'Bloomberg Surveillance Simulcast' Full Show 8/16/2022
That's really demand driven inflation that we're dealing with and that is something the Fed can in fact handle. I think the market is pricing in this very specific outcome where we head into a very moderate or mild recession. Our view is that it may be a soft landing for the labor market. There's a lot of talk about US recession risk but the truth is the problems seem much more gloomy in Europe. If we look at the rest of the world that's just a world of trouble. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Looking ahead to retail earnings in America line from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside some
keen and Lisa Abramowicz some Jonathan Ferro features Danticat about a tenth of 1 percent cent Wal-Mart and Home Depot. Coming right up. Home Depot's incredibly important John. I really give it a FedEx equivalent of a pulse of the nation. Joe Philbin over Telsey Advisory Group a couple days ago reaffirm a stunning call of strength of Home Depot with margin expansion John. And that's the kind of optimism that speaks to a resilient market. John Boehner say it here. The equity market performance yesterday was
critical in the face of some weak data. We squeezed out a day of gains this morning Lisa. It's all about the numbers and the numbers drop right now. Yeah. Home Depot reporting its second quarter net sales that beat expectations forty three point seven nine billion versus the estimate of 43 points at 5 7 billion. Also earnings per share beating on the headline figure of more than five dollars per share versus an estimate about four and a half dollars per share. How much does this really climb to this fear to sort of push away the fear of a worst case scenario especially in the housing industry that has been beaten up so much. How much does this give faith that you can get some sort of resurgence in consumer spending especially with lower gasoline. I have to say for me away from the numbers it makes it a big headline. There
is reaffirming the outlook because we've seen retailer after retailers struggle to do just that. T.K. That's what Home Depot does this morning reaffirms fiscal 2022 guidance. Joel Weber they do it. The numbers are up. And the first thing I saw was comp sales 5.2 percent versus four point six ish etc. And across the board these are good numbers. It'll be interesting to see if the entire market reacts to this. I don't see it now with aspects of negative seven futures stocks down about a tenth of 1 percent in the premarket. Wal-Mart the big one a little bit later this morning. Some will get that in about 60 minutes from now. Wal-Mart of course in the last month coming out and again cutting the outlook. We've seen that. How many times from Target
over the last few months. That seems to be the theme for the retailer for international. These are not equivalents. I can't say that enough basically to help continental Europe. Home Depot is run like a Swiss watch. And you know Wal-Mart sort of run like Liverpool or is that your take this morning. I think Lisa might have a deeper dive on the numbers tell. Well I just think
it's interesting that customer transactions were down by about 3 percent. How much are we seeing this across the board. Companies are able to raise prices. Companies are able to sell more on a volume basis on a dollar basis on a nominal basis because of inflation. So they do see that pipe in earnings but overall transactions are not climbing. This is classic stagflation three types of earnings where stocks could be the haven play actually. Here's your bullish tilt to this. But on the bearish side this doesn't really scream incredible growth. Lisa don't get too bullish too quickly with two minutes in Covid behind us. Call it a bullish almost on the edge of bullish. Everything's red hot up. Everything's relative.
And about 57 minutes we'll get some numbers for you from Wal-Mart. Least going to break those down for you. I'll break down the market for you just briefly. We're down about two tenths of one per cent on the S&P on the NASDAQ 100 down about two tenths of 1 percent. The real drama here this morning a summer Tuesday. Can we call it that. I think we can. Yields up
about a basis point a 10 year sub to 80 at 279 87. Crude down yesterday down again today 88 82 brammer. We're down about six or seven tenths of one per cent. All right. There's a quiet summer Tuesday. Let's go through things pretty quickly. We do get those earnings from Wal-Mart coming up after the Home Depot report that did beat expectations. Just to give you a
sense of where we're coming from somebody whose shares are down 24 percent so far year to date. Wal-Mart shares down eight point four percent. How much can they basically push back against the gloom and say we're doing just fine we're reassessing rejiggering our business model in light of some of the shifts that we're seeing demographically. And we're going to get it under control also at 830 and we get July housing starts and building permits. This comes after that homebuilder sentiment index yesterday was just brutal absolutely plunging as a lot of homebuilders are looking at higher mortgage costs as well as generally plateauing valuations if not declining. How much do you see that bleed into
a slowing of how many houses begin to be built at 915 a.m.. This is the read on the auto sector July industrial production. How much do we get some sort of working through the supply chain kinks especially after you saw the Empire Manufacturing survey yesterday John. Really shocking. Normally not that important but this is one that tracks the ESM data pretty closely. And we saw a massive massive collapse in terms of confidence for what to expect going forward. And John how much that bleed into the other industry sectors that have seen improvement like auto manufacturer Lisa. It was shocking. Dani Burger it was a car scene this morning. It's getting whipsawed from one data point to the next pay rolls. Everything's great. The Fed needs to do more CPI self. The Fed needs to do less. And then empire yesterday and everyone
all of a sudden is confused and struggling with the idea of what we are in this economy. Lisa. Exactly. When you get Home Depot. Reporting better than expected earnings and you get earnings in general that look better than people previously thought. We don't see the same sort of margin compression that people have been expecting. How do you piece this together in some sort of cohesion. That's the job adjusting canvas would talk to him now. The head of US macro strategy at USG George is helping us out.
Buddy what's going on in this economy. Payroll says one thing empire manufacturing another CPI. One more. What's the story. Morning John. Yes I think we're still reeling from the unevenness of both the reopening the supply chain disruptions an economy still kind of moving beyond the pandemic and you have that plus you know the stimulus and you have just a lot of these crosscurrents that are sending mixed signals. But you know these high frequency indicators are clearly and they have been for at least two quarters now and they've been clear that we were slowing down. We can dismiss the whole technical recession that happened in the first half and then not uttered those words. But you know on a go forward basis I mean we are seeing all the
parts of the economy. They're very sensitive to interest rates reacting very quickly. George what do you make of the fact financial conditions continue to stay easy. The Bloomberg Financial Conditions Index which is really good math. Eleven ratios confounds the gloom crew. What does that signal. How are we seeing that. Yeah that's a great point and I think this is really just makes the job of the Fed much more difficult. Look I mean the markets have taken this put it up to the High Court of monetary policy. They're really thinking that you just like the price hikes.
They're going to somehow finesse the Fed into actually easing in the next couple of quarters. And I think what we're finding now is that this could be a bear market rally. It's influencing credit spreads its influence in the equity market tremendous big moves we've seen as historically. So we do want to read too much into financial conditions. But if they do not years from here
the Fed's job is much more difficult. I think you know as we get into September it's a double taping of the full cutesy in full effect. And yet the Fed most likely hiking at least 50. And I think the risk of 7 5 is still out there. So I think it's still early days. I think financial conditions have eased way too much. The Fed did lean against it. All right. The Fed's going to lean against that. Although on the flip side and this is possibly what's causing a lot of the optimism you see commodity
prices rolling over and rolling over it yet again today in the face of weakness in China. And I go to Alan Ruskin over at Deutsche Bank. Traditionally they have been coming out on the side of a hard landing. And he said right now as commodity prices decline the more optimistic soft landing scenario has been given at least a semblance of a chance even if they continue to reaffirm their hard landing story for 2023. Do you agree. Do you think that this is a commodity story that is giving some breathing room to the Fed and to markets. Look I think the distribution outcomes have improved for sure. So after last week's CPI and just the move in commodities to your point is giving people some hope that somehow the finance and the fact is seen as a soft landing. I mean I think the probability of increase will soften. I don't think it's the best case. I think still that you know maybe not a hard landing but we're definitely seeing some sort of recession like environment
in the year ahead. But yes of course that's what markets kind of climb on to. I think I think it's too early to make that call. Georges the weakness abroad that gets our attention at the moment in China the data was terrible. Not just China. Europe to Europe wishes commodities prices were coming down. It's crude this time in nat gas is it. Gas is gone the other way. George can Europe avoid a recession. Can China avoid a severe growth. Slow down. And where does that leave this whole theory that the U.S. can engineer a soft landing. I think it's gonna be challenging to have all those stars align in a way where you
know all of these major regional blocs can actually muster a soft landing let alone growth with the U.S. a play fair better than all them. I think that of the benefit of both. We started his massive savings. That's out there. But the consumer is suffering. I mean if you look at the overall consumer trends and credit trends there's a clear bifurcation happening on even here at home. So I think you know you can have a good U.S. economy that has a two speeds and it's really you know you're hurting different parts of the economy. George awesome to catch out. Joking converse that I am you f g. I'll talk about gas prices a little bit later in Europe but I can tell you Tom Price is 12 times higher than the seasonal average of the past five years over in Europe. Looking at European benchmark prices the team here are pulling
back some breaking those numbers down. Just unreal stuff the demarcations there. And it's going to be emphasized by strategists. I thought the JP Morgan note yesterday afternoon John was incredibly nuanced an important MARK COLVIN And it really pointing out how Europe is discrete and separate. Is he talks enthusiastically about many other geography. We feel the
uptick in risk appetite is justified was to take away from my ISE. There's a lot there. I think that the note besides a tactical view and it was very carefully written John is global not U.S. global inflation coming down. And the keyword here John is rapidly if we get a cover going Cohen of CAC there it is. If we get a colon of inflation dynamic John all bets are off for the bear. At some point that clock's going to be right Lisa for the team over at JP Morgan. Well look you know you could say the same thing about me in terms of my tilt on the world. At the same time this is somebody who traditionally has been bullish no matter what. And so to basically take this view is a good way to get a read on sentiment in terms of what flavour the optimism
has. Right now the flavor has commodity disinflation written all over it. Let me give you the flavor the morning it's a snazzy one so far. Futures down about two tenths on the S&P. We're just tuning in the data out of Europe. Investor confidence in Germany down real wage data plunging in the U.K. Capital Economics on Europe on Germany. A recession is unavoidable in the second half. That's the takeaway at the moment. Tom we need some clarification from you.
This on Twitter CAC Tom Keene. Clarify whether Wal-Mart being run like Liverpool was at Digg or praise. It's 50/50 at this point. These are you know being told to clarify heater beers. Bernstein would say there's no ambiguity there. I think after the sportsmanship that we saw from Liverpool yesterday all bets are off. Would you call it sportsmanship Tom that red cards. What do they do to that guy. He's going to get suspended for a couple of games. I think the couple is all. You don't throw I think they think this season. You think you should miss half a season. I don't know. I'm not qualified. I know John. I don't
know. I'm just wondering what your view is. You're comparing them to way view is. They're not Nottingham Forest not. I still didn't get clarification whatsoever. There was no horse. I'd keep it there. So what was it a dingo price. We don't know. It's 50/50. OK go either way. Let's face Rob Morrow says my market and about 50 minutes up a drink. RTX is down just a little bit from New York City. It's a beautiful one. This is pulling back. Keeping you up to date with news from around the world with the first word news. I'm Liane grins. Iran is signaling that it may be closer to a deal with the US that could restore Iranian oil exports to global markets. Tehran has said the European Union its response to the bloc's proposal for reviving the 2015
nuclear accord. The government expects to hear back from negotiations within the next two days. Now the next prime minister of Singapore is signaling that the wealthy may have to pay more taxes. Deputy Prime Minister Lawrence Wong has told Bloomberg the government probably needs to quote lean some more in the direction of inclusive growth. Wong also said Singapore can make sure spending is targeted at lower income in the US. The Justice Department opposes the release of an affidavit justifying a search warrant for documents at Donald Trump's home in Florida. The search warrant itself has been released but the
Justice Department said the affidavit includes sensitive information about the investigation including witnesses interviewed by the government after a number of delays. Apple has set a September 5th deadline for corporate employees to be in the office at least three days a week. Corona virus surges delayed the company's plans several times. Apple has been making other Covid in just moments. It has also dropped its mosque mandate an office common areas. Labor needs 24 hours a day on air and on Bloomberg Quicktake powered flying more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Liane Guarantees. This is Bloomberg.
The Fed funds rate should be going well above 4 percent 4 and a half to 5 percent my view to really push inflation toward store. If that doesn't happen inflation expectations are gonna get an inch or if that happens then we're going to have a hard landing. So it's runaway inflation or a hard landing. That's the takeaway from Nouriel Roubini the CEO at Roubini Macro Associates and
cozy up at the boom bust dot com from New York City this morning. Good morning Tom Keene Lisa Abramowicz and Jonathan Ferro. Futures right now down two tenths of one per cent on the S&P on the NASDAQ was down about a quarter of one percent. Home Depot a little bit softer in the premarket numbers. Seem to be okay though at first. Look Lisa what do you see. Yes. Look they
look fine. They look totally decent especially with the reaffirmation as you said of the full year outlook. And they beat expectations on the earnings per share and total revenues. However there still is a decline in a comparable unit sales. And this is what I'm watching. And I know that there are lots of other aspects of this. But how much of the beats that we're seeing are inflationary beats are basically the prices going up and people still managing to pay. That's the first look at retail this morning. We get Wal-Mart a little bit later 7:00 a.m. Eastern time. So
about 40 minutes from now. Then on to retail sales data tomorrow. I believe in the last decade Home Depot has been Apple without the sex appeal there up twenty point nine percent per year John. And that's after the pullback that we've seen in this recent bear market. That's a really extraordinary performance. I think it's way under estimated. I just can't say enough about what they're doing. But what's
important here is they're not representing retail. They're a very different beast John. I'd go with that. They're facing a very very different story compared to say a Wal-Mart or a Tom Keene. Well you know name any of the others show as well. Let's go to Washington now. It is a Tuesday across America. No it's not the first Tuesday of November. But for its gentle lady of Wyoming it might as well be. There's no other store in Washington. Paul Kane writes it up in The Washington Post this morning. Annmarie Horden joins us. Our Bloomberg Washington correspondent Emory Paul Kane buried in his article on
Congresswoman Cheney tries to get out to 2024 where she has a political presence. Explain to me where her presence is in the present Republican Party. While she's ostracized right. She's really a pariah of the Republican Party even though she has voted on a number of issues alongside Republicans whether it was against Inflation Reduction Act or abortion. These are a number of issues. She continues to have a conservative record but she's led the charge as this top Republican on the select committee that is investigating January 6. So she is a pariah now within the party should also prior right now it looks like if you look at the polls in Wyoming and it does look like the polls are pointing to the Trump backed candidate that is going into that seat that she's held. So what
the Zakk guys I guess are the chatter in Washington is that potentially she could launch a bid for 2024 because there's four Democrats in Wyoming. Can she become the fifth Democrat. I mean did she become a Democrat and run as a Democrat. She's conservative. You need to look at her voting record. No no. Democrat and Wyoming. Right. There's she you know three Mark Gurman mayors. Yeah. She's incredibly conservative. But even if she was to do that what does it matter. This is a state that President John Trump won 70 percent to 27 percent. Wow. So his candidate is likely going to succeed. Whether or not you
knows she launches a new party and picks up Democrat votes. This is Trump Country talking about Trump Country and the former president of the United States. The latest on that is that the Justice Department has rejected or opposes the release of the affidavit in the search of Mar a Lago. How does that play in terms of the political narrative of what's been going on. A lot of Republicans are calling for the
affidavit to be released. News organizations were asking for it. Of course when they unlocked the warrant there was potential given the how unprecedented this whole situation is maybe it would get the affidavit. It's a roadmap for Republicans really wanted to show whether or not this raid was justified. But the Justice Department is saying that that could impact the investigation.
It can also lead to witnesses that are potentially being used in the investigation. And this is something that they do not want to see. But there is still a chance it could be released because ultimately it's the judge who released the warrants decision on whether or not they want to release that affidavit. But it does seem like with the Justice Department they wrote there's simply no alternative to sealing that could ensure the integrity of the government's investigation. So it does look like this is likely not going to happen.
But I guess there is a slimmer chance. They also said maybe many we're talking about we will get a redacted version but the Justice Department said it wouldn't even be worth it because there'd be so many redactions. You wouldn't even be able to understand this affidavit which is the roadmap into understanding the theory the thoughts behind the investigation. What's moving the needle the most to heading into the midterm elections in terms of swaying public opinion considering that most units and most people are pretty dug in on their respective sides. It's a great question because inflation and gas prices dominated this summer. And now you really see gas prices starting to evaporate from the news headlines that under four dollars a gallon much lower in a lot of places across America. And it's
less of a concern going into the midterm elections. You also have some wind in this administration's back right now. They were able to get through this summer gun legislation there Finland Sweden. That was a bipartisan deal. The Inflation Reduction Act these are all provisions legislation. The fact that they were able to get gasoline prices down they are going to run on that.
So it's really going to be both sides pointing out anything they can that they did not like over the course of the past since January from either side. I think for Republicans they're really going to lean into the fact that they think this investigation was politicized because right now with inflation tempering or big gas prices tempering a bit it might be a bit harder to hit those concerns the way they were hitting say May June and July. And I thank you. MRA down in D.C.. Take three ninety five three ninety five is the average price for a gallon of gas in this country right now. And that's not six. And the reason I say that's not six is because says coming into summer JP Morgan put out a report and said that it was the potential for this to hit six by the end of summertime. And that would have been a big big problem for this White House if that's why we got two and some
three ninety five. It's not six. And that is some good news some good news for some of. So we may reaffirm it. A demand build up here coming down. Who knows. Picking oil prices is hazardous. John what I would suggest again is yesterday was absolutely critical. The equity markets were on fire pushing against the negative news that was flowing out there. And also as you
mentioned commodities came in nicely where you really begin to frame what John 375 360 on a gallon. I don't know. Squeezed out a day of gains Lisa in the face of some pretty weak economic data from China and elsewhere. Not sure what to make. Honestly I accept that when you take a look at the Fed's balance sheet everyone talks about quantitative tightening. Everyone talks
about everybody being drained from the system. It hasn't begun. And I think that that's an important note. I mean yes it's gone down marginally but their balance sheets are very westernized with us. I mean what's the deal with this is their schedule. It will continue to roll off as time goes on. But it has been slow. So when people talk about quantitative tightening it has not really felt its big effect just yet. Down about a tenth of 1 percent on the S&P this morning. Good morning to you all from
New York City. This is Bloomberg. Live from New York City this morning. Good morning. Here's the price action this Tuesday morning. Futures negative two cents on the S&P on the NASDAQ 100 down about a quarter of one percent. Those two up 17 percent off the June lows on the S&P go up twenty two point eight percent of the June lows on the NASDAQ 100. And yesterday squeezing out a day of gains in the face some pretty weak economic data and PA manufacturing here in New York. And over in China weak data weak data weak data. The bond market though made a move. The whole curve shifted lower to Stanton 30. But different this morning curve inverted a little bit further.
We take yesterday's moves back up 2 basis points on a two year to about 320. Let's call it up a basis point a 10 year to 270 951. But yields came in off the back of weak data. Crude did too. Let's look at the commodity market and what to look at. Brent I want to look at gas in Europe. Brent crude is coming down to 94 down by about 1 percent today. Gas prices in Europe are not coming down at all. This is the benchmark for European gas prices up again today by 8 percent.
And Tom what you have to know about that number and the team here at Bloomberg Daybreak and get down is that number is 12 times higher than the seasonal average of the last five years. That's what the Europeans are dealing with this. And you're seeing calls. Well these are spikes up folks. These are surges. These are jump conditions to something new. But John what I would say on the Bloomberg terminal though look at it every moment its proxy is euro Swiss. He shows strong Swiss re. It's very subtle but it's there within the European banks. We can have this big conversation about what's going to happen in the US economy and Europe. There is no division. Pretty much everyone you speak to right now is on board with the idea that we get a recession and a back end to this year in that economy. Capital economics off the back of this at E.W. Data out of
Germany. That's just investor confidence in Germany rolling over. They just said it's unavoidable now some unavoidable. And in a few weeks time the ECB has got to sit down again against September 8th and potentially hike interest rates 50 basis points. Who wants to be them right now. No one wants Sterling to. Sterling really can't get a bid 1 2023 John not too far from a 1 19 level. It's a tough time for the European S.K. and it could get a whole lot tougher as we get into winter. The stagger
forward into 2023 reduce Rebecca Patterson sugary deal you add Bridgewater are focused on inflation and the hyper reality that truffle parmesan Freed's match 65 in the Upper East Side clock. In it a 15 dollar number. Also McDonald's French fries Rebecca Patterson. But inflation top to bottom is hit. Food and rent. So I haven't had those troubled fries. They sound delicious. I'm going to have to check them out check them out. But the more important point for your viewers listeners is that even though inflation may have peaked I think the market is discounting that the Fed sticks the landing and inflation gets back to the Fed's target quickly and without a recession. That's what's being discounted. And it just seems pretty unlikely. Either the Fed is going to tolerate inflation settling somewhat higher than Target
or it's going to have to tighten enough that the recession that you all were just talking about is deeper than expected which means earnings have to come down. So right now what we have our puzzle pieces that don't fit. Something's going to give. And we think it's probably going to be growth that surprises us on the downside even though we're not seeing it broadly across the economy yet. If I need to participate in the economy and in the stock market how do I hedge into 2023 if I want to be an adult if I want to be rational. How do you structure a hedge on equities.
Know the risks that we think is bigger than what we've had for decades is a prolonged. And I'm using this in a broad sense not a literal sense but a broad stagflation area environment where growth is slowing. Inflation is moderating but from high levels and still staying relatively high. And in that environment if you go back the last 100 years equities have done the worst. Bonds have been sort of neutral. Your best assets to own were going to be inflation linked bonds gold and to a slightly lesser
degree broad commodities. So Tom to answer your question if you're thinking where do I want to be in the stock market. You want to think about the companies that can benefit from inflation that aren't going to be hindered by it that they can continue to pass higher prices through perhaps commodity exporters. You're going to look for companies that if interest rates do have to keep going up because the Fed is continuing to push inflation lower that they're not going to have those longer duration cash flows that are going to be more sensitive to that liquidity draining. And as you mentioned before quantitative tightening the balance sheet run up is just warming up. September we see that step up in the pace of beauty. And I don't think people are adequately focused on what that could mean yet for the market. Rebecca how's your view though changed on commodities. I know that Bridgewater has been really bullish on commodities as a hedge against the stagflation airy outlook. And here we have commodities really falling pretty significantly.
How has that changed your view at a time when the 60 40 is actually starting to work again and commodities is not. Yeah. So in the first half of the year when we were seeing those stagflation airy pressures more prevalent you did see commodities providing you good balance to a portfolio when stocks and bonds were not working for the last six weeks. We've seen a bit of an unwind of some of those trends as the market has discounted again that we're going to get this Goldilocks environment that inflation is going to keep coming down partly because of commodity prices and the Fed is not going to have to push us into recession. So if it Goldilocks occurs which would be wonderful for everybody. I agree with you. Commodities might not benefit to the same degree as they have been. However I think you don't want to just look at the very short term the
last six weeks. You want to think about the overall and looking forward where are we going here. Even if demand is slowing in Europe and the US China they're trying to get a nascent recovery going. Infrastructure spending with increased demand for commodities. But you've got to think about the structural as well. And structurally we're in the very early innings of a climate transition and that is inherently inflationary. It's going to squeeze prices of dirtier sources of energy. And that is going to keep support if you will under commodity prices that I think will help them continue to add balance to a portfolio.
If the stagflation area environment persists which the SEC stationary environment you're talking about could last three to five years you were talking about which is the reason why Bridgewater has been so bearish in the traditional 60 40 allocation. How much conviction do you have. Has Bridgewater been adding to commodity positions and the sell off. You know I don't want to talk about specific positions. I would say that our view on commodities has gotten a little less bearish recently very tactical as we see slightly increased supply. But I'm talking right now not about tactical trading but about thinking about a longer term portfolio. If you're an endowment a pension you have to get those returns for your constituents for the people depending on you. You want to make sure you have balance so you aren't vulnerable over the longer
term as you were in the first half of the year. And we've seen some of those fiscal year returns come in for a lot of those institutional investors. And not having that balance really really hurt them. Rebecca when we used to talk about long term investments we'd talk about China how it had to be a feature in your portfolio over the long term. Do you still have that view.
We still think that China gives a lot of important diversification to a portfolio. Oh it's it's really interesting right now how divergent China is from the rest of the developed world. You know we're looking at slowing growth high inflation central banks tightening. They're practically opposite of that. They're trying to get their recovery going. They have lots of room to ease. We saw a small rate cut this week. They're doing fiscal stimulus. And when you look at what's discounted in
Chinese equities today you know I think it is valid that there is a risk premium there reflecting some of the geopolitical risk the tensions the possibility that trade tensions escalate from here. That's a real thing and it should be discounted in the valuation of those stocks. But even when you account for that earnings growth projected by Chinese stocks is close to zero. So if they can just get a modest recovery going. Modest earnings growth say 1 percent it does make Chinese stocks look pretty attractive to us. Rebecca what about the risks that China becomes the next Russia. And what I mean by that is that they
make a move on the international stage in a place like Taiwan and there is international pressure to move away in the same way that has been in Russia this year. Now Rebecca I reflect on the last 10 years as so many people are up front about the risks around the Russia story. And yet I heard the same thing. Now when it comes to China. Do you have to take account of that the risk of that happening the pressure of companies exposed to China that they would need to move out. So we try to manage
geopolitical risks like we would do. Financial risk. Economic risk in every position we have. And one thing we're always trying to do is make sure that no single position no single exposure whether it's a company a country an asset class could do undue harm to our portfolio. And China clearly is going to be part of that. But and it's an important thing. It's in the headlines every day we're reading about it. But it's certainly not the only geopolitical risk we've watched. But of course we're watching it. And of course we want to make sure that our risk controls the portfolio sizes we have are going to take those sorts of things into account. Again alongside financial related risks and economic risks again with every country every position we have. That's just part of our process. It's a complex moment that's for sure. Rebecca thank you for your time
this morning. Rebecca Patterson that freshwater case not just the economics it's the geopolitics that. So I'm going to talk about that in just a moment. To me the reality is is she was really eloquent on this what the pressure is to quiet money whether it's the individuals listening and watching this morning John or is endowments and you know more traditional money. There's a thing called the endowment index from cision. Thank you for that. It's a really intelligent index. It's on the Bloomberg and it's up six point two percent over per year over the last ten years. John is totally unacceptable. I mean that's at least a hundred if not 200 basis points below where they want to be. And that's because of recent real underperformance. Well
things are getting harder not easier on that front. Perhaps in just a moment we'll catch up. But Richard Haass the Council on Foreign Relations president. And Lisa I think China is going to be a big feature in that conversation. The weakness at home with the economy and the pressure perhaps to double down on the nationalism abroad and at home for that matter. And you wonder whether that's the direction of travel for this leader on both sides. Right. You've got Xi Jinping trying to get the narrative
away from what's happening with the economy. And then the United States you have an increasing number of Congress members going to Taiwan and there is a fear that they could tiptoe into a more severe altercation. Richard Haass is coming up in just a month. That's a conversation you'd really do not want to miss. He is right now down about two tenths on the S&P 500 from New York City with Tom Keene and Lisa Abramowicz some Jonathan Ferro on this Tuesday morning. Good morning to you. This is Glenn Beck. Keeping you up to date with news from around the world with the first word news. I'm Liane Karen's in Wyoming today. Republican Congresswoman Liz Cheney is in danger of losing her seat to a primary challenger backed by Donald Trump. The daughter of the
former vice president Dick Cheney is vice chair of the committee investigating the January 6 riots at the capital. Her anti trumps stance has made her an outcast in her own party. Bloomberg has learned that the Trump organization's longtime CFO is in peace talks with New York state prosecutors to resolve tax fraud charges and avoid a trial. Allan Weisel Burke and the company are accused of conspiring to avoid income taxes by giving some employee perks that were not reported to tax authorities. Even if Wise Berg settles the Trump organization would still face the fraud case alone here in the UK. Rishi Su Keenan is pledging to shake up the civil service if he becomes prime minister. Su Keenan said he would cut staff slash and pay
rewards and reduce transfers between government departments both to knock on his rival. This Trump has promised reforms to the civil service in an attempt to appeal to Conservative Party members suspicious of government workers. Bloomberg has learned that Credit Suisse is facing further delays in getting approvals for some of its operations over in China. That is after a number of senior managers left. The Swiss bank lost nearly half of the senior personnel management at its China securities venture in recent months. Chinese regulators will postpone any onsite inspection and tell
those positions are filled. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists sent to analysts and more than one hundred and twenty countries Emily Chang guarantees. This is Bloomberg. So much has collapsed within China that the domestic economy is nowhere to be found. Right now the rest of the world is the only hope for China. And even that's collapse because the latest data show the export numbers are nowhere to be found. So China really has nothing to hang onto. Going into the party Congress Bill Lee if Malkin on the edge of Brammer. Just yesterday on the global economy. What you think of that
Lisa. I thought it was fascinating. I also thought it was interesting how he said that growth would likely be sub 3 percent in terms of GDP expansion in China although no analysts on Wall Street will say that because they'd be banned from the nation. Absolutely not. Lisa from its Tom Keene Jonathan Ferro this morning. Good morning to you. Here's a snapshot of the price action this Tuesday. Futures lower a bit down just two cents. A softer start to this morning just slightly a mountain
move lower with negative two cents on the Nasdaq 100 as well. You know it's unchanged to 79 14. We had Home Depot numbers a little bit earlier this morning. Some we get Wal-Mart in about 20 minutes time. Looking for that different than Home Depot. But nevertheless important. I'd also know Chinese renminbi up to six point seven nine rounded up on a Wal-Mart towards 7 weaker renminbi off the economic challenges. This is a joy on radio and television and for those you on digital as well in its entirety. Richard Haass of the Council on Foreign Relations. We celebrate his new book Coming Out on American Citizenship. We'll look for that in January. I'm told the movie rights have been sold. Brad Pitt scheduled to play
Richard RTS of the Bill of Obligations the 10 Habits of Good Citizens. But Ambassador I really feel strongly we need to switch to what you built at the Council on Foreign Relations with Elizabeth Economy and David Sachs. You have been definitive in the last three weeks on China. Nobody's done it better than you on your Web site. I want you to synthesize together all you and your experts. Experts have learned about how this president of China gets from
Pelosi to the party Congress. Well his challenge Tom is that what's worked for China for the last three or four decades not just for Xi Jinping but for his predecessors and for the Communist Party has been the deliverance of high levels of economic growth. That was the basic bargain with Chinese citizens. You don't worry so much about political rights but we'll give you an ever improving standard of living. The problem for the Chinese though is that now because of everything from their own economic mismanagement to Covid the mismanagement their supply chain issues you name name it the the leadership cannot deliver that anymore. And the question is how do you how do you justify a country of one point three billion being run by 90 million which is the Communist Party. And my concern and I think a lot of observers concern is that increasingly the substitute is going to be nationalism. That explains not what I would call my reaction but the
overreaction to the speaker's trip. What I see. Ambassadors we're all looking through the rose colored glasses of having to read 800 pages of Jonathan Spence years ago. The fact is Elizabeth economy is written like no one on the fragility that he may face at the party conference and at the federal level. How fragile do you believe he is as he goes into these important meetings. I actually don't think he's all that fragile. If you think about the anti-corruption drive time whatever impact it had on corruption. What we also know is it had an enormous impact on removing any opposition to Xi Jinping. So my sense this November and maybe not 100 percent complete coronation but he's going to
get that that under his term there may be some limits on his soul leadership. But I think it's a pretty safe bet. The odds are extremely high that he will get a third term and conceivably even more than that one day. Richard you've been a leading voice on this and I think it's so so important to go over what you just said moments ago. That's political legitimacy through nationalism and not through economic stability. That's a change a shift. And Richard I wonder what you think that looks like for
the next couple of years and what we need to be wary of. Well it worries me John. What it looks like Moroder is seeing it as China's establish a much more muscular baseline against Taiwan. What they've been doing in the last few weeks which by the way was being developed over the course of months and years it wasn't a spontaneous response. Far far too elaborate far too large. Well that's now become the new normal. We're seeing a much higher level of exercises many more encroachments into airspace and sea space near Taiwan. China's been building up its military for years. My
guess is one of the lessons of they'll take from the Ukraine war is they've got to build off certain types of conventional forces. Also their nuclear forces they will conclude from Ukraine that the reason the United States has not gotten directly involved is because of Russia's enormous nuclear arsenal. Watch China's nuclear expansion. It's going to be robust. So my sense is over the next few years they are going to increasingly fill out their their military strength. They're going to demonstrate it in the hopes of intimidating others. Ironically Jonathan it could well have exactly the opposite effect. China's foreign policy has been is and probably will be heavy hand. And what they're doing is increasingly turning up the level of alarm in it among its neighbors. Above all Japan to some extent Taiwan Australia obviously the United States. That's
where we are. Richard one speculation has been that perhaps it won't turn into a hot war in the very near term but you will see China clamp down and isolate Taiwan basically not allowing exports or imports at a time when Taiwan is the main exporter of semiconductor chips. This is a major potential risks to the global economy. How realistic do you see that as an outcome that could plausibly happen. And what's the U.S. response. Good point Lisa are already beginning to see certain economic sanctions against Taiwan and Taiwan Japan South Korea and others have made I think a terrible strategic error. They have allowed themselves to become overwhelmingly dependent on their need to export to China and their need to import from China. This gives
then China enormous leverage over its neighbors. So one of the real challenges I would say going forward is whether China's neighbors begin to reduce their trade the dependence on the mainland. And then yes as you suggest we've also got a race here in the semiconductor world whether we can somehow reduce Taiwan sensuality not by doing anything to Taiwan by increasing our rowing capabilities and that of others. But my hunch is that that's a project of years not not much. Richard we really need
to continue this conversation another time. It is so southern port. And again you've been a leading voice on it. And I've followed you over the last couple of weeks after that trip from Speaker Pelosi to Taiwan. And I think this is going to be something we all need to pay attention to. Richard Haass that of the Council on Foreign Relations. Elisa this story's not going anywhere. I keep bringing up multinationals who have had one foot in China one for him the United States and tried to satisfy progressive consumer base and say America and trying to impose a dictatorship abroad. That is going to be very very difficult even more so in the months and years ahead. And I wonder how much we start to see in the earnings reports companies
multinationals moving away from China quietly. They don't want to come out and say we are leaving some of our mainland exposures and production because they would incur the wrath of the Communist Party. However you are seeing a decline when it comes to exports to the United States. That is actually underneath the data. I do wonder how much that continues a slump. Looks Richard said it. China's whole goal essentially has been to maximize the dependency of others on them and minimize
the dependency of them on others at Tom Keene. We've seen people write about this Kevin Rudd which tasks this. He's not going anywhere. And people got to respond to that eventually. Well that's the model for export import. I'd go domestically here as Ambassador ISE talked about at the beginning there social model is their bargain with the people we will employ you. Leave the politics. ISE. And that is if it's not broken. It's breaking pictures right now. And six cents on the S&P 500 Wal-Mart
numbers just around a corner will break them down for you right here on Bloomberg TV and on Full Impact Radio. It's really demand driven inflation that we're dealing with and that is something the Fed can in fact handle. I think the market is pricing in this very specific outcome where we head into a very moderate or mild recession. Our view is that it may be a soft landing for the labor market. There's a lot of talk about U.S. recession risk but the truth is the problems seem much more gloomy in Europe. If we look at the rest of the world that's just a world of trouble. This is Bloomberg Surveillance with Tom
Keene Jonathan Ferro and Lisa Abramowicz as a cheerio thing. Wasn't it from New York City this morning. Good morning. Good morning. From audience worldwide on TV and radio alongside Tom Keene and Lisa Abramowicz some Jonathan Ferro. This is Bloomberg Surveillance futures negative a quarter of 1 per cent on the S&P T.K. Home Depot earnings about an hour ago. Wal-Mart numbers any minute from now. Yeah we're looking forward to come out right now and see if the rural and out. No they're not. We'll have to see how they're doing there. Like the big banks now John. They're delaying. They say they come out at 7:00 but they line to us misleading. What did you make at Home Depot. 60 minutes back. Wanted me to. Home Depot was are doing what Home Depot has
done forever. I'm sure Ken Langone would come on and pound the table. But we do it right. There we go with Wal-Mart coming out right now revenues a little bit better than the estimate. Comp sales nine and a half percent. Again that's within a huge inflation. There's comp sales. John I love this. DAX gas up 7 percent. So the first look there and a outlook for the back half
of next year. They maintain their outlook. I don't know what is the outlook going for because these retailers Wal-Mart Target Lisa they've had to cut their outlook a million times. They come out with their outlook. Then a few weeks later they cut it. And Wal-Mart coming out this morning and maintaining their outlook for the back half a full year 23. You are seeing a pop in the shares ahead of the market open up about nearly 2 percent after reporting better than expected earnings. How much are we seeing companies across the board. Lower expectations again and again as they revised lower before they put their earnings out and
then they cross that very low bar in order to give a better sense. I mean honestly if they affirm their projections going back to 2023 how solid is that. I mean what's going to change between now and next month. They could potentially affect that. What did you make of that over the last couple of months Lisa. The fact that they come out with an outlook and then a few weeks later seemingly they cut it. I view this as trying to hedge against the liability of being
accused of a lack of transparency. They're going to be over transparent. They're going to say things are looking OK. But when they don't we will let you know. And that's basically how I view it. I wonder if investors basically take the forward guidance as less solid than they have in the past. That was diplomatic. It's
right. The stocks I find little more than 2 percent in the free market will bring you a breakdown of that in just a moment. Futures look like this down a quarter of one per cent on the S&P 500 on the Nasdaq were down a quarter of one percent. Also year it's unchanged 279 32 in Europe. You're looking get ready ready self investor confidence. Santa Germany euro dollar negative a third of 1 per cent one of 132 in Europe. Gas prices are higher but crude is lower and crude lower over the last couple of days
to kick off this trading week Lisa. Eighty nine dollars a barrel on WTI down about a half of one per cent this morning. How much does that support retail sales that we get tomorrow. How much is that supporting. Some of the momentum that we get from the projections from a whole host of retailers including Target which reports tomorrow. Today we did
get Home Depot at around 6. Wal-Mart just crossing. You can see year to date the performance is pretty pretty dire. Home Depot shares down 24 percent and Wal-Mart shares down a little more than 8 percent. What we see in Home Depot is you do see an increase in revenues a bit across the board. However you are not seeing increase in traffic. In other words the actual individual sales are not increasing. How much is this an inflation story. Wal-Mart coming out. They actually saw a lesser a loss in terms of earnings per share gains or earnings per share year over year performance. So this is better than expected. However they are
dealing with a very difficult moment especially with the types of things that people are buying which are shifting very quickly. At eight thirty a.m. we get July housing starts and building permits. This fall as we saw yesterday a massive plunge in a homebuilder sentiment on the heels of where we're seeing mortgage costs the fact that rates have gone up so much. Do we see housing starts slowed down as a result. This is really the push pull in the housing industry. How much the lack of supply end up propping up prices for longer than people can stand it at 915 a.m. But if the latest read on auto manufacturing July
industrial production and John I'm looking for a sense to confirm what we saw in the Empire Manufacturing Survey was that a one off the second biggest plunge in terms of Empire manufacturing sentiment going back in data to 2001. Do we get a reconfirmation of that and the auto sectors and other manufacturers especially ahead of the next highest rate. You know I just had a pandemic broke the chart. It always does every single chart. We have the pandemic just breaks the charts. Yeah. And right now we're seeing some volatility. It's getting close in certain metrics. And that I think is fascinating. I thank you. Decent day ahead. I'm not gonna say Victor had somewhat anything to say. Big week ahead will light on economic. We've got retail sales got a bit of Fed speak here in massive Fed minutes Tom coming out tomorrow. I
think a lot of it's the earnings story and what the stock market's doing. John Tucker As again as I say I think yesterday was crucially important for the stock market. Everybody's going to readjust to that buried in the Wal-Mart release John. And it's not a clumsy release but there's not a lot of percent clarity in it. But two inside baseball things are Wal-Mart. Their gross profit rate the margin I believe was down 132 basis points one point three two percentage points as well. And I love
this language John. Just one expense idea. This is a new phrase. I've never seen this John. Wage investments that you one day Tom write an article on the press releases that you do like in the press releases. You don't like what I like on the phone. Yes. Dial the graphic. Well no. Usually if the form in the style isn't there it's because they're trying to hide something. That's usually the case. What I want to see John is a trend towards clarity. And they're the politically the big banks. They're dramatically clearer than they were five or six or seven years ago. And I want to I'll be honest folks with the power of
Bloomberg we talk to these people and they really want to know John how to make it clearer mostly speak English. Well let's speak English right now. We can do that without a station or outside. The chief investment strategist at ISE Capital Anastasia. The S&P up 17 percent from the June low. The NASDAQ 100 up close to 23 percent from the June low. When do we stop calling this a bear market rally. Well maybe you're right about now John. And I think that market probably does not move materially higher from here. I think 43 hundred will likely continue to be a resistance. But probably
the biggest takeaway that maybe we don't have to retest the lows that we have seen of thirty seven hundred. And the reason I say that I think there is a knock that's changed fundamentally to try to justify that the reason why we were back at thirty seven hundred is we worried about the Fed depressing valuations and we worried about the types of cuts that we need to take to the next 12 month of earnings or 2023. And as we look around today as inflation is easing it's giving the Fed more wiggle room. So perhaps they don't have to continue to depress those valuations because even if they hike 100 basis points Tom that's already baked in at this stage of the continuum here of the inflation curve is a complete mystery. There's a couple of kinks. We don't know where it's going to stop along the way. Maybe it's a glide path to 3 percent whatever if inflation in the U.S. and globally comes down more rapidly than the wisdom. What does that do to your stock market call. Well I think it props it up significant. I mean we were just talking about Home Depot and Wal-Mart and this would be the
types of stocks that I would not be bullish on in this environment. However if inflation does ease up and all of a sudden consumers have more wiggle room in their budget to spend on things that are not just essential then that props up that sector. You know if inflation eases up and the Fed eases up as a result of it then we could expect more from technology shares from the high growth stocks and so on and so forth. So I think that's a very important dynamic. But I think Tom in order for us to maturely break above forty three hundred and for us to work our way High Flyers we need to see earnings revisions actually turned the other way around. The reason why say forty three hundred seems to be the cap is because it's based on that one
hundred and two hundred and forty dollars of next month earnings and a multiple. That's somewhere around 17 and a half times how much more we're willing to pay. I think the Fed would probably need to ease up on policy a lot in order for us to justify pay more. And you know how much can economy accelerate to justify higher earnings. I don't think that's the outcome right now. That's exactly why I wanted to go. Do you think that it's too cute to believe that the Fed is going to push back against
essentially easing in financial conditions that we've seen over the past few weeks. Yes. There's so much talk about that and first of all if you look at the easing of the conditions most of that occurred in equities. And if you look at something like the Goldman Sachs financial condition it certainly is up but it's still well off where it was just in the beginning of the year. And it's roughly at a 20 year average. I think yes there's been easing on the market on the on the margin but it's not been that significant. The second thing that I would say is I think Fed Chair Powell actually outlined a pretty good HREOC reaction function. First of all he said that they want to be a little bit more cautious
as they get to neutral. And we're now close to neutral. They also want to be a little bit more cautious because they know that the typing that sentence system acts with a lag and we put a lot of tightening. And he said these words that there's more tigh