side you have Disney. Plus is

Disney likely to fall victim to the same kind of forces as we saw with Netflix a few weeks ago. This is going to be a fascinating quarter. You know we learned in the previous course that Disney is kind of a live or die by Disney plus subscriber ads. Right. I think consensus is net new subscribers of eight point two million take the total past 122 million either side of that. You know we've based on past precedent. We've seen big moves in the stock. But there's a lot of attention this quarter

around the theme parks for one reason Comcast owns universal theme parks and in the quarter just gone. They had their most profitable quarter ever. You know there's a lot of activity in spite of Omicron coming back. Disney of course had fiftieth anniversary celebrations at some of its theme parks. So there is a feeling that that could be a real boost. The content pipeline has been okay. You know you've got one of my favorites on the screen right now. You know sadly as Star

Wars content. And so but what's interesting blooming intelligence very quickly saying second half of this year content is king. Disney has a great pipeline. So one to watch. I wish Alix Steel was here to talk to you about Star Wars because I got nothing. But thank you so much to Bloomberg Surveillance ad Ludlow. Disney is up more than 2 percent right now ahead of those results. Now coming up we'll stay on the West Coast and that logjam of ships isn't as bad as it was a month ago. We'll talk with the executive director of the Port of Los Angeles Jean Rocha. This is Lindbergh.

We're an hour into the U.S. trading session. There is a lot of green on my screen. Bloomberg's Abigail Doolittle is tracking the moves. There certainly is a lot of green on the screen. It's broad based to Kelly with the S&P 500 up more than 1 percent its best day of February. Of course the month is relatively short but nonetheless the best day in more than a week. You also have the Nasdaq 100 up more than 1 percent. Real strength coming from that China Tech Index. The Golden Dragon China index up 4 percent a real rebound for some from for some of those 80 hours. And then small cap doing quite well as well. Up one and a half percent. And of course small cap yesterday had outperform. Now one cause for this bullish tone right now and who knows whether

or not will last given all of the intraday volatility recently. But we do have yields and this is the 10 year yield down about three basis points. Nonetheless it did start the year around one point five percent. Now closer to one point nine three percent not so far from 2 percent. The big question is whether or not it will get over that 2 percent and how quickly. Tomorrow of course that key CPI report and reading on inflation. If we go into the Bloomberg terminal we are going to see that rates in CPI not surprisingly tracking each other really pretty closely here. And what we're looking at white the 10 year yield on a monthly

basis. And in blue that CPI 7 percent. Tomorrow the survey is calling for seven point three percent. Some are questioning whether or not it comes in as a surprise below. I think the low estimate on the street is seven. The highest in an industry I believe is seven point seven percent. But which surprise would cause a bigger move. Either way you can very clearly see that

the trend is higher unlikely to be interrupted any time soon despite rising inflation inflation. There is one stock that's doing really quite well despite the fact that prices are rising. And that of course is to partly to partly flying on the day up 7 percent. They put up a very strong quarter. They beat the forecast is strong. And even though they are having to ride raise prices consumers really absorbing that and digital doing very strong. We also have Omnicom up strongly up thirteen point two percent. There's a 7 percent short interest put up a great quarter. The communications company and the forecast solid and

end phase energy. Another earnings winner guy up more than 8 percent. The solar company saying that this quarter looks great. And they also are boosting manufacturing in Europe. So these are a few of the stocks that are really helping on the green on the screen that Kelli was talking about. Lots of it out there. It's interesting to see and we were talking about this earlier.

Avocado prices up 38 percent year to date partly clearly able to pass on some of that cost. Emily Chang great work. Thank you very much indeed. Bloomberg's Abigail Doolittle and what is happening with the markets this Wednesday. Let's talk about what is happening to another aspect of this inflation story. The bottlenecks the supply chains the. The focus has been firmly in this area really since this time last year. Earlier on we spoke to Mask CEO Sorin SCO. He thinks

actually these disrupted supply chains may be starting to heal now and we may be just a few months away from starting to return to normal. We're coming out of a pandemic and we don't have much experience with that to be honest. So basically what we are seeing we expect quite a strong first half of the year of 2000 and 22. And then we expect what we call a normalization in early in the second second half. That's what what we give as a result which is very similar to to the one that we had last year which was a record breaking in every time I mentioned. Sort of scope AP Miller masks CEO talking to a Bloomberg a little bit earlier on. Let's carry on the conversation now. Jeanne sir. Okay the Port of Los Angeles executive director joining us now. Jeanne great to see you. Thank you very much

indeed for your time. Sorin SCO Things. Maybe we started to see things normalizing later on this year. Are you with him on that. I agree with my friends saw and we're seeing guy a movement of cargo pretty heavily through lunar New Year landings here in Los Angeles towards the end of this month of February. North American retailers continue to tell me they'll use quarter 2 to replenish inventory get that safety stock at a more comfortable level. Then we'll have a chance if we hit these two marks

properly to pivot into an earlier than normal peak season. End of June early July. Are you going to be able to do so on the labor side. Three segments of labor. We still need a lot of folks on the job and the warehousing sector as well as trucking. But what you're alluding to is the contract with our longshore dock workers that's set to expire on June 30th. Those dock workers have been out on the job an average of six days a week since the pandemic began. They kicked off their annual caucus to prioritize negotiating points that will be driven when they sit down at the

table with the Pacific Maritime Association. Later in the second quarter I'm optimistic. You've got professionals on both sides of the table negotiating. These dockworkers need to get paid what they're worth. There are several other issues that need to be tackled. I think everyone understands what's at stake here economically.

One of the aspects when it comes to labor Gene is obviously what the impact of Omicron in terms of labor outages. The the longshoremen have been working incredibly hard. Everybody's been trying to work very hard to get some of these backlogs cleared. But Omicron obviously has caused people to be out. What are you seeing right now. How quickly is that story healing. Like many around the world and right here at home guy the long dockworkers got hit hard by all macron. Probably about 10 percent of the workforce here in Southern California tested positive. Thankfully those positive test numbers are going down

every day. The workforce is getting stronger and we didn't miss a beat with the cargo flow. Those numbers that we look at guy that we've talked about before and velocity of cargo are all improving. And it's because the men and women have been out there each and every day. So I'm optimistic. The month of February starts to see folks come back into the workforce. But

again even with those out sick we did not impact the productivity here. On the subject of the pandemic we've seen and continue to see some pretty intense protests in Canada over vaccine mandates. When it comes to trucking it's closing some key conduits between Canada and the US specifically a bridge in Detroit. Could there be any ripple effects of that when it comes

to trucking and logistics in the US that reaches the port of Los Angeles. Shery Ahn. It's always a concern and we're keeping an eye on it every day. The American Trucking Association has stated many times that we're about 80000 drivers short nationwide. We need more drivers in the port drainage industry here. It's not a matter of not

having enough drivers. We've got over six hundred and sixty thousand commercial licenses that have been issued in the state of California. About 18000 of those folks are registered to do business here at the ports. We need to make these jobs better. They need to be professional. You need to attract recruit and retain folks in this industry and pay them what they're worth as

well. On that note there is certainly a push by some of the contractors some of the trucking contractors suggesting that they should be unionized. Do you think that will go some way unionizing some of these these contractors making them employees. Do you think that would go some way towards maybe

improving those conditions allowing a better dialogue and maybe improving some of those shortages the suffering. I do. But it's always a choice of the worker to see how they want to go on the job every day. What we've seen across the United States and even here in Southern California is that those folks who work in union organizations are just about in full employment every day. It's those who are unrepresented that we continue to see struggles with whether it be pay filling jobs or requirements on shifts. That conversation needs to go a lot deeper and it has to happen now.

As we move forward into the year when in theory some of these things may be getting bigger better. What is the biggest risk that you see. Well we've got to do three things right now. Number one while focused on everything else that we've been chipping away at for the past year and a half we've got to look at improving American exports getting our farmers and manufacturers back in the international game. Secondly we've got to get these vessel services back on time to their scheduled performance standards bringing certainty to the international and domestic supply chains. And the way to do that on both sides is enhance this look at supply chain digitization. We've got to fan out from

here in southern California bring in more participants and have a nationwide look at information sharing. If we don't take this spot like that's been honest and use it to improve the supply chain the risk is we go backwards again. All right Jeanne Sirota Port of Los Angeles executive director thank you so much for your time. And coming up speaking of supply chain issues shortages we're going to talk about the global chip shortage as well as tariffs and the impact that that blockade. We just ask Jeanne about is having on the US Canada border. We'll have a wide ranging exclusive interview with the U.S. commerce secretary Gina Raimondo next. This is Bloomberg.

This is Bloomberg Markets arm which kidnapped her and you're looking at a live shot of the principal room. Tune in to Bloomberg's monthly series Cheap Future Officer. The episode featuring Macy's CFO Adrian Mitchell is now on Bloomberg dot com and YouTube. This is Bloomberg.

We welcome now our TV and radio listeners and TV audience and our radio listeners. We bring you altogether because we have a great privilege to be joined by Gina Raimondo the US secretary of Commerce. We're also alongside Bloomberg's David Westin. David over to you. Thank you so much guy. And thank you Madam Secretary for joining us today. It is indeed. Gina Raimondo it is a privilege. I want to start with something that happened yesterday. The House of Representatives passed its version of a

statute that's been called various things. I think it's now making America. But in some in substance it really would invest a fair amount of money. Fifty billion dollars in designing and manufacturing semiconductors here in United States. Now it goes to conference. Give us a sense of what the impediments are in. Congress is one of the biggest ones. The forty five billion dollars in the House version not the Senate to invest in supply chain. Good morning David. It's always great to be with you. Thank you for having me. So I first want to say it is impossible to overstate how consequential this bill is. As you say take 50 billion dollar investment in long term investment in American

manufacturing of semiconductors which is a uniquely critical component. It's headed to conference as you say. And I am there's a huge amount of bipartisan support for the vast majority of the bill in both the House and Senate. I have just this week spoken with chairs and ranking members of the committees in both the House and the Senate and also to Speaker Pelosi and Leader Schumer. And everyone was focused on getting it done getting it done

quickly and getting it to the president's desk. So I'm sure there will be ups and downs and disagreements but we are all optimistic that it's something that can happen reasonably quickly. Well that's really reassuring to a lot of people who are concerned about this. But specifically on the supply chain issue which is understood as were the differences the two bills

you have been responsible on supply chain here in the United States. How critical is that 45 billion dollars on the House side to get done. We need to get done separate apart from the subcontractor investor. Yes. Thank you. Thank you. It's extremely important now. And by the way there is broad bipartisan support for that as well. And the president had a similar proposal in his build back better proposal. Whether or not 45 is the right number and it needs to be that large is is a legitimate discussion. But what I can say is we. There is no department in the federal government currently whose mission it

is to monitor our supply chain which is really mind boggling. If you think about it. So the proposal is to create you know for the first time ever an initiative here at the Commerce Department to monitor supply chains make sure we have resilient supply chains predict bottlenecks before they happen. Invest in domestic manufacturing which is why it is now being called the Make it in America Bill. It has to happen. David. So the precise details we will work that out in conference. But I think we're

all living every day with the disrupted supply chain. We can never let that happen again. And that's what this bill is designed to prevent. Madam Secretary good morning it's guy. Thank you for your time today. Even if this passed today even if this became reality today and money started getting spent today it would be years before the first chip rolls out of the first fab. What can be done now to

deal with the supply chain shortages in the chip sector. That industry is having to grapple with day after day. Yes. Let me say this guy and I know you know this and every business leader will agree with this. Once that once this passes the president signs it. That in and of itself is going to unlock private capital. I was in Ohio the other day with the CEO of Intel. He made an announcement of a 20 billion dollar facility in Ohio. He said he did that because he's assuming the CHIPS Act

will pass. And if it does it will unlock another 80 billion. So I think we cannot underestimate you know industries watching this industry needs this. Why do we need this. Because we want them to put these facilities in America. Right. They're going to put these facilities somewhere to meet the demand. They need to be in America. So getting this passed now is among the most important things that we can do. Beyond that the other Dow Jones we can do now are just to bring together suppliers and consumers to increase transparency which we are doing encouraging information sharing so that we can be sure there's no hoarding. There is no stockpiling. There's no price gouging. All of that transparency which is what we are leaning into increases trust

in the supply chain which will get rid of some of the bottlenecks. Long term though still no free lunch here. The reality is we need to produce more chips in America. More chips in America. You spoke a moment ago as well about making sure that they were produced in America. Madam Secretary yesterday the E.U. unveiled its version of the CHIPS Act. The numbers are roughly similar. Now clearly other factors are going to come into play here. But are you now in a position where you're having to compete globally other regions other countries are looking to do the same thing. Is this an arms race that you

now find yourself with. Well the reality is we're already in that global competition. China is pouring hundreds of billions of dollars to subsidize its chip manufacturing. So this is about competing America competing strengthening American manufacturing American manufacturing. As it relates to the EU they are strong among our strongest allies and we are already in discussions. One of the things I lead along with Secretary Blinken is the U.S. EU Trade and Technology Council. And in that council we talk a lot about how do we coordinate our investments so that it isn't a race to the bottom so that we have complementary investments so that together U.S. the EU are stronger. Quite frankly less reliant on

China. Well let's continue the conversation about China Madam Secretary because the Commerce Department in data yesterday made it very clear that they haven't held up their end of the bargain on the trade deal struck in the previous administration with the Trump administration only it purchased about 60 to 63 percent of the 200 billion dollars worth of additional goods. Some of your colleagues in the administration has said the difficulty is there is no way to hold China to account on that. Is the administration going to let China off the hook. No. No. President Biden has been very clear. You know this

so-called Phase 1 agreement we inherited from President Trump. It's not necessarily. It's definitely not what we would have done. Having said that China signed up for it and we intend to hold them to account. And Ambassador Ty the U.S. trade rep is is in the thick of those negotiations now. But the reality is and you saw it in and report that that the data commerce put out yesterday China's not playing by the rules. They're unfairly subsidizing their

companies. America when American American entrepreneurs and businesses can outcompete anyone. If everybody plays by the same rules and we have a level playing field. And what you saw on that data yesterday is China is not doing that. So we absolutely are going to hold them to account to live up to the commitments that they made that they signed up for. Madam Secretary I want to turn our eyes to the north a bit here if we could to Canada because there is that issue with the Ambassador Bridge between Detroit and Windsor. You know it well. I'm from Michigan. I've been across the bridge a fair amount of time. It really is the major point at which a trade is exchanged across that border. What efforts are we making. Try to help Canada on that problem. Has the president President Biden spoken with his counterpart Mr. Trudeau in Canada. Have you talked with your counterpart.

I have not yet sexually Buda Judge Sector Transportation I know is deeply engaged in this. And as is Customs Border Patrol it we need to resolve this issue at the moment. We aren't we. I have been in touch with the auto companies and stocks. We are told it is not yet interfering with supply chains. However it will. It's only a matter of time. So we the administration are aggressively engaged trying to defuse tensions and increase the traffic. So the other issue as you know very well being a Michigander is folks forget about cargo. Folks use that to get to and from work. And so we have to we have to get

traffic flowing again. All right Madam Secretary thank you so much for your valuable time. US Secretary of Commerce Gina Raimondo as well as Bloomberg's David Westin. Thank you very much. This is Bloomberg. Guy admittedly I've been waiting for this all hour because we are now going to talk about NFL football and I actually have a valid excuse for doing so today because the Bloomberg Quicktake story which you can find it and I beg take on the terminal as well as online focuses on the NFL and specifically its changing attitude toward gambling when it comes to professional football.

The league originally was very skeptical about this. Now it has embraced it fully guy to the point where some of these companies the likes of Draft Kings others are sponsoring lounges within stadiums. You have owners like Bob Kraft and others that are invested in some of these companies. It's fully embraced gambling. And I bet there's going to be a lot of people putting money down on the game on Sunday. Absolutely. Isn't the irony though that it's being played in California and that is a state that has yet to legislate. So no gambling in California. Yeah. Which maybe we'll take the sort of

the edge off a little bit but other states could definitely do so if you if you were to bet on this weekend's game and I'm sure you're thinking about where would you go. I'd go with the Bengals which is a little against consensus. But I have a lot of confidence in Joe Barrow now that he's out of his rookie year. And I think they have that underdog mentality which I always like. So we'll see guy. But it's not even just about betting on who wins or loses the game or even point spreads anymore. You

can bet on if Joe Barrow is going to complete his first past Yvonne Miller will successfully sack him at any point in the game. I mean you can bet on pretty much anything at this point. Can I just point out that I think Kailey Leinz is up quite early on Monday morning. It could be a brutal. It could be a brutal Monday morning. I'm not sure what time the game finishes and what time you're up. But I imagine the spread between those two very narrow is fairly small. Yeah it's worth it though. Okay. I have no doubt that you will end up. At least watching the highlights on your way to work. Maybe you

have gone to bed early but at least watching the highlights. I actually suspect the Kailey Leinz is going to stay up. As you may have noticed she's fairly engaged in this subject and there's a lot more about it than I do. European equities. I don't know much about those either. European stocks are tracking higher today were up by around one point eight percent. I think the real story though is some stabilization in peripheral yields. Got a bit in beta. We also

got a bit back in Brent crude as well which is significant. Tracking a little higher up another 1 percent right now. Close is coming up. This is Bloomberg.

2022-02-11 18:08

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