'Bloomberg Surveillance Simulcast' Full Show 11/02/2022
I think we're going to have some momentum here, you have some of the technicals telling you that the market should continue to do well. Absolutely. Monetary policy is biting into economic activity. The glide path is going to moderate. The question is, can margins be maintained? We still think that there is some pain in front of us. I think the end game here is that we'll have a higher inflation target. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. It is Fed Day live from New York City
for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro equity futures just about unchanged on the S&P 500 T.K. Its operations stepped down in the minds of men.
I don't buy it. I don't buy this car a minute to talk. Richard Claire will join us here on a one o'clock hour today on the Fed's show. The former vice chairman. And John, to me, looking back, three meetings, July 27, September 21, November 2nd. There is nothing transitory going on
today. Start to see some pain, though, Tom. Start to see it in the data. This a little start to see in the earnings season just a little bit, but largely globally, you see that in the mass scale. Look, I think cutting their global demand forecast, what you don't see it in in a big way is maybe in the U.S.
data. I was looking at JOLTS yesterday. This market flipped on job openings in America yesterday. And Lisa, they moved in the other direction. OK. A lot of people are saying, OK, maybe you're not seeing the unemployment rate rise, but you are seeing soft firing or not hiring. This is sort of the theory.
Soft. Why is that? Well, the theory here is that companies are going to find ways to pare back the number of people that they add rather than wholesale firing. That was thrown out yesterday. With the job openings actually increasing, they are expected to keep coming down from historic levels. What does this mean about the rapid rate and the resilience of business activity at a time? It should be slowing. That's for sure. Ben, you bring up the banner on radio.
This is transitory nominal GDP. This is a John Farrell watch here. And this is the animal spirit of the United States. Come out, John, 11 percent down to 10 percent, down a 9 percent.
We have a long way to go with someone like Richard Cleared or Mohamed El-Erian say, hey, that's on the edge of normal. We're way away from the show, but we've started to see little signs of it in the ISE salmon manufacturing. There's a slowdown, what you call it, new orders. New orders. States come in again. I think another sign of contraction on new orders, prices paid really start to come lower. And with just about that line in and around 50, get a break on that in the next couple of months.
I think we have a different conversation. The problem is, is that all of the industries are facing slightly different outlooks. You point to Maersk talking about a 2 to 4 percent decline in total shipping activity because just the trans Atlantic, the international trade picture is dimming. How much does that really represent? What's going on domestically where people are still going out there, stop traveling, they're still gambling, they're still flying planes. And you have the likes of JetBlue CEO coming out and saying they're not seeing any cracks in consumer demand whatsoever. Jeff, any idea who shot batteries? That is a human. What does a human being a human?
He's like that. If he's sharp, he's British. He's he saw English. And you call it Shery Ahn Jonathan Ferro. That's his mother's name was Chalmers.
Was in was bad as a double parrot. You know, it's like what do you call it, a double barrelled. A double barrelled name. They do that in Britain, I'm told. And, you know, he was then, you know,
he's he's like Shery Ahn. He's so large. He doesn't have a first. I'm not convinced he's offending the person in the courtroom because he's a very talented human being. And I'll break its it's because that's eventually essentially what you guys do should be interned. ISE, who names charred being. And I watched three seasons of Poldark front. Erm that's how you were a big fan of solid dark David Ingles very cornwell sharp under Hermione. Do it.
Talk about that later. Equities look like this guy again, said the Fed decision. I have to tell you on the S&P 500 the day before the Fed last met the S&P 500 some guess where it was. Guess where I was going to look in a post. A 58 56. Guess where it closed yesterday? 58, 38, 56, rather. So basically no change whatsoever on the
S&P 500. And I didn't do equities because of that. But you know, the VIX twenty six point one for you see the the same thing there. What I would look at is the real yield over the last three meetings. The real yield has done what Jay Powell wants has come in. And and that's fine. And we'll see where we are in December.
To me, all this meeting is about is December and into January. So it's essentially unchanged as one on a 10 year just north of 4 per cent, 4.0 4 percent euro dollar, slightly weaker dollar here, stronger euro Brahma euro dollar ninety nine zero 8 were positive about a third of 1 per cent. To your point, the lack of change in and of itself is really telling because we have not seen a material tightening in financial conditions even as the Fed tries to get that to happen. So how does the Fed really signal they
want to see a further tightening? They want to see stocks going down, they want to see bond yields stay up. They want to see that ongoing pressure on the global economy. If FTSE and we get ADP employment data today, I'm not going extrapolate what it means for Friday's jobs report because the correlation is actually getting less tight as a result of some of their new methodology. It will be interesting. They'll following yesterday's JOLTS data. The fact that we actually cite increase an unexpected increase in the number of openings that that employers were offering were advertising really signals a lack of tightness, a lack of listening excuse me, in the labor market at a time when that's really what the Fed would like to see today.
We do get the FOMC rate decision at 2:00 p.m., followed by Fed Chair Jay Powell. We'll be speaking it to 30 p.m.. We are going to be doing a Fed special, a Fed Decides program here at Bloomberg Surveillance. Always brings that to you on Fridays. Today, a stellar lineup, including Rich
Clarett, a former vice chair of the Federal Reserve, currently a Columbia University. Diane Swonk of KPMG is Scott Maynard of Guggenheim, as well as Matt Rossetti of Deutsche Bank. How do they talk about the step down? How do you talk about not loosening financial conditions while also signaling perhaps affairs, getting a little bit closer to where they want to end up because they're expected to end up at around 4 percent by the end of today. Three, three and three quarters to four percent being the range. And then after the bell, earnings do continue. Qualcomm coming out, among others, including Zillow, eBay and Robin Hood.
How much do we see the chip pressure ongoing, especially as you start to see more disruptions, the manufacturing lines, especially in China? John, did you see about what's going on in Foxconn? Basically, that entire region and China shut down as a result of Covid really raising some questions about the production of iPhone 14, because this is a factory that produces 80 percent of the iPhone for a 14 for Apple. So we've got lockdowns in China again. But some there's this rumor going round that there is this committee being formed to assess whether we should drop Covid 0 and equities in China, keep rallying off the back of that room some days in a row. I looked at the technicals on this and much like here, they've really gone. But the damage has been so bad from the summer that you can't say China equities have broken out to some form of new trend. I would note the weakness in renminbi against rounded up seven point to eight. And I'd also note how surgical does luck
don't seem to be around the apple factories. It's, I believe, seven miles. I mean, they're micro managing a virus. How do you do that? The Hang Seng closing up two point four per cent. The Fed decision just around a corner
run. St. Paul joins us now. The CAC had a multi asset and head of U.S. Equity, Atlas Asset Management.
Ron, first to you on the December meeting, not the November meeting. What clues are you looking for in that news conference? Well, I think it's pivot signaling a pivot and today's meeting would be monetary policy malpractice. I mean, I agree with what Tom was saying earlier today is not the data to send signals. I think December 14th is when the Fed would have enough data to give a preliminary view on 2023 monetary policy.
And the reason I say that is between now and then, you've got two more inflation reports. You've got two more jobs reports, a lot more data for the Fed to try one to see if the tightening conditions is actually having the effect that they would like it to have on the economy. Rana, you heard yesterday my team brief me on your appearance here, and the first thing I said was Ron Temple's on. We got to ask about revenues, nominal GDP, 10 percent, 9 percent where we are now. Maybe we go to 8 versus 7. Do you assume revenues come down of
equities? Is we get the economy in a direction Jay Powell likes? Yeah, you have to assume as nominal GDP growth decelerates, you're going to see revenue growth decelerate with that, but you should also see expense growth decelerate with it. I think what you've seen in this earnings season so far, by the way, is this asynchronous element of expenses going up much faster than revenue in some cases in the tech sector where companies actually had been hiring, making plans. And frankly, the turnover is starting to change. And maybe they hired a little too many people too early before the rep. They've been basically saw expenses go up when revenues were declining. But but I do think as we look forward, you know, very importantly, the Fed really started hitting the brakes hard four and a half months ago. So this hasn't had time to show up in
the broader U.S. economy. And I do think to John's earlier comments, by the way, we're seeing in the goods sector, we are seeing a deceleration of demand. We are seeing in the last inflation report, goods, inflation, ex food and energy was zero. The problem is all of the inflation last month was in services and the service economy is firing on all cylinders. The consumers are spending money. They're transitioning towards services. And I don't think the Fed should signal a pivot until they see that deceleration in service inflation. Ron, you think that we're going to end
up settling at three to three and a half percent inflation over the next three to five years? Are we ever gonna head back down to 2 percent over the next decade? And if not, if we end up in this three to three and a half percent inflationary regime? How does that change what you want to be invested in, how you want to arrange 60 40? Yeah, I think we actually many of us have gotten used to an incredibly benign environment, runaway inflation. If you look at the decade ended twenty nineteen before the pandemic inflation on a core basis compounded at one point seven percent. I don't think we're going back to that. And there are two primary reasons. One is Dean, globalization. Number two is climate change. If I look at globalization from 2000 to 2019 and the US, inflation for goods excluding food and energy was zero. We basically had no inflation for tradable goods in large part because of NAFTA, because of China coming into WTO when we got this globalization benefit. I don't think we're necessarily moving
those jobs back to the US, but I think that kind of globalization dividend is behind us. So I think that's one piece. And the second is we're going to spend trillions of dollars on climate change over the next decades. We're gonna have more climate volatility that causes volatility in food prices, difficulties in transportation supply networks. That's all gonna require more
redundancy. So if you put all that together from an asset allocation perspective, three to three and a half percent inflation means lower multiples on equities. It means we're gonna have sustained higher bond yields, probably means higher spreads on credit. And I think it's also a tougher environment for private equity, which relies on a lot of leverage. I don't think private equity will it will be a bad investment. I just think the manager selection will be a lot more important. And last but not least, it's probably an
environment with a lot more dispersion should be good for more hedge fund oriented investments and also in a higher inflation environment, should expect infrastructure assets and other real assets to do quite well. It's a big game changer, Ron. Thank you, sir. Ron, sample of Mason Asset Management. Bit of good news. Just crossing the Bloomberg comes from Turkey's leader, President Erdogan, saying that the Ukraine grain corridor will resume operations sig agriculture, commodities. Respond to that headline, Lisa.
Just moments ago. Yeah. Wheat futures dropping as people think that perhaps we won't get some sort of fissure in that major wheat trade line. We'll pick up on that story in just a moment. Going into the Fed decision, equity
features positive a tenth of 1 percent. Live from New York, this is Bill Impact. Giving you up today with news from around the world with the first word. I'm Lisa Mateo. The Federal Reserve looks set to deliver a fourth straight super sized interest rate increase today.
Policymakers are expected to raise rates by another 75 basis points. Meanwhile, Fed Chair Jerome Powell is almost certain to repeat his unwavering message on inflation without necessarily pivoting yet. In Israel, the fifth election in four years appears ready to return Benjamin Netanyahu to power. Now, exit polls show that his strategy of forming an alliance with the nation's far right has succeeded. The pro Netanyahu bloc appears to have just enough seats to form a slim majority in parliament. In Brazil, President J.
Your Bolsa Nardo has promised to follow the constitution and ordered the government to start the transition. Incoming leader Luis Ignacio Lula, this Silva also narrow, stopped short, though, of conceding defeat 48 hours after the election. But the remarks are seen as a gesture that he will honor the results of the voting. CBS, Walgreens Boots Alliance and Wal-Mart have tentatively agreed to pay more than twelve billion dollars to resolve thousands of state and local government cases involving opioids. The suits accuse the chains of
mishandling the painkillers, which are blamed for half a million deaths in the U.S. over two decades. States, counties and cities still have to sign off on that settlement. The shipping company AP Moller Maersk is cutting its forecast for global container market. The world's largest owner of container
ships says demand will shrink as much as 4 percent this year. There says another contraction is possible next year. Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts in more than 120 countries. I'm Lisa Mateo. This is Bloomberg.
Folks, this ain't your father's Republican Party. This a different breed of cat. Just look at the facts. When I took office, the economy was in ruins. This is not because of me is because of what we are inherited. President Biden there on the campaign trail from New York City on this Fed decision day has the market for you. Equity futures up a tenth of 1 percent
on a S&P 500 market shaping up as follows, not due in March, as you might expect, yields higher by a little bit, 4.0 4 8 4 per cent on a 10 year. And the affects markets slightly stronger. Euro 99 03, up a quarter of 1 percent. I think a little bit later, we get the ADP report. We.
I think you mentioned the data. Yeah, yeah. That's going to ensure that. That's what I was thinking. I say the same thing. They just change my criteria.
Deal of that. I mean, we're going to we're going to try our best. I don't know if it's going to be worthwhile, but we'll find out clearly at the mercy of the news conference coming up, Tom, a little bit later. Yeah, there's no question about that. But and I haven't even done this exercise yet. You looked at the jobs day and I've got a working number right now of one six thousand. That's still a buoyant statistic.
Was that the president that blaming the former administration for the, I believe, the economy that he leave her inherited in and didn't mention the pandemic? Yeah, well, small detail shot. Maybe that'll pass through Annmarie Horden brief now from Bloomberg, Washington, our correspondent here on a political season at Emory. I want you to speak to our international audience right now. The Republicans are supposed to win. It's a midterm election.
What is the character of the quality of the panic of Democrats? While the panic right now with the Democratic Party and there's a little bit a lot of conversations going on about their messaging, how really in the summer they focused a lot of their messaging following the Roe v. Wade decision and they were really going to focus and they were also able to campaign making money and donations on and fundraising on abortion rights. But then obviously, when you came into the fall, they started to realize that that wasn't exactly sticking. So they are pivoting and having a message towards the economy. But they're just not able to nail it in a concise way, the way the Republicans have over the course of not just the election campaign, but really over the course of the Biden administration. The Republicans have constantly said, are you paying too much for groceries, for rent, for energy, and do you feel safer? But right now, Tom, one thing we should know for the midterms.
Yes, the House and the Cook Political Report has raised the projections for Republicans to take the House and take more seats. But the Senate, many are still unsure of how that is going to shake out. Where's the vice president? She is in her office, I imagine, this morning, but she will be later today visiting Massachusetts and they have a push this morning, the administration, about energy and heating pumps in your home to try Annmarie Horden X number of days from an election. Why are we worried about heating pumps? Because they're incredibly worried about higher energy prices this winter, especially in the Northeast. We already see inventories are incredibly low when it comes to some types of fuels in some areas of the north east. And that could mean a big spike in prices, not just gasoline, but home heating prices, which is why they're going to be talking about this initiative. Have you ever watched Veep, Tom?
No, I have not. No, it's great. People have said they should watch it. The vice president always seems to get the the questionable gifts. So he had it that way. Yeah. You know, guns about piping and stuff for heating. I'm a much more interested in the day after the midterms. I think most people are as well.
And whether this president turns around and really commits to running again for a second term. Are you expecting that to happen soon after? Well, there are a lot of conversations within the administration about when that would happen and also potentially who his rival is going to be. I think yesterday, really you saw that and it was because the president was in Florida campaigning for the Democratic candidates for governor and also for the Senate. And he said that Ron DeSantis is a Donald Trump incarnate.
Those were the president's words. And obviously, he's not just talking about Ron DeSantis as the Florida governor, who's also running for another term to hold that position, but that this could potentially be the individual that he faces off with in 2024. But there is an issue in memory of who the Democrats are grooming to be the successor of President Biden if he doesn't run again, especially given some of his approval ratings and his age. That's right. The president will be 80 this month. He's celebrating a birthday this month and he turns 80. So there's lots of questions from Democrats.
A lot of them have been vocalized in the public about that there potentially needs to be new leadership within the party. The big question I hear from a lot of people, though, is what's the bench? Who is on the bench? Obviously, the vice president, Kamala Harris, many was hoping that she would take the helm and others are a little bit unsure of that. So there is a question of who would take on that role. But if the former president, Donald
Trump, who in the Republican polls is number one, if he does run again, there's a very much likely chance that Biden will run against him again because he thinks he's the only person who could beat him. MH Thank you. Then in Washington, we'll catch up with you a little bit later. Just getting confirmation from the
Russian side about the resumption of that Black Sea grain deal. Getting that confirmation just moments ago from Task Tass, citing the Russian defense ministry on the grain deal. So that resumption looks like it's coming ahead. Nrama We talked about it earlier in the week together that it was a real risk that things might go in the other direction. And let's face it, it is good news in the last five or 10 minutes. It's tremendous news at a time when
there is food security problems and there's real concerns around the world of what could happen if you start to get some of the main supplies of wheat disrupted. How much does this really indicate that Russia is going to take this off the table in terms of not providing a safe corridor or providing a safe corridor for wheat versus just simply a temporary reprieve? Tell me you would hope we don't have to deal with this particular issue again. It's there and it's across the Mediterranean. I would look to Tunisia first, which is where the Arab Spring started. I'd bring it right over to the challenges al-Sisi has in Egypt. The Egyptian currency folks on the Bloomberg terminal USD E G P is the Egyptian pound.
And with the devaluation, John, it's 20 out of 24. So I believe that's a 20 percent value. Have you been following that currency pandering? I'm on it every day. Yeah, yeah, yeah. But, you know, we're making jokes about it. But I'm sorry. It's a fixed price in Egypt and their economy is teetering.
It's an IMF issue is well, there's many others, many more. Egypt's out there and it's a wash of ape, some shit going on. And if you've seen that before, now I have it's you know, often it feels like an episode of that sometimes. And then, you know, what I'm saying is you're a vice president living in England. Yes. Course we have it. We have a presidential system. No, no.
But like I said, some see Mr Su Keenan. We haven't talked about it before. It's sort of Vice Premier Lister. There is a deputy prime minister, the deputy prime minister and a vice premier. Very visible. No, no, no. We hide them. We hide the vice president and the
president and the Guy Johnson don't have a deal. Rameau, that's good. Well, thanks. I try to say when you said this about Veep, I was thinking about, you know, being a rookie journalist and being sent out to cover like, you know, the Gopher Park or South Shore. It sort of feels a little like that, which, you know, although I've heard those stories about what happened when you did get sent to do those things, it was so much fun and you took them very serious very seriously. That's.
Was it really private and perhaps went a little bit too deep into that? We don't have to get into that. But let me tell you about the donut shop around the corner of CAC of real things to say. Welcome, Stanley, a Seth Catholic coming up shortly.
This is Glenn Beck. The Fed decision coming up a little bit later this afternoon. Going into that, this is how we shape up in the equity market.
On the S&P 500 and beyond, futures basically unchanged on the S&P up a little bit on the NASDAQ 100, advancing two tenths of 1 percent. Basically dead flat on the S&P since this Fed last met in the bond market to tens and 30s. Look like this, your tenure, your two year. About 50 basis points higher just before the Fed last decided interest rates year to year right now, 450, 178, around about 10 basis points lower than the high a few Fridays ago on a 10 year, just not the 4 per cent 4.0 4 2 2 per cent on a 10 year at the moment. If you want some price action, it's in the commodity market week rolling over aggressively. We got this headline in the last 10, 15 minutes or so, Lisa, the Ukraine gray corridor to resume operations according to Turkish leaders. It was an earthquake.
It's a big move and taking out a lot of the gains that you saw over the past couple of days. And this comes after a lot of fears that you couldn't get a massive disruption. One of the main food corridors in the world. How much is this really means sort of softening in Russia stance versus a temporary reprieve? Well, some talks about the potential political fallout from this town, the consequences if we do have the kind of crisis we're trying to avoid here. And it wouldn't be pretty. I don't wanna speak for the managing
director of the IMF, but I would say this is front and center for Kristalina Georgieva because they've got without a downer of countries where, you know, we don't understand that America can use race as example. Food is maybe 3 4 5 8 percent tops of the American food in some of these countries. Food is 60, 70 percent of the income. We saw what happened with the Arab Spring starting in Tunisia.
Tunisia has got its own problems as well. Let's continue with our Fed. Look, we do this with Seth Carpenter, chief global economist at Morgan Stanley. And what is important to know is upon teaching at William and Mary, he was five days a week at Paul's Deli. So we're thrilled that he could join us. Seth Carpenter, forget about the fancy people you talked to at Morgan Stanley. What does this Fed meeting and the four Fed meetings afterword meeting for the troops at work and Paul's Deli in Williamsburg.
What does this meeting mean for the people away from Wall Street? Yeah, I think the hardest part for people away from Wall Street. People are confronting inflation and inflation is a really big problem for the average person. You were talking earlier about food prices and it's really salient as we see an economic surprise that people notice. It's a price that people pay attention to and so are the next several meetings are going to mean is, you know, and will the Fed do enough to bring inflation down over the next few years? Because remember, that's their plan is to have it take three years or so for inflation to come back to the margin, or they're going to do so much that they end up pushing the economy into recession. And I do think that's kind of a double bind, if you if you will, for the average people there who are stuck between needing to keep their jobs on the one hand, but seeing inflation eat away at the purchasing power. Let's move from freshwater economics down to George. I think of the great Richard Timber Lake
and all. And the fact is his gospel was a fed is in every way. Ex post. Can the Fed actually get out in front of an inflation vector that they presume to see as is that a delusion or can that be possible? I definitely think it's possible, but it's going to take a bit of luck, right. So what are they trying to do? They're trying to slow the economy a lot, but not so much that it goes into recession. It's going to take some luck. It's going to take a while.
Sure. Powell keeps referring to you as being nimble, which is to say they're going to have to read the data and ask, are things slowing down enough that we can sit back at this point and just leave interest rates high and let things glide? I think it's possible. I don't know that anyone wants to think of it as a certainty at all. A single mandate central bank. The reason I used that phrase said this because Senator Warren and Friends wrote a letter to Chairman Powell to close out October going into this decision and said a series of questions in there off the back of a series of statements from current Fed officials and former Fed officials as well. Would you describe this central bank as a single mandate central bank at the moment set? And how do you think the chairman's gonna deal with these questions in the news conference? So I don't think so. Not it's not a single mandate. Central bank at all. I think Chair Power has been trying to
walk a very fine balancing act by pointing out that if you want full employment over the long term and you want to have inflation that's stable, you kind of have to slow the economy down now to put it back on a more sustainable track. I really do think the Fed is trying to balance both of its mandates. Their last set of projections, like I alluded to before, have them bring down inflation, not next year. This is not 1979 that they're trying to recreate. They're trying to bring inflation down over three years and by doing it over such a long period of time, trying to insulate.
To the extent possible, the real side of the economy, David Ingles is a very difficult communication strategy to try to execute right now, especially given that Bernie Sanders and Elizabeth Warren are just the tip of the iceberg of Congress members. We're getting very concerned about essentially torpedoing the U.S. economy to bring down inflation, as a lot of people so say is what's necessary given your 15 years at the Federal Reserve. How are some of these criticisms being received? How are they being addressed in the communication strategy, if not the actions of the Fed? I think the criticism is being taken very seriously.
And of all the news reporters that you see coming out of Washington, sure. Powell is a regular feature on Capitol Hill, spending a lot of time talking to members of the Congress. As much criticism as you hear about concern about what's going to happen with jobs. You hear plenty of concern as well, plenty of criticism about inflation being too high. In fact, at a time of political divisiveness, I would say anti inflation sentiment is pretty bipartisan.
I think the real challenge is finding out what is the the least painful way of addressing inflation right now, says do you have a sense of just how much pain would be required and how has your view evolved as we get data point after data point that shows ongoing resilience, despite the fact that we're close to 4 percent Fed funds rates. After today. Yes. So very hard to be certain about how much pain is necessary. I think there is no two ways about it. Job growth. We saw in the last jobs report at two hundred thirty six thousand or so. We're going to get another jobs report on Friday. I think jobs have to come down much,
much slower than what we've been seeing over the past year or so for there to be a reduction in aggregate demand. And it's true, inflation has been just much more stubborn and much more resilient than I think we would have been expecting a year. Dr. Carpenter, we had surveillance for doing a scientific study to see how many of our guess what percentage have the copy of Ben S.
Bernanke behind and when they're on air or 624 pages. Your trophy winner, like many of our other guests. Who's the Ben Bernanke helping? The Wall Street guy, Jerome Powell as Lael Brainard the Ben Bernanke for Jerome Powell. That's a great question. And since you bring Ben up, just another congratulations to him for the Nobel Prize.
Very well deserved. Well-deserved. I have the honor to have had him as my dissertation adviser in graduate school. I think the reality is when you're chair of the Fed, you basically have your pick of everyone. Anyone would be willing to talk to the chair of the Fed. The challenging thing for Jerome Power right now is to try to synthesize all of the advice that he's getting from all corners. So, yes, Lael Brainard is there.
She is vice chair of the Fed. She is a very experienced policymaker. Her advice is almost really invaluable to General Powell. But any any academic economist, any Wall Street economist would in an instant take your house call and try to give him some advice.
Seth, what was he like as an advisor to you? What was he like? Fantastic. He's just amazingly humble. Well, it's an amazing combination of being humble and brilliant at the same time. I give him chapters of my dissertation and literally the next day I come back to me with comments and be willing to be completely generous with his time.
A great man. It is shred that some then shred the chapters that the thesis that. That's good. Seth, wonderful to catch up with you. You are humble and brilliant. So some no. That of Morgan Stanley.
Thank you, buddy. Appreciate it. I think there's a lot of people on that Federal Reserve who believe Chairman Powers said it. These are his words. A failure to restore price stability would mean far greater pain. That's something they don't have to do. A better job of communicating in this news conference, given the political pushback of the last month or so.
We will, of course, ask Dr. Clarett about single mandate, dual mandate. And Steve Roach would say there's actually three mandates, which is part of this asset bubble that they invented. But the idea for me is ex post, ex ante. I see no evidence as they can, quote unquote, get out front of the debate. It's a parlor game for us, but they are
slaves to those reports, to the December meeting. I'd love a fresh assessment on the balance of risks. And just a simple question. The last time they met in the minutes, there was a group of individuals, officials, Lisa, who believe that the risk of doing too little is greater than the risk of doing too much. I wonder whether that's changed much between the last meeting of this one. Well, and we've heard around the margins, even Lael Brainard give nod to perhaps another view, which Senator Warren and Bernie Sanders CAC highlighted in their letter, basically saying even on the Fed reserve itself, there is dissent. How did they represent that, though,
without leading the market away from them? Right. And this is sort of the one major issue that the Fed has. How do they continue to signal that there is a single mandate, Federal Reserve, even as they are not longer term and they have to cater to that political? Well, I won't question the motive behind the letter. Let's just talk about the substance in the context. She thought I was a pretty decent letter. Yeah. You know, it's how I would prep for an
interview with a Fed official. You'd go through all the recent statements. She'd pick out recent quotes. You try and identify some contradictions and look for some clarity.
And I think that where the questions worth bank us, we just understand also there is a motive there and where within a week of the midterms. Yes. And I'm thinking here, does this mean that you think that you could go into politics? I think that you could do it. I don't think anyone wants that.
Actually, you know, when there was a question about the prime minister, we had a lot of messages saying, you know, is John off because he's running for prime minister? And, you know, we confirmed on this show that, you know, you were you were thinking of a run. Which state would have me if I wanted to be a senator? I just played around. Yeah, but nobody would think these these are really good questions. And it's important for the Fed to be able to answer them. But are they speak to the market?
Are they speaking to politicians? And can they be consistent in speaking to BOVESPA, speaking to the electorate, aren't they? You know, right now the politicians are speaking to the electorate. The Federal Reserve chair is trying to do the same thing in a very different way. I just there is a lot of people who are utterly unconvinced, Tom, that higher unemployment is a price worth paying to get lower inflation. Yes. I see no evidence of that whatsoever. I've got to take those questions. Look, it's it's not November. It's not October. It's November in transitory was ancient. Alan Zentner working with South.
Carpenter evaporated out in February or March, and I'm sorry, inflation has not come down. That's the sum of where we are when they still flirting with transitory. Up until about twelve months and a bit ago. This year, the shifts. Not even a year old, is it? There are a number of economists that are still flirting with it. I would argue. Yes, we can pick up on that later. Greg Peters got things to say, joined us
from page seven thirty Eastern Time. Looking forward to that. From New York, this is Bloomberg. Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo.
It's decision day at the Federal Reserve. And for a fourth straight time, policymakers are expected to raise interest rates by a supersized 75 basis points to the highest level since 2008. Meanwhile, Fed Chair Jerome Powell is likely to stick to his message that the highest inflation in 40 years must be tamed. The CEO of HSBC sees a tough year and a half or so for the UK.
Noel Quinn spoke to Bloomberg's Yvonne Man and David Ingles says the Global Financial Investment Summit in Hong Kong thinks the change in government has really helped the markets understand the future policy. I think there's still a lot of work to do. I think the UK economy is going to go through a challenging year, 18 months that probably is going to be a recession. We don't know yet, but it's better today than it was two weeks ago. Quinn also said that China will rebound from the impact of Covid and its economy will reopen at some point. Wahlberg's learn that the US and Saudi
Arabia have shared information indicating that Iran may attack the kingdom or other nations in the region soon. That's leading Washington and Riyadh to adjust their military posture. People familiar with the matter say the attacks would be an effort to distract from the recent nationwide protests in Iran. S&P has cut Credit Suisse, his long term rating, to just one level above junk status. That underscores a Swiss banks challenges after it outlined a radical restructuring last week. Credit Suisse was cut from triple B to triple B minus with a stable outlook.
Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts. I'm Lisa Matteo. This is Bloomberg. Will they pull out of Covid area or not? Well, that's going to have a big, big leaning really on the market's expectations for growth in China and therefore on the idea that the value of the renminbi. Because we all know that Chinese growth this year is really disappointing. Now, we all know that, of course, if we keep economy Windsor, we can't exchange rate. That was a pretty and wonderful Jane
Foley, the head of ethics strategy at Rabobank. Let me tally it. The quote of the day on China came from the UBS chairman, Colm Kelleher, who said the following. Global bankers are all, quote, very pro China. We're not reading the American press. We actually buy the China story.
Just a remarkable line item in public at this financial for I agree. In Hong Kong. I agree. This isn't this is not HSBC, which has a real delicate balance here with the heritage of the firm. This is a ginormous Swiss bank doing what everybody else is doing there on the Pacific Rim. They want to go in. They feel they pull away, they come back
in. It's an isolation we've seen for years. And right now they are isolating with a vengeance back toward China after the party. We've talked about this many times in the past time and we should do it again and away from the financial sector. And just think about the multinationals that operate here in the United States and cater to an increasingly progressive consumer base, particularly on the younger sites home. And then when they go abroad, they're
pandering to let's face it, I mean, let's be brutally honest about it. They are pandering to dictatorships while simultaneously. And I've asked that question over over the years whether that can continue. But seemingly it is continuing. It's not just UBS. And I think this is important. But you are right. Morgan Stanley and Goldman Sachs CEOs also at this conference and the omission of talking about China's zero Covid policies, the omission of talking about some of the antibusiness international business types of policies from Xi Jinping, just talking about interest rates and inflation highlights that they do not want to focus on this in any way, shape.
And I want to point out before we go to occur in that UBS had outstanding and has outstanding research on Asia and China, led by Jonathan Anderson, who was iconic. I'm going to say 10 years ago. Let's go down to Curran right now and advance this story forward as well and give us the back and forth, the ebb and flow of what western banks are doing in Hong Kong. I said at the roots there years ago across the highway, and I said it's an out of body experience. How auto body is the experience for Western banks in Hong Kong right now? So the fact that all these Western banks and their CEOs are in Hong Kong at the moment, Tom tells you how important both Hong Kong and Chinese market is for them. Right.
So the conference today is all about Hong Kong meant to be reopening. That's a whole lot of debate. Can you have your views on that? But the point is, these banks are here because they know it's a money box. It's a gateway Internet of China. That's what a lot of the commentary was, as as you all mentioned there, it was skirting the big political issues, skirting the human rights issue, skirting the issues, of course, in Hong Kong itself. And in fact, John Lee addressed the crowd. He's the chief executive of Hong Kong.
He's under U.S. sanctions. So all of that was put to one side. It was all about doing business and making money. And when we when we talk with fragmentation and decoupling and political tensions, the one channeled kind of skirted a lot of it so far has been the financial services channel that does continue to grow in China. It is still a big business here in Hong Kong for global banks as well as for the dark side of it is very much not under detention. The tensions within the ebb and flow,
again, are the Chinese banks, the big banks. I think it's a big for. I'll let you tell me, are they more state owned enterprise ish now than they were five years ago? Well, they've always been owned by the government. Thomas, you know, I'm the oldest answer to the government.
That's the way the banking system in China operates. I don't use any indication that they have taken on any more independence in recent years, as you know. If I'm doing the narrative is the opposite, that the state, the party is in control of everything. The party at the center of everything, in fact, is aligned, as Xi Jinping has said. So I think those states are, of course, arms and extensions of the government. They do work domestically for the Chinese economy domestically, and they service Chinese business and Chinese interests globally. So they are an extension of the
government apparatus. And I'm gonna ask a really dumb question. Is Xi Jinping? Did he just signal a truly less global looking kind of business view or is it the opposite? And the reason why I ask is because all of the noise around the shutdowns and the reopening. And then what's going on with the iPhone and then some of the rhetoric out of the global bankers leaves a very confusing muddle of whether this is an economy that is still open for business internationally or whether it is closing its doors. It is confusing, at least. You're absolutely right. Sometimes the rhetoric is all about
reopening and welcoming foreign investment. We had some of those loans, including the Xi Jinping himself during the Congress. But then, as you've just said, wait a minute, we've got this Big Apple iPhones, the PLA under our lock down for next seven days up there. We know sentiment is so negative towards production in China right now from these foreign multinational companies.
But still, we hear talk of expansion here, told Gulf of chemical companies expanding in China. The German delegation on the way to Beijing at the moment, and that includes leaders of some of Germany's biggest companies. They're going there to talk about ongoing expansion of investment. So it is a confusing story.
As we've said before, the best way to think about it, I would say, is sentiment towards investing in China is very negative. But when it comes to the data and concrete action in terms of big factories and companies pulling out of China, we're not there yet. Certainly not in a mass exit scale. It is happening around the margins, but not yet on a mass exit scale that the headlines might have you think it would be. Which perhaps explains the rhetoric that we heard out of a lot of the executives of big banks globally, how they basically were kissing the ring. Right.
Basically saying we believe in this area and we're not necessarily buying into the negativity that we're hearing outside of China about what's going on. How much is that a prerequisite to do business in China? Right now? Doing business in China has always had its own rules of road, Lisa. Technically, you've got to be a joint venture, for example, the husband ease up in recent years. But at the very least, you're operating around the local party rules for sure.
But on the fun on side of it, as we were saying earlier, the banks have probably been having a better run than most other sectors in there. For example, they've been allowed to take over their operations and owe them own them themselves. Having to have a joint venture, that's been a big thing for them. The bond market, the equity market has been opening up in China in recent years. And of course, obviously that has enormous potential. That story has turned around this year, though, with the outflows and with the pace of outflows. But the message from Hong Kong today,
from all of these bankers who flew into Hong Kong today, that they've come here to do business and to do business with China. They're not planning to change that story anytime soon. And a wonderful reporting ISE. So why sapling IBEX and a Karen that out of Hong Kong? Tell me. Were discussing these rumors about reopening. I think it's interesting right now whether you just ask a guest whether they think reopening in this economy as it stands is positive or negative for financial markets, given the Fed's effort to try and get inflation down and reopening into what not only the show angel part in the economic part, but the new political and cultural part of a new Hong Kong.
These conversations that we've had on surveillance over the years with Lord Patten, the guy who had to stand there and give it away with Prince Charles on whatever the boat was, I can't remember the name John. But. But the when you hear the path from Lord Patten and the giving up of Hong Kong to where we are now, we have no clue what Hong Kong looks like 10 years. This is not where they hoped Hong Kong would be 25 years ago or so, Tom. Oh, yeah, absolutely.
Not a chance. I mean, is there a wistfulness to it? I don't hear from Steve Major. I think he's our biggest, you know, visceral contact with Hong Kong among her. Our guest, Steve Measure with HSBC. And I'll I'll be honest, Mr. Meijer has some enthusiasm for them coming out of this constructively.
How was state a company for mistakes? He was quite obviously, you know, serious. So that turned to Lisa and he said, you know, we talk West Ham and Lisa's assured and said, well, put him on the west side is better than RTS. He actually called me out. He said, conversation doesn't come up. He actually called me out. He said, we started talking about pathology coming out.
I said, you couldn't look less interested if he tried. He said that on air and I can write checks. I went down this way. Sure you did.
From New York City. How about those feelings on this Fed decision day? How about them? Astros not looking good. I think we're going to have some momentum here, you have some of the technicals telling you that the market should continue to do well. Absolutely. Monetary policy is biting into economic activity. The glide path is going to moderate.
The question is, can margins be maintained? We still think that there is some pain in front of us. I think the end game here is that we'll have a higher inflation target. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. So let me get this straight. People are hoping they said that the November meeting is actually the December meeting and they tell us what they're going to do next month. And it's going to be a lot less than they've been doing. That's ridiculous. Live from New York said everyone.
Good morning. Good morning to you. This is Bloomberg Surveillance with Tom Keene and Lisa Abramowicz. Some Jonathan Ferro features unchanged on the S&P coming into the Fed decision a little bit later on this afternoon. So I'm all about the stepped down. How do you measure it? What do you do here? What are the calibrations used as we go to our Fed chair this afternoon? John, I'm going to go to the Bloomberg Financial Conditions Index.
I believe it's 11:00 ratios. It's a soup of data in it's going in Jerome Powell's direction over the last three meetings, some point 5 1 negative standard deviation points, 7 0, John. Now do a stick. And it was worse earlier. It's less restrictive in the last couple days. But he's got a trend here working for
and this is what he wants. It's what it was like financial conditions. And he wants them there for a long, long time. And that's the question for me. Is there scope for a high terminal rate than the one that is already priced maybe a little bit, perhaps if he talked to a lot of people in this market right now, is there scope to surprise this market just by how much they'll stay at that terminal right through next year and perhaps even beyond? Because, Tom, I'm still having conversations with people who were talking about rate cuts in 2023, the CPI data.
Again, you know, and I don't November what we see CPI, November 10, November 10th, November 10, frankly, is that more important than the Fed meeting today? Without a doubt. It is clear to says he'll be with us this afternoon, folks. The former vice chairman says it's a single mandate idea. That's all they're looking at. Ali said the next meeting is at the mercy of the next two CPI prints between now and then. And this is a reason why it's unclear whether they can really with any conviction. Talk about stepped out, you like. Yeah, it's really good.
I think it's good. I think that I think that you should, you know, hold a torch to your face like Callaway. Exactly. There you go. Step down is to help. Phyllis for University of Chicago. Liberal arts major constitute that right.
Lawmakers were not doing first derivative rate of change. Do I do X step down? Is he taken DAX at your education? No, I'm not really. It's like this is what we're doing. I loved calculus. Moving on, though, I do wanted to say one thing about some of the interpretations of the data so far heading into this meeting this afternoon. Andrew Holland Haas of Citigroup, just putting out something about the JOLTS job openings, saying that this is not going to let the Fed really let up from their hawkish message. But this to me was really interesting.
Any signal of a slowdown or stepped down will likely be paired with a hawkish commitment to lean against inflation. So how is the offset signaled that, OK, maybe they'll go to 50 basis points, but to your point, they're going to stay at five percent, five and a quarter percent for more than a year. I heard someone say recently House best performance of the year was Jackson Hole. Just keep it ready, show for no
questions and walk away. Remember, that was. Isn't that basically going to be it? We were we were in the freezing cold. In the freezing cold. Lincoln now at the Pioneer Grill in and thereby chipped beef on toast. And somebody said it's a 12, 15 minute speech and won't worry. Mindy.
We're back. I've still got to do my expenses for that trip. Got to work out that breakfast that you had that went on my cart. Futures unchanged on the S&P 500 unchanged. And the S&P going into this Fed decision, you know, it's unchanged. Take at 4.0, 42 percent on a 10 year,
just about holding on to 99 under Eurodollar positive, a quarter of 1 per cent. That's a stronger euro, a slightly weaker dollar. Tom, we keep talking about these rumors. Are China coming back online? Can you match why crude would be the morning that happened? I think this is the number one number one story here. The smart people at Morris was thrilled he could join us today, who's been dead on about sub 100 oil. How do you get above 100 in the the way I see it as demand lift. Lisa, Brent crude right now, 94 47. Yeah, it's been all over the place.
I think it's a really good question. Does try to reopening end up being a good or a bad thing for an economy beset by inflation? Given that would be an inflationary impulse. Today we got a slew of data, including at a 15 a.m. ADP employment data. Do we care? Does it matter? I don't know.
But people do trade it. So from that perspective, it is relevant. It also is relevant ahead of the jobs report on Friday, although correlated, we're not so sure.
And it also follows yesterday's jobs data. This might be actually the most important data point of the week that we got yesterday at 10:00 a.m. Eastern. How much of this increase in job openings highlight the problem that the Fed is facing? People are still going and going out to eat. They're still going and. Lying around. They're still doing all of these things
that require services. And you're seeing people need to continue staffing up despite the desire for perhaps a little bit of a loosening labor market today. The key event FOMC rate decision, 2:00 p.m., followed by Fed Chair Jay Powers press conference at two thirty p.m.. If you can't get enough of us, we're gonna be back walking you through all of it with some amazing guests. Say for the guests, perhaps not necessarily Rich Clara, the former Fed vice chair, Diane Swonk, KPMG, Scott Miner of Guggenheim. And that was Eddie of Deutsche Bank.
Oh, walking through what is going to happen at one of the most tenuous points for a central bank facing an incredibly difficult moment. And after the bell, we get Qualcomm earnings among a slew of others, including Zillow, eBay, Robin Hood, Qualcomm. Really interesting to me, given some of the chip shortages and then the glut and the fact that we're seeing a real deterioration in the outlook by a number of chip makers. John, at what point does this impact Apple? At what point does this really highlight some tension in the broader economy, or is this just an idiosyncratic moment for an industry that really benefited during the pandemic and now is facing the other side? Lisa, thank you.
Let's get into the earnings right now with Peter Oppenheimer, chief global equity strategist at Goldman Sachs. Peter, everybody's talking about the step down for the Federal Reserve, maybe a shift from 75 to 50 to 25. Can we talk about the step down that you're expecting in earnings? Any. Going back from 21 to 22 to 23.
Yeah, absolutely, John. I think this is really going to be a crucial factor that investors are going to have to take into account. We've seen some of the optimism building up again about the prospects for the rate rises to start to moderate. But on the other side of that, we're seeing a deterioration in earnings. This is being not a disastrous earnings season, but certainly not nearly as strong as we've seen previously. And the key thing that's happening and we've been arguing this for some time is that margins are starting to come under pressure as a result of these higher input costs.
And that means that the forward looking earnings are also deteriorating. Revisions are starting to come down. And I think it's too premature for markets to be really pricing peak interest rates without taking into account the lower earnings and growth that's coming on the other side of that. Peter, the seismic change for next year is we have a risk free rate. We have gravity, as Taleb says it. Do you assume more transactions in truly
more combinations is stocks as corporations confront a reality from decades ago? Yeah, absolutely. This is this is an overwhelming shift that's happened. I mean, we have to take into account that it was only at the beginning of last year that the market's only pricing one or two rate rises this year in the US, nothing in Europe until next year. And we've seen now a whole range of significant rate increases with more to come.
And, you know, just over a year ago, a quarter of all government debts around the world had a negative yield. People were paying for the privilege of lending to governments. Now you're getting around 4 percent for U.S. 10 year treasuries. This is a big shift and it requires valuations of financial assets to moderate. We've seen some of that, but probably not enough given the scale of that shift in the cost of capital. And
2022-11-09 04:06
