'Bloomberg Surveillance Simulcast' Full Show 10/24/2022

'Bloomberg Surveillance Simulcast' Full Show 10/24/2022

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I think the fixed income market is a little bit ahead of the equity market, particularly the US equity market. It's more likely that the equity market is actually calling this rates than the bond market. I would not be surprised how fragile financial markets are that the Fed has to pause to get them back under control. What the market is doing is pricing in an over 5 percent Fed funds rate. You're going to feel it on the equity side. I think you'll get a hard landing and the probability of the market pricing return to the zero bound cannot be ignored. This is Bloomberg Surveillance with Tom

Keene, Jonathan Ferro and Lisa Abramowicz. I heard you promoting shampoo in my name means I'm probably not going to speak to you this morning long. There's a back story to that. We'll go to. Here we go. He's in trouble. I won't try to be unruly or somebody's

unruly like my hair. Everything you wear, it's CAC. You're getting no love from me. I'm like Tweedy. Let me do my introduction line from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance. Equity futures just about positive on the S&P T.K.. What a turnaround Friday.

They start to kick off the trading week turnaround Friday. Mike Wilson may be leading there as he urged Bear. And he says his clients pushing against it very are very optimistic into the end of the week. And he resets today. Over the weekend, Israel Joel Weber. I would focus on as distractions soon

and distractions. China. We're going to end in a moment. Just what the markets are speaking volumes. I agree, Tom. I think the UK is punch well above its weight when it comes to market news flow for the last couple of weeks. Let's get back to focusing on the big things. China front and center. She doubling down, tightening its grip on power.

And Tom, I have to say, some real market reaction in response to that. The Chinese currency is weaker. The equity market really struggled overnight. The funds flow out and the renminbi may be, as we are see, seven point to six. Seven yuan was a big deal. Out to seven point to six is an even bigger deal.

But given what we observed in terms that heartbreaking editorialize, I'm sorry that we saw to the markets, tell their political establishment what to do, like the markets told Liz Truss what I love how it was Covid over the weekend so huge and how abruptly taken out unscripted, disrupting the choreography. I mean, watching this play out least on not just stock, Rameau. That was the choreography. That was it. This is the dance moves. Everyone knew about them except for the

man himself. And he was the former leader who really saw a very prosperous time, or China expanded dramatically. This was somebody who did had a more democratic type of rule, escorted out, fighting it and then kind of going with it.

What that sets up going forward to answer Tom's question, I don't know that the market vigilantes are going to be heard much in the Politburo. I'm not sure that that's the case, at least not right now. And the feeling right now is that this is not necessarily an economy first kind of Chinese, which is to measure with us. Saying he loves Hong Kong, particularly as it comes out of quarantine with us on Friday. But you wonder what an established entrenched HSBC does or a Western bank does. What we saw this in some you raised the

right question with a market discipline shape President Xi in the same way it did less trust. And to Lisa's point, I think most people assume no. And that's why you become even more concerned about what's taking place in China. GDP doesn't get it done. They have a five handle, five plus handle, I should say, within the models, within the rhetoric that they speak and GDP coming in under for the good news as they release the data. Lisa, I guess that's the good news out of China.

The bad news is that people question and it's kind of scratching their heads about certain aspects that don't seem completely coherent. With respect to said data, at what point, though, is this administration losing credibility in markets to a dramatic sense, the fact that they mentioned stability and security in particular more than they mentioned the economy and business was very concerning to a lot of people who thought that set the tone for the rest of the meeting. Let's get to the Monday morning price action. Good morning to you all. Good to be back in to see equity futures unchanged on the S&P. I have not forgot itself the champagne jokes. I will not forget the champagne jokes. And I know that you're away later this

week. So paper, I have a lot of I'm. I took very little time. And how much time you got to. Give me a week this year, OK? We spread that through Christmas. Good for you. Futures unchanged on the S&P.

Yields come in four basis points on a 10 year 417 T.K. The 10 year yield higher for 12th market if weeks, 12 consecutive weeks. What a run. And I'm going to go to the real yield here, one point sixty three percent. Jari exploded up to a stunning one point eight. One one point eighty two gave it back. But nevertheless, we sat above that 160 level to begin.

The we spent a lot of time this morning talking about the Japanese yen, what's happened with the Chinese currency as well. Quick look at the euro. Euro dollar 98, 33 were negative, about a third of 1 per cent. Bremmer The data, the PMI ISE not great out of Europe. That's the bad news. The good news, a milder winter so far perhaps in Europe and softening gas prices. That's where the bright spot is in

Europe right now. All right. So all that really raises the question, what does that do for the ECB? And I wanted to just get a quick run through the week ahead, because it is going to be a momentous. Weak central bank rate decisions. We have the Canadian rate decision, the Bank of Canada rate decision on Wednesday, the ECB rate decision on Thursday. What do they do with that? John, right now you're talking about is, yes, we're seeing weaker PMI both in the manufacturing and service aside. They do have better stockpiles of energy to your yield is surging to levels that people thought were unheard of about a year ago. At what point do they say we can back off versus continue to have to hike, particularly with the Eurodollar? And in trying to bolster the euro this week, an economic data in the United States.

Remember, this is probably the last slew of data in the next two weeks before the primary, before the elections. We get home price data tomorrow. New home sales Wednesday, the first read USA Q3 GDP on Thursday. And on Friday, the Employment Cost Index, personal income and spending, as well as the University of Michigan sentiment.

Read how much the employment cost index really matter heading into this election season at a time where good news is bad news, at least the market's view. If you start to see employment costs rise yet again, what does that do to a Federal Reserve who meets the following week and this week the tech earnings, a slew of that, Microsoft and Google on Tuesday matter. Facebook on Wednesday and Apple and Amazon on Thursday. John, this may be the most important data point of this week or just these particular companies. How much momentum they have, what they don't have, what it says about the economy. Perhaps more so than the banks setting the tone at a time where the earnings haven't been great. Alisa, thank you, T.K..

This week ahead. Yeah. Joe Feldman, Dana Telsey, he publishes today. Johnny brings down his view on Amazon due to a weaker consumer prime day and all that. But he doesn't change his high price. Targeting doesn't change really the view out to 2023.

Maybe we'll see a lot of that. My closest, the bulky study last week, some killed that tactical, Randi, a tactical bullish call, short term view in the equity market up. And he's basically saying that can continue until until we see capitulation by companies on it. Guidance for next year. Julian Emmanuel, you know, he's into the derby now, publishing every day the earnings view and he starts out the weekly searching for babies in the bathwater.

I mean, that's Emanuel's claim that he's oh, yeah, of course, he works at home. And you're gonna find some of the Evercore ISI. They're out there. They're everything's in the bath right now. Thanks for that something.

It's a good start to this morning to come and join us. That's a decent diversion. Certainly, sir. Thank. You rely on this correspondent joins us right now. And let's start here.

The currency is weak that the equity markets performed poorly overnight. Tell us how much the world changed in China over the weekend. Well, we got confirmation of just how in control President Xi Jinping is, Jonathan. You could argue was there ever any doubt about it? But we've had the devil in the details and we've had key personalities, the party bosses from Shanghai, Guangdong, Beijing, all former colleagues and supporters of his put into key positions. So the government is now set up in place for next five years. But you have to say to welcome that he

got this morning both economic data and of course, the markets underscored the task that they have ahead of him. On the economic data front, it was pretty bad across the board, retail sales, housing prices, unemployment, unemployment going up, trade coming off. And, of course, the markets tanking as well. So it's not good music, good mood music

for a new government's Hang Seng. Kudos to the AP with a wonderful layout of these seven people, the Politburo and the current. What do the Western banks do? How do they respond to what we observed Sunday? Well, President Xi Jinping gave a message actually to China remains open for business. Perhaps it was more, more upbeat, more of a message for global business on some might have expected. What do you have to say? The ongoing theme of fragmentation. China's focus on building its own

technology and innovation, innovative industry that was sort of permeating through Congress speaks to this idea of polarization. And in which case you have to ask eventually, when will I catch up on on the financial services sector? We could tell a good decoupling. And the globalization, the banking sector has kind of been okay in recent years. They've been expanding and growing in China. They haven't yet been on the front line

of some of the pointy end of things like the tech sector or those in manufacturing goods facing tariffs and all the rest of it. But I think that sentiment towards China is in a great space right now. Foreign companies continue to complain they can't make money. So you'd have to do what you have to wonder if at some point the buying sort of started dimmed our view on China as a place to do business on its to do look elsewhere. And it was there any sign that they were willing that this administration, that Xi Jinping would be willing to move away from that Covid zero policies anytime soon? So there wasn't a story on China's economy has not changed. It remains when will that pivot uncovered? Zero. When might they pivot en route to say

that we didn't get any hints or clues from that? So, you know, the whole story about how it's meant Xi's control. There are some contrarian views out there. Wherever some people are saying, wait a minute, they have appointed very experienced technocrats. And the fact that it is now a very

unified grouping might mean decision making becomes faster and quicker. And by extension, it might lead to some sort of progress in some of these issues, like on Covid 0, we got like turned out to be a hopeful view, but it certainly is out there. Bank of America is one of those talking about it. I think a lot of focus will be on the

week's conference in December. DAX very important for planning the economy. And then, of course, going into the NPC in March when all the officials gather to officially get their seal in office, so to speak. You can't imagine major payments ahead of them. But watch out for the language over coming months to whether they are guarding or plumbing of Chinese product for a big change. And once again, awesome coverage through today. Thank you, sir.

And Karen there at Hong Kong. Lace, you ask the right question. I think most people asked it of themselves over the weekend. Does this make it more or less likely that this leader continues with Covid zero? I think most people conclude that it's more likely that this leader concludes that he's going to lead with Covid 0.

The other question I would ask is what does it make it more or less likely that this leader maintains a more confront, not confrontational stance beyond its own borders? And I imagine that a lot of people conclude with the same answer pretty much that was the universal message. This for somebody who is deemphasizing the economy, deemphasizing markets, emphasizing security, emphasizing the power of a nation that really is abandoning some of its previous mandates. So, yes, to your point, that's really underscoring the fear that you're seeing in market, looking at that currency, pats on this market hears it loud and clear. Obviously, an H. A weaker currency. No question.

The southern point, two sixes. I've done the math. But it's a huge move. It really harkens back to 2015. Covid note that there's an election in the United States of America and it's the only thing the polarized parties agree on. Agree more. It's amazing. I mean, that's the one thing they agree on. And the events over the weekend will continue to unite them on that point, I imagine. Let's talk about dollar and total dollar

yen. That was the central bank just burning through billions and billions and billions of dollars. No, it's a shot at dollar intel right now. No one's dollar and 149. There was a man earlier this year that

caught 150 and it hit 150. And I laughed at the time he might that killed somebody. And he reminded you of that? We're going to catch. A message me last week. We were about 149. And he was looking for some credit. And I said, well, we're not there yet with that. Now, I guess from New York City, this is Bloomberg.

Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo. Investors are having their say on Chinese President Julian Ping's move to stack his leadership ranks with loyalists. You want to break weekend. And Chinese stocks fell in Hong Kong to the lowest level since 2008. The financial crisis and now investors are skeptical that JI and his allies will seek a rejuvenation of private enterprise in the UK. Rishi soon CAC has taken a big step toward becoming the next prime minister.

Former Prime Minister Boris Johnson has pulled out of the race and soon won the endorsement of the Chancellor of the Exchequer, Jeremy Hunt. That leaves Sue Nack facing House of Commons leader Penny Morgan in what is now a two person race among Conservative Party lawmakers. The US, UK and France are rejecting Russia's allegations that Ukraine is preparing to use a so-called dirty bomb. A statement from the three countries foreign ministers called Moscow's claim a pretext for escalation. A dirty bomb combines conventional explosives with uranium. A new poll says that Americans favor Republicans over Democrats when it comes to the economy. That maintains the Republican advantage

on the issue heading into next month, congressional elections, according to the survey from ABC News and Ipsos. Thirty eight percent of those polled favor the Republicans on the economy, with 24 percent trusting the Democrats. Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Matteo. This is Bloomberg. If the Conservative Party coalesces around Britain sooner and we get back to kind of more stable, fiscally, credibly credible policy coming through, then we're just going to settle back to. Yes. The economic news is going to be bad.

This much austerity means a fairly significant recession. No, that's not good for sterling because we got a lot of rate hikes priced in. But but the volatility ought to just slowly leach out. Great to hear from Kate Jakes early this morning.

Su Keenan generals, chief ethics strategist from New York City this morning. Good morning. Has the price action on the S&P equity futures just about positive, up more than a tenth of one per cent off the back of a big week of gains on the S&P 500. Yeah, it's lower heading south and negative 4 basis points on a 10 year 417 29 euro, just a little bit weaker than a third of one percent euro dollar 1933. And I think this got the attention of all of us. Schlumberger, name change, guys. T.K., S&P, S&P, the new name. Effective immediately in a better pivot

to embrace clean tech. Now, Tom, I wonder, does this help your stock these days? Does this have a. It's so sad. I don't even know where to begin. First of all, Schlumberger, when you're new in the game, as I was when I could shave once a week, it was a name you tried to pronounce and you failed. It's a romantic name. It's a name steep and all sorts of history going back to 1926. I believe it.

It is. John, I go back to Jerry's in primary school. He took a venerable name. American can study and he named it Pride America. You know, like, really? Is it better than the Aberdeen rebrand? Oh, no. That's trophy taking. You're still working through the Aberdeen approach. Schlumberger didn't take out the vials ran over there it is S&P.

I mean, how much is this really a guide tool for Westacott? I mean, Altria, the former Philip Morris. Right. I mean, this whole idea of vilified industry is trying to rebrand. How much can they actually move away from their core business at a time especially where that core business is needed now? Even Elon Musk saying, well, at a time when we've had such a massive year for fossil fuel.

That's exactly right. They're making that transition. How much is this to try to get sort of night from fund managers for pensions that have to justify investing in areas that can actually deliver returns? Cause right now that's what's delivering returns. Just seeing the returns this year of being in, you know, I'm okay.

We'll save this one for another day. Futures right here, positive a quarter of 1 percent. T.K., big moves in SFX market. What's going on in the markets? And in fact, you can take a general picture. You can drill down. We're going to do that right now. What matters to global Wall Street, which is the follies of Japan, the non theory of the many. Japan's Thanos firm Vicky D joins us now, global head of strategy.

Bank of America Securities. Thanos, I want to go into some of the research I've seen on the quality of the piggy bank the Japanese institutions have. The basic idea is the amount of tourism they have, liquid, fungible, able to move on and notice to intervene is actually fairly strong. What is the level that those

institutions are almost out of ammo to intervene to drive the yen stronger? I mean, there are a number of considerations, definitely in terms of the actual intervention by the Ministry of Finance. That is a model, however, so quantity has not been very effective both times, Zain. There have it can end immediate impact, but then gradually moving back to square one, we're almost halfway there, actually already made that vessel last week that I'm better off for setting forces as well. Using any scope. Complicated, but the reaction in the past.

But at this point, the main institution in Japan are still a all benefit from guarding. And also there is any sharp communication because when the minister of finance intervenes. But the tone of the bond comes up. Body makes extremely tabish without any

references, any contest with the level. This is not the consistent message to markets. There seems to be a race to the bottom on the Pacific Rim, whether it's you on seven point to six yen 150. Let's forget about the nation to nation math.

If it is a race to the bottom. Weaker, weaker, weaker currencies. What happens if, for example, ATX y break through to new Pacific Rim weakness? Various evidence, actually, that particularly Asian central banks are heavily not intervening. But this obviously has not been enough to stop by the dollar.

I you can argue things might be worse otherwise. But this is the rational. I'm just leaning against the win. And the truth is that the fundamental forces that remain in support of the US dollar. This has to do with the fact that U.S. inflation has yet to peak. But also, Nancy, of the fact that China is not reopening and shed light on this can be mixed, but it doesn't seem stopping. But though it will be immediate.

This is also affecting negatively the local level, the local currencies. Well, that's why I going to go Thanos, this idea that we saw over the weekend in China didn't give people much confidence they'd be moving away from zero Covid or this idea that they'd be reopening in a way that's a throwback to where they were, say, five years ago. How much does that make you bearish on some of the Pacific Rim currencies on the entire region, let alone offshore yuan, which weakens to levels never seen before? I mean, are they still talk China up first? The way the Chinese authorities are intervening in the market because they're targeting a basket as the dollar is appreciating just direct and direct implications, then there would be negative fourth quarter, the other goddesses, but also because of the outspoken Chinese, we can do so. And bottom line, countries that are exposed to China through trade, China's, which obviously includes the economies in Asia but also in Europe, are not affected by CNY weakness. We capacity maybe DAX need that through

these direct and indirect. China's about half of the dollar's strength this year. Yes, but with developments in China, which is, you know, quite sizeable impact. Fanous, wonderful to hear from you, as always. That of somebody to that of Bank of America securities.

You want the good news, guys, for a quiet period from a no Fed speak, no Fed speak until next week. I know I was am and I almost thought that they should be on my week ahead. Was the lack of Fed speak because I don't want to. Exactly. Shery Ahn. This is actually a big deal considering what we've heard over the past few days. What do we think of the Wall Street Journal report going into the weekend? Is problematic now that markets believe the signal in everything they write over there was on his belief that he's the fat of whisperer? You're saying they you're talking about NIKKEI, Michael McKee and fair play to him that he's got that connection at the Federal Reserve. It's hugely problematic now that you can

write an article going into the quiet period, which is just basically. Some select quotes from Fed speakers already on the record. And people believe there's something more to it than something happening, that some signal a sign saying, well, that they want to have some certain emphasis heading into the Fed meeting. But this really highlights attention for the Fed. How do they signal that they're willing

to look at the data showing a slowdown in the economy, that they're willing to be sensitive to the lag time that it takes for some of these rates, rate hikes to bleed into the economy while also convincing markets to stay suppressed. Financial conditions to stay tight. How many times have we done this this year? We've had the pivot pause. And now to step down about the step down the street on the steps of the stem. We'll talk about the step down in a

moment. We're stepping down and we're talking about the Yankees. It's all space and we Covid of any of that this morning. So I know it's been some blanket statement now. And I'm just wondering, because New York now support Philadelphia, she can't be stopped. That's right. I don't think so.

I think it's a little too close to. Coming off the back of the biggest weekly gain on the S&P 500 come back to June. What a run. What a move to close out a week last week. Futures this morning just about positive on the S&P. Futures shaping up as follows up two tenths of 1 percent. Big week for the NASDAQ. Brahma went through the earnings.

Coming up a little bit later this week, you'll hear from Apple and Amazon and a whole lot more equity futures on the Nasdaq, basically unchanged in the bond market to tens and 30s. The intraday range on a two year Friday, 445 at the lows, 463 at the highs. Just wild stuff. And the 10 year part of the curve, the 10 year maturity for 1771 at a 10 year yields in three or four basis points. But as we've covered repeatedly week after week, over the last twelve weeks, 12 consecutive weeks, it's been climbing on a 10 year maturity. Phenomenal stuff. What a finish on the effects market dollar yet.

Here's a snapshot of a bonfire of effects reserves. This is what it looks like, top dollar and 149 34. What a move we've seen again on a Japanese currency.

Is that okay? Can't buy the stability. Can I give a shout out to our next guest? It came on the program back in February, 115 on dollar yen. He said 150. And I almost fell off my chair laughing. And here we RTS. Here we are. Christopher Verrone Smarter than the average bear on the macro strategy strategist at Strategic Scissors Beard Company.

Oh, I can see Jon is show me any literature that shows unilateral intervention works. It's not out there. Christopher Owen, what is out there is a desire for catharsis, a VIX of forty and eight other shades of it as well. It's not out there, but what element of the market last week gave you a sense of catharsis? Well, what I thought was most interesting about last week. You know, it was a good week for stocks, but what led what's the only sector to me that really, you know, you relative high.

First, the S&P was energy. Energy still leading. And this is what's really interesting on both down weeks and up weeks. Your leadership really hasn't moved much. So I think, you know, if you look at where the positioning still is, and I would contend there's still a lot of positioning at, quote, the top of the market, the apples and yes, lows in Microsoft's energy outperforming doesn't help that group. So I'm not sure a lot change from a

leadership perspective, which is more important to us, whether the next 200 S&P points is up or down if the leadership doesn't change. And you with technical analysis, does quality matter, whether it's quality, small cap, quality, large cap, profitable companies showing IBEX down the income statement, does that matter right now? Well, I think that was the other message from the market last week, when you look at really what didn't move or didn't rally. What I would still call the garbage basically didn't bounce. I mean, things like Car Van or Roku or names that have basically were the speculative darlings of the cycle which were thrown out. Those didn't move last week. So I think the market continues to make this very clear distinction between what is quality and what is not quality.

And I think ultimately, you know what? What would be bullish from here? I think the market disassociated itself from things like Bitcoin or R or the IPO that I think would be a bold develop that had to happen in 2002. If you remember, as we kind of came out of dot.com, the market had to disassociate itself with a lot of the garbage from the prior cycle. I got to say, Chris, right now, the headline is that Roku and Carvin are garbage, according to Chris Verrone, a strategic. I don't know that that's necessarily the headline that, you know, this is currently one or maybe it is. But there is this issue that right now

there are a lot of people who think that there's so much pessimism. We hear all the bearish talk on this program elsewhere and are sick of it. And you're seeing that come into the commentary. You're seeing that in the options market where you're seeing actually people putting on much less protection against the market, dropping another 10 percent.

What do you make of that? You know, it's a great question, Lisa. I'm I'm struck by a couple of things. Number one, I think back to late 2008 into 2009. I think that feeling of capitulation was

very different than this. I mean, I can remember not wanting to turn the screens on in the morning. I don't think we're quite there yet today. The second thing I would just note is be careful that or at least distinguish between what people say they're doing with their money and what they're actually doing with their money. And I I still think the gap between those two things is quite is quite wide here. The flows, for example, are still pretty

aggressive into both equities and bonds. I'm not sure that describes that cathartic or capitulated moment. We do have good seasonal support here for the next 90 days. I want to be mindful of that.

We have essentially oscillated between thirty six hundred and thirty eight hundred for the better part of the last six weeks. I could get you to, let's call it thirty nine fifty four thousand on S&P. But then we have to deal with a very inconvenient fact that this is still a downtrend. And I think stocks rallying into down trends are ultimately things that you want to fade down the road. So there's a breaking point at some point that a lot of people foresee yourself, Mike Wilson, and you did correctly call the yen going or weakening it to 150 per dollar. How much is that going to be a potential

catalyst? This question of when John called the bonfire of central bank foreign exchange reserves, how much is that going to be really the trigger? Well, the language that we've used is very simply the market is back in charge here, and I think we saw that in the UK over the last several weeks. I suspect we're going to learn that here in Japan over the next number of months. I mean, the the the story is, what, 30 billion dollars of intervention? I think that's what the FTSE reports on Friday. That's a 50 percent increase from the 20 billion dollars of intervention that we saw.

I think that September 22nd, after the September intervention, it took 14 trading days for yen to make a new low. So that's kind of our our benchmark here. Let's see where we stand in two weeks. Are we talking about 152 yen again? Are we talking about 135 yet? I think that's going to be how we judge whether or not this is successful, because when I see German 10 year yields at 250 and U.S. turns at 420 and I see Japanese turns at twenty six basis points or 25 basis points, there's a clear outlier here. And I think that's an unsustainable path for the BMJ to remain on. You see the gap lower on that chart, Brammer. There's just smoke coming off the bottom

of it, about 40 billion dollars worth now at this point last year, cutting that just ridiculous. I want to look at Sterling as well, 113 18. Latest reporting from the team in the U.K. town that Rishi Sue Nack, the former chancellor, is getting the public endorsements and we've been tracking them. Eric Bloomberg News, we've verified

public statements from 179 Tory MP. So that's more than half of the Tory MP is not saying this goes to 9 a.m. this morning our time. What happens at 9 a.m.? Jones Perhaps we get a prime minister

and announce the annoying the Queen. Richie soon could make Zanzibar. You've got to change the language that excuse me, we've got a king as well. Charles, thank you. Big changes. Chris, I don't want to linger on it too long in this market. Wants to move on and move on quickly. You mentioned that maybe we've had one

scalp and Liz Truss. What is the next one come from? Chris, can you elaborate on that a little bit more? Is that a change in leadership at the BMJ that's set to take place anyway? What is it? Well, I think that's a good place to start. We wrote something to the effect in I think February or March that the DOJ was going to have its 1990 to be a wee type event. And I didn't also think that the B we

would have another B A week, 90, 92 type event. But of course, that's that's kind of what happened here over the last several weeks. So I do think ultimately this is heading towards some crescendo and I think Japan is kind of ground zero for that now. Also keeping my time, CNN this morning is at seven thirty seven, thirty one. Right. So the stresses that we've seen in the

Chinese currency haven't abated here either. So I still have yen at 150 and I have Chinese up at 730. I'm not sure that's the greatest environment for macro risk.

What is the technicals of the ten year real yield now? He's floated out to one eighty one. I'd call that catharsis. You come back, but we set Chris Verrone above that 160 level. What's that shirt look like? Well, this is a little bit of a pet peeve that this idea that that real yields are actually positive. I guess theoretically they are positive. If you're taken right.

But if you look at the two years over a 10 year break even. Right. But if we look at the actual policy rate, I mean, what the Fed funds rate is three and a quarter and inflation's eight. So I think for all intensive purposes, for for real people, the the real interest rate is actually still quite negative. So I think there's more work to do here before the Fed really believes that short rates are offering a positive real year. It was Christopher owner Fred Speaker

today. He's a Fed whisperer. He's a whisperer. He is a Fed. It was it was hard. Hardly. NIKKEI. Thank you.

Great call, buddy. You know, it's not just exacerbates your sister on that shitty guess a bad company. Start right back. That is right. Yeah, there's a lot of this going on. People are buying intellectual value.

When you can buy Jason Turner and Chris Verrone and the rest of them, that's a good thing. That's very cool. That's going to go back to that UK story. More than half auditorium piece. Throwing their name into the hat for Rishi soon at Sonali Basak. Yeah. What I see. Could nailed this austerity. Whatever happens, I say its prime minister sooner.

We have to assume some form of fiscal austerity. And that's all there is to it. And that's going to be. Maybe that's a word for the fourth quarter worldwide. We're doing all of that again. Austerity. So that's the question, isn't it? Are we going from this inflationary boom to a disinflationary bust? We are in the UK.

We're pulling away from the fiscal largesse of the pandemic. And you can debate this that now of the pandemic. But let's be honest, it was a fiscal boom. Right. And we're pulling back. And that gets you to something. Frankly, a lot of conservatives nation, a nation including the United Kingdom. They're comfortable with austerity.

Well, here's here's a problem. And you asked Chris on the right question, which is which is the next head to roll, right? Where to? Where did the bond vigilantes to the market vigilantes train their focus? And what does that mean in terms of global fiscal spending? If there is this feeling of pull back, you might not sell get that disinflation for quite a while because of the physical goods, the need for them and the fact that we haven't necessarily invested for many years in them. So how do you sort of get that adjustment period to a disinflation that can right size an economy that's not going to get the fiscal spending boost? Alisa, I'm struggling to adjust to the reality of right now 2020. If you told me 12 months ago we'd have 46 handles on PMI ISE out of Europe and the same week we'd be hiking 75 basis points and walked out the room laughing. Right. What is this show? It's ridiculous. You might still walk out of the room and walk out Amanda Lang.

But what is the shape for day anyway? I mean, this is a good point, right, that the scenario has changed where we are getting that weakness and it isn't enough and it's raising this concern about what the step down rate step about how you get to some new level of appropriate t CAC for Canada. Seriously, I think that we need the ticker symbol is this. How do you adjust to needing rates to be high for long enough? It's a paper, say two to four years from it to actually have maximum effect a state. So I just did a fancy editor Chris Verrone vector, which is again, when do you get the one zooming? You're not listening to anything. Listen, I got to say, one that came back were moving so fast in January of next year.

You get to 160 in November, next week, next week, three months when he comes to you. And is it feasible? It's good to be back. So that's great. TAPPER Isn't it great? He's always listening. It's just awesome. DOLLY Yeah, I want to 49 37.

Thank you. To step down. Okay. So in New York, you hate the Phillies. I get it, but you hate the Astros more. Yes, absolutely. Like the Yankees players in the world see think he's baseball last night.

Their biggest failure, their undisciplined, their home run derby every at bat. No, they don't like single Sophie Kamaruddin signals. I've got to play baseball in my baseball ball. You know, I practice that early this

morning. You did? This is Bloomberg. Keeping you up today with news from around the world with the first word. I'm Lisa Mateo. Xi Jinping power grab in Beijing has led to an historic rout in Chinese stocks. Equities had their worst day in Hong Kong since the 2008 financial crisis.

Meanwhile, the off shore yuan fell past seven point three to the dollar for the first time ever. Traders are concerned that JI's decision to sack his leadership team with loyalists means policies that are not market friendly. In the U.K., House of Commons leader Penny Morton is being pressed by members of her own campaign team to pull out of the race to become the next prime minister. Soon, CAC has picked up public support from more than half of the Conservative Party members of Parliament. What it needs the back of at least 100 lawmakers to go forward to the final ballot. And in baseball, it will be Houston versus Philadelphia and the World Series. The Astros wrapped up a four game sweep

of the New York Yankees with a 65 win to take the American League. Philadelphia beat San Diego four to three to win the National League title four games to one game. One of the World Series Friday night in Houston. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Mateo. This is Bloomberg. What we see is growth below trend in twenty three growth, GDP growth, as well as DRAM policy tightening that gets the rate up next year between 4.5 and 5

percent. The one policy tightening that raises and then holds because we have to keep the rate patent level, tightening level in order to fully reestablish price stability. Mary Daly The Federal Reserve Bank of San Francisco president, life from New York City this morning. Good morning. Is the price action equities continuing the gains on S&P 500 briefly? Equity futures on the S&P 500 up by a little more than a tenth of 1 percent. Yields coming back down again on a 10 year, down by 4 basis points for 1750 on its Sanya Euro dollar, negative four tenths of one per cent, a weaker euro, a much stronger dollar 3G 10 euro dollar 98 21 for anyone following the UK Conservative Party leadership race. The race to be the next prime minister. You have a 100 MP threshold 100 vote threshold to get a nomination.

Some. We understand that more than half any Conservative MP have publicly stated they're supporting Ritchie sooner. Penny Gordon the other one in the race for less than MP Tom.

The campaign team issuing a statement on the status of support. They have more than 90 supporters. So I believe we get an announcement around about 2:00 p.m. local time and there's no money and

there's no election here. So what happens after they decide there's only Su Keenan let's do it piece by piece of it is only soon actually becomes the prime minister. That is it. Does he come in and say X, X, X, X? There is always a chance. So how does that ruling wipe past Sophie Kamaruddin? Yeah, I guess so. I released an idea doing this and I'm

sure there's great variety and sounds like it was awesome. You. We needed you here, John, because it is foreign to say the least. The general election could still be a year out or whatever it could be. It depends when the prime minister calls it. We're gonna swing back to China right

now. Peter Schwartz with us, professor of international relations at the London School of Economics. Peter, the advantage we have here is you're working LBJ at Texas. What is the symbolism? This is the only issue the Republican and Democrat parties share in common in Washington frame.

What we observe this weekend for a unified Washington is they confront a third term. Morning, Tom. Well, I would say that for Washington, for Republicans and Democrats, what they saw on display in Beijing over the weekend will only reinforce the view that that China is is a force to be that the U.S. is going to have to contend with going forward.

I mean, it was a very impressive, carefully choreographed display of Xi's power at the 20th party Congress. But I think it's more likely to fuel, you know, insecurity, security, competition in the region. One reason is that national security replaced the economy as the dominant theme in the run up to this weekend. And she's report to party members who

are gathered in Beijing. And it's no accident, I think, that she held back today's latest report on China's lackluster third quarter economic performance. The data until the party Congress wrapped up. And so what they saw on display was she consolidating his hold on power. And the belief is that she is the kind of underlying premise is that she is interested in pushing China's ambitions in the region and and expanding power, if only to compensate for the erosion know the slowdown in economic growth in China. Peter, what is this mean about Taiwan? Well, she was actually very careful.

I think on Taiwan, on the one hand, he made it, he announced her, you know, made a reference to the fact that if push came to shove, they would use force there. On the other hand, there was a kind of olive branch to Taiwan trying to integrate Taiwan into a larger Chinese economy. But I think the big story kind of locally over the weekend there was what was happening at exactly the moment that she was strengthening his grip on power at home.

Japan and Australia announced that they were deepening defence cooperation. This happened on Saturday to counter Xi Jinping growing preoccupation with power and influence in the region. And it's significant because it actually follows on an announcement, a Japanese proposal to develop a counterstrike capability capable of attacking an enemy's command and control systems and military bases in the region. That is a big departure for Japan if

that becomes policy. Most people think it will be become policy in December. And so it's just a kind of it's pushing region more and more into a kind of insecurity dilemma. Peter, if you were advising some of the big U.S. banks, are a multinational in the U.S. trying to capture some of the business in the world's second biggest economy. What would you tell them in terms of how

big of a sea change this particular meeting, this particular anointment for a third term of Xi Jinping, really how important it was? I think it's significant. I mean, I think he really kind of reinforced his commitment to the state over markets. And, you know, and and and I think for businesses, it will reinforce the need, desire to hedge. Hedge their bets going forward, to look for other locations and so forth for investment.

And I think that kind of general reaction to the markets this morning. I think that you were reporting on earlier points in that direction. So, you know, I you know, as I said to people, to my students, you know, when it comes to East Asia, it's time to buckle up, because a stronger Xi Jinping at home means greater insecurity and tension in the region.

I just want to pick up on something you said. Why does he care about the data if it's about the state over markets? Because really, that data is not just for domestic consumption, it's for international consumption. Why does he still care about the economic data? I think it's just that you are talking about an event that is so carefully choreographed. The party Congress to have that kind of come out. I think it was supposed to be released a week ago. So during the party Congress or at the beginning of the party Congress, you know, might have been unsettling for some who have access to that information. Even if most Chinese would not really

have access to it unless they were, you know, provided it. So I think I think it it just it was kind of off. No. For where he wanted to take the party Congress. Peter, wonderful to hear from you. What a time. Good to be with you, Guy Johnson. Peter, trip of it. Thank you, sir.

At a London School of Economics, Lacey, wonder how much she's going to care about the data in court is still to come. Yeah. Do we go back to the old world where it gets really, really difficult to understand what's actually happening in that economy, especially if he doesn't care about foreign investment, if he doesn't care about foreign companies. If you basically are saying better to

keep the business here, then to that point, will we see it cease entirely? We spent years, Tom, saying investors need to be allocated to the world's second largest economy. Question now is what do they want to be allocated to the world's second largest economy? I'm not going to mention names here, but long ago and far away, a very well respected Midwest U.S. company wandered into China through joint ventures. Or did I learn a lot? I'm sure they it they learned a lot. It's I have an immense respect for

people, including Apple as one example that could do the Chinese bill. Did you see Tim Cook waving a checkered flag at the Formula 1 race yesterday? No. You should check out this format one. And I like you. Yes. You know that. I think I just have a look. That's like Tom Keene Monday morning. It's kind of like to have this.

My cliff notes not into it. I think the fixed income market is a little bit ahead of the equity market, particularly the U.S. equity market. It's more likely that the equity market is actually calling this right than the bond market. I would not be surprised how fragile financial markets are that the Fed has to pause to get them back under control. What the market is doing is pricing in an over 5 percent Fed funds rate.

You're going to feel it on the equity side. I think you'll get the hard landing and the probability of the market pricing return to this bound can not be ignored. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. More shampoo jokes, are we done? No, we're done.

Kelly Annmarie Horden last minutes. All right. You go away and the gas quality is off the chart. Claudia, some really went after Jim Bullard. You went after me. I heard you. Yes. I heard you did. No, I do. In fairness, a lot of people wrote in.

I said it of about it burned my hair off people. That's what happened. Come on. It's here. It's the price DAX on the S&P features

positive. A third of one percent. Keep it together. Branding on the S&P. T.K., we often start a Monday morning by saying big week ahead. Let's just say it. Big weekend ahead. But there's distractions today. We are going to look at the United Kingdom here in the 9:00 o'clock hour, getting towards a journal here that live in the 9:00 hour interview. We'll do it on radio.

But there's China. We cover that, I thought towards Greater London School of Economics. You know what it is about the markets and what the markets are saying in the vigilantes are out there across equities, bonds, currencies. And come on, I'll be exhausted with this U.K. story. I sat down with my producer, Jamie this Morning America.

All I have to cover this this morning. And apparently, I guess we take. Well, I want to save it for later. I want to show the momentum here in the markets. I'm looking at one point sixty two

percent real yield yen intervention failure. And you set up for a weaker with the silence of the Fed, which is going to be interesting. Save the bond far Fairfax reserves for a moment. Let's talk about futures activated by

four tenths. Lee said the rally continues in the equity markets. Shout out to Mike Wilson of Morgan Stanley, who we often say has some kind of crystal ball right 2022 that none of us have because he made this short term tactical bullish call last week at this big move, a weekly running, the biggest we've seen jump altitude. And it continues this morning. And basically, Chris Verrone was saying that it could continue as well. I just thought this one story that

Bloomberg wrote over the weekend about how people are just sick of the gloom. They're just looking around. They're like, everyone's just so down and things aren't that bad. And so they're just pulling back.

I mean, there's one quote that narrative is getting repetitive and traders are slowly getting fed up. I mean, maybe that's part of what's going on. Some market cap, huge week for earnings. And John, on the twenty seventh one, I think we get out, but I can't remember. We get their first look at GDP. Can we remember within the recession gloom, the statistic in the Bloomberg survey for GDP, first look. Two point three percent. Would you like to frame the twenty

seventh? You get earnings from Apple. You get an ECB rate decision, possibly 75 basis points, likely 75 basis points. I believe you also get the Credit Suisse strategic reorganization we've been waiting for the last couple of months for you. It's a big week. I mean, I think we're good to look at

the markets as well. Look at the markets right now. What are you looking for? You look lost. I don't know if you wondered if you're yanking cheeks at some. Okay. Well, one of my people saw that out.

So that out futures right now up a half of 1 percent. No idea where he is. Futures positive on the S&P 500 by half of 1 percent. Yields back in again, down 6 basis

points on a 10 year to for 15, let's call it for 16 on a 10 year after climb for 12 consecutive weeks. Tom Keene. Talk about foreign exchange briefly as well. Euro dollar 98 24. Negative four tenths of one per cent dollar. Strength the story, but yen weakness, Chinese currency weakness very much out there.

That's why as a summary of the Pacific Rim currencies x Japan, Japan's obviously video seems incredible, almost like Turkish lira. And the bottom line is you are at support. And if you break down from here, that's a huge signal of the race to the bottom in Asia. Brahma, massive moves in foreign exchange once again. Yeah, this is where the bond vigilantes are and perhaps affects vigilantes at least during this cycle.

Let's talk about the week ahead. It is a massive week in central bank rate decisions. We have the Bank of Canada where decision on Wednesday and then we have the ECB rate decision on Thursday.

We can see that two year yield bumping up against the highs that we've seen going back to the depths of the financial crisis at a time when exactly this question of how far can the ECB go in the face of weakening data? Also this week, we get us academic data. We get home price data tomorrow. New home sales Wednesday. The first read on us, a quiet third quarter GDP, as you were mentioning, Tom, on Thursday. And then on Friday, we get the employment cost index, personal income and spending data. And University of Michigan sentiment,

the latest read there. How much does this matter, not only heading into next week's Fed meeting, but also heading into the election? We have two weeks until the US election. How much is this going to really shape the dynamic and the narrative? As we saw over the weekend, the Sunday shows really discussion was all about deflation and the economy, no more about some of the social issues, which gives a sense of where they focus right now among the electorate really is. And this week in earnings, tech earnings, Microsoft and Google on Tuesday, Facebook on Wednesday and Apple and Amazon on Thursday. How much are these going to be the

bellwether, Sean, really driving some of the discussion going forward. So far, we've seen earnings come in, OK. They've crossed largely a pretty low bar, but not as often as in the past. These are going to be the really important names, I would argue, more than a lot of what we've seen so far. Lisa, thank you. Looking forward to it a little bit later

this week and looking forward to Thursday. Big, big day coming up. This week, the central banks for data and for earnings, too. Joining us now on this bond market, Mike Schumacher, global head of macro strategy at Wells Fargo.

Mike, before we talk about level was can we just talk about ranges, intraday trading ranges on a two year off, say, 20 basis points on any given day without economic data? Mike, what do you make of that? It's just incredible job, the day to day volatility is mind boggling. Traders here a whiplash. And I think that's true of people across the markets. There have been so many crosscurrents. It can't sustain in terms of volatility like this.

But there really has been while to see and hopefully slows down at least a little bit fairly soon. Is it linear or do you see a convexity where things are speeding up, like in the 10 year real yield, a zero cricketing there that you could predict for Q4? Good point, Tom Nonlinear, I would say you think about the 10 year real yield in the July was ballpark positive, 10 basis points. It rose 150 basis points in just a bit more than two months. So now it seems to us it's up to an area that I would call the right zip code, 160 to two percent seems reasonable certainly in the context of prior Fed cycles and layering on additional inflation this time.

With respect to the US, German reals crossed over to positive territory and tends to that seems OK. So I suspect the speed is about done. It's going to slow down a fair bit with volatility remains super high in terms as well. Let's talk about the step down. Mike, we talked about the pivot and then the pause. As John was mentioning. Now the step down, which is actually new. I hadn't really heard that until this morning, but we thought, as you discussed, it already discussed.

Go right ahead. Now, all of a sudden, it's back. It's back. It's a thing. Right. How does the Fed communicate that it's going to slow down without allowing the markets to move ahead of it? And some people argue the reason why there's optimism in markets is because they're getting a sniff, a step down. Do you buy any of this? Just a sniff. I think that's probably right.

It seems sort of obvious. The Fed eventually went slow down and yet the markets are all excited about this. And you put it in context and said, right. So let's say the Fed goes 75 next week and follows that up with a 50 at the next meeting. Is that really an amazing result for risk investors? I would say not in ultimately the destination matters in terms of terminal rate, but I think the thing people really need to focus on the most is how long does the Fed keep that that funds rate really high? So let's say up to 5 percent.

We think it's going to be a long time, six plus months, maybe a year. That's going to hurt equities, we think, and that's going to hurt risk. So that seems to be a little bit lost in the shuffle. People are too gung ho on trying to predict the next couple of meetings, not thinking enough about the destination. Mike, what you just said is pretty,

pretty interesting that you could see 5 percent Fed funds rates for a year, possibly more six months, a year or even more. What does that do to the entire credit cycle that's predicated on pushing out maturities? Yes, but those maturities start coming up at the end of next year. Yeah, I mean, this notion that you might have easy money come back fairly soon just doesn't really work in credits, probably take a hit with respect to defaults ramping up also. So it's not a positive in terms of credit. Not a positive generally in terms of risk.

But when you think about the incentives facing the Fed, especially Jay Powell, his number one priority is and will remain getting inflation back into a box. That means boosting the funds rate quite a bit. We know that, but also keeping it up there for a while. Just want to pick up on this move in a gilt market. It's wow at a front end, gilt two years down 25 basis points. Mike, you've even got a cold on the gilt market. You throw in the towel in.

Yeah, gilt market, John. I think we'll take a pass on that one for now. So please, with the whole P.M. sweepstakes and then we'll something about discretion and valor coming together, I think you can bet my Schumacher.

Thank you. Of Wells Fargo. That moves right the way through the curve. By the way, two's out to 50, so it's lower by more than 20 basis points on each and every single point. Yeah. How much is that actually what's influencing the U.S. market with yields coming down? I loved his year. Yeah, no, I'm good. Yeah.

NASDAQ could do that. That's how I feel about the UK right now. We have a system that throws up so pop press storylines. I gets it. But we also have a system to deal with mess like the one we're facing. And also it's been really funny for me to watch people traditionally on the left of th

2022-10-26 22:29

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