Bloomberg Markets (05/04/2022)
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 May 4th. Here are the top market stories we're following for you at this hour. Fed decision day. The expectation a 50 basis point hike for the first time since 2000. The risk a hawkish surprise. J.P. Morgan CEO Jamie Diamond gives the FOMC 33 percent odds of a soft landing. Driving and diving lift shares plunge on a weak outlook as the right healer gets set to sacrifice profit to incentivize drivers. Uber takes a different route delivering a beat and upbeat forecast and views from the C suite. We'll get insight
into earnings inflation and the pandemic with the CEOs of Barrick Gold and Madonna. This hour from New York I'm Kailey Leinz with Guy Johnson in London. Alix Steel is off today. Welcome to Bloomberg Markets. And guy a very happy Fed day to you. Absolutely. We'll find out just how happy it is a little bit
later on 50 75. We'll get to discuss that. Getting some data which I think is interesting and germane. The ISAF services gauge falling to fifty seven point one vs. fifty eight point three. The estimate was fifty eight point five. Now. You need to dig into the details to understand whether or not this is actually as bad news as it was originally suggests because we got this incredibly tight labor market right now. The employment index comes through at forty nine point five. Now
that was 54 last time around. I would suggest that actually people are struggling to hire people. And we've seen this across the data series. And as a result of which I wonder whether this is actually the problem we're seeing here. Prices paid come through at a record of eighty four point six after eighty three point eight. The headline number Kelly I think looks initially negative that this is an economy that is slowing. But actually I think this is probably indicative of an economy that is super super hot and that that kind of takes us to our question of the day. So what do you think. Fifty or seventy five which can't be you. I mean the market's in Camp 50 but there is the risk of seventy
five out there. I'm gonna go with the Fed's not going to want to surprise the market. It usually doesn't. So they'll probably move by half a percentage point guy. But given what we've seen out of the RBA and the RBI over the last 48 hours it kinda goes to show you that anything really goes. I wonder if we're coming out of the camp of the Fed not wanting to surprise the market.
We're heading into an environment where the Fed needs to surprise. The market might be key. Joins us now Bloomberg's international economics and policy correspondent IRA Jersey with us as well our chief U.S. rate strategist. Mike why not seventy five. Well that's a question people are going to be asking in the news
conference if we get 50. You know they tell you if you're making a forecast either give a number or a timeframe but not both. So I'll say 75 at some point. I don't know when they'll do it. But if you were going to do it and you made this point guy this might be a time to surprise the markets because you're defending your own credibility. And this would send a very strong signal that the Fed is going to go after inflation hard. And when you look at the ISF Services Inflation Index today it just shows that probably is not going away. All right IRA. So what's your take. The Fed got a shock. Shock and awe today. Yeah I don't
think so. Primarily because they also think they're going to take another hawkish action and announce the fact that they're going to start running off their balance sheet today. And that that coupled with the fact that we're fully priced for a 50 basis point hike today I think takes the 75 off the table this time. That being said you know like Mike like Mike mentioned 75 in July and maybe even another one in excuse me and another one in June and then maybe another one in July is also not completely out of the question either. But but that will really depend on the upcoming data and how forceful the Fed basically wants to fight this inflationary trend. IRA if the Fed if Powell doesn't take 75 off the table will that
be perceived as hawkish or is that now consensus. Oh that's that's an open question. Well we're not fully priced yet for a June 75 basis point hike where about 50 percent priced for that eventuality. So. So my take on it would be if he said yes 50 50 is you know basically a done deal and 75 is very possible. We could at some point especially if we wind up with a significantly higher CPI and P.S. prints for the month of the month of April and maybe even the month of May as well then yeah
we're probably going to price it for 75 which at this point is it's not quite consensus yet. Complete consensus but it's a distinct possibility that's in the back of everyone's minds. Yeah I was speaking with Chris Watling of Longview Economics earlier on on surveillance early edition and he basically said the market can handle 75 depending on its 75. And what the tone around it being you know front loading we're gonna take a pause. The terminal rate not necessarily is going to be higher. All of that depends. So Mike to come to you and Guy and I kind of chatted about this at the top there the Fed usually doesn't want
to surprise the market. Do you think that there Jerome Powell still wants the market's permission to do what he does or does that no longer matter. I don't think it's so much the market's permission but he would like the market to front run them a bit which it has been doing. We already see a slowing in the housing market which is one of
the most interest rate sensitive sectors and that's going to only help the Fed with its fight against inflation. They've got to get to a bit tighter conditions. And while financial conditions are not as loose as they were there's still a long way from being tight. And we were talking on John Fair show just a short time ago about how even if you raise the Fed funds rate to a nominal 3 percent you're still looking at a negative real Fed funds rate. So they'd still be stimulating the economy which is what they're not going to want to do. Absolutely to that point Mike. We just have a brief discussion
about this data because the more I look at it the more concerning it looks. The Services Employment Index is at forty nine point five. That has fallen from 54. That is a big move lower. And it comes on the back of that jobs number which I appreciate is rear view mirror stuff but nevertheless kind of highlights the fact that we have a very tight labor market. And then you ally that with prices paid index which is at a record eighty four point six after eighty three point eight. This is a labor market that is absolutely flying right now. Or maybe that's the wrong word. Maybe it is grinding to a halt. What do we need to see in the labor market. What needs to happen in this labor market for the Fed to start to feel that it's
doing its job. Because at the moment the data I'm pointing to it. Well that's going to be an interesting measurement. I mean the labor market is as you say Fargo. Or maybe I should say brace for tomorrow. But you look at the ADP number today comes in a disappointing number. And it's probably as you said that the companies can't find employees and so they're not creating as many jobs. Now that's a different measure from is unemployment
going up because the Fed is tightening which is what usually happens. So I'm sure you'll hear Jay Powell reference the labor market say it's too hot. But also say it gives us some cushion here to raise rates. And we don't necessarily have to go into recession because the economy is strong enough to withstand higher rates. Yeah. And of course the market's going to be hanging on each and every word that Jerome Powell speaks. IRA what should we expect in the bond market reaction to be if it's something perceived as hawkish does that automatically mean flatter yield curve. And if it isn't more hawkish than expected
that may be perceived as dovish. What is your take. Yes. So I think that if certainly if the Fed goes 75 or Jay Powell gives very clear hints that they're going to go 75 in in June then I do think that we'll see a little bit more bear flattening in the curve to go back a little bit to the earlier discussion. I think it's important to recognize that you know surprising at a Fed meeting is very difficult for the Fed right now because they are doing so much pre communication. Right. So that's one reason why
the market is not exactly front running the Fed. But the Fed is kind of front running themselves and basically casting and telling everyone what they intend on doing. Obviously with so many Fed speakers out there just a little bit confusion about that. But when you listen to kind of those core members of the Fed you know you you basically get a pretty good idea about what they're going to do. So you know Powell talking today is going to be very important. And then obviously we have all the
speakers over the next couple of weeks will probably drive where we're going to go for a June 75 or 50. IRA this is a genuine question. Do you think market participants have a clear and good understanding of why the terminal rates ultimately is going to have to be. No I don't. I don't think. I don't think precisely. Obviously the market is pricing for around three and a half percent terminal rate right now. But that being said you know if if inflation comes in higher than the market's currently expecting over the next six or six or seven months then certainly that terminal rate could go higher. And I think that's the real risk here right now for the markets is is that you're going to have
higher terminal rate and maybe even a harder landing because of that at some point and in say 2024 you know so it's no way in the future. But but to the Fed I think they they have decided that they're going to fight inflation. And at least until you start to see some of those employment measures start to start to turn a little bit. The Fed's going to worry much more about inflation than they will about the rest of the economy. All right. Limericks IRA Jersey a Bloomberg intelligence. Thank you so much for joining us as well as two Michael McKee down in Washington already awaiting Mike's question at the press conference later on this afternoon. Don't forget to tune in and listen to it. Our special coverage of the Fed decides will begin at 1 p.m. New York time today. Now coming up we'll have more on the Fed managing inflation and its impact on gold. We'll talk with the CEO of the world's second largest gold producer Mark Bristow a Barrick Gold. This is.
So 50 75 50 75. That's the debate around the Fed. The results of that is going to have a significant impact on a number of markets including Caylee. What is happening in the gold market. Basically we find ourselves in a situation where it is rates up gold down. That is obviously the inverse of what we've seen over the last few years. As rates fell during the pandemic we saw
gold getting a lift. Then it started to get another lift as well. And it's the white line here. The orange line here is the US 10 year that is going to love the lift as we went through into the Ukrainian crisis. There was this sense maybe that central banks will be buying gold as a result of the sanctions that were being applied to Russia. There was a sense as well that it was a safe haven asset. There was a sense maybe that it would have an impact on yields but it's turned out to be none of those sort of stories. What we are seeing here is yields obviously moving sharply to the upside. That is the US 10 year
was circa 3 percent right now. And as a result of which gold has started to dip back moving lower from that 2000 mark. And the question is can you value gold if you don't know where ultimately the Fed is going to take us. How high will US rates go and what impact will that have. Caleb. All right. Well let's further talk about gold because the world's second largest gold
producer posted better than expected earnings in the first quarter. Price gains helping Barrick Gold offset higher costs and lower output. With us now is the company's CEO Mark Bristow. So Mark congratulations on the quarter. As we said you did beat expectations but you're working through higher cost pressures. You're all sustaining costs rose to eleven hundred and sixty
four dollars an ounce from a thousand eighteen a year ago. Where are those pressures coming from. And do you expect them to continue to accelerate. So Katie two things specifically for the quarter the the cost pressures were largely because our production was down this quarter compared to quarter 4. So you know those are sort of short term impacts. But underlying that we recognize that they are inflation pressures. When we announced our results our guidance for 2022 we guided for 5 percent pressure and inflation pressure. We update a data that today to more like 8 percent. So there is inflation out there. But at the same time you know we have a very profitable portfolio. And and I heard
you introducing and guide the the gold issues. But you know you guys talk about gold and and and rates luck on a daily basis. But you know I think we need to see the world settle. And there's a lot of risk as you touched on out in the world today. And and I think we're completely in unchartered territories again today. Yeah. Marc given that. Do you expect that 5 to 8 percent inflation trajectory to continue. Do we go from 8 to 10 or 8 to 12 in terms of the inflationary pressures you're going to be feeling. Yes. So I think the focus for us is to of course mitigate that through better efficiencies. And we've still got some opportunity. And Barrick since the merger that we still ironing out. We've just rolled out a common platform data
platform. Information is now real time for all our operators. So we've got a bit of work to do. Then we can offset some of this inflation. But the inflation is there. And you know I'm one of the few people alive. You know the last time we experienced inflation to have lived through these sort of inflations. And when you see
inflation it's too late and you better do something drastic. And you talked about 50 points or 75 points. You know I don't think that's enough. And you know the last time the US pushed inflation into double digits because it was slow and this time it's even slow started by saying it was originally transitory. So you know I think. And then on top of that all the
other unmeasured impacts of Covid the global crisis the return to sort of almost a Cold War status the world's in a tough place. And yeah sure there's pressure on gold because that's why you own gold to realize it in times like this. And so you know I see us as looking for a face now in gold before. But the upside is I mean the risk is still on the upside and mammoth upside to where. Mark what are you expecting in terms of where gold will end this year. I think gold will in closer to two thousand at the end of this year. And what drives that. If it were not our editor's complete uncertainty. You know the whole impact of the US dollar being used as a weapon in trying to solve some of the Eastern European issues that the fragmentation of the global trading platforms.
The realignment or non-alignment of what what really brought a stable back end of the last century. And you know we're seeing you know we're in uncharted territories in every aspect. And and I and I do believe that we're in for a significant correction in our markets certainly in the developed world. You mentioned a moment ago Mark that you are looking to make improvements that you are trying to lean in on this inflation. We're going into uncharted times as you've as you've indicated already on a number of occasions during this interview. Given that where is the easiest to get those gains from. Is it is it in Nevada. Is it in Argentina. What's happening in Papua New Guinea. How is inflation affecting each of these different
production areas differently. And is it easier to get advances out of one rather than the other. I'm just kind of curious geographically how you see that developing. So so Nevada has still some low hanging fruit that we can. We have got enough focus. We have set a 50 million dollar target to reduce our overall costs in Nevada. So that will help offset it's not going to net improve our costs. Africa's you know with our global greenhouse gas emissions strategies and moving down this supply chain or up the supply chain. Looking at Scope 3 you know so far all our roadmap to net zero is delivered real
returns improved our efficiencies our ability to manage costs and and and delivered returns. And I think there's still a lot of opportunity to do that as we uplift this sort of focus of some of our supply chain partners in Africa. Well let's talk about Pakistan in particular because you said earlier today that you plan to go there to meet with the country's prime minister. How confident are you in being able to develop that copper gold project. They're very confident. So we have an agreement. We are going down finalizing all the detailed agreements to support this. The biggest investment Pakistan would have ever seen. And it's a real partnership. As you've witnessed in Barrick and previously Randgold we believe and I strongly believe partnerships are defined as 50/50. And and we bring a
lot of value to the Baluch people who are we have sort of been neglected economically for some time. And we negotiated with the previous government. But we see these negotiations as state based. Same in Papua New Guinea. Same in Tanzania. And and an already we dealing and we are dealing through the attorney general's office. You know we expect and we've reached out to the new government and it's a courtesy call from me to to make sure that the new government understands we are committed partners to the people and the state of Pakistan. We are not politicians at all. And end the benefits of this investment have
been have been sort of kept away from the people for more than a decade. And it's an exciting project and it brings real value to both the Pakistan government the people of Baluchistan and of course the shareholders and other stakeholders of very. Market stocks trading higher. Thanks for the update. Really appreciate your time. Mark Brad Stone ISE DAX Barrick Gold. Thank you very much. Thank you Mark. Yeah. See you soon. Coming up a tale of two. Ride hailing services. Uber is apparently firing on all cylinders. Could you talk about that for moving into electric vehicles. Quite so much. Some next. Well I would definitely moving in that direction. Right. Exactly.
Yes. Lifts down 34 percent was down 10 percent lifts numbers really reflecting a driver shortage. It was numbers looking significantly better but the stock still dropping in sympathy I suspect. Ed Ludlow. Talk me through what we learned here. Why the difference between these two companies and their results. Yeah well I mean it left specific case. The ridership in the first quarter was weaker than expected. That was the first kind of alarm bell. And then you look at the guidance for
adjusted bit die. It came in lower than expected and the company has to spend money on driver incentives. Now a lot of analysts are saying that the sell off we're seeing is overdone. And they make an interesting point that if Lyft says its big issue is spending on driver incentives one might look at that as a bullish indicator of demand. We have to spend more for drivers
because we need more drivers to meet demand. But clearly there's some contagion through to Uber. You know it's a surprise given that the company seems to be firing on all cylinders that we see this drop in new this stuff as well. Well an Uber ad also insulated a bit more than Lyft because it right the eats business. Can you talk to us about that. Yes. Is to pass this right. The eat business had record bookings strong bookings growth. It's a diversified revenue stream. But what we're talking about is that the number of drivers going to do the platform is also up in the month of April significantly. Why.
Because if you work on the Uber platform rather than off the left platform you have the option to drive people and food. Right. There's more availability of work is how da clusters. He kind of framed it. That said they too are having to spend heavily to incentivize drivers right. Yeah. And the real big question is is the demand there longterm. Yeah. All I can say is that Uber and Lyft prices here in New York City are kind of insane right now. So I've been driving to the subway. Thank you
so much to Bloomberg's Adler Lowe out in San Francisco for us. And tomorrow don't forget to tune in. We will be speaking with Uber CEO Darren CAC. He right here on Bloomberg. The European closed in fact. Eleven forty a.m. in New York for forty p.m. in London. But coming up next here Jamie Diamond wishes the Fed the best but says it's raising rates a little late. We'll have more of Bloomberg exclusive interview with the CEO of JP Morgan coming up next. From New York in London.
This is Bloomberg. We are an hour into the U.S. trading session on this Fed decision day Bloomberg Screen Gupta is tracking the moves and creating it looks like for the equity and bond markets sell now. Don't wait for the Fed. Yeah and it's interesting because it's
coming off of two days of gains. Remember this was a little bit of a weird dynamic traditionally before the FOMC meeting day. We do get a little bit of a risk God mood and then you kind of see a little bit of green on Fed Day itself. The expectation here being that simply most Fed officials have kind of already indicated the direction that they're going to be in today though the exact opposite already seeing some marginal losses only three tenths of one percent just given the volatility we've seen lately. This isn't something to be necessarily frustrated about just yet. If you're a bull but this is something to keep in mind as we talk about what's going on in the yield picture and more notably what's going on in the oil picture specifically three and a half percent rise in IBEX. Crude of course is has a lot to do with the EU looking to ban oil imports from Russia really ramping up the sanctions package. Remember J.P. Morgan said if this happens one hundred eighty five dollar oil that's what's on
board. We're only at 1 0 6 right now. So how much of that is actually baked in. How much of that is actually going to go out. But really a lot of the action on the surface level may seem kind of muted when it comes to Fed day. But let's talk about underneath the hood because there are some earnings movers there are some individual movers. I will start off with the retail
space here because Amazon came out they said they have excess storage capacity. But in the Reed space that translates to industrial rates really selling off. And you can see this in the last couple of days down over 10 percent really speaks to the idea that Bay that you saw on reeds that bed you saw on data warehousing. Well it's not necessarily the trade that works in the equity market anymore. Another trade that doesn't work in the equity market seems to be a bet on those growth names names
like Lift names like Uber they are actually down and they're getting punished in a really big way. Lift came out after the bell yesterday and said well they're concerned about the outlook a weaker than expected outlook but also they're planning to increase their spending on drivers costs. That includes fuel subsidies and that could end up eating into their bottom line. Uber actually addressed that very concern in the Primark and said well we have a great outlook we're expecting great things but we're also going to be increasing it. They said it's not going to affect their profits but you can really see both stocks
on those worries that it will affect the bottom line getting punished here. But it's not all bad news. You do see some upside here when it comes to Starbucks despite them saying they're suspending that third quarter fourth quarter guidance due to a lack of visibility in China. They're actually saying well the growth in the United States is pretty strong. And speaking of that growth you're being be a very similar story that sustained travel demand remains extremely strong. So there are pockets here guy where you do see some positive growth stories perhaps an indication that the American consumer can actually weather the inflation storm. Yep it's going to be entering how long that storm lasts. The travel story I think is going to be fascinating. Yes all its summer. But what happens as we head into the fall. Head into the winter. CRITIC Thank you very much indeed. It is pretty good to let us get a view from the top. JP Morgan CEO Jamie Diamond says
the US economy is strong and people should take a deep breath and let the Fed do what it needs to do. IBEX Francine Lacqua spoke with him in an exclusive interview in London a little earlier. Very strong U.S. economy. Yeah they could consumers in great shape. Lots of money spending the money. Jobs are plentiful. Wages are going up though. Everything is distorted by inflation all that. But those are good news and business in very good
shape. And the Fed is going to have to raise rates and reverse QE. And they're going you know if they can't they're gonna try to slow down the economy enough so that 8 percent starts to come down over time. And I wish him the best. Yeah we're a little late. But you know remember two years ago we had 50 percent unemployment and no vaccine. So I think people should take a deep breath. Give me a chance. And I think they're going to move. I think the sooner they move the better. So you have to be patient. Ready breath. But what could go wrong. I mean you talk about you know a strong U.S. consumer strong business. You
talked also about storm clouds. What are those. Strong crowded clouds. What's worst case scenario. I hate the word unprecedented but this kind of fiscal and monetary induced unbelievable growth in the U.S. which was true around the world. It's obviously slowing down in Europe. That's abnormal. We've never really quite had that before. We've never had Kutty before. So you know you look at QE. That's where the greatest experiment is ever done. There will be writing books for 50
years on it and we're going to have to reverse it. And that's a huge change in the flow of funds over time or on bonds and rates and stuff like that. My own view is that rates apply. We'll still have to go up from here. And then you've got Ukraine which you know I think is a portent. You know when you look at Ukraine obviously the wishful thinking is we have a fed and do slow down
works. The world is fine. Ukraine resolves. But there's a chance that this goes on for years. And you completely rattle global energy markets wheat markets commodity markets. And that we need as you know the Western world needs to be prepared for that and need to take every action today to be prepared that that can get really bad tomorrow and we'll get a bit more. You don't have time. So how do you handle that. What's your plan B if it does go pear shaped. I like the fact that it will deal with it. You know that's life. I like my view. The most important thing is American growth. And that America. I call this Marshall Plan for energy that we do everything we can. And this doesn't violate climate change. It doesn't change anything about long term
objectives. But we do everything we can to get oil and gas into the hands of Europeans so they don't freeze in the winter. You know again I'm not saying it's going to happen but you know you have got a couple of problems out there. The national energy stuff is the global energy is precarious. What's the role of Europe in this. Could Europe's here recession because of the energy price. Absolutely. You know our economy would say that Europe has slowed down to 2 percent or something. But the problem is right now the economy would agree with me. We're looking at a static analysis that if things stay the way they
are. But you and I know for certain things don't stay the way they are. And my view is is a very high chance it will go higher. That only takes a million or two million barrels off the market a day. That can drive prices up 30 or 40 dollars. And so we should prepare for that today. That was where Bloomberg's Francine Lacqua with JP Morgan CEO Jamie Diamond in an exclusive interview earlier on. Now joining us for an interview Steve Marshall principal global investors chief strategist. So Sima let's just begin where Jamie Diamond and Francine began with the Federal Reserve which should have moved sooner is going to move today. How much room do you see for a hawkish surprise this afternoon.
Hi. In terms of the room for a hawkish surprise you know the only way they can do that is up 70 feet 75 basis point move which at this stage seems unlikely. But I think the important thing here is you know as Jamie James said it's very late. And what's interesting is that they actually have already started. But if
you think just back in March when they made that 25 basis points since then actually it feels like they've even fallen further behind the inflation curve. So the pressure on them keeps growing. Egypt which saw the LED market data yesterday extremely tight. There is considerable pressure for wages to go up. So they have to move very quickly. A 50 basis point move is priced in. A 75 basis point move would probably be better. It's the best way of surprising the market and getting that considerable tightening in financial conditions that they need to bring down inflation. But at this stage I do think it's likely.
CB How do you value anything right now without knowing where the Fed is going how quickly it's going gonna get there what the terminal rate looks like if the terminal rate is is 3 percent then you can value things are X but if it turns out to be 4 percent or 5 percent or 6 percent then I have no clue how you value the bond market the equity market etc etc.. And you know it's it is very difficult and I think one of the reasons it's very difficult to read where rates are going is because it feels like the Fed itself also doesn't know. And I think that they don't. They don't know how comfortable they are with inflation above the 2 percent. You know we think that maybe at this stage they're aiming for that 2 percent inflation target but actually when they get to 3 percent and they feel like the economy is starting to slow down maybe they could be taken a foot off the brake at that stage. And I think that lack of clarity at this moment in time means as you said trying to price out a lot of these traditional asset classes is increasingly difficult.
OK so in this kind of environment. Do I want to be in cash and this is a question we have been asking for a while now but given the uncertainty given what guy is talking about where how do you value anything. Do you just not try. Now I think that would be the wrong solution at this stage. So you know like I said we don't know exactly how far we it's going to go. But the one thing that we are clear of which is also what Jamie was saying that is that the US economy is still very strong at this stage. We are expecting recession but we didn't expect that till early 2024. So that gives us at least two years of still positive growth. And that means positive growth means positive earnings growth. So you still can't find opportunities.
It probably won't in the index level. So you need to look under the surface. Look for the various pockets. But actually above anything else I think we need to look beyond the traditional equity fixed income. I think this is a real time for alternatives and specifically real assets because a key problem facing the economy at this stage is of course is higher inflation. But as long as you have higher inflation and you have positive growth that is an environment where real assets can outperform. So from our perspective we are still risk. But we're displaying that more on the real asset side. Can you just go into a little bit more detail as to what you mean by that in terms of those real assets. There are different levels of
investors. Different levels of investors can access real assets. Therefore in a very different way. If you are a sophisticated institutional investor you have one option. If you you're a retail investor you have another option. How do you access real assets at this point in the cycle. Yes so the real assets space it would be thinking of here would be your commodities your infrastructure your natural resources. Let's see from the commodity complex. That's an easy one for
almost any investor to get in. I think one of the questions that we are seeing increasingly is how we would miss the opportunity to have things moved further on. An answer to that would be yes. The geopolitical conflict with Russia Ukraine can turn at any time and there should be there will be a ton of volatility around it. But if you look beyond just the geopolitics and look at the structural shortages commodities within the market which has been going on since the Covid recovery started in early 2021. That to us suggests that actually commodities will probably stay elevated for a considerable time. And we're thinking more than just energy. We're thinking you know again as as Jim was saying about the wheat agricultural goods fertilizers to the certainly parts of that market that can continue to perform well. And if you're an institutional space would expand
on the alternatives then of course private credit is a good opener for you. Well it seems on the point of commodities and energy specifically we're seeing oil up the better part of 4 percent today. Brent said back around one hundred and eighty dollars a barrel. And of course that driven in large part by Europe's proposal to phase itself off of Russian oil by the end
of this year. What is your view on Europe and the growth picture there considering we're still talking oil. We're not talking gas. Yeah exactly. I think that kids you know the gas if you were to kind of gas it would that change the picture very significantly. But for us look the European economic picture is pretty dismal. We can see a slowdown coming through. We are expecting that could be even a recession and even without that cut in gas by the end of this year. So from a fundamental perspective Europe is not looking like a pretty picture. But then what we have seen
as well is that markets have already adjusted their expectations and a slowdown in growth is increasingly priced in. So if you look at average earnings growth expectations for Europe they have come down considerably over the last two months. This is now priced in and valuations are actually looking relatively attractive. So at this stage fundamentals are looking bad but the valuations are almost compensating compensating for it. So for our perspective we are actually neutral European equities
rather than underweight that they are looking attractive relative to what scenario Sima. And this is this is where I have a real problem with Europe at the moment. The US has a whole range of outcomes. Most of them centered around the Fed when it comes to Europe. Those range of outcomes are largely centered around the war in Ukraine and the response to it. Today we have seen Europe putting an oil embargo on. If you see a gas embargo put on I am assuming the stagflation becomes the central case in that scenario. Yes absolutely and we we've seen estimates from the Bundesbank
saying a 5 percent drop in GDP would be likely if that were cut in August. So yes this is not the time to get wet because you still have that risk weighing over the market. But in our central scenario we don't see that happening. You know we're moving slowly but that is a big big move for Europe. So at this stage given valuations this is the time to be neutral rather than underweight. As you said the risk of a cut in gas means that we would be very very wary of pushing into the overweight for European equities. Sima thanks for joining us today we really appreciate it. Thank you so much for your time. Sima Shah principal global investors
chief strategist. OK. What we've got coming up for you. SALES in Madonna's only products. The coronavirus vaccine were better than expected in the first quarter. Our conversation with Madonna's CEO Stephane Bansal is next. This is Bloomberg. This is Bloomberg Markets European clothes arm which could get to you're looking at a live shot of the principal room cut me up Guggenheim Scott Minor joining Bloomberg Television's that special at 2 p.m. in New York. This is Glenn Beck. Keeping you up to date on news from around the world here's the first word answers could get to the European Union is proposing to ban Russian crude oil over the next six months. European Commission president that's live on the line also said that refined Russian fuels would be banned by the end of the year. Bloomberg's glad that Hungary and Slovakia won't have to enforce the ban until the end of 2023. Both were opposed to a quick cutoff of Russian oil. Last month's arrest of billionaire
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Bloomberg's Big Take available on the Bloomberg terminal. Bloomberg Commodities Edge 24 hours a day on and on. Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries I could get to. This is the bad guy. Really. I think very much indeed. Madonna blowing out the first quarter earnings or blowing past first quarter earnings expectations. But the vaccine maker a little bit more cautious when it comes to the guidance it's set for the year. So Kelly and I sat down with the CEO of the company. He of course is Stefan Bansal. And we asked him about that disconnect between the revenue numbers today and the guidance the company is
sticking with. They said that the guidance actually eats off current sign AP is what we have done for the pandemic is to be very precise to grow market and invest all time. Exactly as of to there. What's a book of business. Well as of today the book of business that this sign is twenty one billion dollar off over year. And as we've said you know why there may be a bit of a downside to that number on the Kovacs fault. As you know Kovacs as way too many vaccines for low income countries as you help from the older companies. There's another upside to those numbers as well
because these numbers include zero sales from the U.S. government. And as you can imagine they're going to be vaccine boosters available in the US in the fall. This correctly no budget from Congress. So we're getting the company ready to go into the private market set up if we have to be available funding from the U.S. government. So what do you expect Stefan in terms of contracts. Are you expecting more from the U.S. government this year. Well if you look around the world every developed country from Europe to Japan to kind of that lucid science and many more or all of the Quran containing booster for the forum. The US has
not. And as you know there's been no money appropriated in Congress. So I'm hoping and having discussions with the White House and HHS to be able to provide the U.S. government's with vaccine. But we need to be ready as a company. That's if there is no funding that's we're able to provide to pharmacies and doctors and payrolls of the vaccine in the US to protect Americans. One area you haven't had orders from ISE is China. China is experiencing significant levels of shut down economically right now as a result of the electoral wave that is sweeping across the country. What is your assessment of the situation Stefan in China. And what do you think the long term trajectory that looks like. How
are they going to find a way out of it. Yes we are of course monitoring what's going on in China very closely. We have proposed a helpful vaccine to China. What we believe is as you might remember the data from the vaccines available there were not very strong back then for the old strain that we've seen with older vaccines versus a loss of efficacy with time as the virus mutates away from the field strain that had been run. And so I think that until the ready going to vaccination we have higher efficacy. Vaccine is going to be very complicated. As you know the virus as it mutates become more and more infectious. And so as we've seen we won't be crossing a lot of cases. And you're going to see more and more violence coming. We're going to be just more and more infectious but then they're becoming
less infectious. So if we could just talk about the way that the market has treated your company in the public markets to this point in the year you're down 41 percent on a year to date basis. Where is the disconnect coming from between what you think you can deliver in the coming years. And the question marks investors seem to have. Sure. I think people see us as a Covid-19 vaccine company period. And because of the unknown about what we've said is in 23 and 24. Covid-19 people are being
pessimistic about the company's prospect. I think if you put on me seeing that we have a platform where we're able to make very quickly a lot of drugs moving for well-being to development. This morning on the conference go to IBEX. We share these events free vaccines. We have been able to move from starting the Phase 1 to starting the Phase 3 in 12 months. It takes several years we believe for typical pharmaceutical companies way because they're living in a world where every drug is different enough. Jason Kelly hundred percent the same technology as ISE Covid vaccine that is approved. And so I think the market is missing. That is the velocity and the breadth. Today we have 50 free 0 vaccines in development 50 and then there's only equity that
we've talked about on the call this morning. We are waiting data on rare genetic disease. We are waiting for data later this year in 10. So. And I think if you just do a sum of about RTS for free to do. Okay let's. I just want to kind of pick up a little bit of what Kelly asked you as well and count it from a different angle. You spent circa 600 million on buybacks in the first quarter and the stock went down stiff. And was that the best use of resources.
I'm very happy about those buybacks and they believe that they're going to create in the mid to long term a lot of value for shareholders. As you might know being the funding CEO. I own a lot of stock in the company. I'm very happy of those buyback every day. I know that it's a bit more of a model now which is great where the company is going based on what we've just talked about. We have this platform that the market is not appreciating. So buying stock at this price I think is going to
create a lot of value for me to long term investors not for people owning the stock for a few weeks but FOX for investors that would be massively rewarded. That was part of our conversation with the CEO of Madonna Stefan Bansal and of course Guy we also talked to him about the things that they still have in the works. A flu shot and an arm around specific vaccine for the latter he said to expect that in June this will heat. He's definitely looking forward to that. Sorry I to hear the music. Usually the music means we've got to go. I glad we had an opportunity to chat. But maybe I'll be mis communicated with a miscommunication. I'll do the words this. Bloomberg Markets.
So fairly choppy session for European equities today. We're looking forward to the Fed. Maybe we're not. Maybe we are. Stocks 600 is down. You've also got a lot of corporate earnings that I think are providing a stock specific elements of this market today. I think it's more of a market of stocks running the other way around. Euro dollar is trading up by two tenths of
one percent. Again a 50 75. The Fed is going to certain what happens with this a little bit later on. One area that I do think is interesting today though is crude is definitely back catching a bed today in a big way. This follows the energy plan. The energy sanctions plan that came out of the European Commission earlier. But remember Hungary is saying not yet. So we're going to talk about that next. Tyler Orchestra University of Nottingham is going to be joining us in the next hour. The closes next. This is Bloomberg.