'Bloomberg Surveillance Simulcast' Full Show 8/11/2022
This is a necessary print for the Fed but it's not sufficient. We need to see a lot more. We are entering I think a new phase in the inflation debate. We are still relatively cautious given the ultimate outlook and trajectory for the economy. If the Fed is expecting to bring inflation back down to 2 percent growth is secondary. Inflation is in focus. This idea of peak inflation that's just a math problem to us. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Good morning everyone. Jonathan Ferro Lisa Abramowicz Tom Keene after a bang up job report a bang up CPI a stunning market response
yesterday. Lisa every strategist has to recalibrate. Every strategist has to look forward and question are we seeing the deceleration now that we've been looking for for so long. This was the first inflation read in some 18 that actually surprised to the downside with weakening trends in terms of inflation. And the markets rallied substantially despite Fed
pushback saying guys it's way too soon. Get to the data here this morning with green on the screen and the VIX again under a 20. We're beginning to see strategy. Michael Purvis OUTFRONT from Tom Keene and Lisa he readjusted up to an abrupt move to 44 hundred. He says yes there are some challenges out there but it's markets OUTFRONT of economics who seem to have forgotten that basic code. And not only that but it's all aspects of the market. You saw the dollar a week. For example if you take a
look at the Bloomberg dollar index it weakened the most at one point yesterday going back to 2020. It was a pretty substantial risk on move usually get dollar weakness. You had it across the board whether it was the NASDAQ getting the most since July whether you saw credit severely rallying all of these things kind of piecing together for a full risk on feel. That's hard to push against. Your point with Michael Purvis right. Technicals Kailey Leinz in for John Farrell. He was at FCO in Rome. I'm not quite sure where he is now. He may be in Heathrow on his way home. We've been trying to get him back here for three days. Kailey Leinz let me give you a Brad Stone question if I can. And Ben Edmonds at Medway writes
on this Matt Miller I should say writes on this Where is Lisa says It's both equities and bonds dollar moving as well weaker where he says it's a double barreled short squeeze of Bond's price up and equities price up. Yeah and we definitely saw that in a huge way yesterday with the Nasdaq 100 back in a bull market. I mean that didn't take very long. And the S&P now up 15 percent from its lows in mid June. I would argue though Tom that the rally in the equity market was more substantial than what we saw in bonds because yes you saw yields coming dramatically lower right off the back of the print yesterday. But by the end of the day it was unchanged in the two year was only down five basis brambles. We got to trade Kaylee to just do this better. I'm sorry Lisa. We came in negative 50 premium Ezra 2s 10 spread and we disinvited yesterday a little bit. But come on get with
the script. Kailey Leinz. One other thing before we sound so positive. Everything is going great. We are going to go to the moon. The aspects of the CPI report that were most concerning got kind of thrown out with a bet with the bathwater of this gold feeling that was out there. The idea that food inflation came in at the fastest pace going back to 1979 the fact that
rents are accelerating the fact that medical costs are accelerating all of these basic aspects. And I do wonder if we're seeing that bifurcation with used car prices coming down that is a lower income rate squeezed group whereas new car prices continue to rise because that is the higher income group they can still afford it. Sticky inflation of Michael McKee will help us through that with the Dallas trim the Brando trim the lines trimmed and all the rest of the trimmed inflation reports.
Let me get the data. Lisa staggers over for a brief futures up 12. Dow futures advance continued 122 points a Dow thirty three thousand thirty one. The Dow is ten point three percent from a new record high. The first time said that in months and months and months and you see it with a VIX that stands under twenty from thirty two down to twenty and now nineteen point ninety two on the VIX in the yield space a lesser inversion 2s three point one seven percent.
Oil has its own story going on worth watching. And of course the really great challenge is year Brent crude making another dash for 198 on Brent crude and dollar weakness. We'll get to that in a moment. We need a Thursday bull market brief. Lisa what do you. Well just to comment though quickly on crude you didn't get the IEA report talking about people
switching from gas to oil in light of some of the shortages adding to demand that they hadn't seen six months ago. So that part is part of the story today. Eight thirty a.m. we get us initial jobless claims as well as PPE. These are the prices the price increases that factories manufacturers are seeing. How much do we see this outpace what we see in CPI. And this goes to
Mike Wilson's question which is do we see those profit margins compress and continue to compress as people buy as those prices continue to outstrip CPI. The prices that consumers are willing to pay at 1:00 p.m. USA selling 21 billion dollars of 30 year notes and doing this just for you bond auction day. Tom I find this fasting because yesterday after that CPI print you had a 10 year auction that did amazingly well. And you've seen this right. Basically people flooding back to bonds to Kelly's point. You are seeing that rally in bonds. Yes. Maybe it's perhaps it's more pronounced in stocks but still there too. So how low can it go. And what does that say. Does it send a contradictory message to what we're seeing in stocks. In other words can this continue to happen with the fact that you normally have an inverse relationship between these two asset classes and seven thirty pm. San Francisco Fed President Mary Daly is speaking in an exclusive interview with Bloomberg Television in the Financial
Times Tom. She pushed back. She said We still have a lot of work to do. Inflation is still very sticky. It is still way too high. Eight and a half percent. We are going to do more. She did seem open to slowing the pace but this has been the interesting feature to me. One Fed official after another has come out and said guys we are not going to pull back. What are you doing. Why are you pricing in a rate cut. That seems implausible. And the market continues to say we don't buy it. And I really find this a really interesting conundrum where Fed officials are trying to job on the market and a market is not listening. What happened.
Zero always is that economics is behind the markets and some would say the equity market is always behind the bond market as well. Lisa thank you so much. Again futures up a lemon. A timely way to look at the equity market up here that we're seeing is in fixed income. Brian Wise things done this before head of global fixed income at Morgan Stanley Investment Management the right guy to talk at the right time. Brian I'm looking at the Bloomberg Total Return Index one of the measurements. And as you know it's been ugly since the summer of last year down 13 percent maybe down 17 percent on bonds. And we have had
a bounce. We've had a very very nice bounce. Price up yield down. And that is it. All clear for bonds is it is all clear for stocks. No Tom I think you and you analysts have been out of this morning. I mean I think the market's sniff this one out. We've had the move move from 350 and 10 year notes to 275 move from over 600 and high yield to down to to 400. So I don't know
if it's all clear. I think you might be actually at the lower end of the yield range for now. But it's actually pretty amazing that the bond market I think it's sniffed out that CPI has peaked and that there is some smoother sailing ahead. We're not done. The Fed has more work to do. But. But they've done a lot. And they have a law. They have the shelter components. And the most confusing component to mother the most concerning and pointed to me. I think that's why they have more work to do. But the bond market I think is sniffed it out and we were near the bottom end of the range. Brian how much is this actually
evidence that Fed policy tightening is working. And how much is this evidence that the Strategic Petroleum Reserve at a lack of demand for oil has made oil prices and gasoline prices fall to the lowest since March. And that's really was underpinning this entire move. It's a great question. Is that big. Again the Fed did what they did is quick member how quickly they move. These bills began about 50 versus 75 even back a year. They had moved over 25 basis points in one meeting in so long. So part of this is credit to the Fed part is because commodities have come off and
demand has has definitely shifted down. So I think the Fed looks at this as the beginning of of their battle and having been more credible but having more work to do. But do you think the Fed is happy with what it's seen in the market reaction Brian when you have Charlie Evans talking about how inflation is still unacceptably high. That's a quote. Neel Kashkari saying I want
to be at 4.5 percent next year. And yet financial conditions are getting easier. I think they're worried that there's that there's easing priced in. Right. The idea that that easy money is back out there in the future that they could simply just ease again that they needed to. I don't think they see it that way. Again when I look at the shelter components and CPI CPI is too sticky. It's not going back to 2 anytime soon. So they're not done. I think they
need to push back hard on this market and they may need to show the market that even though they're softening in CPI that they're serious about fighting inflation they can't afford to lose this fight. The rally has been pretty broad based Brian and it's not just in equities but also in credit. You're seeing people pile into the riskiest debt and you're seeing it in mass. How much do you lean into that. Do you see that continuing versus perhaps a head fake ahead of what the Fed is trying to achieve which is a significant slowdown. I think it's probably more of a head fake from these levels.
Again I think we got to some levels that were there was just too much priced in too much fear until we've gotten the balance as I said. And you've got to downgrade warning that we're ahead of it. And now you're probably at the point where you want to start to pare risk a little bit as opposed to chase it. Brian you saw Mike Mike Wilson I guess you were reading from the same hymnal. Brian if you say the Fed the FOMC has to quote unquote fight back don't they only have one tool the interest rate tool. Yes I used to think they had two tools I thought they would use the balance sheet a little bit more. It seems like a tougher
tool for them to use. So yes Tom I think the interest rate the tool they have is the front end of the yield curve. I think they will continue to push on it again. Do they need to go to 75 every meeting. No I think they've done a lot of. Now those ethical in September. So I've got to pin you down on this. What's the two's 10 spread you see. Do you envision a negative 50 and negative 80 even a negative yet 100 basis point two's turns negative 100. Seems like a reasonable target to me. Wow. Wow. Brian that gives pause. Ryan wants to starting a strong year with Morgan Stanley Investment Management. He got the
duplicative while waiting for Kelly looks down. Well I wish someone caught my face on camera when he said that I got my ISE I'd be out of my shoe. Do not get in the lines Cam. We have the grandma cam. No lines cam. Lisa it was a double well. Both of us said well that's the first time I've heard a full percentage point yield differential. Two's higher than 10. I think that be a record. Right. And it highlights how effective overtime after Volcker time. I want to check and see what that peak way. How
far are we from having to do that kind of move. And if that happens again what kind of pain is there felt out. I mean honestly what have we seen so far and markets have we seen the Fed actually take effect in terms of taking the bloom off inflation or is this completely different. Is this a confluence of luck. And also you know some moves on the policy front tried to ISE that near-term price increases in gasoline in the first season of Game of Thrones or one of the lead characters goes down in the cave and says give me wisdom. We did that this morning with Peter. Dear terrorists who gives us market wisdom every day it Bloomberg. He said watch the XP X and deep breakout. That's what the pros are watching. This is Bloomberg. Keeping you up to date with news from around the world with the first word answers you can get us something. Inflation data in the U.S. isn't changing the minds of the Federal Reserve
officials. Two of them are signaling that the central bank will stay on the path towards higher interest rates. Chicago Fed President Charles Evans says inflation is still unacceptably high. Minneapolis Fed President Neel Kashkari says he wants the Fed's benchmark rate at four point four percent by the end of 2023. Ukrainian special forces reportedly launched a powerful attack on a Russian airbase in occupied Crimea. That's according to a Ukrainian government official who spoke to The Washington Post. Ukraine says nine Russian war planes were destroyed in the attack. That would be the Russian Air Force's largest single day
loss in the war. House Speaker Nancy Pelosi says the US consulate in China to establish a new normal around Taiwan. Pelosi spoke hours after Beijing announced plans for regular military patrols around the island. She said China had been trying to push its way towards its goals on Taiwan before she led a congressional delegation there last week. North Korea's leader Kim Jong un was seriously ill during a recent Covid outbreak. That's according to Sister Kim Jo Kim Yo Jong. She
blamed South Korea for spreading the virus by sending what she called dirty objects across the border in leaflets carried by balloons. And gasoline prices keep falling here in the US. According to Tripoli the average price of a gallon of regular gas has dropped to three dollars 99 cents. That's the lowest since early March. Costs have fallen due to cheaper oil and relatively weak demand. By one measure fuel consumption is lower than it was two years ago. In the midst of the pandemic. 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 could get to. This is payback.
Perceived a stronger labor market where jobs are booming and Americans are working. We're seeing some signs that inflation may beginning to moderate. That's what happens when you're building the economy from the bottom up in the bailout. Here's the United States. Trying to keep business as usual in August and August is completely unusual for the politics and the polity of the American nation. It has been an extraordinary week in politics centered around the former president Donald Trump.
In all of our news of the markets and such you're going to take some time here. Reject Fitzpatrick to talk right now about what's going on Jack. My house stopped as a child for Perry Mason. Raymond Burke came out and everything was solved within 30 minutes. It was incredible how Perry Mason always solved the case. And he did it with the respect of Hamilton Berger who was
a prosecutor and iconic within the show. And some would say piece the show together. There are loads of prosecutors and whatever the number of cases there are against the former president. How are they doing when a president of the United States pleads the fifth. It's it's hard to say how they're doing necessarily because when
he pleads the fifth that's in the context of this potential civil suit with the threat from the New York attorney general that we still have to see if they're going to bring a case. It is not a great sign for Trump. Keep in mind in civil cases a jury can be instructed to or allowed to consider that as a potential negative. They can infer negative things about the decision to plead the fifth as opposed to in a criminal criminal case. I instructed not to. We don't know yet if they're going to file that suit but it does seem to show some the former president feeling some pressure especially considering everything he said about people who plead the fifth and implications of guilt. So we don't know what's going to happen on the other side. But it doesn't seem like a great sign for him not to turn Bloomberg Surveillance into Perry Mason. I mean you
know I don't have the good looks of Raymond Burr. But just to be blunt here and I think you beautifully explain the distinction of criminal versus civil politics in America doesn't care how Republicans respond to the TV this of this of quote unquote pleading the fifth. While we know how Republican allies of Trump will respond because aside from pleading the fifth in this potential civil suit with the FBI raiding Mar a Lago there's been a ton of defense from Republican politicians from Congress on the Republican side defending him demanding an explanation from DOJ. There is a lot of loyalty still to former President Trump among Republican lawmakers. How does it play with voters. I mean the
hypocrisy of campaigning in 2016 saying only the mob pleads the fifth and then consistently pleading the fifth for roughly six hours. Does it doesn't help him. But on Capitol Hill with his allies we have not seen that many cracks in the foundation at least of The Washington Post points out this morning that the president Trump pleaded the fifth in 1990 in a divorce proceeding. Not that I don't want think all I could say. I'm not going to go there. But I was going to say did you just binge watch Perry Mason last night. Yes I do. OK let's try to put your crush on
Della. We can use this preparation for the show to really color color the insight that we provide today. Let's switch gears a little bit Jack and talk a little bit about CPI and what we got yesterday and what this administration can and cannot claim credit to. So they've thrown basically as much oil as they possibly can at the market with the releases unprecedented releases from the Strategic Petroleum Reserve. They've passed a bill that may or may not have any impact on inflation. They are
trying to do what they can. It's all going to take a long time. Have they done everything they can. And they're not just now sitting here hoping and waiting. It doesn't get worse. And they start talking be talking about brownouts and other types of constraints on energy usage in the pretty near term. They don't seem to have any massive other options that they haven't already tried. And you can tell that they they're they're tapping all the resources they can when they're putting out that amount of
oil from the Strategic Petroleum Reserve. And when the conversation in D.C. has turned so significantly to much longer term legislation that may or may not really affect inflation. You know the so-called Inflation Reduction Act is supposed to do that partly based on reducing the deficit. It's a pretty small reduction over the course of a decade. When you talk about the
chips Bill you know there are things that that could be disinflationary in these pieces of legislation's impact. But this is not something where they can flip a switch. The SPDR and you know maybe there could be conversations about permitting reforms. They're having that. But again those are that's a bit of a long term issue in the short term things they could do by
election day or even a little ways off. The administration doesn't have that many options that they haven't already gone to. Well of course Jack in theory the Democrats are going to be like look gas prices are going down. Inflation is cooling off. All of that is a good thing. How will the Republican messaging have to switch considering inflation is one of their primary campaign issues and how the Democrats caused it. I'm not sure they're going to switch it. Yes. Gas prices are coming down. But when we talk about that in the context of gas prices coming down below four dollars a gallon Republicans still
feel good about their basic message that this administration has not had a lot of success on the economy. You know. We saw essentially a month pause in the CPI but the year over year rate was eight point five percent. So Republicans are still talking about inflation about gas prices. And again especially if you're thinking in terms of the midterms just a few months away. They are going to hammer the Biden administration and Democrats on the economy. I'm not sure that's going to change to any really significant degree. Jack Patrick thank you so much from Washington with a briefer on his watching Perry Mason last
night. Lisa let's do the dollar right now. It's a weaker dollar from the 1 0 7 down to a 1 0 4 handle on D X Y. The euro 1 0 336 is a bit stronger but even sterling with a little bit of a bid 122 0 5. This feels broad based like a risk on rally that's giving a little bit of a reprieve to the dollar's strength at our to all of the currencies that are paired with it. What I keep looking at is the W I R P function on the Bloomberg basically where you're pricing in rate cuts and this market is pricing in rate cuts in May of next year. Fed official after Fed official I understand how we can do that but that's my point.
And the Fed officials are basically saying this can't happen guys. We're not even close and people are still pricing this in. And how much is that underpinning the weakness that we've seen in the dollar. Let me be careful here folks. I understand the use of this in the use of the Bloomberg terminal as a trading game. I get that from an economic value. Lisa I just don't get how you can get the crystal ball out to raise rates as people are talking about and then somehow miraculously come out with a rate reduction at some point probably talk myself out of a job. Their futures up 10 maybe. Stay with us. Bloomberg. Bloomberg Surveillance we say good morning to you on a Thursday and it is an eventful Thursday as well. Off of a bang up job report a stunning inflation report. Markets on the move and I'm going to call it a recalibration that we can Kailey Leinz in for
John Farrell. Lisa Abramowicz I'm sorry. Every strategist right wrong whatever has to recalibrate off these two reports. Have we reached peak inflation. Does it matter how quickly is it coming down. Is this all because of oil. Does it matter that food rose at the fastest pace going back to 1979. All of the recalibration that you're Perry Mason analysts have to face. Maria Paul Allen is tourists and Janelle Marti write a brilliant essay for Bloomberg are reporting us I
should say on rent. Losing Pigs joins right now the chief economist of Stifel. Thrilled she could join us this morning. Leslie I want to go narrow here and I want to go. What I see is every single conversation in the Keene household and I want to get away from the idiocy of New York or L.A. the other big cities Miami up 39 percent Orlando up 24 percent. Las Vegas up 16 percent. Bring it on down to even. Boston up 13 percent in rent. Does anything else in the inflation report matter except housing. It does. So what we saw is the largest increase was seen to the largest decrease was a result of energy prices. And
that's not to say that it makes the report less meaningful but it does give me pause or it makes it more questionable that we're on a sustainable downward trend in terms of cost. When we look at other components included in yesterday's consumer report as you mentioned oh we are the proxy that we use for shelter. Costs rose over half a percentage point. Food prices up over 1 percent. These are large components of the monthly expenditure that consumers spend on ADD as those continue to rise. Yes that reprieve at the pump was absolutely a welcome step in the right direction. But it does it mitigate the relentless rise and costs that consumers are facing in nearly every other second. I want to go losing your daughter because I know you've studied this.
The franchise at the University of Michigan and at the Kansas City Fed will join them at Jackson Hole here in a couple weeks where they set back 20 years ago and said how do we measure inflation. My personal favorite is a Cleveland CPI folks which is like core inflation. It can take out different things but I'm seeing an upward trajectory in what is now comically called. They're now casting CPI. I mean the fact is some of these indices have not turned around. Oh that's absolutely correct. So while the market is very anxious to call a peak in inflation and the market is betting on the fact that inflation will come down meaningfully into the end of the year alleviating a lot of pressure on the Fed to continue to backup rates. When we look at other cost pressures when we look at other measures of inflation there's still a lot of work for the Fed to do. And in fact we've heard those exact words
from a number of committee members that they're nowhere near done raising rates because they need to see not one month's number. They need to see several consecutive months of a meaningful retreat in costs before they're convinced that we've not only reached peak inflation but we're on a sustainable downward trajectory in costs. Lindsay does this report that we got yesterday make you think that a soft landing is more achievable. No it really doesn't. Again I'm not yet convinced that price pressures have peaked and that we are on a pathway towards the
Fed's target of 2 percent. So I do think that the Fed will continue to raise rates beyond the three to half target that we saw as of the June SEP making it a deeper potentially more prolonged downturn in the U.S. economy. So the soft landing I think was achievable or could have been achievable had the Fed initiated rate increases earlier on. But now we're in a position where they're going to have to tighten at a faster pace higher pace than they would've otherwise done if they had removed that transitory language earlier. Well that said Lindsey that's been the case for a while. And we are seeing is a number of softening
aspects softening think particularly on the good side. The areas though that you pointed to whether it's food whether it's shelter that rent component that's a big one. How much what gives you conviction that that's stickier and could drive CPI even higher than the nine point one percent that we saw a couple of months ago.
Well particularly when we talk about food prices a lot of that has to do with the supply chain the supply side aspect of inflation which the Fed has little control over. The Fed can raise the cost of capital which can tap tap down demand tap down investment. And we've already started to see that impact. On the supply side. Traditional monetary policy metrics can do nothing to alleviate the lack of supply in the market. The dislocations that we're seeing in terms of trade and that's going to keep those components of inflation much more elevated than the Fed would like to see. Well Lindsay as Lisa said you're seeing
moderation and good. So let's talk about services. How worried are you about services inflation and the wage pressures there in. Well as we saw at yesterday's productivity report unit labor costs are up over 10 percent. Now why is that. Well growth slowed in the first quarter and the second quarter. But we also
hired several million Americans. So as productivity remains very very minimal. As we continue to hire more workers to produce less goods that's going to continue to put upward pressure on wages without the improvement in productivity. Yeah and our genome or not IMS or equity strategist here at Bloomberg Intelligence saying the equity rally with peak CPI only actually works if you see more productivity with it. To that point Lindsey so when we talk about where inflation is going to get down to how high the Fed funds rate has to be to get it there what rate on unemployment does that have to dictate.
Well I think we need to see a meaningful increase in the jobless rate right now at three and a half percent while we are checking recessionary boxes for most other sectors of the economy with weakness in manufacturing housing the consumer real income growth real spending the labor market remains solid. And so in order to see that meaningful slowdown in the economy to bring down inflation I think the unemployment rate gets nearer that 5 percent level. So a significant increase from where we are right now. Lindsay I'm going to ask you a question with all of your academic research and experience in the fields that's going to
make Tom push back and start groaning which is about the historical analog of the moment that we're in. And we talk a lot about the 1970s. And that's what's going to make Tom groan because he doesn't see that. So people will say it's more akin to the 1940s. Other people point further back in history. Where do you look for guidance as to how this is going to transpire and what tools will be necessary to get us back to where is more comfortable. Well I think there is some comparable aspects of
the 1970s particularly when we talk about the supply side shocks to inflation. That being said we are in an unprecedented market with the aftermath of a global pandemic with ongoing geopolitical conflict. There really is no reasonable or realistic comparison to markets in the past. So right now I think economists I think Fed officials I think market
participants are struggling to understand all of these different factors. This confluence of factors that are driving the market to really act irrational at this point as we've seen market participants are ping pong back and forth based on one data point. We've seen the 10 year slip down to below two and a half percent and then rally back above 3 percent based on one data point. And so this overreaction I think highlights the fact that there really is no historical precedent or comparison that we can look to to really understand what's happening in the marketplace. Lindsay List. Channel Group. Allan Meltzer of
Carnegie Mellon. Can you do your economics on a homogenous basis or are we so fractured that it's a heterogenous analysis where you're looking across quintiles and deciles of America. Oh absolutely. That there is a clear buy vacation and how Americans are responding to inflation as we were talking earlier. I think those at the higher end of the income earning range are better
able to absorb and are reflecting that better absorption rate of inflation versus those in the middle or particularly at the bottom. Inflation does hit those with less ability to absorb costs increases obviously more dramatically and that's having a larger impact on the average American. The average small business struggling amid these rising cost pressures. Well to that point on cost pressures businesses are facing we're going to get PPE later. Lindsey do you expect we'll see the same
moderation. Well I do think we're going to see some reprieve in the July number again as a reflection of the fact that commodity cause energy costs did cool in July. But we are likely to see other categories just as we saw in the CPI continue to rise again giving the markets increased confidence that inflation has peaked and the federal back off from this more aggressive pathway. But I think economists and Fed officials are going to be less
convinced even after a reprieve in the PVI this morning. Dr. Felix thank you so much. Greatly appreciate it with Steve Lindsey. Peter thank you. This morning Lisa. I'm just glad I'm glad Caylee's here. Ferro Wood fell off this. But Caylee at least keep us on the straight narrow. What's actually going on this morning Lisa as you remember. I forgot. It's Thursday. We have claims. It's claims Thursday. I just got a text that he may not come back now. So you know be
careful what you ask. No no. So why why am I so why am I so. Yes we do have claims Thursday. We also PPA Thursday I guess we have a competition for which is going to be more important. I think Caylee brings up a good point though. People ISE going to be interesting in terms of margin pressures for companies especially paired with that CPI print. And this alphabet soup that we're talking about basically is are businesses paying higher and higher prices than they can pass along to the consumers. And that's what people are trying to pass out with these two series and part of it. And again the difference. I mean like Gina Martin Adams on this or other great equity strategies is given the turmoil that Dr. Pigs has just laid out. Do we begin to see transactions and combinations affected for profit. And I would say I can't remember. Lisa was a merger
Monday or merger Tuesday but we saw some of those little transactions here. Yes. Merger Monday. It was officially a merger on Monday. But we're starting to see more deals come through. And how much is it out of necessity and how much is that at every convenience. And that I think is what we're going to have to see in terms of whether this is trying to strip out
costs trying to streamline so that they can better maintain their margins. We have 40 seconds here. Did you say there's another auction today. If so glad you were listening Tom. Yes. Yes 30 year bonds. What's the difference between a 30 year auction and a seven year auction. One is for parents that mature in seven years and the other Dani Burger. Don't be so rude. So far as I can tell you only hear seven year the seven year auction there are less liquid. Right. So they haven't been around as long. And as a result are they. And they're not as traded then on a benchmark Lou. So it tends to be messier and it
also secures knowledge. We want to see from. I think we'll be back in the future. Meanwhile Dow futures up 131. This is Bloomberg. Keeping you up to 70 years from around the world with the password I'm sure you could get to. Ukraine's president VALONE Amanda Lang he says that Russia lost nine fighter planes and explosions that rocked an air base in occupied Crimea. Russia denies that Ukrainian attacks caused the losses but the Washington Post says that in fact Ukrainian special forces attacked the airfield. Oil output in Russia is set to fall about 20 percent by the
start of next year due to a European Union import ban. According to the International Energy Agency gradual declines will start as soon as this month when Russia cuts back refining. The EU ban is set to halt most crude purchases from Russia on December the 5th. And in China the central bank says it will protect the economy against the threat of inflation. The People's Bank of China pledged to avoid massive stimulus and money printing to spur growth. At the same time it promised to provide stronger and higher quality support to the economy. And Disney is raising the price of its flagship Disney plus
streaming service by 38 percent. It's part of a plan to generate more revenue for its money losing online businesses. The entertainment giant also wants to build on third quarter results that beat estimate sales profit and subscriber growth. Deutsche Telekom has raised its earnings guidance for the full year after forecasting that customer growth in the US will speed up. That also was better than expected revenue growth in European markets. Deutsche Telekom wants to take full control of the T-Mobile US business.
It's become the company's primary growth driver. And gasoline prices keep falling here in the U.S. according to chip away. The average price of a gallon of regular gas has dropped at three dollars and 99 cents. That's the lowest since early March. Costs are falling due to cheaper oil and relatively weak demand. By one measure fuel consumption is lower than it was two years ago in the midst of the pandemic. Companies 24 hours a day on
air and on Bloomberg Quicktake. And we're talking Gupta. This has been back. Energy markets as you say has been a key focus for us and will continue to be. And we would expect where the market is today to continue to see that moderation. Do we want to encourage this transition to
where price pressure is moderate across the economy but also do things that will make things more affordable for people right now. Because at the end of the day typical families look at their monthly budget. Paul Allen Brandy's there on the lawn of the White House and a piercing interview yesterday with Lisa Abramowicz. I thought she just crushed the NBC director. There a brand with for The Sopranos. What was that like. I mean you're talking to D after a bang up inflation report and he's got to go political and say life is grim and energy. Right. But he basically has to say there's more work to do. We're doing it. He can look at this bill we just passed. And my real issue is what more can they do. Are they now just hoping it all works at a
time when the inventories Strategic Petroleum Reserve are going down and you still have people really cramped. I mean to that point especially lower income households really are struggling. Yeah. What was interesting there folks as we were watching D on the lawn in the Brad Stone can make clear knowledge at Lisa Abramowicz. Yeah right. Okay. Greg Kailey Leinz in for John Farrell today. Right now. And I want you to lean forward on gas under four dollars a gallon. There is no one in America who writes a more detailed report across hydrocarbons than Stephen Schork. He's principal of the Shaw Group. We
protect their copyright. His report is absolutely definitive. Steven let me just go to one sentence of your your magisterial report. New York Harbour has the lowest inventories of hydrocarbons in a decade. Why is that. Absolutely. Well it's the lack of refinery capacity. Tom I'm here in Philadelphia and 30 miles down the road from my office. We used to have a refinery
just three years ago that produced enough gasoline each day to supply more than a quarter million cars. That gasoline production has gone missing. And that was a key supplier to New York Harbor. Why is New York Harbor so important. Because this is the delivery complex where the future contracts are settled. So if those low inventories and the lack of
capacity we certainly have the ingredients of high prices. And that's just a window folks in the shorts just genius here on all the details of supply and flow. Stephen Schork what do you see in your madness about demand. A demand destruction right now is the key driver to lower oil prices. When we seasonally adjust the numbers we're looking at demand destruction year over year more than 400000 barrels lower a day. That's 5 percent. But more importantly when we look at demand relative to seasonal norms we're looking at demand destruction. That's nearly 200000 barrels a day 2 percent below normal. So clearly as the saying goes high prices are the cure for high
prices. So Americans are balking at these prices and they are driving less. Steven this goes to the underpinning question of what we've seen in gasoline prices. Is this the reason why you're seeing inflation come down and it can lead to a soft landing because of the SPRO release. Or is this a sign of a deteriorating economy that's deteriorating at a much faster pace with demand destruction that people have not really expected. Yeah it's an excellent
question. Mason thank you. Over the past week and I did do some soul searching am I guilty of confirmation. I have been in the camp since March that we are in an economic downturn now. The non recession crowd will tell you we cannot be in a downturn because of the labor market. Labor market is very strong. But keep in mind because of inflation earnings are at a three year low. So when we went back and looked at the last 14 recessions or what we've seen is the labor market has fallen in the first two quarters on half of those gains. So of course that means at this point in the recession labor markets were still increasing. And this makes sense because labor is a lagging indicator.
My concern going forward in what is keeping me in the recession camp what is keeping me into hard labor is your landing excuse me is the fact that yes energy prices have decreased and they will continue to decrease into the fall as we make the switch over to winter grade gasoline which is cheaper to manufacture. But of course we're at a seasonal lull in demand. The other shoe that drops and we saw this in the CPI and this is the biggest concern above energy and that is food costs. Food costs are rising at the ISE you pointed out earlier rising at the fastest pace since the 1970s. And we look at the potential harvest this fall. Not only is off road diesel price for farmers rising farm equipment is rising. All of our costs propane prices are rising. These are all costs to the harvest. So we're looking at. Renewed food costs because we cannot alter our behavior when it comes to food with gasoline not with food to Tom's point earlier are we looking at a two or three track economy where you see real demand destruction at the lower tiers of income because of food because of rent because of some of these other inputs whereas the wealthier individuals can keep going. Going to spend it. Her maize or wherever. Which is still
seeing continue to perform. Yes absolutely. To your point about a buy vacated market. I was shocked earlier this year. I tried hiring an analyst and the demand for four incomes and four perks but blew my mind. I've been I'm 55 years old and I'm just a guest at what these college grads are expecting. So yes and they're expecting it because they're getting it. So yes you're having that two way market where wealthy wealthier high income earners are less impacted by inflation. And certainly we've seen none their demand numbers. But clearly the lower income people are absolutely squeezed and shelled remain squeezed for the foreseeable future. Stephen Schork I guess. Thank you. That was brilliant. Thank you
very much. I'll come back when the Phillies lose a game. It'll be interesting to see Caylee. Did did Bramble Woods the brand take a shot at me with Emma's bow tie tilt. I mean I wore one of my favorite airman's bow ties today. Am I in the time out chair because of that. Maybe Tom. You've got to take it if you if you take shots at Lisa as well. But I think the bowtie looks great. We're very color. Yeah. Well the radio listeners probably can't see that. But I'm from my
wardrobe people call me up and said you go to matches with Kaylie today but I'm not I'm not taking a shot at you. I'm just you know I know that that's a popular name in your in your toolbox. I do think though that there is a larger point here. Right. And it's something that we have seen where it not for MJ point companies for the apparel companies the luxury retailers are actually delivering better than expected margins were as you know the Wal-Mart's of the world the targets they're the ones who are struggling. And I do not struggling that's a little bit strong but are performing worse than people had expected. How much are we going to see this bifurcation and how much can you get conclusions from the overarching MA a market by averages that don't really speak to some of these differentials. And I'd say it's a theme to Jackson Hole as well. Guys let's do claims here. We're going to do claims in a 30 or a little bit off the radar
on it and we need to get back on it. I just extrapolated out Lisa. Where do we get the 300000 job claims which is a big round number. I was shocked. September 16th 22. Yeah well some people are looking at that accelerate. So there is a Wall Street Journal article this morning that I thought was fascinating talking about one company that was both hiring and firing at the same time. And that's what we're seeing right. We're seeing a bang up jobs report and we're still expecting to see the number of layoffs pick up. Well and how do you sort of understand such a strange moment in an economy that is facing a very strange
post pandemic reality that is technology and the overlay as we heard from David Stubbs of JP Morgan yesterday what you need to know after the big day yesterday. Futures advanced up 12. Dow futures up 130. The VIX stunning under twenty nineteen point nine to claims at eight thirty. Stay with us. This is a necessary print for the Fed but it's not sufficient. We need to see a lot more. We are entering I think a new phase in the inflation debate. We are still relatively cautious given the ultimate outlook and trajectory for the economy. If the Fed is expecting to bring inflation back down to 2 percent growth is secondary inflation is in focus. This idea of peak inflation that's just a math problem to us. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz.
Good morning everyone. Jonathan Ferro Lisa Abramowicz Tom Keene on radio on television after a bang up job report after a bang up CPI report a VIX under 20. Every strategist adjusts Lisa. This weekend the publishing is going to be fascinating especially pushing back against some of the expectations that the Fed's going to back away from the rate hiking when the Fed officials are saying we're not going to back away from the rate hiking. So how do you get this sort of disbelief that you're
seeing in markets that's helping to fuel this optimism. We have an absolute perfect guest for you if you're in the equity market and gone. Katie Kaminski coming up here. And Lisa I'm going to lead with Michael Purvis over at TALKBACK. And this morning he says look an abrupt moved aspects 44 hundred's. So much of that yesterday were up. Futures up 12 right now. I mean it's happening in real time. I know. And he's not alone. There are a lot of people have been talking about how there is more potential upside which raises an issue. Is this still the bear market rally that so many people have said. Do people like this rally more now. Is there more conviction behind it. Because
it hasn't felt like a lot of conviction. Every single person has come on the show and said thin trading not that many volumes. It's August. What are we doing here in Kailey Leinz. Got the short straw here. No surprise with that. Kelly said well I'll follow the Fed speak. I said good luck with that. I mean the Fed dissonance with the market now. Caylee's extraordinary. It's like they're in two different worlds Tom because you've seen the metamorphosis of Neel Kashkari once a dove now a hawk saying he thinks they're gonna get out to four point four percent by the end of 2023. They are not done hiking. Charlie Evans agreeing with him saying inflation is still unacceptably high indicating they're going to keep going. And
yet the equity market seems like there is staring them down and saying yeah no we don't buy that. Mean I look at it Lisa. Look it was published over the after the CPI report I should say. And the economy has been Emmons I thought was great on strategy where he said this is your wheelhouse Lisa. It's a double barreled short squeeze. Both Bond's price up yield down and stocks price up are getting squeezed right now. I think this is remarkable. Can we say it's the revenge of the 60 40 that didn't work at all during the first half of the year. I didn't think of that. And now it's working in reverse
gangbusters perhaps because people have gotten pretty pretty confident on that side of this. Kaminsky So important to the data check. Lisa's gonna dash I say dashed the brief here in a moment. Futures up twelve Dow futures up 134 NASDAQ green. I mean I'm sorry small caps as well. Russell leading the way up four tenths of a percent. The VIX nineteen point nine. One in the yield space a lesser curve inversion. Nevertheless a big deal 41 premium Ezra basis points dollar weaker is of important
note sterling a 122 06. We'll see on that. Lisa with an auction read something like that. And just to sort of reiterate what Brian Weinstein said from Morgan Stanley earlier that you could see a yield curve inversion in that particular spread that is 100 basis points of inversion and that would be basically compared to start to Volcker era where you saw a negative 250 to 40. How much do we get back to that. Say here's who we're watching eight thirty a.m. we get us initial jobless claims. Do we see some of those layoffs continue to pick up as well as PPA for the month of July. This is the prices that manufacturers and factories pay. How much do we see a lagging behind in terms of how much you get
a softening effect in the PPA. In other words are consumers paying less. But companies still paying more to manufacture the goods. This speaks to the margin compression that a lot of people are expecting to happen later this year at 1 p.m.. Here it is Tom. The key point of the whole day the U.S. is selling 21 billion dollars of 30 year notes. The distinction of 30 year
notes from seven year notes is that they last for 30 years. And if they pay out rather than 70 year. But it also is a key metric of how much people have conviction that we're going to get back down 20 percent level and that it is a note of safety. Lisa this is important. Zero hedge left led with us last night a Goldman Sachs note. I'm going to call it insatiable. I'm not knowledgeable enough. Lisa your world is insatiable. Demand for paper. Well certainly yesterday the 10 year auction did suggest
that. And there are so many people saying it is a buy. If you see yields above 2 percent at a time when the Fed is really committed to getting inflation down there and the longer we persist in this kind of environment the slower growth we have going forward over the longer term. These are some of the issues that not only economists are looking at and traders but also the Fed officials who are coming out and trying to jawbone this market in a direction that it does not want to go. Seventh or 8
p.m. we hear from San Francisco Fed President Mary Daley. She's speaking in an exclusive interview with Bloomberg Television. And Tom she has come out. She has said we have a lot more work to do. When does the market pay attention or is the market right. And Fed officials are going to backtrack that backpedal much quicker more quickly than they think.
This is really important. Now we're going to jump to the equity markets here with Katie Kaminski. She's. Chief research strategist at Alpha Simplex and what's so important is you can't pronounce her focus at the Massachusetts Institute of Technology stochastic processes stopping rules and investment heuristics I've aged saying that Katie joins us now with an encyclopedic knowledge of math and trend. Katie you're your work with Andrew Lo and all the others around trend based analysis leads us to one single question. Have we broken the bear market trend. That's a really good question because what we have seen lately which I think is the most interesting from a technical perspective is that we've seen signals really dissipate in the last two to three months. Right. And so it really feels like you know an inflection point right now for us. We're still seeing
sort of a net short but it's very weak. That kind of indicates that we could go either direction depending on what occurs. And I think yesterday just kind of showed that we might be going in a better direction than people had thought. The only go inside baseball to Monroe Trout Nassim Taleb Paul Willman and the others from years ago mostly out of Imperial College. The raging
debate is there value to volume analysis. Do you study volume. I don't. So volume is a good indicator to understand whether or not you can trade a market and whether or not your sizing is appropriate. But unfortunately a lot of indicators of volume have been difficult to document empirically as predictive. There may be exceptions to this but I think volume is still a key metric because it really tells you something about whether or not the trade ability of individual markets is there. And that's how we tend to think about it. As you know futures quants Katie Liz McCormick of Bloomberg News wrote a story about a paper that you wrote about how pigs flew at least in your world because you shorted bonds. You were able to deliver a 30 percent return or more in the beginning of this year the first half of this year. Have you close that trade out or are you still trying to short bonds here especially after the rally. So that's a good question
because what we saw in June was a big spike in vol. We saw cross correlations spiking as well. So signals and bonds have actually dissipated. The recently wrote this paper is that we really wanted to clarify that shorting bonds is not a fluke. If we continue to see rising rates that in fact when you think about a rising rate environment you're going to have to consider the shape of the curve on whether or not there may be some tactical short signals in bonds that could potentially work. And I think this is particularly pertinent right now as we're moving from an inversion towards a slightly steeper curve right now. As we're seeing that could be an indication that things are getting better. As long as we see that persist. Well Katie you stay in a rising rate environment. And what we're hearing from the Federal Reserve is yes rates are going to keep rising. We are going to
keep hiking into next year because inflation is nowhere near where we'd like to see it. So how wrong is the market now. So I think the market is a little optimistic because I think you know it's always good to have a good number to have a good print to have something that brings your averages down. But most of us in the futures markets we've already seen those moves and energies. We were kind of expecting this already. So I'd say that it's a little bit as would expected slightly better. But what that means is that there may be a little bit of optimism over the first data point that confirms what people really want which is things to go back to normal. And the 60 40 as Lisa put it to just be back into you know a good place which is basically what most people are used to. Okay. One final question. A lot of people are looking at moving averages and their eyes are glazing
over. I'm a huge disbeliever and baloney like the death cross in that. Can you use moving averages right now to figure out if this is a breaking of the bear market trend. So if you do use moving averages right now I'll tell you that your signals are going to be very mixed. You're going to have a lot of indications that things look better on the shorter end and
you're going to have a lot of indications that they don't look good on the medium to long term. So I'd say that it's really really unclear. And the only thing we can say is a quiet right now is that there is very little signal and there is room to move in a new direction. That was a very safe answer. Katie Kaminsky channeling George Kleinman there in what are known as climate exponential moving averages. You killed it Katie. Don't be a stranger. Katie Kaminsky with Alpha Simplex today. Lisa what you just heard there is a font of what I'm going to call derivative mathematics at Bloomberg. It was led by the late
Dearly Miss Peter Carr and Bruno de Piero who is not dearly Mr. Solomon the food court the other day and also people like Nassim Taleb and Paul Wilma. This was a fermenting thing 25 and 30 years ago. And where Katie was at M.I.T. it was led by Andrew Lo Joel Weber. What she's talking about is so important because it really goes from the first half of the year where there seemed to be some sort of linearity or some sort of feeling of where we were going to have we fully shifted now and what are we shifting to if it's not a revenge of 60 40. Where are the Miss pricings and how does she get pigs to fly again. Well I like the idea of 60 40 there Lisa because it's so out of favor. I mean it's beaten to death here. And there's something about buy straw hats
in winter. I think that was Mr. Baruch a few years ago. But to Katie's point are we just seeing people go back to it. Because it's what they know because it's what's familiar to them vs. a real kind of surge ahead of a trend. Now I honestly wonder whether the conviction that people have that longer term yields are going to remain super low and go even lower. Whether that ever gets challenged is the Fed's balance sheet starts to exhale. I like what we hear from strategists like Liz Ann
Sonders and others. That factor analysis which frankly also is an M.I.T. derivative factor analysis really really matters. Here is well well that was very nerdy very geeky. We'll try to get to the straight and narrow. Coming up claims in a 30. Good morning. This is Bloomer. Keeping you up to date with these from around the world with the first word risking. Get us something. Inflation data in the US isn't changing the minds of Federal Reserve officials. Two of them are signaling that the central bank will stay on the path towards higher interest rates. Chicago Fed President Charles Evans says inflation is still unacceptably high. Minneapolis Fed President Neel Kashkari says he wants the Fed's benchmark rate
at four point four percent by the end of 2023. Ukrainian special forces reportedly launched a powerful attack on a Russian ad base in occupied Crimea. That's according to a Ukrainian government official who spoke to The Washington Post. Ukraine says nine Russian warplanes were destroyed in the attack. That would be the Russian Air For
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