'Bloomberg Surveillance Simulcast' Full Show 9/15/2022
No doubt the Fed are signaling that there is more work to be done. They are keenly focused on price stability and reducing inflation and that does mean sacrificing some real growth. It's not really about whether we're going to get 75 or 100 in September to bring inflation back down to 2 percent over two years. We could be looking at 3 million additional people out of a job and also deep recession. I think investors just have to hold onto their hats right now. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz.
We have a deal. The line from London from audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside some cane at Lisa Abramowicz.
Some Jonathan Ferro equity features positive. A little more than a tenth of 1 percent. T.K. strikes on strike self. It looks like strike's off.
Widely predicted strikes off maybe because of President Biden's jargon will go into the math later. I like with Greg Valliere who says this is a staggering deal. The velocity of wage increase has to be front and center for every other negotiating. That's what we need to discuss Lee said. It's the return of bargaining power
employee power at a time when you have a shortage of workers based on the jobs that need to be done. And the fact that really employees do have to step up. It also highlights the precarious nature of some of the supply chains even now at a time when people are warning of pretty dire circumstances should this strike go into effect. We'll catch up with the same in Washington in about 10 minutes time. We've also got to talk about this market.
What happened to the bounce up another tenth of 1 percent today. We're all looking at the bond market looking at stocks and some for me with 40 basis points higher on the two year off the highs of June. I get this equity markets still 7 8 percent above the lows of June. Can you work that out for me. I really go to high Mark Gurman. It was a high. I can't go there other than maybe consumers better. You know we're going to see a surprise
here and earnings like we saw last quarter. I will say John there's some incredible bond math. Stay tuned for that this morning on radio and TV.
There's some real tea leaves of breakthroughs to higher yield that chain for the bond market today. I don't want to do it right. Stand up and walk out of the building. But there's some NIKKEI cool bond math going on right now. I am going to walk out the building about 50 knot. It's not as it one of the punishments to happen is for something else just positive.
Two tenths of one percent on the S&P 500 top as well by three or four basis points this morning. Good morning to all. Yields are drifting higher once again on a 10 year 343 93. I believe the two year Rameau is higher for six on the great session. Yes. Now a two year still flying. Yeah three point eight 1 6 2 percent. Right now. At the moment we've seen a complete repricing.
And it's interesting to say see that we actually are now pricing in a four point four percent peak Fed funds rate by the middle of next year. That is a reset 830. Am we going to data down for the United States. Yes it is. Jobless claims retail sales empire manufacturing among other data points. I'm really watching retail sales. How much do we get a boomerang effect.
And this is what I'm watching because. Because gas prices have come down. How much do people have extra money to spend on services and other aspects of the economy before the winter. Sort of making it difficult for inflation to roll over because if gas prices rise up again how much do you get. A difficult scenario. I know this is kind of complicated but it's something that shakes.
General Treasury Secretary Janet Yellen is delivering remarks from Maryland on tax code changes following the Inflation Reduction Act. We haven't been hearing that much from Janet Yellen. And I want to hear what she has to say about what we're seeing in the economy.
She was in the transitory camp. She did a big mayor culpa. Where are we now. Especially as the Fed is poised with possibly raising 100 basis points possibly now. We're going to catch up with you on a 100 basis points Rochester in a moment.
That is middle name National. And today China's President Xi Jinping meets with Russia's Vladimir Putin for the first time since the pandemic started. They're gonna be meeting and it was Becca Stein. I want to see first of all whether we
get any relaxing on the zero Covid policies. B what kind of commitment there is from China to Russia and see whether there's any sense of some sort of capitulation on Vladimir Putin's side as a time when they're really not doing that well in this war convention of the dictators we talked about it yesterday. I'm looking forward to that. That's what it is isn't it. It's shooting 0 5. It is Central Asia. And it is something that Mr.
Putin would suggest is his territory from previous time and place that matters a lot of tension and might be the case as well. America ignores this. It's actually a big deal. We're clearly not ignoring it. We know right where he said this was over for most of the second day. Jordan Rochester joins us now. That's what a 100 basis points are. Chester G10 NSA strategist at Nomura. Jordan 100 basis points next week for Unity.
Let's stop that. Why is a big call. Look at the US inflation number was horrific. If you look at the details of everyone who was looking for peak inflation you got it in the headline. Thanks to Joe Biden's oil SPRO withdrawal but the actual details. So we're seeing firms are raising prices much more than what we'd expect for core CPI. So with a rollover in gasoline prices and input prices all the surveys we follow say down inflation has peaked. But core inflation keeps rising.
Keep surprising. And I think the savings that everyone has built up still from 2020 and last year that's still playing through. So it was a strong number. We got the 82 basis points price.
Usually the Fed doesn't do anything unless it's priced in. So I am concerned if it's not priced in a bit more they won't do 100 basis points. But look we've got this Friday. Is there a leak to The Wall Street Journal as to what the Fed will do that will move the market price. We tend to see that blame but the only one that doesn't see this as soon as that number came out. Lisa and I said well you know do you think maybe we get one of those newspaper articles again from NIKKEI Timorous.
That's very Tom Keene carry on. I mean this just because you know my is to know about this. That's what happened last time when we shifted to 75. You know remember that some of the Greg Sausage roll you brought both of them home any time. Jordan I want to talk about pound one 15 17 after the Fed meeting I believe the Bank of England will meet. How have you adjusted your sterling vector in the momentum of. Given what he has to do because of what
Chairman Pound asked to do but with the debris of the British economy. Indeed the risk is the east the Bank of England more forceful next week. We're kind of looking for 50 basis points from them but they could do so. What does that do to Sterling. I think short term whenever a central
bank does more unexpected you'll have probably for 20 minutes sterling strength let's say to do 75 percent say 100 basis points. But the UK is not suffering from the same problems that America is facing. Suffering from bigger problems with energy in terms of the terms of trade shock. The pound's facing the trade. Well I wouldn't get it quite right. So I think Sterling goes to 110 by the
end of October and we could be talking a horrible one to six by year end. So we come back first week in November and now we come back for Paris. You're looking for the place and is not returning. When we get to parity period that's that's that's my call. But Jordan is raising a really important point at least from we've been discussing get these massive plans from this government. How are they going to execute them. Do they need high yields.
They need a weaker currency. As Tom pointed out we're back to 150. Yeah and that seems to be what a lot of people are saying. And yet some of the recent inflation data out of the United Kingdom has been somewhat supportive because some of these planes have lowered petrol prices have lowered gasoline gas natural gas prices and their energy bills.
So this is sort of the boomerang effect that I'm worried about that I've been looking at. If they can lower energy prices it actually encourages people to spend creating a stickier type of inflation. Do you think that really the tipping point here is higher yields and basically a Bank of England that has to come out even more aggressively from their incredibly honest stance of just a few months ago. Well the bank figures although one of my favorite central banks for the transparency. So they have forecast with recession GDP negative for five quarters in a row and inflation being below that target the end of the forecast horizon. Many of the central banks are not
forking forecasting recessions. So the Bank of England has already got a tough job raising rates into this recession. They're being very honest about that for the second round effects. You're absolutely right. Our energy bills in the U.K. at one point would have been six thousand pounds a year on average in January. Now it's to be around two and a half thousand. That's fantastic.
It means you can keep the lights on. Keep the heating on. The hot tap on the sauna. Whatever you want to do. Your electricity you go do it. The prices won't be as high the hotter.
But that's a big problem for the trade balance. Like you consumers won't reduce their energy usage Anna Edwards and industry slips back in place. Indeed. So the trade balance will turn even more negative.
The U.K. is a bit of a cliche to say but the U.K. is trading like an emerging market. You have eight percent current account deficit. That's crisis territory in Q1. I think it could be around 8 percent over the next two quarters. The bank thing and raising rates it's helpful.
It's softening that blow. It will attract foreign guilt investors. But let's look at equities and FDI. It's not the same story. Just quickly you also have a pretty bold call on the euro this 90 figure that has gotten a lot of attention at a time when we're seeing it just kind of still hanging in there around parody. What gets us to a 90 level on the euro is zero point nine zero. Indeed. Clients were asking me just last week look we had a big move in Europe.
What's the catalyst. What's going to get us tonight to get a few things coming up. But the big picture is euro. Its terms of trade has collapsed just like the U.K.
is. The US has things that Europe needs natural gas LNG. So I think when Germany starts to ration energy it'll become clearer to everyone that oh my God the trade balance of the German economy is going negative. Paper plastics acrylics metal all of
that won't be made if factories are turned off. Were you going to buy that from your flight from America with the cost of electricity of six seven times less. And China said that trade story is what gets us there in the medium term triggers for it. Or if you see the face free coming from Germany or if you see Russia turn off gas supplies if more those sort of triggers will do it. But the other part is the Fed. So next week if the Fed does do 100
basis points it will change people's dynamic for Fed pricing and that will boost the dollar in the short term. Jordan this reminds me of when Italy shut down that weekend back in a pandemic in 2020. It wasn't real for many people until that moment when we saw it happen in Italy. Is that what they're waiting for again. Then you just said it. Are we went in for that moment even though was so clear to all of us that Europe's about to go through a really really difficult times. We need somebody screaming at us like this winter. I kind of think we are raising the alarm
bells. I hope we are. It's been written about quite a lot in the media at least. Well look I think what will happen is Germany will get through the winter. People will be able to heat their homes because factories have reduced their output. The demand for gas went down.
That is recessionary. It sounds nice to keep the heating on. But it's recession where you are not producing those goods. The German economic models are being challenged. All these sort of. Base metals these sort of high energy
goods are cheap but you need a lot of them to run your economy. They're going to come from abroad. Nomura Hong Kong just e-mailed me and they said I haven't given you renminbi call today. Two standard deviations we are through seven yuan per dollar is at an important level for the government or they're waiting for eight yuan. Well we're looking for 720 which is the sort of recent high in recent years.
I think that's going to be achievable by you rent that. The Chinese have to look to slow down the move of the currency. We've seen move from the central bank. We've seen comments about the weakness. So we've seen quite clearly remember on a basket basis is being very stable.
So against its peers euro yen Korea very stable but against the dollar yes it allows for some strength to come. So should we look at the basket. No. I think the trade is in dollar C and heights rather in the basket. We squeeze the same. Just a quick yes or no yield curve. Control that the. Is it gone before you're right. No.
OK. But next year maybe. Who knows. All right John. Richard quick question. Will give John a thank you. He gave us a note. Okay. One more detail. No. Good. We've got to go.
Coming up we see his career next. Jeff Bridges great city mayor market strategist at MAC in New York Mellon. You thought you leave it after the first blow. That's that's the way to grab a little bit more ass. Futures up a tenth of 1 percent. People some excited about that. Three hours and tip that guy you're counting down. That's down the line from London.
This is Glenn Beck. Keeping up today with the news from around the world with the first word I'm Angel Feliciano. There's a tentative deal to avert what could have been a damaging railroad strike in the U.S.. The Labor Department says that railroad companies and unions representing more than one hundred thousand workers came to an agreement after 20 straight hours of negotiations. The government says the deal quote
balances the needs of workers businesses and the nation's economy. The price of natural gas rose again in Europe today. Traders are weighing whether the EU steps to contain the energy crisis will be enough to curb prices. The plan includes a mandatory limit on peak power demand and raising one hundred thirty nine billion dollars for consumers from energy companies and earnings. The leaders of Russia and China meet today and is back in song for the first time since the invasion of Ukraine. Shortly before the attack in February
Vladimir Putin and Xi Jinping declared a no limits friendship still after suffering humane humiliating losses on the battlefield. Putin shouldn't expect much help from G. China has resisted sending military supplies or financial support. The CEO of Shell will step down at the end of the year. Band Van BURDEN has been at the energy giant for almost 40 years and has been chief executive since 2014. One of his first big moves was the 50 billion dollar takeover of rival Virgin Group that's now paying huge dividends as natural gas prices soar.
Van Burton will be replaced by Shell's head of gas and renewables. Well so on global news 24 hours a day on air ads on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Angel Feliciano. This is Bloomberg. I am really concerned about the inflationary policies that we see coming out of the Biden administration. Anybody who thought that this was going
to be short lived has been shaken because what we're seeing is the persistent result of bad policies deflationary policy. A young kid that a Republican from Virginia. Live from London this is Bloomberg. And here's the price action for you.
Equity futures up a little more than a tenth of 1 percent on the S&P 500 tire. Once again by three or four basis points on a 10 year to 344. Twelve on a ten year on a two year. We think climbing now for six straight sessions and getting used to comfortable with life in and around three. I'd say just dumb real stuff. Two things to say. One are we all looking forward to the former vice champ rich cloud of fat.
They all want coming in to the news conference and coming out of the news conference as well. They said next Wednesday it's gonna be really interesting to hear how the deliberations are taking place and how to interpret. Perhaps those will be RTX to understand what the communications are although I think it's been pretty clear the very coach came to break DAX what his former boss exactly thinks about the economy right now. So that's what I promised to write Daddy out of Bridgewater with him. I'm going to say it pretty punchy. Coty CAC looking for the prospect of rates going to 4.5 percent producing a 20 percent negative impact on those occupations that people make every day.
And it depends on which indices you're looking at. You know we make jokes about that down the S&P and Nasdaq. But the truth is each index is different to get you to that 20 percent statistic. And I'm sure Mr. DeLeo can expand it. But well before we get to the consequence of high rates let's talk about the prospect of high rates 4.5 percent after the print we had this
week. Yeah. Doesn't feel that out there at the moment to say it feels priced in. That's the amazing thing priced into the Fed funds rate.
And what Ray Dalio is saying that it was 20 percent negative impact from here from where they are. That was what he was saying. And he said about 10 percent of that was because of the negative earnings impact. Basically how much the economy would have to slow. It goes to the Mike Wilson point. This goes to many other people who are raising this issue. How do you get that out. And I think that that's going to be really the theme of so many discussion.
Thank goodness Lisa actually rates this stuff. Yeah it's one of those there as well in the commercial right next to me. Let's continue here on the Romance of American Railroads.
I love the back end of it. It was the Pennsylvania Railroad and the Pennsylvania Railroad dumped into New York City that the Greenville rail yard in New Jersey. Hugely historic back in 1984. History is out the window today. Jack Fitzpatrick in Washington. But first at Greenville. Gupta joins us this morning.
Kitty what were these two sides arguing about. Tom you know everyone right now is looking for higher wages but further railroad workers there. It's a different story. It's about sick leave. It's about access to just easier working conditions. I mean look if this goes back to the rhyme right. You have working on the railroad all
live long day. This is a very intensive industry 12 hour days that require you to be on call and then show up to work with about 90 minutes notice. So that's really what it was at the core of some of these worker issues in addition to of course pay which it looks like they got. But one of the questions is how do you deal with things like sick days like health coverage even after labor. Those are all things that are up in the air.
Brilliantly said folks. In the articles I've read in the last 20 minutes we really don't know what the social aspects are of this agreement. Jack Fitzpatrick There are the political aspects of this agreement that President Biden win this morning with this tentative agreement. Yeah. If the tentative agreement turns into an agreement period then that's a big win. The risk of putting him in an
uncomfortable position with unions the risk of economic damage from the strike. Less than two months before the midterms that would have been very very significant. The real officials had said it could be two billion dollars in economic economic damage per day. If there were a strike and extended one would have been really bad. Assuming this does go forward and it's more than just a tentative agreement it's a really it's a bullet dodged by the president politically. Critics the details you've given us some information about a 24 percent wage increase through the five years 2020 to 2024 as well as an immediate part of that eleven thousand dollars. Do we have a sense of how close we are
and whether this will actually be enough to avert any ceasing of activity in the short run since I believe the agreement's already up. Well Lisa that's the fear here and if you actually look at the fine print of what we are still waiting on the full details with some of the fine print here is that eleven thousand immediate payout. That's what seems to be new in this agreement.
The backpay was already discussed the 24 percent increase and to 2024 was already discussed. I remember going back to my earlier point the sick leave the kind of extra safety around working conditions. That's really what's at the heart of the matter.
And remember Lisa some of the damage is already done. You already have the Amtrak canceling a lot of their long distance train mounts. You have oil shipments that are halted. You have feed shipments that are halted.
Grain shipments even as we were coming here to Greenville Yard. There are actually trailers of new vehicles that are just put on the sidelines because they have nowhere to go right now Lisa because everything is being put on pause for fear that this strike will actually go through could a great way. Thank you. Could he get to that. And Jess Fitzpatrick on the latest at
the United States. Tom I've got to say Scotty Welsh absent from the conversation that but you'd have to imagine that the labor secretary former union guy gone back to his early 20s had a big role to play here in the conversation and an authentic voice to both sides. He's someone who has a huge integrity. This coming from Dorchester in South
Boston reunion battles of Boston. But John and another time and place and as Greg Valliere lays out this morning the math of this is a stunning lift in wages but also is it a sea change to a new labor power as Lisa mentioned earlier. I've got a couple of steps further Tom. It's a big moment for union power right now because more broadly labor bargaining power of the last two years has been phenomenal.
And for a president in the White House who keeps referring to himself as a union guy. This is a moment where unions both for rail we just discussed that. And in the L.A. ports are in a position where if they wanted to they could hold the economy hostage in a big big way. And the fact it's not going in that direction yet. And I hope it doesn't. As Jack Fitzpatrick said that's a bullet dodged for this White House. Just to give you some scope on what kind of bullet that would be.
It's about two billion dollars of cost every day. It's about you know however many tons of corn of some of the fertilizer that's used for all of these crops. It would stymie so many different industries. And so yes it's a bullet dodged. But it's the reason why there is this presidential emergency power to come in and provide some sort of emergency response.
President Biden just want to do that because he is pro labor. So he doesn't want to be seen as doing that which is a reason why this is incredibly awkward on so many levels. It could have been a whole lot more tense than I think it's actually become. And let's hope maybe this is the deal and it doesn't fall what happens in the United Kingdom.
Well the real strikes Tom cooled off for the queen's death. Yes. So this stuff is going to bubble to the surface again in the next couple. Here it is. Here's a little bit different than America. It's a change. Union participation just like an
American. Thomas changed so much over the last few decades. It's not the 70s now is it. It's not the 70s. Now back in the 70s there was for a union participation is very different. Listen some this has got something to say about is it foreign rain or rain. And five minutes later a right in this one. Listen to it.
I didn't know the name Bubba last month. This is Glenn Beck. Lots of London this is Bloomberg Markets the price action equity futures positive by a tenth of 1 percent on the S&P 500. If you were looking for a rip roaring bounce you didn't get one of the. It's just a couple of days ago. Yields are still climbing by four basis points on a 10 year 344 and a two year through 388 in the last 24 hours. Mike Ferrari over at JP Morgan has some things to say. Chief economist is pushing back against this hundred basis points. So he says we think the odds of a 100
basis point move though certainly not zero lower than a third. Good drivers don't increase their speed as they get closer to that destination. That last line put the sound switched to just yesterday and got a ton of pushback on that last line. Are we getting closer to the destination. Well if we just found that we're a bit further away. Well also some people might disagree because I know a lot of good drivers who might go a little faster as they get closer. That's a nation to get because they're
excited. But that is the question right. Are we getting close enough to the destination. And if you don't go hard enough if you don't go faster do you get further away. And this is what a lot of people are raising including Larry Summers that is so well franked. So that's pretty good.
Okay. That's pretty good scoop really. Thanks for your thoughts on Morgan Stanley. Just the opposing view. Q Were there speed which is the first derivative of product innovation. And what Furrow is talking about is do we want central banks gaming the second derivative of the accelerator forces up and down. There is no history. They're able to do that race and hold some race to maybe full hold for the whole of next year. Measured things Guy Johnson measured for
years in the equity markets as Liz Ann Sonders chief investment strategist at Charles Schwab. She has been of huge value to us. She joins us today. Lizzie I'm going to wrap up the script and go to something that Mr. Farrell said earlier which is the linkage of the bond market to your equities space. How linked are bond dynamics right now to what we see day to day in the equity market. Only marginally so.
I think that the bond market maybe especially in this kind of environment. But I think you can say this generally tends to have I don't know maybe a more rational rational not irrational message about what's going on in the economy with inflation. I think the equity market can sometimes be a bit more irrational and the two have not been sending the same message. And I think the bond market is sending the more appropriate message.
You didn't see that kind of weakness in the equity market. You would have expected when we recently saw spreads really pick back up. But I think the volatility associated with that would probably be greater with any upcoming blowout and spreads it flat.
If we get that watch what they do not what they say. What is retail doing though and for that matter institutional doing on equity flows. Well in the past month or so and this is broad flows not just within equities but across all asset classes.
So this is not just specific to Schwab. A big renewed interest in bond funds. In fact over the past month you've seen close to 45 percent of all inflows have been in not just broad bond funds but government bond funds specifically. And I think that's because you've got not only helps out but really yields as well. So I think there is a bit of that caution but also taking advantage of the fact that there's income in fixed income now. Lisa that's really working out isn't it. Well I mean it is if you start now. Right.
But if you started six months ago maybe it would have been a different story. Liz Ann we were talking earlier about the Ray Dalio call of a 20 percent decline in broad stock indexes. And he talked about how that's an average. And you go onto the hood and they're more or less with the acceptance of a four and a half percent Fed funds rate.
Now that's almost what's being priced into the Fed funds rate market. Do you agree with his assessment of how much more the equity market has to fall to be in coherence with that. So I mean the short and honest answer is I don't know. I don't know whether we've got another
20 percent downside. I'm not sure. The fact that I don't know matters all that much. Would it would it shock me. No. I think we we have had a bit of a retreat in valuation certainly a retreat in valuations relative to where we started 2021. But of course that had been valuations had been artificially boosted by virtue of the pandemic related plunge in earnings.
We've got the recovery and earnings that brought valuations down to actually pretty reasonable levels at the lows in June and then they pop back up again. Of course inflation is a variable. Now we've got the rolling over in the E earnings estimates which is putting upward pressure on all else equal on valuations. You've got high inflation in a zone
right now that historically is only supported on average a multiple in the eleven to 12 range. I'm not suggesting we have to go all the way down there because inflation is on the move and the market can discount the to Tom's point. It's our second derivative. Rate of change but the sweet spot of 0 to 2 percent and inflation for valuations where you've traded on average at an 18 multiple or so two. To John's point about destination there's a long way to go before even just the math allows inflation numbers to have a 2 handle on them. So the valuation story still suggests that there is more downside unless the retreat in inflation happens much more quickly. More downside that could potentially be more dramatic than perhaps some people are factoring in Lazard. How close are you to the Oksana Aron of
J.P. Morgan View where she's holding some 70 percent of her portfolio in ultra liquid assets preparing for a better entry point. Well it depends on who you are as an investor. That might be an appropriate strategy to have either if you're trading oriented or trying to catch the shorter term moves in the market. But if you are a long term investor that has a fairly high risk tolerance you don't need the money. You're not living on the income associated with what's generated from your portfolio. Then I'd say you can take a more risk
tolerant stance. If you are a retiree you've got a nest egg and you're living on the income associated with that and you can't afford to lose any of the principal. Yeah. You want to take a much more defensive stance. It really depends on who the investor is not what mine or anybody else's opinion on what the market is going to do. Losing an on dollar strength. We just hit 7 4 0 0 yuan per dollar. You go back to September of 2019 maybe a level of seven point one a something around there.
That brings us to this quarter's earnings. Are we at a point where efforts recalculation for American multinationals is a tangible distraction. So did the fact that the dollar has been so strong. The math suggests that we should have seen a bigger hit to earnings but there were positive offsets. I think multiple hits are likely to come more to fruition once we get to third quarter reporting season.
The dollar being one of them. The fact that we've got the demand profile that is weakened at the same time that you've got labor costs now as a share of revenues to just profit margins to full percentage points lower than where they are right now. And I think just the beginning of this rerating of earnings estimates. So we all thought we'd see it a little bit more in the second quarter although ex energy earnings were negative 2 percent. I think we're going to see it more in earnest in the third quarter. I gauged waiting for small cap to pop
and the basic idea is small cap mid-cap. There's a domestic feel away from efforts dynamics. Do you buy the theory. I do accept that you've got a lot of lower quality companies and some of the bigger small cap indexes not least being Russell 2000. And that's where some of the zombie companies have been housed and living for a while. So that's the rub.
Yes. You get that more domestic bias in general to them but you also have a bit of a lower quality profile valuations because of the underperformance of come in and the valuations spread. It alone is supportive of small caps. But I think we have to weed out some of those really low quality companies before I think there can be a call that small caps are ready to have a period of sustainable outperformance. Liz Ann before we let you get on with your morning I have to just give you a victory lap here. Your charts that you put out on Twitter are always fabulous. You really pinpoint many of the main
issues. And I wonder if there is a another pivot point data entry that we can be watching for. For example the CPI print was a pivot point for the market and I don't mean it in the Fed's way. What's the next one. What's the next most important data point.
Well it may not be a data point. I think it may be what Powell has to say in the press conference. You know the big debate that erupted after the CPI report was was it going to be seventy five.
Is it going to be 100. We're still leaning towards 75 just because I'm not sure Paul wants to do shock and awe a week in advance of of the meeting. I think it's more to John's point earlier about you know what's the destination how long is it going to take to get there. But importantly once we get to the
destination are we going to go in and stay for a while. I think the you know the pivot idea to go back to the Fed's meeting and what the market was pricing in in June was that when we got to the destination we'd say hi. And then we turn around and go the other way to rate cuts. I think the Fed is trying to just put that completely to bed. But anything that gives us a better sense of the level of aggressiveness it's likely to continue through at least the end of this year and firming up this notion that once we get there we're going to stay there for a while. I think that's the next important
message coming for the market isn't just about speaking sense of the at the moment. Lisa because I haven't heard of the song went right before. I just never. You fired from right here. You're failing at something.
That's what it was. We know that Spotify like this. Okay good. Right. And so this guy gets the guy to stay with me. Is not a thank you. On why we are in London. And it is a day of reflection. You actually walked what King Charles work yesterday. He is taking finally a day of rest
after. The agony of the last number of days in his leadership of the nation. What can you imagine. In that step that they were doing. That's a tough walk yesterday. Isn't it. What's for anyone who's lost a parent. Could you imagine playing that out. No.
Publicly and walking behind the coffin in that way in front of crowds of people and the way he has done. And at the same time you need to fill a whole host of obligations where you have to go through the to the four nations that make up this union. You too did this. I talk about it.
You guys actually did the walk over the weekend John. The way that you put it to me yesterday. Not on air about how it's an entire nation empathizing with the understanding of losing a parent.
And then you put the pageantry on top of it and you feel the power of that. And I think that that was very well framed. The loss is deeply deeply emotional whether you support this monarchy or not. The queen in state for the next several days through to Monday morning before the funeral service here in London from London. This is pulling back.
Keeping up today with the news from around the world with the first word I'm Angel Feliciano. A marathon bargaining session has led to a tentative agreement that to avert a railroad strike in the U.S. The Labor Department says that after 20 hours of talks railroad companies and unions representing more than hundred thousand workers reached a deal. A strike would have frozen critical infrastructure that transports about 40 percent of all long haul cargo in the U.S.. Ukraine is solidifying control over territory.
Its troops have retaken from the Russians. That's according to President Vladimir Zelinsky. He meets with troops in his room the biggest city recaptured last week. Ukraine's general staff says Russia is again targeting civilian infrastructure. Top executives from about 20 leading global firms have committed to flying in for Hong Kong's financial summit in November.
Bloomberg learned that CEOs at Morgan Stanley and Citigroup are prepared to come. Attendance by many of Wall Street's chief is still contingent on Hong Kong ending its three day quarantine for incoming travelers in China. Economic growth has slowed so sharply that several major banks don't even think a 3 percent increase is achievable. Projections have come down steadily since March and the consensus in a Bloomberg survey is for the Chinese economy to expand three point five percent this year the second weakest in more than four decades. The official data for August comes out Friday.
Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Angel Feliciano. This is Bloomberg. We have diversified our gas supplies. We have secured sufficient let us off
underground fast storage and we have made a agreement for the national Covid so that they can get a lot of fast consumption. And we have done or so that we will be. But I think that you haven't got all that supplies. The European Commissioner for Energy that launched from London. Good morning to you.
Equity futures positive and now negative. We're down a quarter of one per cent on the S&P 500. That's a turnaround in the last 10 minutes or so as the dollar starts to shove a little bit more strength. Euro dollar negative almost a tenth of 1 percent and ninety seventy. The headline from the last 20 minutes or so is a dollar against the Chinese currency that's now 3 7. That's a big change from where we've been.
This dollar is a whole lot stronger and you it's not a whole lot higher. Those two things are connected. Yields up four or five basis points on a 10 year 345 on a two year that two year. Lisa can you keep up 363. Seventy three eighty. We could be having a conversation about
for pretty soon. Well it's that's the real question. Jez this bond market start to price in the likelihood of a Fed not only raising rates to 4 but even keeping them there for as long as potentially they're saying they're going to they're saying they're going to. People just don't believe. Big feature the market conversation this morning. They feature the conversation here in London. Front page of the Financial Times. This is one for the city itself. There has been a bonus cap so-called
bonus cap for bankers since the financial crisis at two times salary. So if you want to pay someone a two million dollar bonus Tom you've got to pay them a billion dollar salary. That makes sense. OK get out a small violets. They haven't been able to do more than that since the financial crisis. The Europeans have had an agreement on that. Some the chancellor the FTSE reporting this morning that the chancellor is having a serious look at getting rid of that bonus cap because they want to be very very aggressively.
So very very process. This is as is pointed out in the article this is fixed versus variable costs and flexibility of firms giving crisis. You have less less flexibility is idiotic policy in Europe. What they need to do is to go to a realistic policy and sell it to all of the United Kingdom. If you make the city reinvigorated with
a rational American like structure it helps the Tories it helps Labour and helps the Lib Dems. It helps everybody. Do you think Labour's going to see it that way. I don't know. You're the expert.
I imagine the front page of the newspaper can be very very different. Yes I would say that they would say this is a tone deaf timing that basically you're trying to get people paid more at a time when everybody else live out on their backs. That said the sentiment of trying to get the city back up and running and make it competitive on an international scale. Right. I understand.
Let's take some much I'm dead on in this bear market. Marco Cohen over at JP Morgan. He's in New York. They want to up on this. They want a little little sad.
It's a little hung and tumor. They're just making sure the sarcasm isn't lost on anyone. The bottom line is it got up if you got a piece of meat in New York and you want to bring them over to London so they have no incentive to show up period. Well you want to make sure that that meets and I don't want a quote employee to. So that's what we used to call me once and makes use of my Riccio isn't going to Paris isn't go to the major European financial centers. Tom. We're really trying to I guess highlight
this is between the U.K. and the rest. This policy is labor proactive as well as Tory. Tell me I'm with you. But you know what politics is like the politics. The policy will be spun pretty good.
Michael McKee. Why did they show up for this discussion. Joining us in New York Michael McKee in charge of Bloomberg Economics and retail sales theory.
And we're thrilled he could join us today. Michael I'm sorry to go on like that with John very quickly here. Retail sales includes inflation right. Is it a good study this morning. If it's inflation affected we're going to have to adjust for that mentally. The problem is it's not adjusted for inflation but each category would be adjusted separately. So at this point it's not going to be an
easy task but we get a rough idea. And at this point when inflation is running at about 8 percent you can take slash about 8 percent off of your costs there. I did just talk to the boss Tom and he said you pieces of meat over in London and since you're in London you're going to have to have your salaries cut. Thank you. Mike I appreciate it. Thank you for being with us. I'll let you stay for another question. There is a question about retail sales
and whether we get a sense of how much people like diverting money away from their gasoline bills that they had previously been spending. Now that they're saving a little bit more compared to where they were let's say a month ago. Are they putting it more to services. Is that just increasing spending elsewhere. How much of a reading will we get on that today. We don't get a huge reading on goods versus services because the only services in this report are bars and restaurants.
It'll be interesting to see if that picked up at all. Of course it is during the summertime when people are more likely to want to sit outside and. And maybe. A pint here in the U.S. but the question of whether they diverted money that they would have spent on gasoline is going to be an interesting one and not necessarily a clear cut one because it's also back to school time. So we may see a rise in say department stores. General merchandise stores apparel.
That is going to be hard to separate out from what where the money came from. But we also see that people still have big checking accounts big money in the bank and they've been using their credit cards more. So they had the need been making up for the gasoline prices or have they been spending some of the money that they weren't spending on gas. So not not an easy read on that today. My NIKKEI.
Thank you sir. I'm sorry if I haven't got a chance to be in the small print at the end of the show every day at home. Just on the screen I think. I think so. Sorry. I think.
I'm just. I'm sorry. Maybe we should just apologize for the reason the compensation thing is a big deal. When you took your place in Knightsbridge four bedrooms it was really.
A guy like you know redo the kitchen if you redo the kitchen. It helps labor somewhat on the same page. I agree with you. I'm just saying that when Jihye Lee to to over once you introduce a policy like that at a time like this the newspaper start looking like the newspapers would look.
As Lisa pointed out that that's so you're you're like four blocks from Harrods towards the Ivy Restaurant. I mean if you're out for a long time. So that's just what you want to wear since we're next to each other every day. Anyway Chris let's finish with this. Just I want you up a little bit more. It's bad news. Bad news today. It's good. What are you doing. I'm getting more and I leave in six men.
You are exactly right. I know that I might not get back for retail sales but it's good news. Bad news and it's bad news. Bad news. Bad news is bad news is good news is bad is too sexy. Not diplomatic for anyone looking to get this equity market with down two tenths of 1 percent again. There are some people who truly believe what you just said.
I mean if you get bad news right. If you get something that signals you're getting more of a slowdown then that goes to the earnings and that goes to the profits coming down. Right. I mean at what point do you get back to this Fed put idea that if they pause or if they lower rates A that they're going to do that when they're saying we're absolutely not going to do that. It would be that that's going to help support equity markets. If the pain is that deep. So if it's bad they've got to keep hiking anyway.
And if it's good they've got to hike a little bit more. Exactly. That's classified the way it's being priced out. That's the situation right now for the markets Tom. That's incredibly difficult. Futures Tom DAX Tents Bloomberg Financial Conditions Index negative point to 0 standard deviation. So it's nowhere near what Chairman
Powell wants it. And that's because of the power of corporations the consumption spirit on a higher nominal GDP which is what we're seeing and I believe will sustain somewhat. But do we have to crush that to get inflation back to tape. There is a school of thought that believes you have to crush it. That's the correct line. But you know I can say I can say Jeff you explain why Mellon isn't built in some.
That's right. You'll see the facts. Just hang. Mrs. King just e-mailed me which is why don't we have a place in Knightsbridge. You can have money pretend to care. It's your first time here just to clean that up before you start sending me a piece on Twitter about having money for a place in Knightsbridge. I do not have features that two tenths of 1 percent. You're off to important meetings with.
I'm going with the new administration the new government and the governor from London. I don't know where I'm going. This is. No doubt the feds are signaling that there is more work to be done. They are keenly focused on price stability and reducing inflation. And that does mean sacrificing some real life. It's not really about whether we're going to get 75 100 in September to bring inflation back down to 2 percent over two years.
We could be looking at three million additional people out of a job and also deep while session. I think investors just have to hold on to their hats right now. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Good morning everyone. Jonathan Ferro Lisa Abramowicz Tom Keene. We welcome you to Queen Victoria Street
our studios here in London as we move to a funeral for the queen. On Monday we'll have all that coverage for you on Monday. But before that yes coverage on what is going on in London but around the world as well. And Lisa I think to distill it for the
Bloomberg world is what we're seeing in the bond market. You've got the chart up there. Own the terminal. It's extraordinary the movement of yields. What you're seeing right now is a two year yield that is adjusting to a more hawkish fed for longer. You are taking a look at the concept of all of a sudden a peak Fed funds rate at least has priced into the market a four point four percent. Now the question is how do you price out
the rest of risk markets at a time when there still is enough resilience in the market to keep the Fed hiking. Were so important. I want to go on his math right now. Lisa can't do this job but I can do it with Lisa John Tucker on assignment in the next couple of hours as well. I want to talk about the Bloomberg Total Return Index with aggregates and in this case aggregates in U.S. bonds. And we have not broken down to new low price high yield. But on my moving average basis we are at new low prices on the summation of the bond market. Yeah it's a bear market.
Another way to put this and yes it is almost actually technically a bear market down 20 percent in bonds which is unheard of. Unheard of my historical perspective. But if you take a step back this is an entire world that's been fueled by debt readjusting to the concept of rates that are way beyond what we had ever thought was possible in the new reality of low interest rates low inflation and low growth suddenly that's been flipped on its head and has the world readjust. And what's going to be easier for us to
get through the brief here. Very quickly to go to our wonderful guest this hour somebody came up to me at the hotel him out and they say when are you going to have Jeff you on. So we're going to do that here in a minute for global Wall Street. Thrilled to do that for you. What Jeff is going to do is folding curtsy dynamics which are in kind of equities into bonds and with 7 yen on CNN. It's historic this morning. Yeah breaking through the psychological
levels. ISE China came out and continued to withdraw liquidity from the system and did not ease rates yet again which was a big concern. We're also seeing a little bit of a continuation of weakening in the S&P but currency very much front center. Let's get on a brief right now Lisa Abramowicz to get you started on a retail claims Thursday. It is retail sales Thursday although it's hard to know exactly how much this will change the dialogue.
Eight thirty a.m. we get us initial jobless claims as well as retail sales which we were talking about Empire Manufacturing a whole host of other data. I want to see whether we get any view into stripping out autos stripping out gasoline prices.
What kind of spending power is this. And this really speaks to that to the CPI data we saw which was services inflation really picking up. How many insight do we get into that. Treasury Secretary Janet Yellen today is delivering some remarks from Maryland. We're talking about tax code changes on the IRS on the IRS. But that will reflect the Inflation Reduction Act and what's going to be happening with that.
And really I want to hear what she has to say about the trajectory of the economy as well as some of the latest moves by President Biden. We haven't really heard from her as much as in previous years. And state Chinese President Xi Jinping is meeting with Russia's Vladimir Putin for the first time since the pandemic. Kind of an amazing meeting after they're
doubling down on their partnership a pretty anti United States rhetoric. How much should they actually put action behind that. And do we get any insight into 0 Covid end to the war on Ukraine. Interesting to see to say the least right now on the events of a quieter Thursday with King Charles a third resting today before a Friday a weekend and a funeral for his mother. On Monday we speak with Guy Johnson guy. Still a somber mood in London. Absolutely.
A very somber. Tom. And that will continue as you say through to next Monday. The U.K. is paying its respects. The world is paying its respect. We're going to see many leaders gathering here in London a logistical nightmare in some way for the security services here but they will manage it. And I am sure that it will go off without a hitch. Then walk.
I think you think a big question here. Guy we've been hearing a lot about not only that yes things are closed but on the periphery things are still happening. We're hearing proposals about some of the energy proposals from Liz Truss as well as the cap on bonuses for bankers being lifted. How is that really shaping the
conversations. What happens next week after the funeral. So next week is going to be for an exec in so many ways. We are gonna be building up to Monday but think after that Lisa. Things get really interesting for the UK. We are entering a new world a new era for the UK. It starts I think on on Thursday with
the Bank of England. Are we gonna get 75 basis points. Are we going to get 50 basis points. But I think the bigger challenge at the moment is that in some ways the monetary and the fiscal authorities are pulling in different directions because we think on Friday we're going to get this new mini budget from quality quoting the new chancellor.
He has talked about Liz Truss has talked about this idea Tom. We are we aren't going to produce 2.5 per cent growth. How do you setting a target. Great. How do you actually achieve that target. It is more difficult and much more nuanced Tom. I'll say for Americans really extraordinary to see almost supply side economics coming out of the world of Guy Johnson Guy Johnson. Thank you so much.
This is a joy to have. Jeffrey you were the senior IM a market strategist at Bank of New York Mellon with us here at Queen Victoria Street. And more importantly for this entire half hour Jeff you I need to go to Beijing today where they note 7 yuan and see an age. I went back and looked September of 2000 nineteen seven point one nine for our listeners and viewers worldwide. What are the ramifications of you. One moving without without pause. Up to seven. Or dare I say you were pretty well. So fundamentally if you had any hope
that Chinese demand was going to help the growth story right now you can forget about that because you know from especially emerging markets going to be in general have a weaker currency reduces your spending power that's going to be problematic. So Chinese growth this is a domestic and it's not right driver. It's a right off. You and I studied this. How close are we to the classic race to
the bottom where it was stronger or not. It was record levels but how it just seems everyone's slipping away. Well here Beijing is probably happy that D.C. is looking more at Tokyo you know rather than Beijing right now and rest of Asia ism. NIKKEI take it. If you look at the trade exposures a lot
of Asian central banks that want to hike rates you know they're seeing high energy prices with the Korea. You look at Taiwan you look at Thailand even though they are exposed to Japan as well you've got maybe 15 30 percent that basket yen. So let's talk about this. We've heard about this intervention and verbal intervention which yesterday I had some skepticism about their coming out saying we could do something we could do something any time. We are going to tell you what that something is. Do you buy any of this is having legs. So the markets now taking a bit more seriously.
If we look at our flow data for example I think what we're seeing is less assertiveness in dollar buying but that doesn't mean markets turning around and trying to buy yet the same time because let's be frank we've heard this before. Ultimately it's going to be action. So where's Ministry of Finance going to paint this. And I think we discussed this a few months ago once Madam Yellen going to opine on this as well. That will tip things over. So what would happen let's say if aside from trying to intervene with just buying more of something or else other just abandoning the yield curve control abandoning some of their policies how disruptive would that be to market. So the disruption I think to GDP markets
would be much more severe. A competitor affects markets. IBEX markets have been somewhat anticipating this and maybe since 125 130. Right. So you've got a good 20 big figure runway all the way into that. But why C.C. that's been a cornerstone of Kuroda.
That when you think of Kuroda when we look at his legacy. Yes. From now it's going to be why C.C. is it going to be a chaotic end to ICC or does he want to see it through. Personally I think he wants to see it through. And now folks a with Jeffrey you coordinated versus an uncoordinated intervention. The Bible the Dawn Bush Bible is if it's
not coordinated it it work. Can Japan affect an intervention of somewhere unilaterally. It's probably not going to work. If they do it unilaterally they try to do it the other way. I recall. I think they still hold the record for the biggest single day intervention by the central bank.
120 billion dollars worth. Was it two big figures. And it went right down there. And not long afterwards favorite coordinates. It sends a message. You've got the world's central banks on one side.
Please try not to take them on and people can do the math for it over a strong dollar. The former president Mr. Trump would be daily on television saying this is un-American. This is not the way
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