'Bloomberg The Open' Full Show (01/10//2023)
Chairman Power just around the corner line from New York City this morning. Good morning. Good morning. Police down by about a third of one percent on the S&P. The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with Jonathan Ferro.
Live from New York City, we begin with a big issue, some New Year optimism. Morgan Stanley Rams some bullish bets on China. Goldman Sachs drops its eurozone recession cold as the Fed tempers enthusiasm back home. Which bears that out. There's simply a lack of downside catalyst, a lack of downside surprises. There's quite a bit of skepticism. And therefore, the only ways.
It does seem as if there's nowhere to go but up. It's really a sequencing question. News cycles or bull markets, they start pessimism growing in skepticism, mature in optimism. It's not like we're super bullish. It's been in fits and starts type of argument. The only thing I'm going to say is,
well, it's not gonna be a rocky horror show. It's been incredible how much the market or how well the market has held up so far. People are starting to drop. Recession calls for Europe. There's a very good case to be made for China assets right now. The balance of risks are a little bit more balanced than what the market is suggesting at this point. Attention turning to Fed Chair Janet Pound this morning, delivering a speech at Sweden's Rick's bank. For more, let's get to Mark McKay for
more. Hi, Mike. Hey, John. Let's get right to the bottom line. There is nothing for you to trade on in his prepared remarks.
Jay Powell on a panel discussion about central bank independence sticks to that. He says there's. Well, the speech says there's no mention of the current economy or monetary policy, a short defense of Fed independence, if there's any headline. It's that Paul says the Fed should not try to influence social policy. There's one quote that is kind of interesting. Paul says Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate based goals. We are not and will not be a climate policymaker someday.
That may be a quote that comes back to haunt him or it comes up in some kind of testimony, but it doesn't have anything to do with what the Fed is doing right now. So again, nothing to trade on. That does not mean you can turn this show off. You have to stay with John because you are going to learn something.
And of course, Jay Powell could always say something else. And I'll be back with that. There is a Q and A session, right, Mike? There is a session that central bankers tend to be nerds and they like to talk about stuff like central bank independence. So it may not come up in the questions, but the audience does get a chance to ask. And we will find out just as a one from
me and from us. There's been a ton of Fed speak over the last couple of days. They're pushing back against rate cut forecast projections from market participants.
Mike, is it carrying any weight in this market? So far it's not. We will see what happens after Thursday's CPI and whether that really sets the market on fire in terms of lower rates going forward. But I refer you back to Rafael Bostic yesterday when he was asked about how long the Fed would keep rates high. He said, quote, a long time. And I think that's the message that we're going to hear from all I might thank you would touch base with you in just a moment. No talk of monetary policy just yet from the Fed chair. A pound equity feature still negative
five and two tenths of one percent. With us is Morgan Stanley's Mack Home Bank, Matt Miller JH Investments. Janet, great to catch up with you two quotes here. I want to start with one from Citi, one from BFA, this from Citi first. This came from Andrew Holland Horst, who had to say this We continue to think Fed concern about loosening financial conditions amidst tightening labour markets implies unappreciated hawkish risk, including a 50 basis point hike on February 1.
This is even more the case after the dramatic decline in Treasury yields last Friday. Bank of America Mike Galpin followed up with this one. We do not see the power fed is facing a new conundrum. The Fed should worry less about markets pricing cuts since 23. If the Fed commits itself too strongly to no cuts this year, than it risks leaving policy too tight for too long. My hold back first to you. Which one is it?
John, thanks for having me on and Happy New Year to you and your family. Look, I think what is important here is two things. Number one, we have to recognize that market prices do not always equate to expectations. And in fact, if you look at the New York Fed survey of market participants, you can see that market participants do not expect the Fed to cut rates this year, even though markets are pricing rate cuts. That is really important, John, for your
listeners to understand. Number two is that when you look at the inflation path this year, markets are pricing below target headline, P.S., inflation by the middle of the year. Now, I don't think the Fed is expecting
that, in fact. I know the Fed isn't expecting that because not a single FOMC participant in the last summary of economic projections was even close to projecting below target headline P.C. inflation this year. So we have to understand that this year is going to turn out much differently than what FOMC participants are currently expecting. And that opens up a lot of opportunity for investors, John. So let's talk about this opportunity. So I went through your work. Here's a quote from you.
Markets and tanks were starting to challenge the prevailing consensus views among investors and central bankers. The post pandemic inflation will look different than pre pandemic inflation, and that policy will be kept restrictive as results might have the traits and price duration IBEX state in the south U.S. dollars. Is that a conviction? View this for you. It's a conviction view for the first three to six months. John, I do not think that two thousand twenty three is going to be quite frankly, as easy as two thousand twenty two was. We had a year where a handful of factors drove markets in the same direction more or less. Right.
So two thousand twenty three is going to be a year of multiple trends, multiple opportunities. The first one. Yes. We think is to sell the dollar. Stevens in the US embrace duration globally. Matt Miller can do it right. I think the dollar view is going to be a tough one. If we get that risk off environment where we go into a recession and inflation does come down now, I understand that weaker inflation could help weaken the dollar.
I mean, the dollar has risen as inflation has gone up and fed tightening. But if we get a recession, we get a risk off environment. There could be a liquidity crunch in investors globally and just businesses globally could run to the dollar.
And we actually think that could happen in 2023. We like it as a diversified. It's almost negatively correlated to all financial and real assets. And in 2023, if you do get another sell off in equities or risk assets, commodities, the dollar could push higher than we actually would have a modest positive dollar or view. But I like the duration call from that into 2023.
Let's talk about duration call and what's happening in this bond market right now. To tense the yield curve over the last couple of days, it's been bull snake neck. Why do you think that is my home back Westpac coming from? Well, I mean, John, look, the markets are pricing in risk premia. And what we've seen out of the data is that the risk is skewed towards weaker activity data than people were prepared for. I mean, it's interesting and just how the bond market rallied when so many people are in the hard landing camp, I mean, that the data is surprising even then. Now, look, the labor market report from
last week, John, had something for everybody. If you were bullish on the economy, you had things that you could point to. If you were bearish, you had things that you could point to.
For me, what I make of all of that noise, the signal that I take is that incomes are going to slow. Income growth is going to slow. And that is the primary driver of spending growth. John, in at the end of the day, one of the main factors pushing inflation up has been demand. We think demand is going to slow. That should help inflation come down. And that's where we think duration. There is an opportunity here in the first three to six months of the year. What has happened? Yields had a front end come down particular on the two year, down about 25 basis points over the previous two days. And that message and I've got to wonder
why the two year yield is down. So the market, I think for a lot of people, they say to your rates, if they're lower, they like buying risk. And I think the next step is to work out why they're lower. So let's talk about that. They love it for good reasons or bad reasons. We set a target yield. Matt Miller can come in because wage growth is softening.
There's evidence of a self lending emerging or we think it's a bad reasons because something tied to the ISE said manufacturing services as some fifth day and in contraction. John, it is almost like you're watching the markets tick for tick on Friday, like the rest of us. Yeah. So on the jobs report, it wasn't the weakest wage growth that actually caused it to your yield to fall after the jobs report. The markets were kind of just sitting there doing nothing. It was the ISE services report missed by a mile. And the new orders component, that 45,
job 45. And that is when the two year yield tanked and they knew it was just a spark of risk on rally. Bad news is good news is such an interesting time to be an investor in in the cycle. We think there's a late cycle dynamic where bad news is good news. It can only last so long. And John, as you know, earnings season starts out on Friday. At the end of the day, it's about the profits that come in for companies, for equities. Profits drive equity prices.
And I think in our view, the earnings season is going to be a tougher one. The bar is low, but the estimates for 2023 are still too high. We think that's actually going to drive equities, continue to see volatility, multiple constraints, a contraction in earnings estimates that come down over 2023. I know that was jumping off your two year yield, but bad news, good news is helping lift the risk assets for now, but it can't do it for for too much longer.
Oh, my misconceived point is the bar low enough gone into an excess of Michael Barr and start the week up from Morgan Stanley by asking how might the consensus be wrong? And he said It's not directional. It's basically about magnitude. He thinks that the earnings season is going to be terrible. Maybe we have an extra 20 percent plus downside from here. HSBC Max Kenton that said this this morning. Here's the quote from him. Haven't been staunch bars for much of 22.
We think the consensus is wrong about a weak first half and second half rebound. We see a variety of reasons to be less bearish on risk. Assets in the first half would depress growth expectations being king.
We actually caught up with Max a little bit earlier this morning. Here's what he had to say. We look at market pricing as we look at things like equities versus rates. We look at net equities versus rates
against PMI as equities versus fixed income. Comparing that against break even that's a cross asset relationships across asset against macro relationships. All of that looks a bit more bit moralistic now. And I think one thing that I would say is it's not like more super bullish, right? It's not like I'm saying, you know, growth is going to go through the roof and it's going to be rock and roll. The only thing I'm going to say is while
it's not gonna be a rocky horror show, let me ask him what you make of that. I think the toughest thing when I hear a lot of investors think about the expectations, look at earnings estimates, because that is the consensus built in earnings estimates for Q1 and Q2 are actually modestly negative. So if anything, it's actually that's the lower bar. The higher bar in Q3 in Q4 come into play or analysts are estimating a massive earnings boom in the back half of 2023.
And right now, it's the consumer discretionary sector, industrials and financials, three massive cyclical sectors that are supposed to drive earnings growth in the back half in 2023. That's where the bar looks to harm high. In our view, it overall looks too high. It just seems like right now the bottom up consensus is for a economic recovery rate through 2023. We think that's overly optimistic given leading indicators, given the inverted yield curve. And given that PMI ISE are some 50 my home back, I won't give you the final word on this before we talk about China and Europe in just a moment. Matt, when you look at U.S. growth expectations, are they still too
high or they low enough? No. No, John, I think they're low enough, and where I think that growth expectations are probably more consequential for macro markets, including the U.S. dollar, is when we look outside of the United States. Now, if you think growth expectations are low here in the U.S., just look at Europe, but look at Asia.
You know, our view is been that China is a positive growth story for this year, and that's going to have lots of spillover effects to Asia more broadly, but also to Europe. John, if you just look at natural gas storage in Europe, it is massively outperformed expectations. So all of the concern that was building up in the back half of 2022 with respect to the winter in Europe of 2023 24. You know, there's lots of scope for growth expectations to rebound outside of the United States. And that's another factor that we think is a weighing on the dollar this year. We're gonna talk about that next. My home back, my my skin sticking with
us. Equity futures right now down about two tenths of one percent off the lows. No real mention of monetary policy from champagne just yet. From the Q and A session starts,
monarchy's going to jump back onto the set and running through some of the headlines. Coming up, looking past the U.S. for outperformance, there's a very good case to be made for China assets right now. The dollar has topped in our view, and that is absolutely a tailwind for rest of the world. That conversation IBEX.
We like European equities more than U.S. secretaries really liked. Also in Yemen and Chinese equities against the backdrop of China's reopening, just a bit of a pretty bold fall around. China's growth starting to happen now. People are starting to drop. Recession calls for Europe and for the eurozone. All that really should be continuing in the next couple of weeks.
And reappraisal, reappraisal really continues. That should be beneficial for equities and for European stocks. Back in a bull market, China's reopening, giving a dose of optimism for Europe as well. Morgan Stanley ramping up bets on China, saying the following. We believe the market is under appreciating the far reaching ramifications of reopening and the possibility that robust cyclical recovery can occur despite lingering structural headwinds. Goldman dropping its eurozone recession call. We no longer look for a eurozone
recession, reflecting better growth, momentum, sharply lower natural gas prices. And guess what? An earlier China reopening. Maria Tadeo joins us now at a Brussels source. Maria, what a change in a couple of months. Listen, Jonathan, what a change, because a European story was completely battered after the war in Ukraine. And today we have a change in tone, pretty much dramatic with that note from Goldman Sachs. They dropped their call for recession.
They now see growth of zero point six percent. This year, it's not great, but nonetheless, it is growth. They cite all of the factors you referred to, the fact that we did not get this winter from hell. The temperatures were actually pretty mild to the story. The fact that gas prices have really come down and then this idea of China reopening being good for meeting Europe.
By the way, Deutsche Bank also had a similar note today. Seeing this China reopening is positive for the euro. What I would stress, however, is now I just had a conversation just five minutes ago with the Belgian prime minister who told me, yes, the worst case scenario has been avoided. But we want to see this feed to the real economy. We want to see consumer confidence go up. We want to see bills go down. And, of course, inflation passed. Peak become stable.
This has been a real headache for European governments this year. Hi, Maria. Thank you. Great reporting over the last year, for that matter, the last several years. But of course, over the last few days off the back of this story. Richard, I thank you. From Brussels back with us.
Matt Miller in my home. Back now. My mistake, and this is tough for a lot of people to listen to that trying to work. How should we be pricing an economic slowdown following tighter monetary policy in the West? Well, should we be pricing a growth rebound off the back of China reopening? Which one is it? It's a macro battle and it's going to keep playing out here and then in the near term and it's brutal, it's back and forth and you're seeing at the end of the day our view central banks are going to win it out just because they are more powerful on the global economy. And it's almost like right now there's two robots, there's two sides of a boat. We're where people are rowing in different direction because fiscal policy in China is continuing to provide stimulus. So we're seeing nine point nine percent of GDP being used to stimulus, a lot of credit issuance, debt issuance coming on the market.
Every night you hear about China reopening China stimulus. It's like the headline machine that just comes out every night. It's serious. And lo and behold, Chinese equities are rallying and you're seeing come on, copper, getting a big Germany also is going to be issuing the most debt in history or in modern history for their economy into 2023 to help mitigate this. It's amazing. But I'd say a lot of good news is priced in. I get it. It's all it's better than the worst case
scenario. But right now, if local currency equities in Europe are only down 5 percent off all time highs, if earnings estimates continue to ratchet up, a lot of good news is being baked in or else I'd say the worst case scenario is being really taken off the table. We still see the U.S. going into recession. There's not been a period where the U.S. has gone in recession and it did not bring the global economy with it. And if that does play out, it still means weaker growth globally. Earnings likely need to come down.
In our view, stay more defensive. Is a better tax through this challenging environment. Can we get a D.M. AM split? That's the question for many people, BlackRock, and why it may have this to say on that. We see these economies facing recession. I want to say the central banks will
hold rate hikes when economic damage is clearer. China's reopening and domestic spending will drive global growth as D.M. recessions hit. We like E.M.
equities over 3M and we like high grade credit. My home back. I want to come see you on that. Can we get that? D.M. A.M. split this yet. Well, John, I mean, I think it's probably even more nuanced than that.
It's it's not clear to me that, you know, those bookings are really helpful for investors, given that there's so many opportunities out there this year relative to last year. I would say with respect to the US, the economy is slowing. No doubt. And in fact, when it comes to fiscal policy later this year, it's going to be a showdown. Right. We just got a speaker of the House. We know some of the concessions that were made in order to achieve that are going to make the battle over the debt ceiling more difficult to win. Towards the end of this year, John. So the fiscal trajectory in the US could actually look much worse as we make our way through this year vs. what Matt said about the China fiscal
policy in Europe, fiscal policy. You know, those are pushing in a different direction in large part. So for my perspective, it's really the U.S. versus the rest of the world. And there I think you can have some differentiation, which is again, another reason why I think, you know, the U.S. dollar can go down as global growth outside of the U.S. picks up. That's an important distinction to make. And I want to get to you on that Matt
Miller in. Tell a witness that you could get off the back of global growth exploding. It's rather intuitive, but you think perhaps we can get some dollar strength. Matt Miller.
And how does that come about? I think it's will. If the Fed really pivots and basically cuts rates in Europe, you're the ECB actually raising rates right through it. Yeah, I think that the dollar could weaken on that. I do struggle with a weaker global growth environment and the dollar going down.
I think I think at the end of day, it's more of a risk off currency. It is more of a higher quality currency on a global basis. The euro has been on fire. It likely got oversold into the third quarter. I mean, the dollar last year in the
first three quarters. That was the biggest move of any calendar year in history. It was up 18 and 19 percent in three quarters. It still was up even though it lost and in the fourth quarter. But that dollar move it, we're probably
not going to get that big of an f DAX regime where that much currency movement is going to drive cross asset into 2023. We probably had a lot of that pulled into 2022. But in our view, we think the Fed's going to stay relatively tight. The Bank of Japan is still going to be like crazy. The ECB is likely to raise rates, but probably going to have to pause after weakening growth filters into the economy. And so we've got more of a modest
positive view on the dollar for now. Guys, this was great. My mask and my home back to the year. I say happy new year. Just one more time. My home back, as you said, in a fat,
rude. But Happy New Year. And then with time coming in the morning. Codes and lights. All eyes on a two yet. Kevin Dawson, new watch. Well, look into the shorthand for signs of recession conversation around the office about.
24 seconds away from the open about this morning. Good morning to you. Equity futures just slightly softer, down two tenths of 1 percent on the S&P and the Nasdaq down about four tenths of one percent. Chairman Powell speaking right now on central bank independence. The Cuban ISE session to start shortly.
And when we get we get some headlines, making a run to the studio for you. That's the best way to get to the bond market. Big move at the front end over the last couple of days, the previous two days, the two year yield down about 25 basis points, trying to bounce here now on a 10 year yield at five basis points to 368, 36 in euro land, euro dollar one to 750, euro dollar surge by two tenths of one percent on the euro side. Goldman earlier this morning dropping that recession cooled and all of a sudden some optimism around the eurozone. We'll see if that sticks. Crude. Seventy five. Forty one per cent at the moment on WTI.
One stock to watch around the open is Coinbase, the crypto exchange initiating another round of layoffs and cutting 20 percent of the workforce. The CEO, Brian Armstrong writing in a blog post. Over the past 10 years, we became too focused on growing headcount as a metric for success, especially in this environment. It's important to shift our focus to operational efficiency. Abby has more happy. Hey, John.
Yeah, it's interesting. As Brian Armstrong was also saying, that this is the first time that there has been a downturn in the crypto space, along with a macro downturn, sort of suggesting that that's a piece of what's going on. But one analyst at Oppenheimer saying that the reason that this company has now cut over the last eight months in terms of company headcount or a third time, it has everything to do with the idea that volumes at their crypto exchange are down, especially after the RTX blow up. The stock, it's interesting, is higher
today, up one point seven percent. So maybe some relief on a stock that's down more than 85 percent since its IPO. The current cut, about 20 percent or 950 staff. They cut about twelve hundred people
last June. They also cut 60 people somewhere in between, some more than 20, 200 people over the last, let's call it, eight months or so, again, having to do with this slowdown in crypto trading. And they are cutting special projects as a result.
They're taking about 150 million in restructuring charges. So this is no small matter and net income back in 2021 when they did go public. They were putting up really solid net income of a greater than one billion dollars and two quarters and in one case, close to 2 billion. Well, we're now looking at yet another
quarter of negative net income. The crypto winter simply continues here, John. Very clear for Coinbase. But again, the stock is higher, so maybe find a little bit really higher and keeps climbing. Abbi, thank you. Now up by 8 percent on the session. Two minutes into the open right now.
Equities almost unchanged on the S&P 500, up a tenth of 1 percent on the S&P and the NASDAQ up a tenth of 1 percent. Also, the destruction we're seeing hitting firms across industries here. Apple said to be looking at Broadcom, replacing those chips inside US devices with in-house components in 2025 with latest reporting. His that. Yeah. Good morning, Jonathan. We're down a percentage point on Broadcom, not as severe as the reaction that we had when those headlines crossed, according to sources.
What Apple will do is move away from the Wi-Fi and combined Bluetooth chip or modems set. Broadcom provides to Apple. This is actually a bit of a surprise because only back in December, Hoch Tan, the CEO of Broadcom, talking about how good their chipsets were, how good their tech is. Less of a surprise is Qualcomm, because we've been talking about for a while how Apple wants to move away from Qualcomm. They've been in legal proceedings against them. And as licensing settlement, which would lead to Apple having a six year period of cellular modems from Qualcomm, but then moving away in the future like this is this is a big technological story or right about the modern day handset.
And apples move to bring not just supply chain, but do it itself on the technology front as well. We know that they're considering, generally speaking, how and where their handsets are assembled globally. But this is about controlling the IP and controlling the ability to update technological technology at a pace that suits them. For Broadcom, this isn't good. About 20 percent of their revenue comes from Apple or about three billion dollars.
They account for around 7 per cent of EPA. You see a lot of reaction on the sell side saying that the timing of this report is very interesting because Broadcom most recent multi-year agreement with Apple expires later this year. So interesting move. Fantastic reporting from Bloomberg's Mark Gurman. Less is a surprise, as I say, on the Qualcomm. So I had just come to you on Apple just
briefly early. Separately, we get the earnings from them. Yes. The stocks put a run of games together over the last few days. Tough, tough, tough, tough month, though, over the last month. Can you tell me just how low that bar is for that? Yeah. I mean, December was the worst month for
Apple going back to May of 2019. And there was a complete revision for that full year 22 forecast in terms of overall handset shipments by a factor of around almost 20 percent. Right. When you take into account all the different reporting around cuts, ultimately there is not demand for the lower end products and there is demand for the higher end products, which they couldn't produce because of Covid disruptions in Django. So it can be interesting to see.
Just the top line result because those Aspies may come down, which will impact revenue, but also margins as well as they kind of scramble to untangle everything. Thank you, Mike. Looking forward to coverage on that story. February 2nd is when we get ample earnings after the close that day. That stock is up by eight tenths of one percent in the near term. We're just days ahead of bank panics in America.
Jeffries reporting a profit decline of 57 percent in its full Q result. Sonali Basak suffered a story economic. John, you have to wonder if Wall Street's windfalls are now over and how long those windfalls are over for you.
Of a firm like Jefferies where you're watching investment banking activity fall off. However, you also have them saying that this is still one of their best years. They're ending on ever as well as activity levels, not really going back to where they were in 20, 19. Still, Wall Street does not love it because once you have activity start to drop off and that kind of way, you have a different equation in terms of how you meet margins, how you turn a profit when you're not willing to let people go when it comes to Jefferies. They're still trying to send that signal that they are holding on to staff. They are looking for great staff. And of course, that report of Sumitomo a couple of days ago potentially increasing their stake. Jefferies itself did not answer to that.
But at a time like this competitive business on Wall Street, that at a time like this, you like to make some more friends to drum up more business. Now, John, what does this mean for the banks that are coming up ahead? JEFFRIES Yes, the investment bank, no shocker, their activity falling off. But when you look at equities also under pressure, fixed income is the big winner here, which both really, really nicely, of course, for J.P. Morgan and Goldman Sachs, potentially even Morgan Stanley next week. Let's see if that's enough to keep the boom times going, going for these banks here and whether it's enough to ink them some more money at a time where so many business lines are under pressure. On the inside, me to ask. But if you could have one earnings report release right now from any bank on Wall Street, Sonali, who would it be? You know, I love my children equally.
But it's you know, I think that it will be interesting to see what the big consumer banks do. Those are provisions for loan losses are expected to tick higher. And the question then becomes how much we know investment banking is under pressure. But what about the consumer? That's a good touch. A very good touch. Now, looking forward to reporting like it this way. Thank you.
Six or seven minutes into the session, the Q and A session, just dancing with Chairman Powell over the Risks Bank. The Swedish central bank might NIKKEI in a drop on about 5 10 minutes for. Just to run through what we're hearing from the takeaway so far, not hearing much about five or six minutes into the session, call it seven, up a quarter of 1 percent on the S&P and the Nasdaq up four tenths of 1 percent. Looking cross, I said right now you've got high yield spreads tighter over the last several weeks. You've got an absolutely ripping. You've got the dollar weaker.
It does not scream global recession. Corporate America could be bracing for a slowdown. And Cameron Dawson, the new edge, is looking for signs of a downturn in the Treasury market.
She says this is the restatement of the yield curve. That's the one to watch when the short end is falling. That is the best indicator of an imminent recession coming on place to say to us right now. Come kind. The jargon for this is the ball state not getting a big rally at the front and yields drop more than they do with a longer. That's what we've seen in the previous couple of days. Come on, you can you tell me why that's more important than just, say, pure inversion, which is what people obsessed with? Yeah. Because the inversion of the yield curve
tells us nothing about timing. It can lead a recession by as much as 24 months. It really is that re steepening that tells us when we're about to enter a recession. And importantly, we've never seen risk assets bottom before that risk deepening begins. And so what that we steepening means is that it has to come from lower front in yields, meaning that the front end of the curve is pricing in a lot of interest rate cuts by the Fed, meaning the economic condition is weak enough to justify the Fed moving much more, easing much more accommodative. But what's interesting is that if we look at the two year yield today, sitting at about four point two percent, that is below the projected Fed funds rate.
But importantly, that two year yield is right on top of the Fed's own projection of its yield in 2024. That's the median dot in 2024. So it really will be important to see if we see a further rolling over a two year yields. That's when the market will be truly concerned that we're going into an imminent recession. Cameron, how well, Alan, do you think that bold statement, guess with what we're seeing elsewhere? A.M. absolutely repaid the dollar, weak high yield spreads in America much, much tighter. How well aligned to those things?
Yeah, I think you're exactly right, which is that the data does not support that we are going into an imminent recession, which is why we don't think that we've really seen that all steepening kick off in earnest. And the reality is, is that data within the US simply does not support the Fed using policy. And so we think even though we're not getting those hawkish comments out of Powell today at this meeting, we would expect further hawkish comments out of other Fed members as we go into the next Fed meeting in early February, simply because financial conditions, as you said, the dollar weakening and markets rallying, credit spreads tightening. They're all indicative of financial conditions now being as easy as they were back before the feds. I have a meeting back in August at
Jackson Hole, and so that's when Powell really pushed back hard. And so we would expect further pushback again. With Chairman Powell speaking right now and a Cuban a session, one line here, the Fed tools work, one tool for the third camera. It's being fed speak. And I just wonder how powerful, how
efficient, how effective that Fed speak has been over the last week, because they all sound hawkish. And as you've indicated to you, yo, to start dropping in the face of that, this at a time when because of 50 ISE readings as well. Do you think this market's responding to this Fed speak in a different way? Well, I think we're locked in this really tough game of chicken with the Fed because the bond market is still pricing in those 40 basis cuts into the back half of last and next this year. And if you listen to Bostic yesterday, he said I'm not a pivot guy and asked how long he would keep rates high. He said a long time.
And so the bond market completely disagrees that the Fed can hold its resolve and keep rates really tight. And it really is a question of if we start to see hard data start to roll over, because all of the weakness that we've seen within economic data has really been within soft data, survey data, sentiment data. It hasn't really showed up in real activity yet. And I think that's the big question for
the Fed as we move into the next couple of months. Will we see things like jobless claims really tick up? Will we start to see incomes soften even further? And as of yet, we're not seeing that yet, which is why the Fed continues to talk so tough. Well, come, we can ask you a question that I asked our panelists a little bit earlier at home, back in Matt Miller. I think it's an important one. What would you tell investors to
position for? Should they be pricing an economic slowdown off the back of all this tightening or an economic rebound off the back of China reopening? Which one is it? That is such a great question. I think our preference when we're positioning is to try to be as agnostic to that path as possible, meaning by companies that you can hold through different market cycles, quality companies that don't need the Fed being super easy on tour in order to bail you out, because we don't think the time to add beta and liquidity is really until you see a true pivot to accommodation by the Fed. So it means keep a little bit more defensive. You can layer in some cyclicals, but it has to be quality. So, for example, we added a little bit to materials in the event that you do see a re acceleration in global growth. You do see a weaker dollar because of
Fed being because of China reopening. And so I think that you have to be positioned for multiple outcomes. But the one we do not expect is a really easy policy shift in the very near term. Every sector right now. Cameron, what is it? So we like the combination of financials right now simply because of very, very low expectations.
If you look at who has the easiest bar for earnings growth into next year, it is those financials. They saw their earnings decline 17 percent. Look at Jefferies in the fourth quarter, down 50 percent in earnings. That just creates an easy bar for
earnings growth this year. And then we like to pair it with some more defensive sectors like healthcare, because we do think that in the event we do have an economic storm, you want some stability within the portfolio to be able to have stable earnings in an uncertain environment. Cameron, thank you. This was great perspective on the bond market. Enjoyed that. Cameron Dawson of New Age. Thank you very much.
Your equity market looks like this about 30 minutes into the session. We're positive a little more than a tenth of 1 percent on the Nasdaq, up two tenths of 1 percent. No big headlines just yet from Chairman Pound. Mike McKay's then a jump on set in just
a moment. Coming up, we'll talk politics as well. President Biden turning his focus abroad amid pressures at home. All options are open. I mean, this is why we have, you know, cause in Canada, USMC and U.S. and team here. I mean, it's an agreement that also provides for mechanisms for dispute.
That conversation up next. This is Bloomberg's The Open, I'm Lisa Mateo, live in the principal room. Coming up, David Cordani, Cigna CEO. That conversation at ten thirty a.m. Eastern, three thirty p.m. in London. This is Bloomberg.
All options are open. I mean, this is why we have, you know, cause my in Canada, USMC, a US and T back here. I mean, it's an agreement that also provides for mechanisms for dispute.
But of course, as trading partners and trading partners that are like US, Canada, US and Mexico, who do enormous trade volumes. I mean, I would say that this is one of the most successful trading relationships in the world. President Biden in Mexico City for the North American Leaders Summit. Amid mounting tension at home, the DOJ
reviewing classified files found the president's former office. Plus, the White House facing questions over former President Jihye Lee scenarios presence in the United States. Team coverage starts right now. Bloomberg Sam Age in Mexico City, Emily Wilkins down in D.C. And walk us through the agenda today. Well, Jonathan, first we're gonna have a bilateral meeting just between President Biden and Prime Minister Trudeau.
And then, of course, the three amigos, what they're colloquially known as the North America Leaders Summit. They'll meet together. And already, from what the White House is saying in terms of their factsheet of deliverables, we get a little bit of a sense of what they're gonna be speaking about. Semiconductors plays a huge part in these discussions. They want to initiate a new semiconductor forum. They want to look at the labor intensive in the labor needs in terms of the workforce in North America to work in the semiconductor space and also shore up and integrate those supply chains a bit more. They're also going to talk about climate
change, not just reducing emissions, Jonathan, but plans to install electric vehicle charging stations along their borders. And then finally, of course, migration, which is a huge issue back in the United States. The try to coordinate more, share more intel and information on migration and on drug trafficking. When it comes to migration, Jonathan, they will be announcing a new portal for individuals who want to come from South America to apply for to either go to Mexico, United States or Canada. I'm really just on trade mission. It's been a massive theme for a lot of people looking out to 2023 the year ahead. For that matter, the decade ahead. Mexico, the big winner. The.
They are a big winner ready, we see Mexico, Mexican exports, United States increasing. And I'm lo didn't mince words yesterday with President Biden talking about the fact, though, that he still sees ships from Asia with goods from Asia showing up in Pacific ports. And he really wants the United States to have more investment in Mexico.
He wants the U.S. to not just back them when they go to development banks, but also jointly approach companies to build more in Mexico so they can supply the parts needed for, say, a manufacturing plant in Arizona. I believe that's the situation abroad in Mexico. Can we talk about the situation at home?
Can you explain this to me? So we've got these files that the former president's office and now we've got the DOJ reviewing classified files found in the president's the current president's former office. Can you run us through that when Biden was vice president? He did have a role at Pennsylvania University. He had an office that he used. And Trump's sorry brother, Biden's lawyer, said that they found. I know, right.
That they found these classified documents in this office in a closet. They said they have notified the National Archives, which are now in possession of the documents. But, of course, this raises questions about what Biden was doing with these documents. It raises a lot of concerns, given how much hand-wringing there has been over the documents found at Moral Largo. And I think this really opens up a lot of questions that this is not going to be the last that we hear of it.
Republicans are more than ready to begin a number of investigations today. They're going to be looking into things including China, the origins of Covid, Hunter Biden's laptop. Expect to hear more of that. And this is something that they can very easily add to the list of things that they really want to dig into. I can't keep up. That's your job, not Monica. Emily, Dan FTSE, Emily Wilkins, thank
you. I'm HIV in Mexico City, Amara. Thanks to you as well. Fed Chair Jay Power. For those of you following participating in a conference at Sweden's Rick's Bank. Mike McKay back with us for more. So, Mike, it's about central bank
independence. A few of them sitting around facing some questions. Have we learned anything so far, Mike? Nothing, really. There is a question just posed to Jay Powell about liquidity in the system. And he says that he would prefer that we focus on structural reform rather than liquidity reform.
But that's the closest you've gotten to anything on perhaps some kind of monetary policy. He was asked about whether the Fed felt the policies, the Fed that the Fed followed during the great financial crisis and the pandemic crisis had worked. And he said, yes, but that was in the context of changing policy so that Treasury had to be involved. So Treasury had to approve the methods that they used in the pandemic response. So it's still really all about central
bank independence so far. Well, my kids have to think they can ask a question here about the need of central bank independence at a time that they're explicitly telling us they're trying to push unemployment higher to get inflation low. Don't they need independence to achieve something like that? Well, he did say that central bank independence is helping the Fed because they have to make unpleasant decisions. Things that people will disagree with to get to price stability. And price stability is the ultimate goal for the Fed. But you also have to remember, this is a panel with four central bankers on it or four current or former central bankers on it.
So power is not the main focus. And he doesn't get all the questions. So maybe you're not getting the diverse views you might be looking for. Mike McKay, thank you. Hugely controversial, that effort. I know for many of you at home and beyond. Twenty two minutes into the session. Equities down a tenth of one percent on
the S&P. The Nasdaq lower by a tenth of 1 percent. Also with some sector price action, is it? Well, John, a little bit of a sleepy day here for sectors in that small decline for the S&P 500 right now. Fluctuating. It has been fluctuating in the first half hour of trade on below average trading volume.
This means that we do not have any sector trading. Well, we right now have utilities up just or down just a little bit more than half a percent. But across the board, very small moves, utilities down. This, of course, as yields are higher, making those dividends look less attractive. Health care is up top discretionary up just slightly. Let's take a look at one tech sector that's moving just a little bit more.
And that, of course, the chip sector. The stocks down about six tenths of one percent. Broadcom, ISE. And then you had been discussing earlier, Apple planning on making its own components. The stock down about 3 percent, but not so much. I can remember reporting on that
possibility all the way back in 2016, 2017. So there's been a lot of knowledge of that in advance. But yesterday, the sector had a pretty good day today, giving back a little bit of those gains. John Harvey, great work. Thank you. Over in Sweden, then a bit of a snooze. Quiet. Not much news.
What's the weather? You know, your next stop? CPI on things like earnings on Friday. You're training diary. I'm next. Right now, 30 900 on the S&P. That's the level that Mike Wilson says is an easy sell. He was salary. Yes, I agree. Futures right now or rather equities are up by a quarter of 1 percent on the S&P. That's the price action.
Let's get the trading diary. President is speaking alongside leaders of Canada and Mexico at 445 Eastern Fed speak from Harker Bullet back in on Thursday. Plus, CPI data just around the corner. Jobless claims as well. Then on to Friday, JP Morgan, Bank of America, Citi, Wells Fargo all kicking off big bank earnings at the end of this week from New York. That does it for me.
Thank you for choosing Bloomberg TV. This was the countdown to the open. Good luck for the rest of the trading day. This is Glenn Beck.
2023-01-12 06:33
